Telkom Indonesia
Annual Report 2013

Plain-text annual report

2013 Annual Report PT Telekomunikasi Indonesia, Tbk 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk. Investor Relations Grha Merah Putih 5th floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia T +62 21 521 5109 F +62 21 522 0500 email : investor@telkom.co.id IDX : TLKM NYSE : TLK LSE : TKID www.telkom.co.id Creating Global Talents and Opportunities 2 0 1 3 A n n u a l R e p o r t P T T e l e k o m u n i k a s i I n d o n e s i a , T b k C r e a t i n g G l o b a l T a l e n t s a n d O p p o r t u n i t i e s • Telkom’s Solid Profitability Increasing in Net Income Rp 14.2 trillion 10.5% Increasing number of cellular subscribers 131.5 million • Increasing number of customers above Industry 5.1% Increasing number of broadband subscribers 27.8 million Increasing number of Fixedline subscribers 9.3 million 45.4% 4.5% 25.9% • Network Strengthening Number of BTS 75,579 BTS 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 2013 Annual Report PT Telekomunikasi Indonesia, Tbk • Telkom’s Solid Profitability Increasing in Net Income Rp 14.2 trillion 10.5% • Increasing number of customers above Industry Increasing number of cellular subscribers 131.5 million 5.1% Increasing number of broadband subscribers 27.8 million 45.4% Increasing number of Fixedline subscribers 9.3 million 4.5% PT Telekomunikasi Indonesia, Tbk. Investor Relations Grha Merah Putih 5th floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia T +62 21 521 5109 F +62 21 522 0500 email : investor@telkom.co.id IDX : TLKM NYSE : TLK LSE : TKID www.telkom.co.id Creating Global Talents and Opportunities • Network Strengthening Number of BTS 75,579 BTS 25.9% 2 0 1 3 A n n u a l R e p o r t P T T e l e k o m u n i k a s i I n d o n e s i a , T b k C r e a t i n g G l o b a l T a l e n t s a n d O p p o r t u n i t i e s S T N E T N O C Highlights Business Overview Management’s Discussion Corporate Governance Social And Environmental Company Profile and Analysis Responsibility Additional Information (For Adr Shareholders) Financial Highlights Industry in Indonesia Discussion and Analysis Telecommunication 42 Management’s 100 Concept and Foundation 136 CSR Strategy 201 A Brief History of Telkom 224 Summary of Significant 254 Legal Basis and 262 Distribution and 54 Financial Overview 107 Preface 14 16 Operational Highlights Corporate Strategy 43 Common Stock and 18 Business Outlook 45 Bond Highlights Events Highlights 22 Business Portfolio 46 Awards 24 Marketing Strategy Certifications 26 Telecommunication 56 Management Report Report from the 28 President Commissioner Report from the 34 President Director Services Tariffs Customer Services 58 Consumer Protection 61 Billing, Payment 62 and Collection Risk Factors 64 Network Infrastructure 82 Network Development 86 Human Capital 88 of the Company’s Performance Operational Review 102 by Segment Comprehensive Income 109 Comparison Net Cash Flows 118 Obligation and Commitment 119 Receivable Collectibility 121 Capital Structure 122 Capital Expenditures 122 Material Commitment 123 For Capital Investment Changes In Accounting 124 Telkom’s GCG 137 Framework and Performance Corporate Governance 141 Structure Board of Commissioners 145 Board of Directors 149 Committees Under 158 the Board of Commissioners Board of Director Corporate Secretary/ 175 Investor Relations (“IR”) Internal Audit Unit 178 Internal Control System 180 Independent Auditor 181 Liquidity 120 Committees Under 172 Exchange Controls 124 Legal Proceeding 183 Quantitative And 125 Qualitative Disclosures and Lawsuits Involving the Company About Market Risks Administrative Sanctions 185 Related Party 130 Transactions Public Access 185 to Information Property, Plant & 131 Code of Ethics and 186 Equipment Corporate Culture Insurance 132 Whistleblowing System 189 GCG Implementation 192 Consistency GCG Evaluation 197 Environment 202 Preservation Employment, Health 206 and Work Safety (“K3”) Social and Community 212 Development Responsibility 220 to Consumer Line of Business 225 Organizational Structure 225 Subsidiaries and 230 Associated Companies Differences between Indonesian Corporate Governance Practices and the NYSE’S Corporate Governance Standards Telkom’s Subsidiaries 236 Articles of Association 256 Regulation Competition 268 Licensing 272 Trademarks, Copyrights, 276 Industrial Designs and Patens Chart Profile of The Board 238 of Commissioners Profile of The Board 240 of Directors Stock Overview 242 Addresses 249 Relationship with the 256 Government and Government Agencies Capital Market Trading 258 Mechanism and Telkom ADS Taxation 260 Research and 262 Development Appendices Definitions 278 Cross Reference 284 to Bapepam-LK Regulation No.X.K.6 PT Telekomunikasi Indonesia, Tbk, or “Telkom”, “The Company”, and “we”, is proud in the economic, social and political environments in Indonesia. This Annual Report to present Annual Report for the year ended December 31, 2013. Our Annual Report discloses, under “Risk Factors” and elsewhere, important factors that could cause is furnished according to the decree of the Indonesian Financial Services Authority, actual results to differ materially from our expectations. the successor of Bapepam-LK (“OJK”) No.X.K.6. Certain information in this Annual Report is also contained in the Form 20-F, with the United States Securities and To obtain further information on Telkom, please contact Investor Relations, Grha Exchange Commission. However, no part of this document has been incorporated Merah Putih, 5th floor, Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia. by reference into the Form 20-F. The information and data presented in this Annual Tel.: (62-21) 521 5109, Fax: (62-21) 522 0500 or e-mail: investor@telkom.co.id. You Report draws upon the consolidated financial data of the Company and our can download this document from our online site http://www.telkom.co.id. subsidiaries. This Annual Report contains “forward-looking statements”, including statements Indonesia while the word “Government” refers to the Government of Indonesia regarding our expectations and projections for our future operating performance and “United States of America” or “US” is the United States. The currency “Rupiah” and business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, or “Rp” refers to the Indonesian Rupiah while “US Dollar” or “US$” refers to the “project” and other similar words identify forward-looking statements. In addition, US currency. Certain figures (including percentages) have been rounded up. Save all statements other than statements of historical facts included in this Annual as otherwise noted, all financial information is presented in Indonesian Rupiah Report are forward-looking statements. Although we believe that the expectations according to Indonesian Financial Accounting Standard (“IFAS”). reflected in the forward-looking statements herein are reasonable, we can give no We use the word “Indonesia” in this Annual Report to refer to the Republic of Policies Risk Management 182 ABOUT OUR ANNUAL REPORT assurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, including changes S T N E T N O C Highlights Business Overview Management’s Discussion and Analysis Corporate Governance Social And Environmental Company Profile Additional Information (For Adr Shareholders) Management’s 100 Concept and Foundation 136 CSR Strategy 201 A Brief History of Telkom 224 Summary of Significant 254 Legal Basis and 262 Preface Financial Highlights Operational Highlights Common Stock and Bond Highlights 14 16 18 Events Highlights 22 Telecommunication 42 Industry in Indonesia Corporate Strategy 43 Business Outlook 45 Business Portfolio 46 Discussion and Analysis of the Company’s Performance Operational Review 102 by Segment Distribution and 54 Financial Overview 107 Telkom’s GCG 137 Framework and Performance Corporate Governance 141 Structure Board of Commissioners 145 Board of Directors 149 Committees Under 158 the Board of Commissioners Comprehensive Income 109 Comparison Net Cash Flows 118 Obligation and Commitment 119 Awards 24 Marketing Strategy Certifications 26 Management Report Report from the 28 President Commissioner Report from the 34 President Director Telecommunication 56 Services Tariffs Customer Services 58 Consumer Protection 61 Billing, Payment 62 and Collection Risk Factors 64 Network Infrastructure 82 Network Development 86 Human Capital 88 Responsibility Environment 202 Preservation Employment, Health 206 and Work Safety (“K3”) Social and Community 212 Development Responsibility 220 to Consumer Line of Business 225 Organizational Structure 225 Subsidiaries and 230 Associated Companies Differences between Indonesian Corporate Governance Practices and the NYSE’S Corporate Governance Standards Telkom’s Subsidiaries 236 Articles of Association 256 Regulation Competition 268 Licensing 272 Trademarks, Copyrights, 276 Industrial Designs and Patens Chart Profile of The Board 238 of Commissioners Profile of The Board 240 of Directors Stock Overview 242 Addresses 249 Relationship with the 256 Government and Government Agencies Capital Market Trading 258 Mechanism and Telkom ADS Taxation 260 Research and 262 Development Appendices Definitions 278 Cross Reference 284 to Bapepam-LK Regulation No.X.K.6 assurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, including changes PT Telekomunikasi Indonesia, Tbk, or “Telkom”, “The Company”, and “we”, is proud in the economic, social and political environments in Indonesia. This Annual Report to present Annual Report for the year ended December 31, 2013. Our Annual Report discloses, under “Risk Factors” and elsewhere, important factors that could cause is furnished according to the decree of the Indonesian Financial Services Authority, actual results to differ materially from our expectations. the successor of Bapepam-LK (“OJK”) No.X.K.6. Certain information in this Annual Report is also contained in the Form 20-F, with the United States Securities and To obtain further information on Telkom, please contact Investor Relations, Grha Exchange Commission. However, no part of this document has been incorporated Merah Putih, 5th floor, Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia. by reference into the Form 20-F. The information and data presented in this Annual Tel.: (62-21) 521 5109, Fax: (62-21) 522 0500 or e-mail: investor@telkom.co.id. You Report draws upon the consolidated financial data of the Company and our can download this document from our online site http://www.telkom.co.id. subsidiaries. This Annual Report contains “forward-looking statements”, including statements Indonesia while the word “Government” refers to the Government of Indonesia regarding our expectations and projections for our future operating performance and “United States of America” or “US” is the United States. The currency “Rupiah” and business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, or “Rp” refers to the Indonesian Rupiah while “US Dollar” or “US$” refers to the “project” and other similar words identify forward-looking statements. In addition, US currency. Certain figures (including percentages) have been rounded up. Save all statements other than statements of historical facts included in this Annual as otherwise noted, all financial information is presented in Indonesian Rupiah Report are forward-looking statements. Although we believe that the expectations according to Indonesian Financial Accounting Standard (“IFAS”). reflected in the forward-looking statements herein are reasonable, we can give no We use the word “Indonesia” in this Annual Report to refer to the Republic of Liquidity 120 Committees Under 172 Receivable Collectibility 121 Capital Structure 122 Capital Expenditures 122 Material Commitment 123 For Capital Investment Changes In Accounting 124 Board of Director Corporate Secretary/ 175 Investor Relations (“IR”) Internal Audit Unit 178 Internal Control System 180 Independent Auditor 181 Policies Risk Management 182 ABOUT OUR ANNUAL REPORT Exchange Controls 124 Legal Proceeding 183 Quantitative And 125 Qualitative Disclosures About Market Risks and Lawsuits Involving the Company Administrative Sanctions 185 Related Party 130 Transactions Public Access 185 to Information Property, Plant & Equipment 131 Code of Ethics and 186 Corporate Culture Insurance 132 Whistleblowing System 189 GCG Implementation 192 Consistency GCG Evaluation 197 S T N E T N O C Financial Highlights Industry in Indonesia Discussion and Analysis Preface 14 16 Operational Highlights Corporate Strategy 43 Common Stock and 18 Business Outlook 45 Bond Highlights Events Highlights 22 Business Portfolio 46 Awards 24 Marketing Strategy Certifications 26 Telecommunication 56 Distribution and 54 Financial Overview 107 Management Report Report from the 28 President Commissioner Report from the 34 President Director Services Tariffs Customer Services 58 Consumer Protection 61 Billing, Payment 62 and Collection Risk Factors 64 Network Infrastructure 82 Network Development 86 Human Capital 88 of the Company’s Performance Operational Review 102 by Segment Comprehensive Income 109 Comparison Net Cash Flows 118 Obligation and Commitment 119 Receivable Collectibility 121 Capital Structure 122 Capital Expenditures 122 Material Commitment 123 For Capital Investment Changes In Accounting 124 Telkom’s GCG 137 Framework and Performance Corporate Governance 141 Structure Board of Commissioners 145 Board of Directors 149 Committees Under 158 the Board of Commissioners Board of Director Corporate Secretary/ 175 Investor Relations (“IR”) Internal Audit Unit 178 Internal Control System 180 Independent Auditor 181 Liquidity 120 Committees Under 172 Exchange Controls 124 Legal Proceeding 183 Quantitative And 125 Qualitative Disclosures and Lawsuits Involving the Company About Market Risks Administrative Sanctions 185 Related Party 130 Transactions Public Access 185 to Information Property, Plant & 131 Code of Ethics and 186 Equipment Corporate Culture Insurance 132 Whistleblowing System 189 GCG Implementation 192 Consistency GCG Evaluation 197 Highlights Business Overview Management’s Discussion Corporate Governance Social And Environmental Company Profile and Analysis Responsibility Telecommunication 42 Management’s 100 Concept and Foundation 136 CSR Strategy 201 A Brief History of Telkom 224 Environment 202 Preservation Employment, Health 206 and Work Safety (“K3”) Social and Community 212 Development Responsibility 220 to Consumer Line of Business 225 Organizational Structure 225 Subsidiaries and 230 Associated Companies Telkom’s Subsidiaries 236 Chart Profile of The Board 238 of Commissioners Profile of The Board 240 of Directors Stock Overview 242 Addresses 249 Additional Information (For Adr Shareholders) Summary of Significant 254 Differences between Indonesian Corporate Governance Practices and the NYSE’S Corporate Governance Standards Articles of Association 256 Relationship with the 256 Government and Government Agencies Capital Market Trading 258 Mechanism and Telkom ADS Taxation 260 Research and 262 Development Legal Basis and 262 Regulation Competition 268 Licensing 272 Trademarks, Copyrights, 276 Industrial Designs and Patens Appendices Definitions 278 Cross Reference 284 to Bapepam-LK Regulation No.X.K.6 Policies Risk Management 182 ABOUT OUR ANNUAL REPORT assurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, including changes PT Telekomunikasi Indonesia, Tbk, or “Telkom”, “The Company”, and “we”, is proud in the economic, social and political environments in Indonesia. This Annual Report to present Annual Report for the year ended December 31, 2013. Our Annual Report discloses, under “Risk Factors” and elsewhere, important factors that could cause is furnished according to the decree of the Indonesian Financial Services Authority, actual results to differ materially from our expectations. the successor of Bapepam-LK (“OJK”) No.X.K.6. Certain information in this Annual Report is also contained in the Form 20-F, with the United States Securities and Exchange Commission. However, no part of this document has been incorporated by reference into the Form 20-F. The information and data presented in this Annual To obtain further information on Telkom, please contact Investor Relations, Grha Merah Putih, 5th floor, Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia. Tel.: (62-21) 521 5109, Fax: (62-21) 522 0500 or e-mail: investor@telkom.co.id. You Report draws upon the consolidated financial data of the Company and our can download this document from our online site http://www.telkom.co.id. subsidiaries. This Annual Report contains “forward-looking statements”, including statements Indonesia while the word “Government” refers to the Government of Indonesia regarding our expectations and projections for our future operating performance and “United States of America” or “US” is the United States. The currency “Rupiah” and business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, or “Rp” refers to the Indonesian Rupiah while “US Dollar” or “US$” refers to the “project” and other similar words identify forward-looking statements. In addition, US currency. Certain figures (including percentages) have been rounded up. Save all statements other than statements of historical facts included in this Annual as otherwise noted, all financial information is presented in Indonesian Rupiah Report are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements herein are reasonable, we can give no according to Indonesian Financial Accounting Standard (“IFAS”). We use the word “Indonesia” in this Annual Report to refer to the Republic of Creating Global Talents and Opportunities International expansion has become a necessity for Telkom in order to sustain a high rate of business growth. This complements our growth strategy, consistently applied over the last couple of years, by which we strive to maintain our market leadership in the cellular business while building our broadband capabilities as the mainstay of the telecommunication business in the future. In 2013, these initiatives have resulted in double-digit growth for us, paving the way for us to become the dominant TIMES service provider in Indonesia and a leading presence in the region. 2 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Strength Born of a Long History of Telkom 1856-1882 On October 23, 1856, the Dutch colonial government deployed the first electromagnetic telegraph in Indonesia, connecting Batavia (Jakarta) with Buitenzorg (Bogor). 1906-1965 The Dutch colonial government established a government agency to operate post and telecommunications services in Indonesia. In 1965, the post and telecommunications services were separated and brought under the control of two state companies, PN Pos and Giro and PN Telekomunikasi. 1974 PN Telekomunikasi was split into two 1991 Perumtel became PT Telekomunikasi divisions, PT Industri Telekomunikasi Indonesia or Telkom, and operations Indonesia (“PT INTI”), which were organized into twelve regional manufactured telecommunications units (“Witel”). These were later equipment, and Perusahaan Umum reorganized into seven regional Telekomunikasi (“Perumtel”), which divisions: Division I Sumatra, Division supplied domestic and international II Jakarta and Surrounding Area, telecommunication services. Division III West Java, Division IV 1980 The international telecommunication business was taken over by Indosat Central Java and DI Yogyakarta, Division V East Java, Division VI Kalimantan and Division VII Eastern Indonesia 1995 We held our Initial Public Offering on November 14, 1995 on the Jakarta Stock Exchange and the Surabaya Stock Exchange. On May 26, 1995, we established Telkomsel, our cellular business subsidiary. 1999 The Telecommunications Law (Law No. 36/1999), which went into effect in September 2000, facilitated the entry of new players, intensifying the competition in the telecommunications industry. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 3 2001 We acquired Indosat’s 35% 2009 We underwent a transformation from 2012 We sought to achieve widespread shareholdings in Telkomsel, making an infocom to a TIME company. The broadband penetration us the majority shareholder with a new Telkom was introduced to the throughout Indonesia through the stake of 77.7%. Indosat then took over public with the new corporate logo implementation of the Indonesia our 22.5% shareholding in Satelindo and tagline, “the world in your hand”. Wi-Fi program towards the and 37.7% share in PT Aplikanusa Lintasarta. At the same time, we lost our exclusive right to be the sole fixed line telephone operator in Indonesia. 2002 We divested 12.7% of our shares in Telkomsel to Singapore Telecom Mobile Pte Ltd. (“SingTel Mobile”). 2004 We launched our international direct dial fixed line service. 2005 The Telkom-2 Satellite was launched to replace all satellite transmission services previously provided by the Palapa B-4 satellite. This brought our total number of satellites launched to eight, including the Palapa A-1 satellite. 2010 The JaKaLaDeMa submarine and fiber optic cable project linking Java, Kalimantan, Sulawesi, Denpasar and Mataram was successfully completed in April 2010. 2011 We commenced the reform of our telecommunications infrastructure through the Telkom Nusantara Super Highway project, which unites the Indonesian archipelago from Sumatra to Papua, and the True Broadband Access project, which will enable customers all over Indonesia to have broadband access to the internet. development of Indonesia Digital Network. We sought to improve business value creation by reconfiguring our business portfolios from TIME to TIMES (Telecommunications, Information, Media, Edutainment & Services). Establishment of Telkom Corporate University to develop a globally competitive human capital (from competence to commerce). 2013 We began operating in seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan and United States of America. 4 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Telkomsel Double Digit Telkomsel is one of the major revenue contributors at Telkom Group. We believe that Telkomsel will continue to grow faster than industry average, maintaining its leading position in the legacy business while posting strong growth in digital services. Telkomsel Double Digit Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 5 Financial performance 10.1% – Revenues Rp60.0 trilllion – EBITDA Rp33.9 trillion – Net Income Rp17.3 trillion Cellular subscriber base 5.1% – Cellular subscriber base 131.5 million – Mobile broadband (“Flash”) subscribers 17.3 million – Blackberry subscribers 7.6 million BTS 28.7% - 69,864 units – 27,034 units BTS 3G 6 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Indonesia Digital Network (IDN) 2015 Strengthen Broadband Based Infrastructure Indonesia Digital Society 10 Ha Data Center 30 nodes Tera Router 75,000 km FO 20,000,000 Homepass 1,000,000 AP Wi-Fi Internet Cloud IP & Optical Transport Fixed Broadband Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 7 IDN implementation targets across all of our network infrastructures by the year 2015. Business Information, Media, Edutainment & Services Telkom Cloud Convergence Digital Innovation Nationwide Broadband Backbone True Broadband Access Mobile Broadband IP & Optical Transport 8 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Sustaining Growth through International Expansion Myanmar PT Telekomunikasi Indonesia International International Network August 16, 2013 Macau Hong Kong Telkom Macau Limited (Subsidiary Telin Hong Kong) Mobile Virtual Network Operator May 13, 2013 Telekomunikasi Indonesia International (Hongkong) Limited Mobile Virtual Network Operator Desember 8, 2010 Malaysia Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd. Mobile Virtual Network Operator July 2, 2013 Timor Leste Telekomunikasi Indonesia International (TL) S.A. Mobile Network Operator September 17, 2012 Australia Telekomunikasi Indonesia International Australia Pty. Ltd. IT-Business Process Outsourcing & Solution January 14, 2013 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 9 Initiatives in international expansion are essential if we are to maintain our growth momentum, providing us with new room for growth as domestic opportunities become more constricted. International expansion is also a strategy to diversify our business risks, in view of the rapid developments and convergence of the TIMES industry that is also becoming increasingly borderless. United States of America Telekomunikasi Indonesia International (USA) Inc. International Network December 11, 2013 Taiwan Telkom Taiwan Limited (Subsidiary Telin Hong Kong) Mobile Virtual Network Operator (“MVNO”) June 3, 2013 Singapore Telekomunikasi Indonesia International Pte. Ltd. Singapore Content Delivery Network (“CDN”) & Data Center December 6, 2007 10 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Global Talent Program (GTP) “ It is the people that makes the difference between one country and another, between one company and another, and between one family and another. And the difference between people of different companies lies in their character and their competence. ” ~Arief Yahya~ Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 11 Global Talent Program (“GTP”) is an initiative intended to provide our employees/talents with practical experiences in international businesses through job assignments at host companies overseas. GTP graduates have greater prospect of future placement at critical positions in centers of business growth. Talent assignment through GTP is also intended to support our program of international expansion to 10 countries in 2013. participating in GTP 1,010 talents GTP talent assignments at 25 countries N. America 1 Country 16 Employees Europe 3 Countries 41 Employees Asia 19 Countries 668 Employees Africa S. America Australia 2 Countries 105 Employees Jakarta 72 Various Countries 180 Employees 12 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis With Our Vision, Mission and Values Vision To become a leading Telecommunication, Information, Media, Edutainment and Services (“TIMES”) player in the Region. Mission • To provide “more for less” TIMES services. • To be the role model as the best managed corporation in Indonesia. Corporate Culture The New Telkom Way Philosophy to be the best Always The Best Principle to be the star Solid, Speed, Smart Practice to be the winner Imagine, Focus, Action The vision and mission are set forth in the long-term corporate plans as approved by the Board of Commissioners on May 30, 2013 by Decision Letter of the Board of Commissioners No.06/KEP/DK/2013/RHS. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 13 ..and Strategic Initiatives... 1 Center of excellence. 2 3 4 5 6 7 8 9 Focus on high growth or high value portfolio. Accelerate international expansion. Cost transformation. IDN (id-Access, id-Ring, id-Con) development. Indonesia Digital Solution (“IDS”) – convergent services in digital ecosystem solution. Indonesia Digital Platform (“IDP”) – platform enabler for ecosystem development. Execution of the best subsidiary management system. Managing portfolio through BoE and CRO. 10 Increasing synergy within Telkom Group. We affirmed our strategic initiatives on the basis of the decision of the Board of Commissioners of PT Telekomunikasi Indonesia, Tbk as set forth in the Decision Letter of the Board of Commissioners No.06/KEP/DK/2013/RHS dated May 30, 2013. 14 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Financial Highlights (Based on IFAS) Total Revenues (in billions of Rupiah) 82,967 7.5% Total Expenses (in billions of Rupiah) 57,700 6.8% Profit for the year (in billions of Rupiah) 14,205 10.5% Total Assets (in billions of Rupiah) 127,951 14.9% Adjusted EBITDA (in billions of Rupiah) 43,626 8.6% Consolidated Statements of Comprehensive Income (in billions of Rupiah, except for net income per share and per ADS) Total Revenues Total Expenses Adjusted EBITDA Operating profit Profit for the year Profit for the year attributable to: Years ended December 31, 2013 2012 2011 2010 2009* 82,967 77,143 71,253 68,629 68,220 57,700 54,005 49,960 46,240 44,139 43,626 40,154 36,821 37,549 38,056 27,846 25,698 21,958 22,937 24,081 20,290 18,362 15,470 15,870 16,043 Owners of the parent company 14,205 12,850 10,965 11,537 11,399 Non-controlling interest 6,085 5,512 4,505 4,333 4,644 Total comprehensive income for the year 20,402 18,388 15,481 15,904 16,048 Total comprehensive income attributable to: Owners of the parent company 14,317 12,876 10,976 11,571 11,404 Non-controlling interest 6,085 5,512 4,505 4,333 4,644 Net income per share 147.4 133.8 111.9 117.3 115.9 Net income per ADS (1 ADS : 40 common stock) 29,483.6 26,767.6 22,386.8 23,461.6 23,180.8 Total Revenues (in billions of Rupiah) 68,220 68,629 71,253 82,967 77,143 Consolidated Statements of Financial Position (in billions of Rupiah) Total Assets Total Liabilities Total equity attributable to owners of the parent company 127,951 111,369 103,054 100,501 97,931 50,527 44,391 42,073 44,086 48,436 60,542 51,541 47,510 44,419 38,562 Net working capital 4,638 3,866 (931) (1,745) (10,797) Investment in other entities 304 275 235 254 151 Capital Expenditures (in billions of Rupiah) Telkom Telkomsel Others Subsidiaries Total 2009 2010 2011 2012 2013 5,313 15,662 3,923 4,040 4,202 3,623 5,652 10,656 8,472 8,197 12,673 2,576 1,929 831 836 24,898 17,272 14,603 12,651 19,161 Total Assets (in billions of Rupiah) Consolidated Financial and Operational Ratios 100,501 103,054 97,931 111,369 127,951 Return on Asset (ROA) (%)1 11.1 11.5 10.6 11.5 11.6 Return on Equity (ROE) (%)2 23.5 24.9 23.1 26.0 29.6 Operating Profit Margin (%)3 Current Ratio (%)4 33.6 33.3 30.8 33.4 35.3 116.3 116.0 95.8 91.5 59.9 Total Liabilities to Equity (%)5 83.5 86.1 88.6 99.3 125.6 Total Liabilities to Total Assets (%)6 39.5 39.9 40.8 43.9 49.5 2009 2010 2011 2012 2013 * As restated. See Note 2p to our Consolidated Financial Statements. (1) ROA is calculated as profit for the year attributable to owners of the parent company divided by total assets at year end December 31. (2) ROE is calculated as profit for the year attributable to owners of the parent company divided by total equity attributable to owners of the parent company at year end December 31. (3) Operating profit margin is calculated as operating profit divided by revenues. (4) Current ratio is calculated as current liabilities divided by current liabilities at year end December 31. (5) Total liabilities to equity is calculated as total liabilities divided by total equity attributable to owners of the parent company at year end December 31. (6) Total liabilities to total assets is calculated as total liabilities divided by total assets at year end December 31. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 15 Revenues (in billions of Rupiah) Expenses (in billions of Rupiah) Operating profit (in billions of Rupiah) 7.5% 82,967 77,143 68,220 68,629 71,253 6.8% 57,700 54,005 49,960 46,240 44,139 8.4% 27,846 25,698 24,081 22,937 21,958 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Adjusted EBITDA (in billions of Rupiah) Profit for the year (in billions of Rupiah) Net income per share (Rupiah) 8.6% 43,626 40,154 38,056 37,549 36,822 10.5% 14,205 12,850 10.2% 147.4 133.8 11,399 11,537 10,966 115.9 117.3 111.9 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Assets (in billions of Rupiah) Liabilities (in billions of Rupiah) 14.9% 127,951 111,369 97,931 100,501 103,054 13.8% 48,436 50,527 44,086 42,073 44,391 Total equity attributable to owners of the parent company (in billions of Rupiah) 17.5% 60,542 51,541 47,510 44,419 38,562 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 16 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Operational Highlights Broadband Subscribers Fixed broadband (Speedy) Mobile broadband (Flash) Blackberry Total Broadband Subscribers Cellular Subscribers Postpaid (kartuHalo) Prepaid (simPATI, Kartu As) Total Cellular Subscribers Fixed Line Subscribers Fixed wireline Fixed wireless Total Fixed Line Subscribers Other Subscribers Datacomm Satellite transponder Network BTS Customer Services PlasaTelkom Grapari Mobile Grapari TV) dan Usee TV (teknologi OTT T Unit Years ended December 31, 2013 2012 Changes (%) (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) Mbps (000) MHz unit location location unit 3,013 17,271 7,556 27,840 2,489 129,023 131,513 9,351 6,766 16,117 381,440 3,007 2,341 11,039 5,764 19,144 2,149 122,997 125,146 8,946 17,870 26,816 281,063 2,650 28.7 56.5 31.1 45.4 15.8 4.9 5.1 4.5 (62.1) (39.9) 35.7 13.5 75,579 60,011 25.9 572 86 268 572 85 - - 1.2 - Broadband Subscribers (in thousands) Cellular Subscribers (in thousands) 45.4% 5.1% Speedy Flash Blackberry kartuHalo simPATI, kartu AS 17,271 11,039 7,556 5,764 3,013 2,341 129,024 122,997 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2,149 2,489 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 17 Other Subscribers (in thousands) BTS (in thousands) 35.7% 13.5% Datacom Satelit transponder 381,440 281,063 25.9% 75,579 60,011 2,650 3,007 2012 2013 2012 2013 2012 2013 18 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Common Stock and Bond Highlights Telkom Share Price and Trading Volume on the Indonesia Stock Exchange 2012-2013 Volume (in million shares) Volume Price 500 400 300 200 100 0 First Quarter 2012 Second Quarter 2012 Third Quarter 2012 Fourth Quarter 2012 First Quarter 2013 Second Quarter 2013 Third Quarter 2013 Fourth Quarter 2013 Price (Rp) 2,500 2,000 1,500 1,000 500 0 Telkom ADS Price and Trading Volume on the New York Stock Exchange 2012-2013 Volume (in million shares) Volume Price 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0.0 First Quarter 2012 Second Quarter 2012 Third Quarter 2012 Fourth Quarter 2012 First Quarter 2013 Second Quarter 2013 Third Quarter 2013 Fourth Quarter 2013 Price (US$) 50 40 30 20 10 0 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 19 Trade Price and Volume The table below shows the high, low, closing quoted prices, trading volume, outstanding shares and market capitalization for our common stock on the IDX during the periods indicated. Table Trade Price and Volume Calendar Year High Low Closing Price per Share of Common Stock (in Rupiah) Volume (shares) Market Outstanding Shares Capitalization (Rp billion) 2009 2010 2011 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter September October November December 2014 January February 2,070 1,960 1,610 1,990 1,430 1,740 1,970 1,990 2,580 2,230 2,580 2,450 2,375 2,450 2,375 2,350 2,200 2,275 2,420 1,150 1,390 1,320 1,330 1,330 1,400 1,590 1,730 1,760 1,760 1,900 1,950 1,980 1,950 2,100 2,025 1,980 2,060 2,170 1,890 1,590 1,410 1,810 1,400 1,630 1,890 1,810 2,150 2,200 2,250 2,100 2,150 2,100 2,350 2,175 2,150 2,275 2,325 20,872,067,500 98,347,123,900 28,539,250,000 98,347,123,900 22,207,895,000 96,931,696,600 23,002,802,500 95,745,344,100 5,197,855,000 96,096,969,100 6,934,820,000 95,921,374,100 5,100,152,500 95,767,844,100 5,769,975,000 95,745,344,100 27,839,305,000 97,100,853,600 5,993,025,000 95,745,344,100 8,265,647,500 96,044,401,100 7,206,438,500 97,100,853,600 6,374,194,000 97,100,853,600 2,644,068,500 97,100,853,600 2,019,709,500 97,100,853,600 2,055,114,500 97,100,853,600 2,299,370,000 97,100,853,600 1,758,433,800 97,100,853,600 2,015,617,700 97,100,853,600 190,512 160,272 142,128 182,448 141,120 164,304 190,512 182,448 216,720 221,760 226,800 211,680 216,720 211,680 236,880 219,240 216,720 229,320 234,360 (1) We conducted a two for one split of our common stock from a nominal value of Rp500 per share to Rp250 per share as resolved by the AGMS on July 30, 2004, effective October 1, 2004. (2) We conducted a five for one split of our common stock from a nominal value of Rp250 per share to Rp50 per share as resolved by the AGMS on April 19, 2013, effective September 2, 2013. (3) The price per share of the common stock reflects this two splits above for all periods shown. (4) Market capitalization is multiplying between the share price and issued and fully paid shares which is 100,799,996,400 shares. Telkom Share Price and Market Capitalization on the Indonesia Stock Exchange 2012-2013 Price (Rp) 2,500 2,000 1,500 1,000 500 0 Market Capitalization Price Market Capitalization (in billions of Rupiah) First Quarter 2012 Second Quarter 2012 Third Quarter 2012 Fourth Quarter 2012 First Quarter 2013 Second Quarter 2013 Third Quarter 2013 Fourth Quarter 2013 250 200 150 100 50 0 20 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis On December 30, 2013, the last day of trading on the IDX in 2013, the closing price for our common stock was Rp2.150,0 per share. The high, low, closing prices and trading volume for our ADSs on the NYSE and the LSE for the periods indicated are shown in the table below. Trading in ADSs is effected “off exchange” on the LSE. Under LSE rules, off exchange trading means that transactions are carried out on other exchanges and once the transaction has taken place, it is reported to the LSE. Table of Telkom's Stock Price and Trading Volume on the NYSE and LSE Calendar Year High Low Closing Price per ADS (NYSE) (in US Dollars) Volume (in ADS) Price per ADS (LSE) High Low Closing (in US Dollars) Volume (in ADS) 2009 2010 2011 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter September October November December 2014 January February 41.55 43.80 36.96 41.14 31.69 37.00 41.14 41.00 50.61 45.32 50.61 47.20 41.69 42.39 41.69 40.90 40.86 37.49 40.53 20.19 30.33 30.29 29.26 29.26 30.38 34.28 36.00 33.75 36.17 38.75 34.54 33.75 34.54 36.95 34.70 33.75 33.91 35.19 39.95 67,767,999 35.65 69,803,576 30.74 69,279,100 36.95 88,190,589 30.36 19,265,880 34.83 32,660,280 38.93 19,696,121 36.95 16,568,308 35.85 67,061,105 45.08 13,876,752 42.74 15,688,290 36.31 18,713,653 35.85 18,782,410 36.31 40.76 36.54 35.85 6,791,001 5,975,745 5,866,608 12,697,081 36.27 39.23 5,498,292 5,149,305 40.76 42.00 35.89 40.12 31.04 36.64 39.78 40.12 50.59 45.83 50.59 47.44 41.69 42.10 41.69 40.95 37.38 37.26 38.06 25.67 30.76 21.02 30.24 30.24 30.40 34.30 36.50 33.44 37.06 39.31 35.62 33.44 35.62 37.29 34.43 33.44 33.83 35.98 41.02 34.91 3,757 19,673 30.50 1,406,292 36.50 30.95 33.70 39.10 36.50 746,278 236,546 293,809 88,412 127,511 35.33 6,579,103 45.28 12,819 45.34 6,465,258 36.27 35.33 36.27 41.69 36.36 35.33 37.36 38.06 79,240 21,786 44,011 20,830 - 956 - - On December 31, 2013, the last day of trading on the NYSE and LSE in 2013, the closing price for one Telkom ADS was US$35.85 and US$35.33 respectively. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 21 Table Telkom's Bond Bond Out standing (Rp million) Issuance Date Maturity Date Term (Year) Interest Rate Underwriter Trustee Rating Obligasi II Telkom 2010 Seri A Obligasi II Telkom 2010 Seri B 1,005,000 June 25, 2010 July 6, 2015 5 9.6% PT Bahana Securities PT Danareksa Sekuritas PT Mandiri Sekuritas 1,995,000 June 25, 2010 July 6, 2020 10 10.2% PT Bahana Securities PT Danareksa Sekuritas PT Mandiri Sekuritas PT CIMB Niaga Tbk PT CIMB Niaga Tbk idAAA idAAA 22 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 01 03 05 02 04 06 Event Highlights 01 January Opening the GSM/3G cellular services in Dili, Timor Leste, with Telkomcel as brandname. 02 February Launched Community Service Contact Center 110 (toll-free calls) as a synergy with the National Police, for the reporting of accidents and criminal acts. 03 March Cooperation agreement with the Provincial Government of Yogyakarta to support the “Yogyakarta Digital Government Services” program and the “Yogya Cyber City” program in which installed Indonesia Wi-Fi in Yogyakarta. 04 April The Annual General Meeting of Shareholders was held on April 19, 2013, which among other agendas approved the appointment of Gatot Trihargo as Commissioner. 05 May a. Launched “Digitally Connecting Indonesia”, a cooperation program with Intel Corporation, US, through the provision of low cost access to technology and internet. b. Ground breaking installation of Maluku Cable System (“MCS”) marine cable. MCS is a part in the program for constructing Sistem Komunikasi Kabel Laut (“SKKL”) Sulawesi Maluku Papua Cable System (“SMPCS”). SMPCS is the continuation of the Palapa Ring toward Indonesia Digital Network (“IDN”). 06 June Strengthen a cooperative agreement with Garuda Indonesia in providing services network and supporting infrastructure for the development of Garuda Indonesia contact center services through our subsidiary PT Infomedia Nusantara. 07 July We won an international tender for the management of Myanmar’s international network via Mumbai, India, as part of the modernization program of Myanmar’s Information & Communication Technology (“ICT”) infrastructure. 08 August a. Opening of the overseas branch of Telin in Malaysia, which provide the mobile virtual network operator (“MVNO”) by selling the Kartu As 2in1 from Telkomsel. b. Telkom Indonesia logo refresh using red, white, black and grey colors in the logo, representing a spirit of optimism and courage in the face of challenges, delivering the best for the nation, determination and also technology. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 23 07 09 11 08 10 12 09 September a. Launched the One Million Speedy Instan Card Indonesia Digital School (Spin-Card IndiSchool) program in support of education in Indonesia through the provision of low cost broadband internet access to school community. b. A cellular service trial for 4G Long Term Evolution (“LTE”) technology in order to support the Asia Pacific Economic Cooperation (“APEC”) which will be held in October in Bali. 10 October a. The Board of Company conducted the closing bell ceremony on the trading floor of the New York Stock Exchange (NYSE) on Thursday, October 31, 2013, also marks as 18 years Telkom listing in NYSE. b. ICT infrastructure support in the APEC 2013 event was held in Bali, on 1-8 October 2013, and became the Host Sponsor APEC CEO’s Summit 2013. c. Business cooperation with Garuda Indonesia to provide internet access service through Wi-Fi technology in Garuda Boeing 777-300ER and Airbus 330-200 and 300. 11 November a. Introduced the Assessment Center Indonesia services by State Minister of State-Owned Enterprises Dahlan Iskan as our contribution for better HR management in Indonesia. b. Ground Breaking for fiber optic venture in Papua named the Papua Cable System (“PCS”). PCS also embodies our firm commitment to facilitate connectivity in areas of Eastern Indonesia. 12 December a. Supports the national education project through our participation in the National State University Entrance Examination (“SNMPTN”) and the Joint State University Entrance Examination (“SBMPTN”) in 2014 as part of our Mega commitment “Telkom Indonesia for Indonesian Education”. b. Trusted to support the telecommunication facilities in the meeting of the Ministerial Conference of the World Trade Organization (“WTO KTM”) IX in Bali. 24 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 01 03 05 02 04 06 Awards 01 January a. Arief Yahya, President Director, is nominated as “The Amazing Star: Men’s Obsession 9 Tough CEOs” by Men’s Obsession Magazine. b. We received three awards in Bali Service Excellence Award 2013 organized by MarkPlus Insight for Speedy (internet provider fixed broadband category), Telkomsel (GSM operator category) and Flash (internet wireless broadband category). 03 March a. The award for “Excellent Service Performance” for our Contact Center in the Contact Center Service Excellence Award 2013 organized by Care Center for Customer Satisfaction and Loyalty. b. Speedy and Flexi received “Gold Brand Champion” awards in the Indonesia Brand Champion Award 2013 organized from MarkPlus Insight. 02 February a. Speedy service is nominated as “Best Internet Service Provider (ISP) in Indonesia 2012” from Chip Magazine in Chip Award 2013. b. Arief Yahya, President Director, is one of the 19 CEOs of Indonesia’s large companies named as “Indonesia Most Admired CEO 2013” from Warta Ekonomi Magazine. 04 April Arief Yahya, President Director, nominated as “Innovative CEO for Nation” by Gatra Magazine. 05 May “Diamond” award in the Cellular telecommunication CDMA category for Plasa Telkom in the Service Quality Award 2013 organized by Service Excellence Magazine. 06 June a. “Best of Asia” award in the category Asia’s icon on corporate governance in the Corporate Governance Asia Annual Recognition Award 2013 organized by Corporate Governance Asia Magazine. b. “The Best Product Innovation of Infrastructure Sector” for IndiFinance, “The Best Technology” for Indigo and “The Best Corporate Innovation Culture & Management” awards, in the BUMN Innovation Award 2013 organized by the Ministry of SOE. c. Award as “Best Corporate Image” in telecommunication category and as “Corporate Image Excellent” internet provider category in Indonesia’s Most Admired Companies (“IMAC”) 2013 organized by Bloomberg Businessweek Indonesia Magazine and Frontier Consulting Group. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 25 07 09 11 08 10 12 07 July a. Awards in several categories, including “The Best Managed Company”, “The Best CEO” and “The Best CFO” in the Finance Asia Best Companies Award 2013 organized by Finance Asia Magazine. b. Award as “Winner” in the Indonesian MAKE (Most Admired Knowledge Enterprise) Award 2013 from Dunamis Organization Services. c. Award as “Best of the Best Service Provider of the Year” and “Best Wireless service Provider of the Year”, in the Asia Pacific ICT Award 2013 from Frost & Sullivan. 08 August “The Best BUMN on Marketing 2013” and “The Best CMO” awards in the BUMN Marketing Day 2013 from the Ministry for SOE. 09 September “Best CEO of the Year” award for Arief Yahya, President Director, in the Anugerah Business Review 2013 from Business Review magazine. 10 October a. Award as “The World’s Biggest Public Companies” in Forbes Global 2000 organized by Forbes Magazine. b. “Second Place Rank” in the SOE Non Financial Listed category in the Annual Report Award (“ARA”) 2012 competition. 11 November a. Award as “ Best Company in Telecomunication Undustry” in the Economic Challenges Award 2013 from Metro TV. b. Award as “Best Contact Center of the Year 2013” in the APCCAL Expo 2013 organized by the Asia Pacific Contact Center Association Leaders (“APCCAL”) held in Seoul, South. 12 December a. Awards in Indonesia Human Capital Study 2013 organized by Dunamis Human Capital and Business Review, with the highest accolades as “aThe Best for CEO Commitment” and “The Best for All Criteria”. b. Award as “The Best” in the SOE Award 2013 organized by SOEs Track Magazine, SOE Ministry and PPM Management for category of best competitive infrastructure, best implementation of competitive open SOEs good corporate governance and best competitive CEO SOE 2013. c. Award as ” Telecom Service Provider of the Year” and “Data Communication Service Provider of the Year” in the 2013 Frost & Sullivan Indonesia Excellence award organized by Frost & Sullivan. d. Awards as “Indonesia Marketing Champion 2013” and “Marketer of the Year 2013” for CEO, Arief Yahya, from MarkPlus Inc. e. Award as “Indonesia Most Trusted Companies” from The Indonesian Institute for Corporate Governance (IICG) and also the “Indonesia Trusted Company” award from SWA Magazine. f. Award as” Best Sustainability Reporting Award 2012” in the Industry category in the annual Sustainability Reporting Award (SRA) competition organized by the National Center for Sustainability Reporting (“NCSR”). 26 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 01 02 03 04 05 06 Certification 01 ISO 9001:2008 Certification Issued to PT Finnet, our indirect subsidiary by DQS GmbH in 2012. Valid until 2015. 02 Customer Center of Expertise Certification Issued by SAP, in 2012. Valid until 2013 03 AS/NZS ISO 9001:2008 Certification Issued to PT Administrasi Medika (“AdMedika”), our indirect subsidiary, by Verification New Zealand Limited, in 2012. Valid until 2015. 04 ISO 9001:2008 Certification Issued to PT Dayamitra Telekomunikasi (“Mitratel”), our subsidiary by United Register for System (“URS”) in 2013. Valid until 2016. 05 ISO/IEC 27001:2005 Certification Issued to PT Finnet, our indirect subsidiary by DQS Gmbh, in 2012. Valid until 2015. 06 ISO 9001:2008 Certification Issued to West Consumer Service Division, by TUV Rheinland Cert GmbH in 2011. Valid until 2013. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 27 07 08 09 10 11 12 07 ISO 9001:2008 Certification Issued to Business Service Division by TUV Rheinland Cert GmbH in 2013. Valid until 2016. 08 ISO 9001:2008 Certification Issued to Tbk. Telkom Flexi Division, by TUV Rheindland Cert GmbH in 2011. Valid until 2014. 09 ISO 9001:2008 Certification Issued to PT Telkom Akses, our subsidiary, by TUV Rheinland Cert GmbH in 2013. Valid until 2016 10 ISO/IEC 27001:2005 Certification Issued to Infratel Division M Floor and Access Division 7th Floor Graha Citra Caraka Building, by TUV Rheinland Japan Ltd. in 2012. Valid until 2015 11 ISO 9001:2008 Certification Issued to Enterprise Service Division by TUV Rheindland Cert GmbH in 2011. Valid until 2014. 12 The Second Phase of IPv6 Certificate: Connectivity to Corporate Customers From Any Segment of Its Services Awarded by Ministry of Communication and Information in 2013, to Infratel Division . Issued by SAP, in 2012. Valid until 2013. 28 28 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Preface Preface Highlights Highlights Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 29 29 Important point of Board of Commissioner supervisory in 2013 - Supervisory function through the Board committees comprising of Audit Committee, Nomination and Remuneration Committee, and Risk and Planning Evaluation and Monitoring Committee. - One of the achievement that applauds was the consistency of the Directors in focusing on the consolidation of different subsidiaries and business units at Telkom, to move ahead in matching steps under a shared vision. - The quality of the practice of Good Corporate Governance (“GCG”) at Telkom. Report From The President Commissioner Jusman Syafii Djamal President Commissioner 30 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Esteemed Shareholders, to undertake in creating new strength and form since its growth opportunities, Telkom initiation in 2009. Back then, Telkom records another year is on the right track to deliver Telkom started to diversify of excellent results in 2013, sustained and increased value into the telecommunications, sustaining fine achievements to shareholders in the years to information, media and in business growth and come. financial performance that edutainment, and services, or what we call the TIMES business were accomplished the year In the last two to three years, portfolio. The fundamental before. Along with strategic the strategic transformation transformation reflects initiatives that we continue of Telkom has gained in ongoing developments in the Left to Right: Johnny Swandi Sjam Independent Commissioner Parikesit Suprapto Commissioner Hadiyanto Commissioner Jusman Syafii Djamal President Commissioner Gatot Trihargo Commissioner Virano Gazi Nasution Independent Commissioner Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 31 telecommunications sector or technological capability. All various elements in Telkom's driven by rapid changes and Within the Telkom Group, transformational agenda progress in information and the transformation promotes have been built by stages in communication technology. inorganic growth through a consistent and sustained The transformation serves to including through the synergy evident on Telkom’s excellent unlock Telkom's potentials by or alliance with industry players, achievements in 2013. development of new businesses, manner. The results are eliminating existing constraints in addition to organic growth in terms of organization through increased internal structure, corporate culture, productivity and efficiency. 32 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis All various elements in Telkom's transformational agenda have been built by stages in a consistent and sustained manner. Board Assessment on the Performance of Directors The Board of Commissioners applauds the consistency of the Directors in focusing on the principle of "first thing first". In this case, the consolidation of different subsidiaries and business units at Telkom, to move ahead in matching steps under a shared significantly to the increase in function through the Board our revenues and bottom line committees comprising of for the year. Audit Committee, Nomination and Remuneration Committee, The Board of Directors has and Risk and Planning also shown promptness and Evaluation and Monitoring diligence in the realignment of Committee. Overall, these business portfolio, promoting Board committees have higher growth in subsidiaries exercised their functions through adoption of business satisfactorily in accordance models well-suited to the with their respective areas of overall direction of Telkom's responsibilities. long-term growth strategy. The development of broadband Excellent communications infrastructure through the and interactions between Indonesia Digital Network the Directors and the Board ("IDN") project also progresses of Commissioners is shown on track. Meanwhile, the size during joint meetings between and distribution of Telkom's the two boards, which were capital expenditure continue regularly held at least once to reflect our commitment in a month throughout 2013. investment on communication Through these interactions, infrastructure as the basis of the Board of Commissioners vision. The so-called Board of business growth. especially notes that business plans at Telkom Executive of Telkom Group has been influential in promoting synergy in the Group in terms of alignment of strategies and business development planning. The result is higher efficiency and productivity in the utilization of the Group's to higher business growth and improved EBITDA. This is manifested, for example, in the successful execution of one of the main programs of The Board of Commissioners have been developed after supports the strategic conducting careful scrutiny initiative of the Directors of all relevant aspects. with regard to international Decision-making processes, expansion, which should be and the implementation pursued along with proven of these decisions, have opportunities in the domestic been undertaken in a Supervision by the Board of Commissioners The Board of Commissioners prudent manner, and in strict adherence to clearly established mechanism and procedures. This reflects well, inter alia, on the quality of the was closely involved with practice of Good Corporate developments at Telkom Governance ("GCG") at assets and resources, leading market. the Directors, namely support throughout 2013, in its Telkom. We believe that this of our cellular business. In 2013, Telkomsel, the cellular business arm of Telkom, has once more shown a double- digit growth, contributing capacity as supervisory will be to our advantage as body for the management of Telkom continues to grow and the Company. In addition to effectively compete with the internal meetings of the Board, best players in the industry, we discharge our supervisory both at regional and global levels. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 33 Thus far, Telkom has successfully transformed itself into a dynamic player in one of the most competitive industries. The Outlook on Our Business Thus far, Telkom has successfully transformed itself into a dynamic player in one of the most competitive industries. Moving into 2014, the Board of Commissioners has reviewed the work programs prepared by the Directors. In our opinion, the work programs and the applauds the initiatives of members, is deemed necessary the Directors concerning to maintain and strengthen human capital development the Board's performance in at Telkom, especially efforts anticipation of increased work on developing science and loads in line with expected technology-competent human growth of Telkom and Telkom capital that are capable of Group going forward. competing at a global level. This is a critical issue for Telkom, and thus the theme Appreciation to Stakeholders On behalf of the Board of of our Annual Report 2013, Commissioners, I would like "Creating Global Talents and to congratulate the Directors Opportunities" is deemed and staff at Telkom for their appropriate. The time will excellent achievements in 2013, come when our global talents along with my appreciation will prove to be a source for their dedicated hard work of business innovations, over the years. The Board of spearheading the creation Commissioners also extends of new opportunities on the highest appreciation to the the global level to ensure shareholders, loyal customers sustainable growth in the and all our other stakeholders, targets set for 2014 represent future. a realistic indication of Telkom potentials to grow and develop in the long run, along the lines set out in its Corporate Strategic Scenario. Changes in the Board I would like to take this for their vote of confidence and steady support to Telkom. Your continuing vote of confidence and support do opportunity to welcome motivate all of us at Telkom Gatot Trihargo, the Deputy and the Telkom Group to of Business Services at the strive even harder for higher The Board of Commissioners Ministry of SOE, who was achievements. would like to remind the Directors to be cognizant of regulatory aspect of the appointed to the Board of Commissioners of Telkom at the Annual General Meeting domestic telecommunications industry in the formulation of of Shareholders of Telkom on April 19, 2013. The appointment the company’s business plans of an additional Board and strategies. Aside from that, member, making a total of six Jusman Syafii Djamal President Commissioner the Board of Commissioners 34 34 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Preface Preface Highlights Highlights Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 35 35 We succeeded in maintaining our growth performance in 2013 above industry average. - Financial performance above the targets set out in the Company’s Budget Plan. - Named as “the Most Trusted Company” for the fifth time in a row in the Corporate Governance Perception Index survey. - Quite optimistic about the business prospects in 2014 as we have established major programs same as in 2013. Report From The President Director Arief Yahya President Director 36 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Estemeed Shareholders, During the year, we continue to initiatives in expanding broadband allocate our resources, including penetration. IDN contains the In line with the expectations of the largest portion of our capital following elements: id-Access (direct shareholders, we recorded another expenditures, to strengthen the to the home broadband access); year of encouraging achievements performance of our cellular business id-Ring (fiber optics backbone in 2013 following our satisfactory under Telkomsel, our subsidiary. infrastructure); and id-Con (ICT-based performance of the year before. Historically, Telkomsel is the largest convergence services as new sources Consistent and successful execution contributor to our consolidated of revenue going forward). of our strategic work programs during revenues. With improved synergy the last couple of years has resulted in within the Telkom Group, Telkomsel We also focused on international strengthened business fundamentals was able to maintain excellent expansion initiatives in 2013, targeting for Telkom to maintain and sustain performance in 2013, posting triple footholds in 10 countries by 2015. growth over the long term. double-digit growth in terms of Initiatives in international expansion The strengthened fundamentals are our growth momentum. As room reflected on our performance at the The Indonesia Digital Network for growth in the domestic market Indonesia Stock Exchange ("IDX") ("IDN") 2015 program represents our becomes smaller, the search for new revenues, EBITDA and profitability. are essential if we are to maintain during 2013, where prices of Telkom's shares showed a steady and upward trend exceeding the performance of the industry index. Our market capitalization grew by 18.8% to Rp216.7 trillion, the fourth largest at IDX by the end of the year. Strategic Directions in 2013 We have consistently pursued our growth strategy on the principle of 'first thing first'. We do this by focusing the resources of Telkom Group on business segments that showed either a strong performance or an excellent future growth potential. In 2013, our main work programs are (i) strengthening the performance of cellular business, (ii) extending broadband penetration in Indonesia, and (iii) engaging in international expansion. Left to Right: Honesti Basyir Director of Finance Arief Yahya President Director Indra Utoyo Director of Innovation & Strategic Portfolio Rizkan Chandra Director of Network IT & Solution Sukardi Silalahi Director of Consumer Service Priyantono Rudito Director of Human Capital Management Muhammad Awaluddin Director of Enterprise & Business Service Ririek Adriansyah Director of Wholesale & International Service Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 37 outlets of growth overseas become has developed the Global Talent allocated approximately 20% of necessary. In addition, international Program ("GTP") in order to equip our human capital budget towards expansion represents a strategy to our employees with the necessary creating this 'center of excellence'. diversify our business risks, in view capabilities in managing business in a Our strategic vehicle to fulfill this of the rapid developments and global environment. continuing convergence of the TIMES objective is Telkom Corporate University, whereby we strive to industry that has increasingly become The GTP initiative, in turn, is part of improve our advantages in leadership, borderless. our consistent endeavor within the competences, and global standard last couple of years in developing certifications. More importantly, international our human capital as a center of expansion is also a very effective excellence. This is our first and method by which to improve the foremost strategic initiative that will Company Performance in 2013 By fine-tuning our focus on business competences of our human capital. be key to winning the competition segments that demonstrated strong This is especially true in regard the and ensuring our sustained growth, we succeeded in maintaining inevitable competition with global existence into the future. True to our our growth performance in 2013 players in the industry. Thus, Telkom commitment, we have consistently above industry average. 38 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis In terms of financial results, we recorded an increase of 7.5% in consolidated revenues to Rp83 to 24,993 employees of the The excellent performance and Telkom Group in the Employee achievements of the Telkom Group Stock Option Program have been recognized by domestic trillion in 2013. Revenues from cellular ("ESOP"). and international institutions alike. voice and from data, internet & IT b. On July 30, 2013, a total of Among the various awards that we services contributed 38.7% and 38.2%, 211.0 million shares in the received were: respectively, to total consolidated treasury stock acquired in 1. Asia’s Icon on Corporate revenues. EBITDA, meanwhile, grew the share buy-back program Governance in Corporate by 8.6% over last year's figure and Phase I year 2007 were sold Governance Asia Annual amounted to Rp43.6 trillion, with to market through a private Recognition Award 2013 in Manila, a relatively stable EBITDA margin placement. Philipina. of 52.5%. Net income improved by 2. We undertook a 1:5 stock split 2. The Best CEO, The Best CFO and 10.5% from Rp12.9 trillion in 2012 to corporate action on September 3rd Asia Best Managed Company Rp14.2 trillion in 2013. Our bottom line 2, 2013, to improve the trading from Finance Asia in Hong Kong. represents a return on assets ("ROA") liquidity of our shares at the 3. Best of The Best Service Provider of 11.1% and a return on equity ("ROE") Indonesia Stock Exchange. of the Year fro Telkom and Best of 23.5% in 2013, compared with 3. Telkom Corporate University Wireless Service Provider of the 11.5% and 24.9%, respectively, in the recorded a total of 1,010 Year for Telkomsel in Asia Pacific previous year. employees participating in the ICT Award 2013. GTP and 1,471 employees receiving 4. Certification of premium ethernet We also continue to maintain international standard professional MEF-CE 2.0 from Metro Ethernet adequate levels of capital certifications. Forum (MEF). Telkom is the first expenditures to support future 4. In the interest of business portfolio provider of ethernet services in growth. Total capital expenditures realignment, we reduced our Indonesia, the fourth in Asia, and in 2013 amounted to Rp24.9 trillion, majority shareholding at Indonua the thirteenth in the world. constituting 30% of total consolidated Telemedia, a subsidiary in the 5. The Best Provider and The Best revenues in that year, and an increase media business, and acquired Data Communication of The Year of 44.2% over our spent in the majority share ownership at from Frost & Sullivan. Telkomsel previous year. The largest portion, at Patrakom, a subsidiary in VSAT for also recognized as The Best 35.2% of total capital expenditures, marine broadband business. We Mobile Provider of The Year and was allocated for the expansion of also established PT Metra Digital The Best Mobile Broadband radio access network in our cellular Media as a sub-holding company Service of The Year. business. The remaining budget was to develop new business models mainly spent for the expansion of for our subsidiaries in the digital Meanwhile, among domestic broadband access and infrastructure media business. recognitions were: as well as for business development 5. A re-mapping of the structure of 1. The Amazing Star, Men’s of subsidiaries in Telkom Group in the Area Telecommunication Office Obsession 9 Tough CEO from tower business, IT and media business, (Kandatel) giving full authority Men’s Obsession magazine. and for international expansion. on operational activities in the The award are given to CEOs Other noteworthy developments and benefits in faster execution of integrity, dedication, and achievements in 2013 include: work programs as well as in cost loyality in developing business 1. In accordance with the resolution leadership. and contributing to national respective areas, with expected with achievement, capacity, of the GMS in 2013 concerning 6. Of the 10 countries initially development efforts. changes in the planned utilization targeted in our international 2. The Best Product Innovation of treasury stocks acquired in the expansion program, we have of Infrastructure Sector for share buy-back program phase successfully secured footholds INDIFINANCE, The Best I - IV, we have completed the in 7 countries or areas, namely Technology Innovation of following approved programs, Singapore, Hong Kong - Macau, Infrastructure Sector for Indigo namely: Timor Leste, Australia, Myanmar, and the highest recognition for a. On May 31, 2013, a total of 59.8 Malaysia, and the United States. innovation, The Best Corporate million shares in the treasury Innovation Culture & Management, stock acquired in the share We are indeed grateful that we have in BUMN Innovation Award. buy-back program Phase III been able to rise above challenges year 2009 were transferred and achieve excellent results. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 39 3. Best of The Best for the corporate consecutively that we received in the and Best Chief Marketing Officer Corporate Governance Perception Business Prospects in 2014 Looking back on our performance for Telkom EBIS Director in BUMN Index survey by the Indonesian during the last couple of years, we are Marketing Award. Institute for Corporate Governance justifiably optimistic of our prospects 4. Best Corporate of The Year and (IICG), and also recognized as 'Best CEO Of The Year in Anugerah of Asia' in Asia's Icon on Corporate for 2014. Our priority programs for 2014 are the same as in 2013. We Business Review. Governance polling conducted by will continue to allocate capital 5. Best For All Human Capital Corporate Governance Asia magazine. Criteria and Best CEO Commitment from Indonesia In 2013, as part of the implementation Human Capital Study (IHCS). of GCG practices, we have fully 6. The Best CEO of Most adopted the International Financial Competitive SOE 2013, Most Reporting Standard ("IFRS") for our expenditures and other resources in support of our cellular business, targeting double-digit growth for Telkomsel, our cellular subsidiary. We will push ahead with the expansion of broadband infrastructure in the Competitive SOE in Infrastructure financial reports. We have also begun Indonesia Digital Network 2015 and GCG Implementation Most with the implementation of IFRS in Competitive Listed SOE in a number of our subsidiaries in the Anugerah BUMN 2013. Telkom Group. Further, we have also 7. Marketeer of The Year 2013 for conformed to the ASEAN Corporate CEO of Telkom Indonesia. Governance Scorecard criteria, a project. This will include construction of the remaining network segments in the Sulawesi-Maluku-Papua Cable System, accelerated deployment of FITH broadband access, and the construction of additional Data Center facilities. At the same time, we will business initiatives in the 10 countries or areas that we have previously designated in our international expansion program. We will also Business and Operational Constraints In working towards our business and operational targets in 2013, we faced a countries. recognized quality benchmark of GCG implementation by publicly listed companies in the six ASEAN continue to promote and grow our number of constraints related mainly to external developments during the Corporate Social Responsibility In addition to our focus on business, year. Unfavorable macro economy we also continue to improve on strengthen our digital media business conditions, and especially the our Corporate Social Responsibility portfolio in 2014. significant depreciation of the Rupiah ("CSR") commitments to society against the US Dollar, have impacted and the environment. Through on our bottom line due to losses on the Partnership and Community foreign exchange translation. It also Development Program ("PKBL"), forced the suspension of a number we disbursed funds totaling Rp174 of telecommunication infrastructure billion in 2013. These funds were projects, resulting in a less than spent entirely for various community optimum spend of our capital welfare initiatives within the scope expenditures budget. The targeted of activities of the Community deployment of Fixed-to-the-Home Development Program. ("FTTH") broadband access was also Words of Appreciation On behalf of the Board of Directors, allow me to express the highest of appreciation for the dedication and hard work of all employees that have led to such excellent achievements in 2013. I would also like to convey our sincere thanks for the trust and support that we continue to receive from the Board of Commissioners, less than satisfactory, due to external We also allocated funds to our own shareholders, business partners, loyal factors related to location permits CSR programs, focusing on initiatives customers. or local regulations as well as the that promote higher proficiency preparedness of supporting industries. and utilization of Information and Corporate Governance The numerous recognitions that we Communication Technology ("ICT") among people and communities in Indonesia. Under the Indonesia Digital received over the years from a variety Community ("Indigo") program, we of external parties should serve as currently have a number of initiatives, a valid indication of the quality of one of the most progressive being our corporate governance practice the IndSchool program. We were also ("GCG"). active helping natural disaster victims In 2013, just to mention a few, we were through the Telkom Peduli program, awarded the citation of "Most Trusted as well as through our participation Company", the fifth such award in the BUMN Peduli humanitarian aid program administered by the Ministry of SOE. Long live Indonesia Long live Telkom Indonesia Arief Yahya President Director/CEO 40 40 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Preface Preface Highlights Highlights Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Business Overview 42 Telecommunication Industry in Indonesia 56 Telecommunication Services Tariffs 43 Corporate Strategy 45 Business Outlook 46 Business Portfolio 58 Customer Services 61 Consumer Protection 62 Billing, Payment and Collection 54 Distribution and Marketing Strategy 64 Risk Factors 82 Network Infrastructure 86 Network Development 88 Human Capital Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 41 41 42 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Telecommunications Industry in Indonesia Indra Utoyo Director of Innovation & Strategic Portfolio Corporate strategy governance Our strategic initiatives support the comprehensive transformation of our organization, business portfolio, infrastructure, systems, and corporate culture. With directional strategy, we plan to seek opportunities for inorganic growth through acquisitions & alliances (“A&A”) and corporate restructuring. The increasingly open and tight competition among telco operators, which is expected to result in improved service quality, higher industry efficiency. We continued to adapt to the dynamics of the industry by updating our strategic initiatives with a focus on implementing the TIMES business framework and strengthening internal consolidation Indonesia's telecommunication industry has shown rapid growth ever since the transformation of the telecommunication sector from monopoly to competitive, enacted by the Government through Law No.36 Year 1999 on Telecommunication. This growth is moreover further accelerated by advances in communication technology using radio frequencies, as alternative telecommunication means to communication through cable networks and satellite. Compared to the growth of fixed wireline telephony for many decades that eventually stagnated at only around 9,4 million lines, the telecommunication teledensity in Indonesia has since experienced a very significant jump in less than 20 years to more than 310 million lines, driven primarily by the growth of cellular telephone, as well as fixed wireless telephone. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 43 The cellular telephony business also result in improved service quality, new corporate culture we have continues to grow through a variety higher industry efficiency, and established the “Telkom Corporate of innovations as well as constant constant innovations in products University”, which aims to educate adaptation to changes in market or services, and will eventually our employees in order to meet demands and consumer preferences. drive more growth in Indonesia's international standards in the While the growth in voice and Short telecommunication industry. TIMES industry. Messaging Service (“SMS”) has showed signs of declining in recent years, there was at the same time a CORPORATE STRATEGY Our strategic target to achieve our 2. Focus on high growth or high value portfolio marked strengthening in the growth objectives in 2013 was improving Deploy resources to the parts of data communication and mobile market capitalization. Our strategies of our portfolio with the highest internet access services. consisted broadly of: growth and value potential will - Directional strategy: sustainable ultimately generate the optimum There are a number of factors competitive growth. value for Telkom Group. This or conditions that point to good - Portfolio strategy: converged includes supporting Telkomsel growth prospects for Indonesia's TIMES portfolio. in order to sustain its growth telecommunication industry, including: - Parenting strategy: strategic and market position as well as 1. Indonesia's demographics, with guidance. the fourth largest population in developing broadband through our Indonesia Digital Network the world and a fast growing In 2013, we continued to adapt to the program. middle class segment, as well as dynamics of the industry by updating Indonesia's economy that has our strategic initiatives with a focus 3. Accelerate international shown stable and respectable on implementing the TIMES business growth in recent years, are framework and strengthening internal expansion International expansion through expected to drive further consolidation. We believed that partnerships, alliances and demands for telecommunication these strategic initiatives support acquisitions, giving priority to the and data services. the comprehensive transformation Asia Pacific region, the Middle 2. While internet penetration in of our organization, business East and North Africa. Our the country is still relatively low portfolio, infrastructure, systems, and subsidiary Telin will be our main compared to peer countries in corporate culture that we believed vehicle for international expansion. the region, people in Indonesia is was necessary to realize our vision of becoming increasingly exposed, becoming a leading TIMES company 4. Cost transformation and are increasingly adopting in the region. Besides providing a Improve cost efficiency and global trends in digital lifestyle, as new growth stream, we believed that infrastructure capability, by shown especially in the marked our TIMES business also helped to utilizing technology (multiplay/ increase of smartphone usage promote the sustainable growth of multiservice/multiscreen), leverage with more affordable prices as our traditional telecommunications existing asset (empowerment of well as higher levels of social business. networking media activities. the less productive assets) and create a creative business model We expect that the growth of To achieve the objective of these (through partnerships to share mobile internet services will three corporate broad strategies, costs). continue to be fueled on the we have developed the following 10 back of the increasing popularity strategic initiatives: 5. IDN (id-Access, id-Ring, id-Con) of smartphones, tablets and 1. Center of Excellence Development other internet-enabled mobile In order to improve our business We plan to support our MP3EI devices in Indonesia, faster data performance and implement a (Government’s Master Plan for transmission of wireless networks, and increasingly affordable smart devices and mobile internet services. 3. The increasingly open and tight competition among telco operators, which is expected to We believe that the shifting of consumer preference towards digital lifestyle will serve as the key to unlock our potential business growth in the future, that will lead to the increase in demand for broadband services to compensate the decline of our legacy business. 44 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis the Acceleration and Expansion experience and customer DKI Jakarta, West Java & Banten, of Indonesia's Economic engagement through exploration Central Java, East Java, Kalimantan Development) target of attaining of best technology, development and East Indonesia area. broadband access to 30% of appropriate business model and households in Indonesia by the partnership scheme. 10. Increasing synergy within Telkom year 2015. IDN (Indonesia Digital Group Network) is also intended to 8. Execution of the best subsidiary Optimalization synergy at the bridge the digital divide. management system Provide strategic guidance to strategic and operational levels, as well as single main function and 6. Indonesia Digital Solution (“IDS”) our subsidiaries is important for cross functions. – Convergent services in digital ecosystem solution the success of Telkom Group. In general, guidance provided In order to implement our directional Developed the IDS strategic to our subsidiaries will focus strategy of sustainable competitive initiative to support the Indonesia on the aspects of planning and growth, we plan to seek opportunities Digital Network program such optimalization of synergy within for inorganic growth through as the digital media ecosystem the Telkom Group. (cooperation with best partners acquisitions & alliances (“A&A”) and corporate restructuring, as described and differentiation through 9. Managing portfolio through below: innovative business models) and Board of Executives (“BoE”) and business solution ecosystem Chief Regional Officer (“CRO”) 1. A&A program A&A implementationis part of (accelerate development of Manage our subsidiaries our growth strategy objective to innovative business ecosystem & subsidiaries through a Board of mitigate risks, develop capital, convergence services for excellent Executives, comprising the heads increase competency as well as customer experience) space. of four businesses, namely, mobile accelerate access to synergy and (represented by Telkomsel), value contribution. In 2013, we: 7. Indonesia Digital Platform (“IDP”) multimedia (represented by – acquired all shares of PT Patra – Platform enabler for ecosystem Metra), infrastructure (represented Telekomunikasi Indonesia development by Mitratel) and international (“Patrakom”) and enabling Developed IDP strategic initiative (represented by Telin), and seven us to integrate Parakom’s to seek enhance overall customer CROs representing Sumatera, line of business, namely Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 45 satellite-based closed fixed in service of development which was launched in 2011. One of telecommunications network and modernization network the three pillars of the master plan is provider, as well as providing customers to the broadband development of national connectivity, communication network and solution, with a permit as Operator of Micro Earth Stations Communications System ("SKSBM"). and fiber optic network. including development of the BUSINESS OUTLOOK (TREND INFORMATION) The significant trends, or information and communication technology sector. This is in line with our IDN program and our strategic initiative on the development of - entered into strategic developments that have had in our Nusantara Superhighway partnership with PT Trans recent years, and may have in the project (i.e. the Palapa ring project Corpora and PT Trans Media future, a material impact on our known as id-Ring), an optical-based Corpora by selling shares of results of operations, financial network of six interconnected Indonusa (“Telkom Vision”) condition and capital expenditures, rings which links Indonesia’s to strengthen Telkom Vision include (i) an increase in cellular main island groups, namely the position in Pay TV industry. telephone revenues with increases Sumatra ring, the Java ring, the - acquisition of PT Pojok Celebes in subscribers, minutes of use, Kalimantan ring, the Sulawesi ring, Mandiri who engaged in ARPU and regulatory aspects (ii) the Bali and Nusa Tenggara ring business-ticket booking & an increase in revenues from data, and the Maluku and Papua ring. We online applications through internet and information technology expect that the development of POINTER which has been services revenues, and (iii) a this extensive telecommunication connected with the national decrease in fixed lines telephone network connecting all the six major airline and a large number of revenues. hotels in Indonesia. economic corridors will allow us to offer more value-added services, We believe favorable external and to reach more customers in a 2. Corporate restructuring Corporate restructuring factors, among others, will support much larger scale, as well as provide our ability to continue to drive opportunities for our products and implemented through unit revenue growth from data, internet services in the IMES areas. business spin-off program, and information technology services possible initial public offering as well as from mobile phone We believe the shift in consumer of subsidiaries, established new services. Indonesia's economy preferences towards a digital lifestyle subsidiaries and capital injection. In recorded a relatively robust growth will be a key factor that we expect 2013, the corporate restructuring in recent years despite a sluggish will drive our business in the future. program that we already global economy. With good We believe this will lead to continuing implemented such as: economic fundamentals, Indonesia’s increase in broadband demand - business splitting: Metra national economy is expected to (including mobile broadband), Digital Media splitting from our continue to grow steadily, with a compensating for the decline of indirect subsidiaries, Infomedia; corresponding increase in consumer our legacy business (both fixed - established new subsidiaries purchasing power, which in turn is wireline and cellular telephone through overseas expansion expected to result in higher demand revenue and SMS revenue). We such as in Malaysia (MVNO), for telecommunications services, expect the increase in demand for Australia ( IT business process for both basic telecommunications data communications and corporate outsourcing & solution), services as well as the more internet to continue next year as we Timor Leste (mobile network sophisticated value-added services increase our capacity to cover more operator), Hong Kong - Macau that are part of the increasingly small and medium enterprises. (MVNO), Taiwan (MVNO), prevalent digital lifestyle in modern Myanmar (international societies. network), and United States For further explanation of these significant developments, see of America (international In the longer term, Indonesia’s “Management's Discussion network); and economy is also expected to enjoy and Analysis of the Company’s - capitalization strengthening, support from Government initiatives Performance”. increase competence such as the Master Plan for the and certification to our Acceleration and Expansion of subsidiary Telkom Akses Indonesia’s Economic Development, 46 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Business Portfolio Telkom Group’s business portfolio includes fixed wireline services, fixed wireless services, mobile services, internet and data communication services, network services, interconnection services, and additional services. We are a State-Owned Enterprise and currently the largest telecommunication service and network provider in Indonesia. We serve millions of customers throughout Indonesia with a complete range of telecommunications services that include fixed wireline and fixed wireless telephone connections, cellular services, network and interconnection services, as well as internet and data communication services. We also provide services in information, media and edutainment, including cloud-based and server-based managed services, e-Payment and IT enabler services, Pay-TV, as well as e-Commerce and other portal services. We posted revenues of Rp77,143 billion and Rp82,967 billion, respectively, for the years ended December 31, 2012 and 2013. Fixed line telephone services include local, direct long-distance (“DLD”), and international call services, as well as other telecommunications and supporting services. Fixed wireless services include local and direct long-distance CDMA-based telephone Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 47 connections, and other products, services and solutions (“IMS”) services which telecommunication services. ranging from our legacy business combines wireless and Cellular services comprise to the new economy business fixed line technologies cellulars telecommunication (“NEB”). Our business portfolio is for voice and data service. Our telecommunications- grouped into the following lines communications. related business may experience of business: certain seasonal effects. Cellular and fixed wireless A. Telecommunications communications tend to increase around the Ramadhan lunar Business Our telecommunications We succeeded in improving the performance of our fixed wireline business month and the culmination business portfolio includes line through the of the Eid festivity, as well as (i) fixed wireline services, implementation of a during the December holiday (ii) fixed wireless services, “More for Less” program season, while fixed line (iii) cellular services, communications from homes (iv) internet and data and offices may decrease when communication services, there are fewer working days in (v) network services, in 2013, where subscribers are able to get deeper discounts with greater telephone usage such as the period or a greater number (vi) interconnection services, unlimited talk time using of subscribers are on vacation. and (vii) ancillary services. the house phone, unlimited In 2013, except for OLOs who broadband access with use our interconnection services 1. Fixed Wireline Services various bandwidth options and Telkomsel’s employee Our fixed wireline services and television channels cooperative (“Kisel”), none of our include plain old telephone with attractive program customers accounted for more services (“POTS”), value- packages. than 1% of our total revenues. added services (“VAS”), A substantial majority of our services and session Our fixed wireless revenue has and continues to initiation protocol (“SIP”) business, which uses Intelligent Network (“IN”) 2. Fixed Wireless Services come from telecommunications- services. IN services are related services, including data IP-based network services and internet services. As a company that provides TIMES, that are connected to our exchange systems we continue to encourage and telecommunications innovations in sectors other than network. Session Initiation telecommunications, and capture Protocol services are IP synergies among all of our multimedia subsystem kartuHalo is still recorded as the most widely used postpaid cellular services since introduced in 1995 48 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis limited mobility CDMA technology, is managed by - kartuHalo. In 2013, our Wireless Broadband Division under the kartuHalo launched a new package, the trademarks "Telkom Flexi" HaloFit, targeting the or "Flexi". In 2013, we optimized existing BTSs for our fixed wireless network, but did otherwise young professional segment with three main value added services bundled further develop our fixed with the core services wireless network or conduct any new product launches or promotional campaigns activities for this service. 3. Cellular Services We provide cellular communications services using GSM technology through our subsidiary, Telkomsel. Cellular services (excluding mobile data services) remained the largest contributor to our consolidated revenues in 2013. We have two primary types of cellular products and services, postpaid services represented by “kartuHalo” and prepaid services represented by simPATI and Kartu As. of voice and SMS. The value added services comprised data services and international roaming services. kartuHalo also launched kartuHalo Family. This new product, which is targeted at families, is offered to new and existing subscribers, and provides a number of benefits such as additional minutes of calling to other members within the HaloFamily group, convenient payment through single billing, and exclusive content bonuses. Members within the HaloFamily group are able to top- In 2013, with the increasing up through the primary demand for data services member. simPATI starter pack, the simPATI Loop, targeting the high- value youth segment with an enhanced data package with additional lifestyle content for movies, music and magazines. ”walk with simPATI” program also launched, which invited the youth to participate in a video clip project and drew positive attention from customers in digital media. – Kartu As is a prepaid service that bills customers based on seconds of talk time. One of the programs Kartu As products launched in 2013 was the Kartu As PlayMania starter pack, which targets the early youth consumer segment. The product features edutainment content aimed at young users in the segment. Another feature of this service is the emergency call service, which enables users of Kartu As from customers, Telkomsel added various attractive and competitive data services to its range of products and services to complement its legacy in voice and SMS. In order to accelerate the adoption of 3G mobile devices, Telkomsel also intensified collaboration with device principals and distributors of local and global brands of mobile devices by introducing affordable 3G mobile device bundled packages. - simPATI is a prepaid service that can be purchased at any cellular shop in the form of starter packs and top up vouchers. In 2013, among other efforts, we refreshed our simPATI starter pack with more benefits to target data users and higher value customer acquisition. We also launched a new edition of our "Indonesian Wi-Fi" was launched in 2012 to meet the needs of the community in accessing Wi-Fi based internet at the airports, shopping malls, hospitals, universities/schools and cafes Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 49 PlayMania to make free call and SMS to two favourite numbers. We also launched "Recharge Bonus Gokil" program , which drew an enthusiastic response from Kartu As subscribers. The Recharge Bonus Gokil program is designed to provide bonus value each time the user engages in a top-up transaction. 4. Broadband and Internet Services We provide a range of products and services in data communication and internet services as described below: - Broadband internet, our primary non- cellular based broadband internet service, using ADSL and fiber optic technology, is offered under the commercial name “Speedy”. We blackberry package and non package data services. also provide a prepaid - SMS services are on-demand, “pay as you use” broadband internet service using Speedy or Wi-Fi access under the commercial name of “Speedy Instan”. We also offer a triple play package combining broadband internet (Speedy), telephone services and content (UseeTV, home monitoring and music-Melon) under the commercial name “Indihome”. - Cellular data communication, Telkomsel provides internet and mobile data communications services through its mobile cellular network, with the commercial name “Flash”, provided to mobile and fixed wireless telephone subscribers. - “TelkomNet instan” is our dial-up internet access services. - Wi-Fi/hotspot is a wireless access solution for intranet and mobile internet data services in a particular area by utilizing our and other ISP’s payment facilities, or in bulk using Customer Premises Equipment-based Wi-Fi technology. In 2012, we launched “Indonesia Wi-Fi or @ wifi.id” to meet the need for Wi-Fi based internet service at public places such as airports, shopping malls, hospitals, 50 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis universities/schools, cafes, and other public places. Our “Indonesia Wi-Fi” service has a minimum speed of 10 These services can be easily accessed from any device that has Wi-Fi capability by the FlexiNet Unlimited or Save” for regular international calls. Both services can be accessed by dialing a special prefix for Mbps to accommodate, Flexi Mobile Broadband international calls. To offloading, retail and other uses. - “FlexiNet” is our internet access service that uses the Telkom Flexi fixed wireless network. Our “Flexi Hotspot” service provides customers who wish to enjoy high speed internet access through a wireless internet connection that is supported by our hotspot infrastructure. username and the password in each hotspot. - Virtual Private Network (“VPN”) is a virtual private network service that uses the internet for secure connection to remote sites. - “Astinet” provides high quality internet access using a default internet gateway and public IP address for a dedicated, fixed communication line 24 hours a day. - VoIP. We provide provide these services, we cooperate with 79 international wholesale carriers that can support our IDD call services worldwide, to deliver VoIP traffics. - ISDN PRA is a digital network to facilitate multimedia telecommunications services, using wider bandwidth as well as inter-terminal digital systems to accommodate high- speed, high-quality and high-capacity affordable international voice, data and video call services through our premium VoIP service package communications through a single channel. We also “Telkom Global-01017” provide ISDN-based as well as “Telkom internet access. - DINAccess is a wireless communications service with dedicated access to provide LAN interconnection services and multimedia services at a speed adjustable to customer needs. - Global Datacom is a data communications service that lets corporate customers connect their headquarters with branch offices or clients across the globe. We work with global partners through Telin, our subsidiary, Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 51 in providing these services. - Metro Link is a Metro-network-based connectivity services that accommodates point-to-point, point-to-multipoint and multipoint- to-multipoint communications. - Metro I-net is a high for subsequent sale to to five year periods. their customers. - Value-added service Datacom provides additional facilities that 6. Interconnection Services We also earn revenue from other telecommunications offer added value to operators that utilize data communications our extensive network customers. 5. Network Services We directly manage the provision of infrastructure in Indonesia, both for calls that end at or transit via our network. Similarly, we also pay interconnection fees to capacity data network network services to other telecommunications solution based on IP (Internet Protocol) or customers comprising operators when we use of our business partners, their networks to connect ethernet that provides commercial businesses a call from our customers. flexibility, ease of use and OLOs. Our network Interconnection services and effectiveness as well as quality services include satellite that we provide to other assurance for corporate satellite broadcasting, transponder leasing, telecommunications operators comprise and SME customers. VSAT, audio distribution, domestic and international - Port Wholesale as well as satellite-based interconnection services. provides wholesale rental of port remote access servers to internet service providers, content service providers and corporate customers and terrestrial-based In 2013, we have increased leased lines. Our network our efforts to optimize services customers may the capability of Telkom enter into short-term deals Group through exploiting for several minutes of broadcasting to longer- synergies among Telkom, Telkomsel and Telin with term agreements for one respect to interconnection 52 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis services. 7. Ancillary Services We have exclusive business through our subsidiary, Mitratel. B. New Economy Business agreements with some (“NEB”) and Strategic investors under revenue Business Opportunities sharing arrangements to expand fixed line phone Portfolio NEB and Strategic Business payments to service or goods providers such as PLN, Telkom, PDAM, KAI, and others through collecting agents that include banks, cooperatives, BPR, convenience stores, and services, public card Opportunities are a part others. phones (including their of our IME portfolio. We maintenance), data and have designated our - Remittance is money transfer service where internet networks, and subsidiary, Telkom metra, as neither the money ancillary facilities related a sub-holding company that sender nor the recipient to telecommunications. focusses on our IME business development. For more details about the scheme of additional Our information business services, please see portfolio includes: need a bank account to complete a transfer, as transfers can be accomplished using only a mobile device. 1. IT Outsourcing or - e-money provides Note 39 in the Consolidated Financial Statements. Managed Application which provides cloud- based and server-based We also operate other management services and supporting and ancillary IT consulting services. businesses, which include the lease and/ or supply of BTS to other cellular operators and the provision of various support 2. e-Payment/Payment services, including the following: - Billing payment, a service that allows facilities. We manage our customers to make telecommunications tower services to customers who wish to manage money electronically through certain media (mobile, prepaid card, or a virtual account that can be accessed via the Internet) for use in electronic transactions. - e-Vouchers or Telkom Voucher is a single Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 53 voucher issued by us Our Media and Edutainment accessed from Telkom's that can be used to business portfolio includes the internet network, purchase or recharge following : any of our services, such as for Kartu As, simPATI, Flexi Trendy, and Speedy Hotspot. 3. IT enabler services include business process outsourcing and knowledge process 1. Television broadcast services comprising the following - Pay TV by satellite, a pay TV service broadcasted over satellite links offering free content such as video-on- demand programming, live TV, internet radio, and some pay video programming. Similar to UseeTV Cable, the offering premium-grade OTT TV is also capable contents in news, sports, of allowing play back of entertainment, and outsourcing, which consist others. of: - Network centric - IPTV, an Internet Protocol-based television value added services, comprising IT-based value-added services for data and phone, security services, and server and storage services for connectivity customers. - Integration services, comprising integration services for network and hardware associated with Customer Premises Equipment (“CPE”), integration services for applications and software, and integration services for computer hardware. program content from the last three days. 2. Advertising is a commercial service for the promotion of products or services of any third ("IPTV") under the commercial name ”UseeTV Cable”. The service is delivered using party that are presented the Speedy broadband in digital or print media, access network, and offers ”pause and rewind” features for contents such as video-on-demand such as radio, television, internet, newspapers, brochures/leaflets and billboards. programming, FTA TV, premium TV, internet 3. Portal Services facilitates content aggregation radio and TVoD, allowing and distribution. In playback of program content from the last seven days. - OTT TV (Over the Top TV), an internet TV service under the commercial name addition to sales and payments related to our products and services conducted through our e-Commerce portal, our portal e-store and on- device portal services also ”UseeTV” that can be accommodate the sale OTT TV (Over the Top TV), an internet TV service under the commercial name ”UseeTV” that can be accessed from our internet network, offering free content such as video-on-demand programming, live TV, internet radio, and some pay video programming. As with UseeTV Cable, OTT TV can re-broadcast up to the previous three days and distribution of content or applications such as games, applications, news, sports news, educational content, music, ring back tones, SMS content and others, which can be downloaded directly by customer mobile device or internet users. Content or applications can be obtained either at a certain price or free of charge. 54 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Muhammad Awaluddin Director of Enterprise & Business Service 3. Partnership Stores are extensions of our distribution channels, in cooperation with a variety of third-party marketing outlets such as computer or electronic stores, banks, and others. 4. Feet on The Street are sales agents that conduct direct marketing of our products, particularly for our Speedy products, through door- to-door sales, open table discussions, exhibitions, product demonstrations, and other similar activities. 5. Authorized dealers and retail outlets are sales and distribution outlets for a variety of telecommunication products such as Speedy Instan cards, Flexi subscription cards, starter packs, prepaid SIM cards and top-up vouchers. These dealers are non-exclusive, and they receive a discount on all of the products they receive. Retail outlets also include outlets jointly operated by us, Telkomsel and PT Pos Indonesia, as well as other outlets such as banks. Marketing management Plasa Telkom and GraPARI outlets are our direct distribution channels. We implement a comprehensive marketing strategy to strengthen the brand and increase sales, including through marketing communication activity and development of product and service distribution network We set our telecommunications tariffs in accordance with government regulations. DISTRIBUTION AND MARKETING STRATEGY The following are the primary distribution marketing channels for our products and services: 1. Plasa Telkom and GraPARI are outlet function as walk- in customer service points, where customers have access to the full range of our products and services. GraPARI is specialize for cellular services managed by Telkomsel. In other hand, a lower scale outlet of cellular 6. Account Management Teams who manage relationships services, GeraiHalo, managed with our individual, business, by third party. and corporate customers. 2. Contact centers handle enquiries regarding our 7. Telkom Solution Houses are places where an enterprise products, services and customer can obtain customer transactions. Our information on a variety of contact/call centers currently TIMES solutions, products do not handle payments. Our contact centers also operate our customer care (telecaring) and and services, and the latest technology. At these Telkom Solution Houses, we provide free live demonstrations (such telemarketing programs. as Speedy, Hotspot, PDN, Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 55 Effective marketing communication activity plays an important role in ensuring that product offerings reach the intended segment or potential customer IP-Phone), live ensuring that product offerings demonstrations for reach the intended segment In the distribution of Telkom commercial products or potential customer . In Flexi and Speedy Instan card (such as video conference), addition to marketing using (SPIN Card) and mobile cellular enterprise consultation and traditional (offline) media such products, we engage the ecosystem business solutions as advertisement placement partnership of best-performing for customized TIMES for in television, print media, dealers, giving each of these corporations, and simulated newspaper, and radio as well partners a designated and demonstrations (such as as during local events, we have exclusive sales area ("cluster") e-Payment & VPN over GSM also begun to intensify product to manage. As of December 31, and Flexi). marketing through the digital 2013, we have partnerships with 8. SME Centers function as a communication center (online) media within various 53 official dealers that manage digital communities as well as more than 83 thousand of retail building popularity in social outlets in 96 clusters. In addition, supported with advanced networks. office facilities, a community We also have partnership arrangements with seven center where our customers Plasa Telkom and GraPARI national retail partners and 17 can interact, and a commerce outlets are our direct distribution national banking partners center especially for channels. In addition to its e-Commerce solutions. function as a direct channel for For kartuHalo, Telkomsel focuses our product distribution, these on corporate and professional 9. Our website which provides outlets also handles after-sales customers with high usage customers information on the service for our customers, and volumes. Marketing for this entire range of our products disseminates information on segment is undertaken by and services, multimedia as programs, promotions and special corporate account teams, well as telephony, through the products to customers and which are also responsible for official company websites at end users. This distribution maintaining long-term relations www.telkom.co.id and channel enables us to monitor with our customers through www.telkomsel.com and improve service quality, efforts to provide solutions Marketing Strategy Effective marketing complaint handling performance, suitable to the needs of the and customer satisfaction level in corporate customers. general. As of December 31, 2013, communications activity we operated 572 Plasa Telkom The simPATI and Kartu As plays an important role in and 86 GraPARI outlets through products are designed to appeal Indonesia. 56 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis towards a much wider target events, the BLC facilities can services which is connected segment and particularly to also be used by communities through fixed line network younger customers. Telkomsel for events related to education consists of the following: uses above and below the line and information technology - activation fee marketing channels to promote development. As of December - monthly subscription its brands, including campaigns 31, 2013, we operate a total of charges aimed at schools and special 218 BLCs in various locations - usage charges interest groups, placing print throughout Indonesia. - additional facilities fee. advertisements, billing insertions, point-of-sale presentations, and events promotion and Market Share The biggest contribution B. Mobile cellular telephone tariffs sponsorship. to our revenues comes On April 7, 2008, the MoCI from cellular revenues. For issued Decree No.09/PER/M. In keeping with changes in information regarding our KOMINFO/04/2008 (“MoCI consumer behavior and lifestyle cellular market share, see Decree 09/2008”) regarding trends, we consistently develop “Additional Information (for ADR “Mechanism to Determine sales partnerships on a national Shareholders) - Competition – Tariff of Telecommunication scale with number of partners. Cellular”. These comprise of sales of bundled products through sales outlets owned by the respective partner, such as Samsung and TELECOMMUNICATIONS SERVICES TARIFFS We set our telecommunications Intel, among others. tariffs in accordance with government regulations. Services which Connected through Mobile Cellular Network” which provides guidelines to determine cellular tariffs with a formula consisting of network element cost and retail services As part of our strategy to Under Law No.36/1999 and activity cost. promote internet technology Government Regulation to the broader public and to No.52/2000, tariffs for operating Under the Decree, the improve customer knowledge telecommunications network cellular tariffs of operating about broadband internet and/or services are determined telecommunication services products and application, we by providers based on the tariff which connected through have engaged in an initiative to type, structure and with respect mobile cellular network develop Broadband Learning to the price cap formula set by consist of basic telephony Centers ("BLCs"). At our BLCs, the Government. we provide facilities including air conditioned rooms, personal computers with internet connections, blackboards, educational materials, and A. Fixed line telephone tariffs The Government issued a new tariff adjustment formula - activation fee in 2008, which is stipulated - monthly subscription services tariff, roaming tariff and/or multimedia service tariff, with the following structure: teachers and other speakers in the MoCI Decree No.15/ charges from our internal as well as PER/M.KOMINFO/4/2008 - usage charges in cooperation with other dated April 30, 2008 - additional facilities fee. institutions. The BLC program concerning “Procedure for primarily targets non-internet Tariff Determination for Basic C. Interconnection tariffs users, as well as communities Telephony Service which ITRA, in its letter No.227/ that are interested in deepening Connected through Fixed their knowledge on internet Line Network”. and information technology BRTI/XII/2010 dated December 31, 2010, decided to implement topics, such as students and Under the Decree, the tariff new interconnection tariffs collegues. In addition to facilitate structure for basic telephony effective from January 1, 2011 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 57 services of network lease. Pursuant to the MoCI Decree, the Government released Director General of Post and Telecommunication Decision Letter No.115 of 2008 dated March 24, 2008 which stated “The Agreement on Network Lease Service Type Document, Network Lease Service Tariff, Available Capacity of Network Lease Service, Quality of Network Lease Service, and Provision Procedure of Network Lease Service in 2008 Owned by Dominant Network Lease Service Provider”, in conformity with our proposal. E. Tariff for other services The tariffs for satellite lease, telephony services and other multimedia services are determined by the service provider by taking into account the expenditures and market price. The Government only determines the tariff formula for basic telephony services. There is for mobile cellular networks, for SMS interconnection no stipulation for the tariff of satellite mobile networks tariffs from Sender Keep other services. and fixed local networks and All (“SKA”) basis to a cost- effective from July 1, 2011 for based interconnection fee F. IMES tariffs fixed wireless local network calculation (“Non-SKA”) In providing IME services, with a limited mobility. effective from June 1, 2012, our New Economy Business, for all telecommunication we work with a number of Based on Director General provider operators. of Post and Informatics Decree No.201/KEP/DJPPI/ KOMINFO/7/2011 dated July D. Network lease tariffs Through the MoCI Decree No. partners. These collaborations are based on considerations of capability, time to market and idea creation. Tariffs 29, 2011, ITRA approved our 03/PER/M.KOMINFO/1/2007 for our IME services are revision of RIO regarding the dated January 26, 2007 determined in agreement interconnection tariff. ITRA, concerning “Network Lease”, with these partners based on in its letter No.262/BRTI/ XII/2011 dated December the Government regulated the scheme of cooperation the form, type, tariff structure, between us and each 12, 2011, changed the basis and tariff formula for respective partner. 58 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Hong Kong. Telkomsel’s customer service point had 408 outlet consisted of 86 GraPARI and 322 GeraiHalo. We also have 268 unit mobile customer service point namely Mobile GraPARI. 2. Contact Center Our contact centers are call centers that allow customers to make enquiries regarding our products and services, billing, promotional offers and submit complaints by dialing "147" from any phone line. We operate contact center facilities in Medan, Jakarta and Surabaya. For cellular subscribers, Telkomsel operates call centers under the brand “Caroline” which is the abbreviation of “Customer Care Online” Caroline is accessible through the As part of implementing the principles of good corporate governance ("GCG") towards customers and community, and in line with our mission to provide the best and convenient services, as well as quality products and competitive prices, we continue to maintain communication with customers Sukardi Silalahi Director of Consumer Service Customers management We manage customers with classify into two groups, personal customers and corporate customers. We offer service level guarantees, which guarantee a specified minimum level of service to customers in terms of product quality and customer handling. We routinely engage independent market analysts to conduct surveys and market research on our customers' levels of satisfaction and loyalty. In 2013, we achieved the following levels of the Customer Satisfaction Index (“CSI”) and Customer Loyalty Index (“CLI”). 88.5% CSI average CUSTOMER SERVICE We provide our customers a 1. Plasa Telkom & GraPARI Plasa Telkom is a walk-in number of value-added services customer service point which allow them to conveniently at which customers access a wide range of our products and services. A. Personal Customer Segment In order to facilitate our can access information on a range of products and services, including billing, payment, account suspension, individual customers' access promotional deals and to our products and services, submit complaints. As of we operate a network of Plasa December 31, 2013, we Telkom and GraPARI outlets, maintained 572 outlet and contact centers and also Plasa Telkom in Indonesia provide services through our websites and on-line applications. and we opened an overseas Plasa Telkom in Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 59 following numbers: - “133” by kartuHalo users; customers can download through community the application for use on management, value added Android and BlackBerry resellers, marketing and - “155” (24 hours, free) Appworld. and “188” (24 hours, chargeable) by simPATI B. Corporate Customers and Kartu As users; and We categorize our corporate sales using web-based technology, and tele- account management. - “021-21899811” in customers into business, Jakarta, “022-2553811” enterprise, wholesale and Our Enterprise Service Division serves large in Bandung, “031- international groups based on enterprise customers 8403811” in Surabaya, a numbers of criteria such as including State-Owned “061-4578811” in contribution to our revenues, Enterprises, national Medan, "0411-438150" our customers' geographic corporations and in Makassar or scope of operations and the multinational corporations. “08071811811” in other type and range of products Our Enterprise Service areas of Indonesia, when accessed through cell phones not operated by us or through fixed telephone lines. 3. Web-in and services procured from Division account managers us. As part of our strategy to provide streamlined and respresentatives managers manage customer service, we operate relationships by account management teams conducting visits to to manage our relationships our clients' offices. We with our corporate clients who are supported by the categorize enterprise customers into thirteen Web-in is our facilities Telkom Solution House, SME groups based on our to our customers, which Centers and Contact Centers, customers’ line of customers can access products and services independently through our website on “MyTelkom” menu. Available services include e-billing registrations, collective bill registrations, and complaints. as described below. 1. Account Management Our Business Service Division caters to business business, namely bank management services, education management services, energy & resources services, customers, which include financial management micro customers, SMEs, local governments, cooperatives and rural credit banks. Our services, government management services, hospitality & business services, healthcare & welfare services, logistic & transport Our cellular customers can Business Service Division access on-line services accounts managers and through Telkomsel website representatives managers services, manufacturing on “MyTelkomsel” menu manage customers & agribusiness services, that launched in 2013. Through “MyTelkomsel”, our customer may purchase service packages for Flash directly by conducting site media & communication visits and telephonically. We categorize business customers into three groups based on our services, military & police services, property & construction services, and trading & distribution internet, telephone, SMS, customer’s line of business services. MMS, and international roaming conduct phone public and general services, construction and Our Wholesale Service credit transfers, purchase manufacturing services, Division caters to flash gifts and monitor and trading and business wholesale customers internet quota usage. The services. In addition, we also manage customers which are categorized into the following carrier 60 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis service groups: – Group carrier scope of ISP, VoIP, closed user group, call 2. Telkom Solution Houses service 1: handling OLO Telkomsel, PT. Hutchison CP Telecommunication (“Hutchison”), AXIS, PT Sampoerna Telekomunikasi Indonesia and PT Pasifik Satelit Nusantara. center and satellite provider. and SME Centers We offer special services to our corporate Our subsidiary, Telin, caters customers through our to international carriers Telkom Solution Houses who provide TIMES located in Jakarta, portfolio overseas. The Denpasar and Surabaya. priority of provision of the We also operate SME services is determined in line with the opportunity Centers in Jakarta, Surabaya, Bandung, – Group carrier service in every countries where Palembang, Balikpapan 2: handling OLO Indosat, XL-Axiata, Bakrie Telecom, Smart teams in Singapore and account management Centers function are as a community and business Telin operates. We operate and Makassar. Our SME Telecom, Batam Bintan Jakarta as headquarter. center. Telecom and PT Beginning in 2013, Telin Indonesia Comnets Plus commenced operating 3. Contact Center (“ICON+”). telecommunication – Group carrier service services in Hong Kong- 3: handling operators within the business Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan and We provide contact number “500250” for business customers and a toll-free number “08001Telkom” United States of America. (“08001835566”) for enterprise customers. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 61 Service Level Guarantee Program We offer service level guarantees, Customer Satisfaction and Loyalty We routinely engage to provide fair compensation by applying a service level guarantee ("SLG"). This commitment is adjusted with which guarantee a specified independent market analysts customers' and society's minimum level of service to to conduct surveys and market demands as articulated in our customers in terms of product research on our customers' policy. quality and customer handling. levels of satisfaction and loyalty. In 2013, we achieved the Throughout 2013, we continued For individual customers, the following levels of the Customer our efforts and improvement program is available for fixed Satisfaction Index (“CSI”) and in managing product safety, line, Flexi as well as data and Customer Loyalty Index (“CLI”) complaints and after-sales internet subscribers. The service using the “top two boxes” and guarantees to ensure customers' level guarantee is applicable “top three boxes with seven convenience and protection to customers applying for scales” methods as follow: guarantee through the following new connections, a change in – personal customer segment: measures, among others: type of service, resolution of 80.16% in CSI and 67.64% in - To ensure that the service disruption, resumption CLI. development of a particular of disconnected service and – business customer segment: new product will lead to the complaints over customer billing. 91,23% in CSI and 87,27 % in right product commercially Under this program, we will CLI. acceptable in the market, provide non-cash compensation – enterprise customer segment: we implements standard such as free subscriptions for a 94.28% in CSI and 97.26% in guidelines for the incubation limited period, if we fail to meet CLI. the minimum standard. For the corporate customer segment, the service level CONSUMER PROTECTION As our responsibility to apply process of innovation products. An incubation process is needed to support the innovation and creation of a new product through guarantee is provided under a good corporate governance successive phases of idea contract agreed between us and (“GCG”) to our customers and submission, customer and the relevant customers. We offer the public, and in line with our idea validation, product service level guarantees to OLOs mission to provide excellent validation, business model and certain wholesale customers service, convenience, quality validation, and market who use our SL Digital, IP Transit products and competitive validation. and Metro-E products. Our pricing, we ensure a continuous - Upholding the principle guarantee covers the availability communication with our of producing high quality of our services and the time customers. We believe that products and services that taken to install and repair the efficient and proactive can deliver maximum benefits equipment we provide. We communications play an and contribute to economic divide service levels guarantees important role for the Company's growth. for such customers into five going concern and to ensure that - Consistently maintaining classes of service (Bronze, Silver, quality remains above standard. ethical standards in Gold, Platinum and Diamond) product sales (direct sales), which represent different levels With respect to upholding advertisement and promotion. of price, products and services service and after-sales service - Applying ethical advertising offered and technical parameters standards, we are committed practices, taking into guarantee. consideration the rules on advertising ethics in 62 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Indonesia. methods the convenient of of residence with service usage - Ensuring that the public has telecommunication services calculation that are based on easy access to products and customers, in cooperation with (i) the number of minutes of use after-sales service. Collecting Agents (“CA”) such for celluler sevice, (ii) charges - Supporting healthy as national commercial banks, for value-added services used competition principles and regional development banks, during a certain period, and practices. PT Pos Indonesia, various (iii) subscription fees for basic - Maintaining a customer employee cooperatives, services and other services. On satisfaction orientation. minimarkets and others. July 2013, Telkomsel provided - Strive continuously to satisfy Payments can be made in cash additional convenience for the required benchmarks or non-cash. Cash payment postpaid customers through as stipulated in a several can be made at various our e-billing, whereby billing Ministerial Decrees governing payment counters at Plasa statements are sent via e-mail. service quality standards, Telkom, employee cooperatives, namely Ministerial Decrees banks, post offices, minimarkets Telkomsel bill payments can on Establishment of Service and other sub CA outlets, be made by cash payment at Quality Standards for while non cash payments can Plasa GraPARI outlets or banks' Domestic Fixed Network, be made through auto debit, teller, and also through ATM, Domestic Long Distance credit card, bank transfer to a phone banking, internet banking, Fixed Network, International Telkom account (for corporate mobile banking, credit card, and Direct Dial Fixed Network, customers/OLO), Automated auto debit. Telkomsel has also FWA Domestic Fixed Network and Internet Teller Machines (“ATM”), mobile cooperated with certain CAs, banking, internet banking or comprising of private national Telephony Services for Public source of funds (Flexicash, banks, regional development Needs ("ITKP"). Mcash, or Tcash). banks, and PT Pos Indonesia, which are authorized to receive Service Centers and Consumer Complaints Mechanism We have customer service For users of mobile services, payments from kartuHalo Telkomsel as one of our customers. In addition, customers subsidiaries has applied a can also make payments via the billing system based on Online web TCare (https://my.telkomsel. centers at all our regional and Charging System (“OCS”) for its com). branch offices where customers prepaid and postpaid products. can visit in person, and we also The new system is expected offer an online complaints center to improve service quality as through our website customers will be offered options Customer Receivable Management The Finance, Billing and (www.telkom.co.id) as well as of payment method, while Collection Center Unit (“FBCC”) a contact center that can be allowing Telkomsel to adopt manage billing and payment reached by dialing "147" for retail regional cluster based pricing of receivables of customers customers and "500250" for strategy. business customers. who are grouped according to customer and product segments BILLING, PAYMENT AND COLLECTION We have a periodic billing Previously, Telkomsel applied service management concept, a centralized, accurate and by applying Telkom Revenue standardized periodic billing Management System (“TREMS”). system in all regions. Subscribers The application of TREMS has system that suits the products of postpaid kartuHalo services features that it: and segment customers. We would receive monthly billing - Allows customers to pay bills provides various payment statements sent to their address throughout the service area. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 63 - Receives both cash and non- In a case a customer has not collection. If a customer has cash payment. made payment until the due not made payment until his/ - Receives Security Deposit date, the customer will be her bill’s due date, Telkomsel (“SD”) from a customer who penalized according to the type will suspend the customer plans to unsubscribe which is of products and services he/ outgoing calls. If such customer estimated based on average, she uses. Sanctions imposed fails to make payments until warm or pro-rata usages, the may include the imposition of the second month after the due SD will be recalculated in the late fees, call limitation and line date, Telkomsel will disconnect next bill. disconnection as set out in the the customer’s line. In the mean - Receives an advance as down Subscription Contract. We have time, Telkomsel will keep seeking payment which will be stated applied Integrated Dunning payment from such customer, in the next month’s billing Management System (“IDMS”) including in collaboration with statement. designed to provide initial billing debt-collecting agents. - Facilitates partial payments information and reminding from corporate customers. calls for current, 1-month and A customer whose line has - Facilitates payment by 2-month overdue bills. IDMS is been disconnected, but intends installments. also used for electronic billing to continue subscribing to - Features Telkom Single statement (“eBS”) which is sent Telkomsel’s services must first Invoice (“TSI”) which to subscribers’ e-mail accounts. settle his/her overdue bill and combines multiple invoices Invoices for corporate and OLO fill out an application for new from multiple services into customers are printed and sent services. Telkomsel does not a single billing statement, by special couriers. charge fees or impose interest on in addition to other various late payments. comfortable payment Telkomsel has its own transactions. mechanism for receivalbe 64 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Risk Factors As a business entity, A. Risks Related to Indonesia Telkom existence is 1. Political and Social Risks affected by various risk factors that could adversely affect our business, financial condition, operations or business prospects. Current political and social events in Indonesia may adversely affect our business Indonesia is facing a couple of critical political events in 2014, namely the Legislative Election scheduled for Indonesia is facing a couple of critical political events in 2014, namely the Legislative Election scheduled for April 9, 2014, and then the Presidential Election for President and Vice President scheduled for July 9, 2014. Political tensions are predicted to increase during the successive stages of both the Legislative and the Presidential elections. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 65 As political tensions rose, experienced political enacted a new labor law social and civil disturbances instability, as well as general that gave employees and conflicts are also social and civil unrest. greater protections. predicted to increase. Social For example, since 2000, Occasional efforts to reduce conflicts, in particular, are thousands of Indonesians these protections have predicted to escalate and have participated in prompted an upsurge in become more of a problem demonstrations in Jakarta public protests as workers in the lead-up period to the and other Indonesian cities responded to policies that 2014 Presidential Election. both for and against former they deemed unfavorable. The dynamics of political maneuvering to win the sympathy of different President Abdurahman Wahid, former President Megawati, and current groups of the public will President Susilo Bambang There can be no assurance that social and civil disturbances will not instead triggers frictions at Yudhoyono as well as in occur in the future and the grass-root level. response to specific issues, on a wider scale, or that Political tensions will including fuel subsidy reductions, privatization almost certainly increase of state assets, anti- any such disturbances will not, directly or indirectly, materially and adversely accompanied with a variety corruption measures, affect our business, financial of political in-fighting as decentralization and condition, results of well as social disturbances. provincial autonomy and operations and prospects. Nevertheless, given the track the American-led military record of past elections in campaigns in Afghanistan Terrorist activities in 1999, 2004 and 2009 which and Iraq. Although these Indonesia could destabilize were relatively peaceful, demonstrations were Indonesia, which would safe and under control, the generally peaceful, some adversely affect our vigilance of Indonesia's security forces, and also the now politically more turned violent. business, financial condition and results of operations, Separatist movements and and the market price of our mature Indonesian electors, clashes between religious securities it is believed that security and ethnic groups have also conditions in 2014 will not resulted in social and civil There have been a number be compromised. unrest in parts of Indonesia, of terrorist incidents in Since 1998, Indonesia has in Papua currently, where May 2005 bombing in such as Aceh in the past and Indonesia, including the experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesia’s changing political landscape. In there have been clashes between supporters of Central Sulawesi, the Bali bombings in October those separatist movements 2002 and 2005 and the and the Indonesian military, bombings at the JW Marriot including continued activity and Rizt Carlton hotels in Papua, by separatist in Jakarta in July 2009. rebels that has led to violent Although the Government incidents. There have also has successfully countered 1999, Indonesia conducted been inter-ethnic conflict, some terrorist activities in its first free elections for for example in Kalimantan, recent years and arrested parliament and president. as well as inter-religious several of those suspected Indonesia also has many political parties, without any one party holding a clear majority. Due to these factors, Indonesia has, from time to time, conflict such as in Maluku of being involved in these and Poso. incidents, terrorist incidents may continue and, if serious Labor issues have also come or widespread, might have to the fore in Indonesia. In 2003, the Government a material adverse effect on investment and confidence 66 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis in, and the performance of, downgrade of US sovereign affected Indonesia was the the Indonesian economy debt in 2012 and concerns depreciation and volatility in and may also have a material adverse effect on our business, financial condition, results of over the debt crisis in the the value of the Indonesian Eurozone. Uncertainty over the outcome of the Eurozone governments’ Rupiah as measured against other currencies, such as the US Dollar. The Rupiah operations and prospects financial support programs continues to experience and the market price of and worries about sovereign significant volatility. our securities. There can be finances generally are no assurance that terrorist activities will not occur again in future, or that if ongoing. If the crisis becomes protracted, or extends to Asia and From 2009 to 2013, the Indonesian Rupiah per US Dollar exchange rate ranged from a high of Rp8,508 such events do occur, they Indonesia, we can provide per US Dollar to a low of will not have an impact on no assurance that it will not Rp12,270 per US Dollar. have a material and adverse As a result, we recorded 2. Macro Economic Risks business. business or our securities market price in Indonesia capital market. Negative changes in global, regional or Indonesian economic activity could adversely affect our business Changes in the Indonesian, regional and global economies can affect our performance. Two that impacted Indonesia’s economy were the Asian economic crisis of 1997 and the global economic crisis which started in 2008. The 1997 crisis was characterized in Indonesia effect on Indonesia’s economic growth and consequently on our Adverse economic conditions could result in less business activity, less for consumers to spend and reduced consumer purchasing power, which may reduce demand for communication services, which in turn would have an adverse effect on our foreign exchange losses of Rp210 billion in 2011, Rp189 billion in 2012 and Rp249 billion in 2013. The Rupiah depreciated significantly in 2013. As of December 31, 2013, the Indonesian Rupiah per US Dollar exchange rate Dollar compared to Rp9,670 per US Dollar as of December 31, 2012. To the extent that the Indonesian Rupiah depreciates further from the exchange rate as disposable income available stood at Rp12,170 per US business, financial condition, of December 2013, our results of operations and prospects. There is no US Dollar-denominated obligations under our assurance that there will not accounts payable and be a recurrence of economic procurements payable, as significant events in the past including our services, by, among others, currency instability in future, or well as payments for foreign depreciation, a significant that, should it occur, it will currency-denominated decline in real gross domestic product, high not have an impact on the performance of our interest rates, social unrest business. and extraordinary political loans payable and bonds payable, would increase in Indonesian Rupiah terms. A depreciation of the Rupiah developments, while the Fluctuations in the value of would also increase the global economic crisis that the Indonesian Rupiah may Rupiah cost of our capital arose from the subprime materially and adversely expenditures as most of mortgage crisis in the US affect us put Indonesia’s economy under pressure, although Our functional currency not as severely as in 1997. is the Indonesian Rupiah. our capital expenditures are priced in or with reference to foreign currencies, mainly US Dollars and Euros, while The global financial markets One of the most important a substantial majority of have also experienced volatility as a result of the effects of the Asian economic crisis that our revenues are in Rupiah. Such depreciation of the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 67 Indonesian Rupiah would result in losses on foreign exchange translation, activity, an economic recession, loan defaults or declining subscriber Ratings, will not change or downgrade the credit ratings of Indonesia. Any significantly affect our total usage of our services, and such downgrade could expenses and net income as a result, we may also have an adverse impact on and reduce the US Dollar face difficulties in funding liquidity in the Indonesian amounts of dividends received by holders of our capital expenditures and in implementing our our ADSs. We can give no business strategy. Any of financial markets, the ability of the Government and Indonesian companies, assurances that we will be the foregoing consequences including us, to raise able to control or manage our exchange rate risk could have a material adverse effect on our additional financing and the interest rates and other successfully in the future or business, financial condition, commercial terms at which that we will not be adversely results of operations and such additional financing is affected by our exposure to prospects. exchange rate risk. In addition, while the Indonesian Rupiah has generally been freely from time by time, Bank Indonesia has intervened in the currency exchange markets in furtherance of available. Interest rates on our floating rate Rupiah- denominated debt would Downgrades of credit ratings of the Government also likely increase. Such or Indonesian companies events could have material could adversely affect our adverse effects on our business, financial condition, results of operations and As of the date of this prospects. Annual Report, Indonesia’s sovereign foreign currency 3. Disaster Risks convertible and transferable, business its policies, either by selling long-term debt is rated Indonesia is vulnerable to Indonesian Rupiah or by “Baa3” by Moody’s natural disasters and events using its foreign currency (upgraded from “Ba1” on reserves to purchase Indonesian Rupiah. We can give no assurances January 18, 2012), “BB+” by Standard & Poor’s (upgraded from “bb” on results beyond our control, which could adversely affect our business and operating that the current floating April 8, 2011) and “BBB” by exchange rate policy of Bank Indonesia will not be modified or that the Government will take Fitch Ratings (upgraded Many parts of Indonesia, from “BB+” on December including areas where 15, 2011). Indonesia's short- we operate, are prone to term foreign currency debt natural disasters such as additional action to stabilize, is rated “B1/NP” by Moody’s, floods, lightning strikes, maintain or increase “B” by Standard & Poor’s typhoons, earthquakes, the Indonesian Rupiah’s and “B” by Fitch Ratings. On tsunamis, volcanic eruptions, value, or that any of these January 18, 2012, Moody’s fires, droughts, power actions, if taken, will be successful. Modification of the current floating exchange rate policy upgraded Indonesia’s long-term debt rating to investment grade status. outages and other events beyond our control. The Indonesian archipelago is one of the most volcanically could result in significantly The likelihood of these active regions in the higher domestic interest rates, liquidity shortages, capital or exchange agencies reviewing or changing these ratings downwards this year is, world as it is located in the convergence zone of three major lithospheric controls or the withholding based on the information plates. It is subject to of additional financial that we have today, low. significant seismic activity assistance by multinational However, we can give no that can lead to destructive lenders. This could result assurances that Moody’s, earthquakes, tsunamis or in a reduction of economic Standard & Poor’s or Fitch tidal waves. From time 68 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis to time, natural disasters have killed, affected or widespread flooding occur Ash and acrid smoke from regularly during the rainy the volcano have blanketed displaced large numbers of season from November villages and crops. people and damaged our equipment. These events to April. Cities, especially Jakarta, are frequently In 2010, our submarine in the past, and may in the subject to severe localized cables forming part of our future, disrupt our business flooding which can result backbone suffered damage activities, cause damage to in major disruption, and due to a tsunami in West equipment and adversely affect our financial performance and profit. In recent years, several natural disasters have occurred in Indonesia occasionally fatalities. Jakarta experienced significant floods in February 2007 as did in Solo in Central Java in Sumatra and an earthquake in Sumbawa. These were repaired. Although we have January. In January 2009, implemented a Business torrential rain caused a dam Continuity Plan (“BCP”) (in addition to the Asian to burst outside Jakarta, and a Disaster Recovery tsunami in 2004), including flooding hundreds of homes Plan (“DRP”), and test tsunamis in Pangandaran in a densely populated these regularly and we have in West Java in 2006 and 2010, an earthquake in Yogyakarta in Central Java in 2006, a hot mud neighborhood, resulting in insured our assets to protect the death of approximately from any losses attributable 100 people. Landslides to natural disasters or regularly occur in rural areas other phenomena beyond eruption and subsequent during the wet season. our control, there is no flooding in Sidoarjo in East Java in 2006 and separate There are numerous assurance that the insurance coverage will be sufficient earthquakes in Papua, West volcanoes in Indonesia, any to cover the potential Java, Sulawesi and Sumatra of which can erupt without losses, that the premium in 2009. On September 2, 2009, an earthquake in West Java caused damage to our assets. On September 30, 2009, an earthquake in West Sumatra disrupted the provision of telecommunications services in several locations. Although our Crisis Management Team in cooperation with our employees and partners warning. In October and November 2010, Mount Merapi in Central Java payable for these insurance policies upon renewal will not increase substantially erupted several times, killing in the future, or that an estimated 140 persons, natural disasters would not displacing several hundred significantly disrupt our thousand others in a 20 km operations. radius, causing billions of dollars of property damage There are no assurances and disrupting air travel. Since April 2008, Mount that future geological or meteorological occurrences Soputan in North Sulawesi, will not have a significant Mount Egon in Flores Island, impact on Indonesian and Nusa Tenggara, Mount Ibu its economy. A significant in North Maluku and Anak earthquake, other geological was able to restore services Krakatau in the Sunda Strait disturbance or weather- quickly, the earthquake have shown significant caused severe damage to increased volcanic activity. our assets. There were a number of earthquakes Mount Sinabung, 60 km (40 miles) southwest of related natural disaster in any of Indonesia’s more populated cities and financial centers detected in 2010 through Sumatra's main city Medan, could severely disrupt 2013, although none of them erupted on August 29, 2013 after lying dormant for 400 years, and erupted confidence, thereby again in November 2013. materially and adversely the Indonesian economy and undermine investor presented significant risks to our business in general. Flash floods and more Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 69 affecting our business, governance and reporting financial condition, results of requirements in multiple operations and prospects. Our operations may be jurisdictions. There may be less publicly- available information adversely affected by an about Indonesian public conformity with IFAS. IFAS differs in certain significant respects from IFRS, and, as a result, there are differences between our financial results as outbreak of avian influenza, companies, including us, reported under IFAS and Influenza A (H1N1) virus or than is regularly disclosed IFRS, including profit for the other epidemics by public companies in year attributable to owners An outbreak of avian influenza, Influenza A (H1N1) virus or a similar countries with more mature of the parent company securities markets. As a result, investors may not have access to the same and net income per share. We distribute dividends based on profit for the epidemic, or the measures level and type of disclosure year attributable to owners taken by the Governments as that available in other of the parent company of affected countries, including Indonesia, countries, and comparisons and net income per share with other companies in determined in reliance on against such an outbreak, other countries may not be IFAS. could severely disrupt the Indonesian and other possible in all respects. economies and undermine Our financial results investor confidence, thereby are reported herein in materially and adversely affecting our financial condition or results of conformity with IFRS, however, we report our Using IFAS results, our profit for the year attributable to owners of the parent company would be Rp12,850 billion financial results to OJK (as and Rp14,205 billion for operations and the market the successor to Bapepam- 2012 and 2013, and our net value of its securities. LK) in conformity with IFAS, income per share would be Moreover, our operations which differs in certain Rp133.84 and Rp147.42 for could be materially significant respects from 2012 and 2013. Dividends disrupted if our employees IFRS, and we distribute declared per share were remained at home and away dividends based on profit Rp87.2 for 2012. The from our principal places of business for extended for the year attributable to owners of the parent dividends per share for the year 2013 will be decided at period of time, which would company and net income the 2014 AGMS, scheduled have a material and adverse per share determined in for April 2014. effect on our financial condition or results of reliance on IFAS operations and the market In accordance with We are incorporated in Indonesia, and it may not value of its securities. regulations of OJK and be possible for investors to the IDX, we are required to effect service of process, or 4. Other Risks report our financial results enforce judgments, on us Indonesian Corporate to OJK in conformity with within the United States, or Disclosure Standards differ IFAS. We have provided to to enforce judgments of a in significant respects from OJK our financial result for foreign court against us in those applicable in other the financial year ended Indonesia countries, including the December 31, 2013, on United States As an IDX, NYSE and LSE listed company, we are subject to regulatory and exchange corporate March 6, 2014 which contains our audited Consolidated Financial We are a limited liability company incorporated in Indonesia, operating Statements as of December within the framework of 31, 2013 and for the years Indonesian laws relating then ended prepared in to Indonesian companies 70 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis with limited liability, and Our controlling Government's stake includes all of our significant assets shareholder’s interest may are located in Indonesia. In differ from those of our addition, our Commissioners other shareholders and our Directors reside in the Series A Dwiwarna share which has special voting rights and veto rights over certain strategic Indonesia and a substantial The Government has a matters under Indosat's portion of the assets of controlling stake of 53.1% of Articles of Association, such persons are located our issued and outstanding outside the United States. shares of common stock including decisions on dissolution, liquidation As a result, it may be difficult for investors to and the ability to determine and bankruptcy, and also the outcome of all actions permits the Government to effect service of process, requiring the approval or enforce judgments on us of the shareholders. The nominate one Director to its Board of Directors and or such persons within the Government also holds our one Commissioner to its US, or to enforce against us one Series A Dwiwarna Board of Commissioners. or such persons in the US, share, which has special judgments obtained in US voting rights and veto There may thus be instances where Government interests courts. rights over certain matters, will conflict with ours. including the election and There is no assurance that We have been advised by removal of our Directors and the Government will not Hadiputranto, Hadinoto & Commissioners. It may also direct opportunities to Partners our Indonesian use its powers as majority Indosat or favor Indosat legal advisor that judgments shareholder or under the of US courts, including Dwiwarna share to cause when exercising regulatory power over the Indonesian judgments predicated upon us to issue new shares, telecommunications the civil liability provisions amend our Articles of industry. If the Government of the US federal securities Association or bring about were to give priority to laws or the securities laws actions to merge or dissolve Indosat’s business over of any state within the US, are not enforceable in Indonesian courts, us, increase or decrease our authorized capital or ours or to expand its stake in Indosat, our business, reduce our issued capital, or financial condition, and although such judgments veto any of these actions. results of operations could be admissible as One or more of these may non-conclusive evidence result in the delisting of and prospects could be materially and adversely in a proceeding on the underlying claim in an Indonesian court. They have also advised that there is doubt as to our securities from certain affected. exchanges. Further, through the MoCI, the Government B. Risks Related to Our Business exercises regulatory power over the Indonesian 1. Operational Risks whether Indonesian courts telecommunications will enter judgments in original actions brought in Indonesian courts industry. As of December 31, predicated solely upon the 2013, the Government civil liability provisions of had a 14.3% equity the US federal securities stake in PT Indosat Tbk. A material failure in the continuing operations of our network, certain key systems, gateways to our network or the networks of other network operators could adversely affect our laws or the securities laws of ("Indosat"), our competitor, business, financial condition, any state within the US. As principally in fixed IDD results of operations and a result, the claimant would telecommunications prospects be required to pursue claims services, and the competitor against us or such persons in cellular services of in Indonesian courts. our majority owned We depend to a significant degree on the uninterrupted subsidiary, Telkomsel. The operation of our network Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 71 to provide our services. For overseas. We also depend interrupted. Any failure that example, we depend on on certain technologically results in an interruption access to our fixed wireline sophisticated management of our operations or of the network (“PSTN”) for the information systems operation of our fixed line and other systems, such network and the termination as our customer billing and origination of cellular system, to enable us to provision of any service, whether from operational disruption, natural disaster or otherwise, telephone calls to and from conduct our operations. could adversely affect our fixed line telephones, and Our network, including business, financial condition, a significant portion of our our information systems, results of operations and cellular and international IT and infrastructure and prospects. long-distance call traffic is the networks of other routed through the PSTN. operators with whom our Our networks, face both We also depend on access subscribers interconnected, potential physical and to internet and broadband are vulnerable to damage cyber security threats, network and a cellular network. Our integrated or interruptions in operation such as theft, vandalism from a variety of sources and acts intended to network includes a copper including earthquake, fire, disrupt operations, which access network, fiber optic flood, power loss, equipment could adversely affect our access network, BTSs, failure, network software operating results switching equipment, optical flaws, transmission cable disruption or similar events. Our networks and and radio transmission equipment, an IP core network, satellite and application servers. on interconnection to the networks of other telecommunications Although we have a comprehensive business continuity plan and disaster test and strive to improve, equipment, particularly our wireline access network, face both potential physical and cyber security threats. Physical threats include theft and we cannot guarantee that vandalism of our equipment the implementation of such and organized attacks In addition, we also rely recovery plan which we operators to carry calls and plans will be completely or against key infrastructure data from our subscribers to partially successful should intended to disrupt the subscribers of operators any portion of network both within Indonesia and be severely damaged or operations. In addition, telecommunications 72 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis companies worldwide face increasing cyber security threats as businesses become to criminal activity and it could have an adverse regular upgrades of our data effect on our operating security measures. However, results there is no assurance that increasingly dependent on our physical and cyber telecommunications and security measures will be A revenue leakage is a generic risk for all telecommunications computer networks and adopt cloud computing successful. Damage to our network, equipment or operators. We may face technologies. Cyber security data and the need to repair revenue leakage problems, threats include gaining unauthorized access to such damage resulting from a physical or cyber our systems or inserting attack may materially or problems with collecting all the revenues to which we may be entitled, due to the computer viruses or and adversely affect our possibility of weaknesses at malicious software in our business, financial condition the transactional level, delay systems to misappropriate and operating results. Our in transaction processing, consumer data and other sensitive information, corrupt our data or disrupt our operations. networks face potential security threats, such as theft or vandalism, which dishonest customers or other factors. could adversely affect our We have taken some Unauthorized access may operating results. also be gained through traditional means such as the theft of laptop We face a number of risks relating to our internet- computers, portable data related services devices and mobile phones preventive measures against the possibility of revenue leakage by increasing control functions in all of our existing business process, implementing and intelligence gathering In addition to cyber revenue assurance methods, on employees with access. security threats, because employing adequate policies Although we have not we provide connections to the internet and host and procedures as well as implementing information experienced any material websites for customers and systems applications to successful cyber attacks to develop internet content minimize revenue leakages. date that have affected our and applications, we may Nonetheless, there is no operations, our network and be perceived as being assurance that in the future our website are frequently associated with the content there will be no significant targeted by cyber attacks. carried over our network revenue leakages or that any A successful cyber attack may lead us to incur or displayed on websites that we host. We cannot such leakages will not have a material adverse affect on substantial costs to repair and do not screen all of our operating results. damage or restore data, implement substantial this content and may face litigation claims due to a New technologies may organizational changes and perceived association with adversely affect our ability training to prevent future this content. These types to remain competitive similar attacks and lost of claims can be costly to revenues and litigation costs defend, divert management The telecommunications due to misused sensitive resources and attention, and industry is characterized may damage our reputation. by rapid and significant information, and cause substantial reputational damage. We take preventive A revenue leakage might and remedial measures, including enhanced occur due to internal weaknesses or external changes in technology. We may face increasing competition due to technologies currently under cooperation with the police, factors and if this happened development or which particularly in areas prone Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 73 may be developed in the through which we also future. Future development provide content to our or suffer launch delays or failures. The loss or or application of new or alternative technologies, telecommunications reduced performance of our subscribers. We do not yet satellites, whether caused services or standards could have substantial experience by equipment failure or require significant changes as a content provider its license being revoked, to our business model, the development of new products, the provision therefore we cannot assure may adversely affect our you that we will be able financial condition, results to effectively manage the of operations and ability to of additional services and growth of this business. provide certain services substantial new investments by us. New products and We cannot assure you that Our Telkom-1 and services may be expensive our technologies will not to develop and may result become obsolete, or be in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technological changes will subjected to competition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed Telkom-2 satellites have a limited operational life, currently estimated to end approximately in 2015 and 2020, respectively. A number of factors affect the operational lives of satellites, including the affect our operations or circumstances on quality of their construction, the competitiveness of our commercially acceptable the durability of their services. Furthermore, we terms. Our failure to react to systems, subsystems and cannot guarantee that we rapid technological changes component parts, on-board will be able to effectively could adversely affect our fuel reserves, accuracy integrate new technologies business, financial condition, of their launch into orbit, into our existing business results of operations and exposure to micrometeorite model. prospects. storms, or other natural events in space, collision As part of our continuing Our satellites have limited with orbital debris, or the development of our TIMES operational life they may manner in which the satellite business, we continue to be damaged or destroyed is monitored and operated. seek to develop businesses during in-orbit operation We currently use satellite 74 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis transponder capacity on fully insured the cost of our satellites in connection the satellite, the loss of with many aspects of our business, including direct the Telkom-3 satellite will require us to lease leasing of such capacity and transponder capacity from routing for our international a third-party provider to eastern parts of Indonesia which currently rely largely on satellite coverage for telecommunications services, and could adversely affect our long-distance and cellular fulfill our commitments business, financial condition services. to our satellite operations and results of operations. customers, with likely lower Moreover, International margins than we would 2. Financial Risks Telecommunication Union have received from the use We are exposed to interest (“ITU”) regulations specify of Telkom-3 had it been rate risk that a designated satellite successfully launched. We slot has been allocated for Indonesia, and the Government has the right to determine which party is licensed to use such slot. While we currently hold a license to use the designated satellite slot, are currently in the initial Our debt includes bank phases for the procurement borrowings to finance of a replacement satellite, the Telkom-3S, which is currently planned for launch in 2016. Although our operations. Where appropriate, we seek to minimize our interest rate risk exposure by the Telkom-1 satellite may entering into interest rate still be operational for swap contracts to swap in the event our Telkom-1 several years after the end floating interest rates for and Telkom-2 satellites experience technical problems or failure, the of its currently estimated operational lifespan in 2015, if there is any delay Government may determine in the development and fixed interest rates over the duration of certain of borrowings. However, our hedging policy may that we have failed to optimize the existing slot under our license, launch of the Telkom-3S, not adequately cover our or if the operational life of exposure to interest rate the Telkom-1 satellite ends fluctuations and this may which may result in the before the Telkom-3S is Government withdrawing successfully launched, or our license. We cannot damage or failure renders assure you that we will be our existing satellites able to maintain use of the unfit for use, we would designated satellite slot in a need to lease additional result in a large interest expense and an adverse effect on our business, financial condition and results of operations. manner deemed satisfactory transponder capacity from 2013 was a challenging year by the Government. a third party, which would for Indonesia's economy In anticipation of the growth in demand for satellite services and to support our business strategy with regard to providing TIME services, we signed a contract in of the Telkom-3 Satellite System. However, due to likely increase our costs of operations. Failure to lease adequate satellite due to increased pressure on macro economy stability. Responding to these capacity from a third-party challenges, Bank Indonesia provider may also result in service interruptions and/or a cessation of our satellite operations. The business could increase has adopted a tight monetary policy by raising its benchmark BI Rate by 175 basis points in order to mitigate inflationary pressures as well as to 2009 for the procurement termination of our satellite expenses associated with stimulate corrections to a launch failure in August our provision of other 2012, the Telkom-3 satellite telecommunications the current account deficit towards a more healthy and ended up in an unusable orbit. Although we had services, particularly in the sustainable balance. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 75 The trend in the increase of BI Rate was followed by increases in the JIBOR and Overall, our financial risk management program aims to minimize losses Bank Indonesia Certificate on the financial assets and (“SBI”) interest rates. In spite financial liabilities arising of the increasing trends of from fluctuation of foreign capital investment. For the years ended December 31, 2011, 2012 and 2013, our actual consolidated capital expenditures totaled JIBOR and SBI interest rates currency exchange rates. Rp14,603 billion, Rp17,272 during 2013, the impact on We have a written policy billion and Rp24,898 the Company's liabilities of for foreign currency risk billion (US$3,030 million), loan interest payment is still management, which mainly respectively. Our ability to manageable and within the covers time deposits Company's work plan and placements and hedging budget going forward, with to cover foreign currency the ongoing uncertainties in the global economy as risk exposure for periods ranging from three up to well as the potential of high twelve months. inflation, and even though Indonesia's economic The exchange rate fundamentals remain strong, of Indonesian Rupiah there is no assurance that weakened relative to the the benchmark BI Rate will US Dollar in 2013, and in decline or continue stable We may not be able to successfully manage our the future, we can give no assurance that we will be able to manage our exchange rate risk fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors, many of which are beyond our control, and upon our ability to obtain additional external financing. We cannot assure you that additional financing will be available foreign currency exchange successfully or that our to us on commercially risk business, financial condition acceptable terms, or at all. or results of operations will In addition, we can only Changes in exchange rates not be adversely affected by incur additional financing in our exposure to exchange compliance with the terms have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations are rate risk. We may be unable to fund the capital denominated in Indonesian expenditures needed for Rupiah and a majority of us to remain competitive denominated in US Dollars. industry in Indonesia Most of our revenues are denominated in Indonesian The delivery of of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capital resources to improve or expand our telecommunications or update our other technology to the extent necessary to remain competitive our capital expenditures are in the telecommunications infrastructure technology Rupiah and a portion is denominated in US telecommunications services is capital intensive. in the Indonesian Dollars (for example from In order to be competitive, telecommunications market. international services). We we must continually expand, Our failure to do so could may also incur additional modernize and update long-term indebtedness in our telecommunications have a material adverse effect on our business, currencies other than the infrastructure technology, financial condition, results of Indonesian Rupiah, including which involves substantial operations and prospects. the US Dollars, to finance further capital expenditures. 76 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 3. Legal and Compliance Risks which will be subject to the Forward-looking statements If we are found liable for price fixing by the discretion of the District Court, which could have Indonesian Anti-Monopoly an adverse effect on our Committee and for class business, reputation and action allegations, we may profitability. be subject to substantial liability which could lead to Class action lawsuits were a decrease in our revenue filed against Telkomsel may not be accurate This Annual Report incorporates forward- looking statements that include announcements regarding our current goals and projections and affect our business, and Indosat during 2007 of our operational reputation and profitability and 2008 in the District performance and future On June 17, 2008, the Indonesian Supervising Committee for Business Competition ("KPPU") determined that our Company, Telkomsel, PT XL Axiata Tbk. (“XL”), PT Bakrie Telecom Tbk. (“Bakrie Telecom”), PT Mobile-8 Telecom Tbk. Court of Bekasi, the Central business prospects. The Jakarta District Court and words “believe”, “expect”, the Tangerang District “anticipate”, “estimate”, Court, relating to Temasek “project” and similar words Holdings (Private) Limited’s identify forward-looking prior cross ownership of shares in Telkomsel and statements. In addition, all statements, other than Indosat, alleging price fixing statements that contain of telecommunications services. The plaintiffs historical facts, are forward- looking statements. withdrew the lawsuit filed While we believe that the (“Mobile-8”) and PT Smart with the District Court Telecom (“Smart Telecom of Bekasi. On January 27, expectations contained in these statements are reasonable, we cannot give an assurance that 2010, the court dismissed the class action filed with the Central Jakarta District they will be realized. Court on the basis that the These forward-looking plaintiffs did not establish statements are subjected now Smartfren had jointly breached Article 5 of Law No.5/1999. We and Telkomsel appealed the KPPU’s ruling to the Bandung District Court and their legal standing and that to a number of risks and the South Jakarta District two members of the plaintiff uncertainties, including Court, respectively. On April class did not qualify as class changes in the economic, 12, 2011, the Supreme Court representatives. On May 24, social and political situation ordered a consolidation of 2010, the court dismissed the appeals and appointed the class action filed with in Indonesia and other risks described in "Risk the Central Jakarta District the Tangerang District Factors". All forward-looking Court to handle the appeals. Court on the basis that the statements, written or Neither we nor Telkomsel plaintiffs failed to establish verbal, made by us or by has received any notification their legal standing as class persons on behalf of us are from the court with respect representatives. deemed to be subject to to the resolution of this those risks. case. See Item 8 on Form There can be no assurance 20F “Financial Information that other subscribers, 4. Regulation Risks – Consolidated Statements people, or partners will We operate in a legal and and Other Financial Information–Material not file similar cases in the regulatory environment that future. If a District Court in is undergoing significant Litigation”. If the District any new class action suit, Court issues a verdict issues a verdict in favor of change. These changes may result in increased against our Company and/ such plaintiff, it could have competition, which may or Telkomsel, we could be an adverse effect on our result in reduced margins subjected to the payment business, reputation and and operating revenue, of a fine, the amount of profitability. among other things. These Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 77 changes may also directly reduce our margins or reduce the costs of our with us in providing telecommunications services. Furthermore, it PER/M.KOMINFO/01/2009 resulted in a substantial reduction in our revenues competitors. These adverse is impossible to anticipate from these services. Although changes resulting from regulation may have a material adverse effect on us. the regulatory policies these services may be that will be applied to new resumed from August 6, 2013 technologies. We derive substantial under MoCI Regulation No.21 year of 2013 dated July 26, 2013, regarding the Operation of Content Provider Services Reformation in Indonesian revenue from telecommunications interconnection services on Mobile Cellular Network regulation initiated by the because we have the largest and Local Fixed Wireless Government in 1999 have, to network in Indonesia and Network with Limited a certain extent, resulted in our competitors must pay Mobility, which replaced the industry’s liberalization, tariffs to connect to our MoCI Regulation No.1/ including removal of barriers network. As regulated by PER/M.KOMINFO/01/2009 to entry and the promotion the MoCI, interconnection and Telkomsel resumed of competition. However, in rates have decreased in these services in August 6, recent years, the volume and recent years. The current 2013, pursuant to the new complexity of regulatory changes has created an interconnection rates, decree, premium SMS service effective in 2011, reduced providers are required to environment of considerable rates by an average of regulatory uncertainty. In addition, as the legal and regulatory environment of the Indonesian telecommunications sector continue to change, 1.5% to 3.0% compared to the previous rates meet stricter requirements that are more difficult to comply with. Accordingly we effective in 2008. See Legal do not expect revenues from Basis and Regulation – premium SMS services to Interconnection. return to levels seen prior to October 2011. competitors, potentially with The termination of greater resources than us, may enter the Indonesian telecommunications sector and compete Telkomsel’s premium SMS In the future, the Government services previously from October 2011 as a result of MoCI Regulation No.1/ may announce or implement other regulatory changes which may adversely affect 78 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis our business or our existing distance service using code. We were required to licenses. We cannot assure the “009” access code. you that we will be able to compete successfully with other domestic and There is a possibility that other operators will be granted IDD licenses in open DLD access codes in all remaining areas on September 27, 2011, by which date our network was foreign telecommunications the future. The operations ready to be opened up to operators, that regulatory of incumbents and the the three-digit DLD access changes will not entrance of new operators codes in all coded areas disproportionately reduce into the international long- throughout Indonesia. our competitors’ costs or disproportionately reduce our revenues, or that regulatory distance market, including the VoIP services provided However, we believe that the by such operators, continue cost for operators who have to pose a significant not upgraded their network changes, amendments or competitive threat to us. infrastructure to open their interpretations of current or We cannot assure you that networks to the three-digit future laws and regulations such adverse effects will access codes to do so is promulgated by the not continue or that such significant. To date, neither Government will not have a increased competition material adverse effect on will not continue to our business and operating erode our market share results. or adversely affect our of the OLOs have made a request to us to connect their networks to enable their DLD access codes to fixed telecommunications be accessible, other than services operating margins with respect to Balikpapan, and results of operations. The entry of additional Indonesian telecommunications operators as providers of We face risks related to international direct dialing the opening of new long services could adversely affect our international telecommunications distance access codes In an attempt to services operating margins, liberalize DLD services, market share and results of the Government issued operations regulations assigning each provider of DLD services and as such, we believe that except with respect to Balikpapan, none of the DLD access codes for any of the licensed operators are usable by customers of other operators. However, if they do so in the future, the implementation of any new DLD access codes can potentially increase We obtained a license and a three-digit access code competition by offering our entered the international to be dialed by customers subscribers more options making DLD calls. In 2005, for DLD services. In addition, long-distance service market in 2004, and acquired a significant market share for IDD the MoCI announced that three-digit access codes for DLD calls will the opening of new DLD access codes is expected to result in increased competition and less services by the end of 2006. be implemented gradually Indosat, one of our primary within five years and that cooperation among industry competitors, entered this it would assign us the incumbents, which may market prior to us and continues to maintain a substantial market share for IDD services. Bakrie Telecom was awarded an IDD license in 2009 to provide international long “017” DLD access code for result in reduced margins five major cities, including and revenues, among other Jakarta, and allow us to things, all of which may have progressively extend it to all other area codes. Indosat was assigned “011” as its DLD access a material adverse effect on us. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 79 New regulations for the cellular (Telkomsel) towers While the number of our configuration of BTS towers and our fixed wireless fixed wireline subscribers may delay the set up of new (Telkom Flexi) towers may increased by 4.0% at the BTS towers or changes in also disadvantage us by end of 2012 and by 4.5% at the placement of existing requiring that we allow the end of 2013, revenues towers, and may erode our competitors to expand from our wireline voice our leadership position by quickly, particularly in urban services decreased by 8.2% requiring us to share our areas where new space for in 2012 and by 8.3% in 2013. towers with our competitors additional towers may be The percentage of revenues In 2008 and 2009, the Government issued difficult to obtain. derived from our wireline voice services out of our Effective 2011, local total revenues continued to regulations relating to the Governments are permitted decrease from 12.2% in 2012 construction, utilization to assess fees of up to 2.0% to 10.4% in 2013. and sharing of BTS towers. of the tax assessed value Pursuant to the regulations, of towers. Although we do the construction of BTS towers requires permits not expect the amount of these fees to be material We have been taking various measures in order to stabilize our from the local government. in 2013, there can be no revenues from wireline The local government has assurance that they will not voice services. However, a right to determine the be substantial in the future. we cannot assure you placement of the towers, the location in which the towers 5. Competition Risks can be constructed, and also Related to Our Fixed that we will be successful in mitigating the adverse impact of the substitution to determine a license fees Telecommunication Business of mobile voice services to build tower infrastructure. We may further lose wireline and other alternative These regulations also obligate us to allow telephone subscribers and means of communication revenues derived from for wireline voice services other telecommunication our wireline voice services or in reducing the rate of operators to lease space and utilize our may continue to decline, which may materially decline in our revenues generated from wireline telecommunications towers adversely affect our results voice services. Migration without any discrimination. of operations, financial from wireline voice services These regulations may adversely affect in the allocation, development or expansion plan of our condition and prospects Revenues derived from our wireline voice services to mobile services and other alternative means of communication may further intensify in the continued to decline future, which may affect the new BTS towers as setting during the past several up of our new towers will years mainly due to the financial performance of our wireline voice services become more complicated. increasing popularity of and thus materially and They may also adversely affect our existing BTS mobile voice services and adversely affect our results other alternative means of operations, financial towers if local governments of communication, such condition and prospects as required any changes in the as VoIP. Tariffs for mobile a whole. placement of the existing towers. services have declined in recent years which has further accelerated Our fixed wireless business is subject to intense The requirement that we share space on our substitution of mobile for competition wireline voice services. 80 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Our fixed wireless telephone of intense competition in increased with the business faces competition our fixed wireless business Blackberry’s popularity. The from an increasing number and the limited capacity of operators, including Bakrie of bandwidth. However, increasing use of mobile broadband services also Telecom and Indosat, as well we cannot assure you adversely affects our market as mobile cellular services, that we will be successful share and revenues from SMS, VoIP services and in mitigating the adverse our fixed data and internet e-mail. impact. Competition may services. further intensify in the Competition in the cellular future, which may affect the We have been taking and fixed wireless markets financial performance of various measures in order has remained intense, with our fixed wireless services each operator launching and thus materially and to mitigate the impact of intense competition increasingly attractive and adversely affect our results of in our data and internet creative marketing programs. operations, financial condition businesses. However, we The lower average tariffs due and prospects as a whole. to intense competition in the cellular market has in part Our data and internet cannot assure you that we will be successful in mitigating such adverse lead to declining ARPU for services are facing increasing impact. Competition may Telkom Flexi, with blended competition, and we may further intensify in the monthly prepaid and experience declining margins future, which may affect the postpaid ARPU decreasing from such services as such financial performance of our from approximately Rp9,500 competition intensifies in 2011, Rp8,700 in 2012, and Rp8,400 in 2013. In addition, Our data and internet data and internet services and thus materially and adversely affect our results while fixed wireless tariffs services are facing increase of operations, financial were previously generally competition from other data condition and prospects as lower than GSM mobile and internet operators as well a whole. cellular tariffs, in part due as mobile operators. to regulatory changes in 6. Competition Risks Related December 2010 in how right- Wireless broadband access to Our Cellular Business of-use fees are calculated, operators that received (Telkomsel) tariff differences between licenses in 2009 for Competition from existing fixed wireless services and Wi-Max technology began service providers and GSM mobile cellular services to establish their businesses new market entrants may are now generally negligible. in the fourth quarter of 2010 adversely affect our cellular As a result, our fixed wireless (for instance First Media) and services business revenue tend to decline, from Rp1,342 billion as of in 2012 (Berca). In 2013, the regulator has permitted the The Indonesian cellular December 31, 2011 to Rp1,225 Wi-Max operators to deploy services business is highly billion as of December 31, the long term evolution competitive. Competition 2012 and Rp1,051 billion as of (“LTE”) technology. This will among cellular services December 31, 2013. adversely affect our market providers in Indonesia is We have been taking Speedy broadband service. including pricing, network various measures in order The number of broadband to mitigate the impact mobile subscribers have quality and coverage, the range of services, share and revenues from our based on various factors, Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 81 second largest operator from current big players, features offered and customer service. Our cellular services business, operated through our while also acquiring additional frequency allocations to facilitate majority-owned subsidiary, the roadmap to LTE Telkomsel, competes primarily against Indosat and XL. Several other smaller GSM and CDMA operators also provide (4G) technology. Further operator consolidation is likely in order to ensure that each operator can remain competitive, cellular services in Indonesia, reduce operational costs, including PT Hutchison CP Telecommunications and also to “rebalance” the broadband mobile (“Hutchison”), PT Natrindo frequency spectrum that Telepon Seluler (“Natrindo” require wider frequency or “AXIS”), Smart Telecom bandwidth. The MoCI and Bakrie Telecom. In also supports operator suitability of business model, the need to acquire new expertises, and also risks related to the online media (copy rights, consumer protection, confidentiality of customer data). Focusing on international expansion is one of our strategic business intiatives. In particular, we already expansion in seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, addition to current cellular consolidation, as it has been Malaysia, Taiwan, and service providers, the MoCI reluctant in recent years United States of America may license additional to issue new licenses for through our subsidiary, Telin. cellular service providers cellular players. in the future, and such new entrants may compete with While operator Expanding our operations internationally exposes us to a number of risks associated consolidation may lead to with operating in new improved conditions in the jurisdictions for example, cellular telecommunication our international operations could be adversely affected by political, or social instability and unrest, by regulatory changes, such as an increase in taxes applicable to our operations, macroeconomic instability, limitations on or controls on the foreign exchange trade, competition from industry, it also present challenges for Telkomsel in maintaining its market position. "smartfren". On January 18, 7. Risks Related to 2011, Mobile-8 acquired a Development of New significant number of shares Businesses us. In March 2010, Smart Telecom and Mobile-8 announced the signing of a cooperation agreement to use the same logo and brand under the brand name in Smart Telecom, and on April 12, 2011 PT Mobile-8 Telecom Tbk. changed its name to PT Smartfren The Company believes that efforts to develop new local operators, difference businesses other than the in consumer preferences Telecom Tbk. In subsequent telecommunication business and a lack of expertise in developments, XL has plans for the acquisition of Natrindo (Axis). On September 29, 2013, XL- as well as international the local markets in which expansion are necessary to we will be operation. Any ensure continuing business of these factors could growth. This is undertaken cause our expected returns Axiata has signed a CSPA through the activities of with Axis for the acquisition our subsidiaries, Metra and from our expansion to be limited and could have a of Axis’ shareholders. The strategic acquisition will position XL as the Telin. Risks related to new material and adverse effect business development include: competition on our business, results of operations and financial condition. 82 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Network Infrastructure Rizkan Chandra Director of Network IT & Solution Network management In The Master Plan and infrastructure IDN network, we aim to do modernization of legacy networks into broadband infractructure network we had 8,196,055 homepass with broadband access 57.1% Telkomsel’s digital network was supported by 69,864 BTS 28.7% In 2013, we continued to develop infrastructure through IDN program. The IDN program demonstrates our commitment to ceaselessly build and improve the quality, efficiency and cost structure of the infrastructure. In line with our transformation to become TIMES provider, we are focusing our efforts on the provision of high-speed broadband access via optical fiber networks and Wi-Fi (“id-Access”), IP-based and optical backbone network (“id-Ring “) and integrated NGN in the provision of various services (“id-Con”). Development of our network infrastructure to offer a more efficient and cost-competitive which is part of the Government’s Master Plan for the Acceleration and Expansion of Indonesia's Economic Development (“MP3EI”) in line with our transformation into a TIMES provider under our Indonesia Digital Network ("IDN") program. In order to developing and improving our network into high quality, efficient and cost competitive infrastructure to deliver our TIMES services, we have been developing and improving our network infrastructure which intended to be a jointly developed network used by our various units in the Telkom Group that we called Telkom One network. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 83 Our IDN program involves the following three program developments: 1. id-Convergence (“id-Con”): convergence of the node service network infrastructure into a multi-service and multi-screen integrated NGN. 2. id-Ring: development of our transport network infrastructure into an IP-based and optical backbone network. 3. id-Access: development of our customer access network infrastructure into a high speed broadband access through fiber optic and Wi-Fi networks. A. Fixed Line Network and Transmission 1. Fixed Wireline Network As of December 31, 2013, we managed 9.4 million fixed wireline connections. Our network and infrastructure IDN master plan aims to modernize our legacy network to broadband access infrastructure network. Operating Statistics Exchange capacity Installed lines Lines in service(1) Subscriber lines Public telephones Leased lines in service(2) Fixed wireline subscriber pulse production (millions minutes)(3) As and for the year Ended December 31, 2013 2012 2011 2010 2009 13,918,369 13,908,003 12,180,214 11,237,229 11,094,063 10,650,652 11,109,156 11,005,208 10,510,048 10,013,565 9,350,806 9,034,010 8,688,526 8,302,818 8,376,793 9,080,236 8,672,332 8,323,175 7,980,337 8,038,294 270,570 273,929 278,505 322,481 338,499 2,864 5,773 3,342 6,770 3,662 8,054 3,988 9,403 4,273 54,186 (4) (1) Lines in service are subscriber lines and public telephone lines, including the lines in service that we operate under revenue-sharing arrangements. (2) Excludes leased lines for our network and multimedia businesses. (3) Consists of pulses generated by local and domestic long-distance calls, excluding calls from public pay phones and cellular phones. (4) In millions of pulse for year 2009. 2. Fixed Wireless Network Our infrastructure consists of mobile switching centers (“MSC”) that are connected to every other trunk exchange. Each MSC is connected to a base station sub system (“BSS”), which consists of a base station controller (“BSC”) and a base transceiver station (“BTS”). These, in turn, connect the customers’ handheld devices and fixed wireless terminals to our fixed wireless network. The number of fixed wireless connections in service was 6.8 million as of December 31 2013. 3. Transmission Network Throughout 2013, we continued to primarily focus on the development of our broadband network, which serves as the backbone for our network infrastructure as a whole. Our backbone telecommunications network consists of transmission networks, remote switching facilities and core routers, which connect a number of access nodes. The transmission links between nodes and switching facilities comprise a terrestrial transmission network, in particular fiber optic, microwave and submarine cable networks, as well as satellite transmission networks and other transmission technologies. Transmission Network As of December 31, 2012 2013 Capacity (number of Transmission medium circuits) E1 STM-1 STM-4 STM-16 STM-64 STM-256 131,546 131,303 720 736 92 100 55 58 260 337 3 3 Note: The backbone transmission unit uses E1, STM1 (equivalent to 63 E1), STM4 (equivalent to 4 STM1), STM16 (equivalent to 4 STM4), STM64 (equivalent to 4 STM16), and STM256 (equivalent to 4 STM64). STM or Synchronous Transfer Mode is the unit typically used in backbone transmission networks. Facilitating broadband services requires high capacity transmission networks using nxSTM-1 units. E1 units are used to support legacy services. We operate the Telkom-1 and Telkom-2 satellites as well as 205 earth stations, including one satellite master control station. The Telkom-1 satellite has 36 transponders, including 12 extended C-band transponders and 24 standard C-band transponders, while the Telkom-2 satellite has 24 standard C-band transponders. 84 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis In addition to our Telkom-1 and satellite, the Telkom-3S, which the 2.1 GHz frequency. Telkom-2 satellites, we also lease transponder capacity for 30 TPE (transponder equivalent, @36 Mhz), comprising 9 TPE from the JSAT-5A (132 BT) satellite, 10 TPE from the Etuelsat 172A (172 BT) satellite, 8 TPE from the Chinasat-10 (110 BT) satellite, and 3 TPE from the Intelsat-8 (169 BT) satellite. The Telkom-3 satellite, launched in August 2012, failed to reach its orbit, resulting in the Telkom-3 satellite being positioned in an unusable orbit. We had insurance coverage for the procurement costs of Telkom-3 satellite. We will lease additional satellite transponder capacity from third parties, if requiredto fulfill internal operational needs and to accomodate the needs of customers. We are currently in the initial phases for the procurement of a replacement is currently planned for launch As of December 31, 2013, in 2016. B. Cellular Network Telkomsel’s digital network was supported by 69,864 BTS with an overall network Our cellular services, which are capacity capable of facilitating operated by our subsidiary, the communication needs of Telkomsel, have the most 131.5 million customers. extensive network coverage of any cellular operators in C. Data and Internet Indonesia. Telkomsel currently operates on the GSM/ Network To ensure a high level of DCS, GPRS, EDGE and 3.5G reliability, we have built networks. The GSM/DCS hierarchical and dual network consists of 7.5 MHz homing IP/MPLS-based of bandwidth on the 900 internet and data networks. MHz frequency and 22.5 MHz Our IP backbone network of bandwidth on the 1,800 now capable of serving MHz frequency. Telkomsel’s all of Indonesia and as of 3G network uses 10 MHz of December 31, 2013 covered bandwidth on the 2.1 GHz of PoP locations with primary frequency. Telkomsel tendered and secondary PoP which for and obtained a further consisted of 22 terra router 5 Mhz of bandwidth on the nodes, 6 core router nodes 2.1 GHz frequency in 2013, and 128 PE router nodes. which it began to use from October 2013, bringing its We also operate an ethernet total bandwidth allocation on carrier metro service as an its 3G network to 15 MHz on aggregator for broadband Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 85 access traffic connecting to IP backbone. As of December 31, 2013, 813 ethernet metro nodes were in use to support our 163.9 Gbps broadband access services. We provide fixed line-based broadband internet access using ADSL technology under the brand “Speedy”. As of December 31, 2013, we had capacity for 8.2 million homepass and were serving 3 million Speedy customers, an increase of 28.7% compared to 2.3 million subscribers registered on December 31, 2012. D. International Networks We operate international Our wireless broadband gateways in Batam, Jakarta, diversify our services and capture business opportunities in South Asia, the Middle East network infrastructure consists and Surabaya to route and Europe. of wireless access gateways outgoing and incoming calls ("WAG") that are connected on our IDD service (“007”). to wireless access connections Our international network ("WAC"), which are in turn is supported by submarine connected to our access points. Using a variety of communications cable systems (“SCCS”) including wireless broadband terminals the Dumai-Malaka Cable such as laptop computers System, and the Thailand- and other handheld personal Indonesia-Singapore (“TIS”) devices, end users link to system, as well as by these access points to use indefeasible rights of use, our broadband Wi-Fi services. and satellite capacity. To As of December, 2013, the consolidate our international number of our wireless network and expand domestic broadband users had reached broadband services, our 75,250 access point. subsidiary, Telin, entered into the Asia America Gateway Our subsidiary, Telkomsel, cable consortium in April also provides mobile cellular 2007 to develop the Batam- broadband service under Singapore Cable System the trade name “Flash”. As which connects Batam with of December 31, 2013, Flash Singapore. Through Telin, had 17.3 million subscribers, a we plan in the long-term 56.5% increase compared to to enhance international 11 million subscribers telecommunication access to registered on December 31, regions in eastern Indonesia, 2012. Furthermore, we have entered into international telecommunications service agreements with a number of overseas operators to facilitate international call interconnections. Moreover, since we do not have agreements with telecommunications operators in all our IDD destinations, we have signed agreements with SingTel, Telekom Malaysia, Verizon, Belgacom, NTT, TIS, France Telecom and other telecommunications operators under which such operators act as hubs and route international calls to certain parts of the world. As of December 31, 2013, we had agreements with 79 international telecommunication service operators in 26 countries. 86 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis We have focused on entering optical backbone networks mechanism, broadband into more international telecommunications (“id-Ring”) and access construction using (iii) an integrated NGN for the the MSAN platform, FTTH service agreements with provision of multiple services construction project, IMS other telecommunication (“id-Con”). operators to provide direct construction project, and the implementation of the Telkom interconnections services Among the development cache system. in the top 20 most popular projects of our fixed wireline calling destinations for IDD network during 2013 are In order to further strengthen outgoing traffic. In addition the capacity expansion of our TIMES services, we plan to: to connect with the 20 top our backbone networks 1. Continue to improve the countries for IDD outgoing comprising the Ring-1B calls, we are also connected (Medan - Banda Aceh) capability of our networks to improve our enterprise to several telecommunications project, the Java-Sumatera- broadband and broadband operators in various other Kalimantan ("Jasuka") anywhere services in countries. project, the Java Backbone Indonesia. (Jakarta - Surabaya) project, 2. Continue to improve the To support the international the Palapa Ring mataram - services both voice and data, Kupang project, the Tarakan Telin already operates points Sangata Cable System of presence ("POP") in various ("TSCS") project and the capability of the full-IP data transport network through the following programs: increasing parts of the world, among Sumatera Bangka Cable domestic and international others in Asia (Singapore, System ("SBCS") project, the internet bandwidth, Hong Kong, Malaysia, Japan, regional network improvement expanding the Terra IP South Korea and East Timor), program through the backbone, expanding IP Europe (United Kingdom , Dense Wavelength Division over lambda with 10 Gbps, Germany and Netherland) and Multiplexing ("DWDM") the USA (Los Angeles, San project in Regional Jakarta, Jose and New York). Java and Denpasar and the Kalimantan and 40 Gbps and eventually 100 Gbps per lambda, facilitating convergence and realizing synergies NETWORK DEVELOPMENT Sulawesi SKSO project, the among networks in Telkom construction of new backbone Group, continuing the A. Fixed Line Network Development In 2013, we continued to enhance our network route and network through the Sulawesi Maluku Papua Cable System ("SMPCS") project, 3rd route Jakarta- infrastructure and develop our Batam-Singapore network, development of Metro Ethernet which function as a single metro transport network to provide IP and multi-play-based IDN. Our IDN plans represent and the system upgrade to services, continuing the our commitment to continue increase the capacity of the development of FTTH, and developing and improving Surabaya-Ujung Pandang/ continuing to replace our the quality, efficiency and Makasar-Banjarmasin ("SUB") existing copper cables with cost-structure of our network cable system. Other important fiber optic cables through infrastructure. In line with our projects are the improvement the TITO mechanism. transformation into a TIMES in network reliability through 3. Expand the capacity of provider, we are focused the deployment of new on delivering (i) high speed FO cables as alternative broadband access through routes, broadband a fiber optic network and access construction and IMS-based smart core, install and implement of new services, continue to implement an integrated through Wi-Fi (which we term modernization with the customer profile database, “id-Access”), (ii) IP-based trade-in/trade-out (“TITO”) and optimize our service Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 87 delivery platform as a service brokerage and orchestration. by 1,124,080 homepass and We expanded our metro fiber to the home-based ethernet network by setting broadband access by 1,856,119 up and upgrading 4. Expand broadband homepass. As of December 813 nodes which enables us to coverage to enterprise 31, 2013, we had 8,196,055 provide broadband services and residential customers homepass with broadband throughout Indonesia. The through a series of programs, including managed enterprise access. We also expanded metro ethernet network is also the capacity and coverage used as the main link for the of our metro ethernet and IP DSLAM, MSAN for Speedy services, managed smart expanded the coverage and broadband service, softswitch, CPE, home automation, capacity of IP Core through IP VPN and GPON broadband, surveillance, and home the implementation of whether for mobile backhaul, interconnect. 10 Gbps and 40 Gbps lambda corporate business solutions IP-based network services and or triple play services. In 2013, For more details of our other the implementation of terra we added 5,242 node B BTSs, major commitments and router. In 2013, we added an resulting in a total of 9,559 agreements, see Note 41 to additional 6 terra router nodes nodes B BTSs. our Consolidated Financial bringing the total number of Statements. terra router nodes that we As of December 31, 2013, we operate to 28 as of had expanded our internet B. Fixed Wireless Network December 31, 2013, providing gateway capacity to an Development nation-wide coverage in installed capacity of 292 Gbps. In 2013, we optimized existing Indonesia. BTSs for our fixed wireless In order to ensure adequate internet gateway capacity in network, but did otherwise As part of our IDN program, anticipation of the expected further develop our fixed we improved our IP Core rapid growth in fixed and wireless network. As of network used which supports mobile broadband traffic. In December 31, 2013 we had our TIMES businesses and 2013, we also cooperated with 5,715 BTSs in our fixed wireless integrated our NGN core Akamai, Google and Yahoo to network. network between with our operate a content distribution fixed wireline and fixed network (“CDN”) with a C. Cellular Network Development wireless businesses. Our IP capacity of 261 Gbps. GSM-based cellular services Core was developed through operated by our subsidiary, the implementation of a Throughout 2013, we Telkomsel, now cover all cities single platform terra-byte continued to expand the and regencies in Indonesia. In router with fully redundant coverage of our Indonesia 2013, Telkomsel deployed an network architecture. As of Wi-Fi services by installing additional 15,567 BTS. December 31, 2013, our IP core additional access points, network consisted of 6 core through our own regular D. Data Network Development router nodes, 128 PE (primary deployment program as well In 2013, we continued to edge) router nodes, 721 10GB as through the implementation improve the quality of our ethernet ports and 2,650 1GB of a variety of partnership data network by increasing ethernet ports. our capacity and network coverage. During the year, we increased our MSAN- based broadband access schemes. A total of 75.250 access points were installed as of December 31, 2013. 88 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Human Capital We have gradually sent our talents to GTP for global exposure and global experience so they are able to compete with professionals from global scale companies. In order to win the global competition, we continuously develops the professionalism of our Human Capital through global certification and global talent programs. This is especially important in anticipation of the coming ASEAN Economic Community (“AEC”) starting from 2015. We realize that Human Capital plays a strategic position and role towards achieving our vision as a world-class company with global standards. Therefore, we continue to develop our existing Human Capital, while also enhancing industrial relations aspects with employees. A. Human Capital Profile We had a total of 25,011 employees as of December 31, 2013, consisting of 17,881 Telkom employees and 7,130 employees of our subsidiaries. This figure represents a decrease 2.6% compared to the position as of December 31, 2012, reflecting the continued implementation of our multi exit program initiated in 2002 which aims to improve efficiency. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 89 1. Employee Profile by Position Chart Employee Profile by Position Position Telkom Subsidiaries Telkom Group % 1.8 Position in 2013 34.2 15.9 Senior Management Middle Management 135 2,711 306 441 1,276 3,987 Supervisors 9,936 2,095 12,031 1.8 15.9 48.1 Others 5,099 3,453 8,552 34.2 Total in 2013 17,881 7,130 25,011 100.0 Position in 2012 Senior Management 132 255 387 Middle Management 2,571 1,048 3,619 1.5 14.1 Supervisors Others 9,991 6,491 1,774 11,765 45.8 3,421 9,912 38.6 Total in 2012 19,185 6,498 25,683 100.0 48.1 Senior Management Middle Management Supervisors Others 2. Employee Profile by Educational Background Chart Employee Profile by Educational Background Level of Education Telkom Subsidiaries Telkom Group % 8.9 Level of Education in 2013 Pre University Diploma Graduates 5,632 4,260 665 6,297 974 5,234 University Graduates 6,262 5,002 11,264 25.2 20.9 45.0 8.9 Post Graduates Total in 2013 Level of Education in 2012 Pre University Diploma Graduates 1,727 17,881 6,349 4,619 489 2,216 7,130 25,011 100.0 45.0 515 6,864 926 5,545 26.7 21.6 25.2 20.9 Pre University Diploma Graduates University Graduates Post Graduates University Graduates 6,506 4,634 11,140 43.4 Post Graduates 1,711 423 2,134 8.3 Total in 2012 19,185 6,498 25,683 100.0 3. Employee Profile by Age Chart Employee Profile by Age Age Group Telkom Subsidiaries Telkom Group % Age Group in 2013 <30 31 - 45 >45 Total in 2013 Age Group in 2012 <30 31 - 45 >45 Total in 2012 756 4,170 12,955 17,881 820 4,654 13,711 19,185 1,644 2,400 2,001 6,171 3,485 16,440 9.6 24.7 65.7 7,130 25,011 100.0 1,538 2,358 4,429 9,083 531 14,242 9.2 35.4 55.4 6,498 25,683 100.0 9.6 24.7 65.7 <30 31 - 45 >45 90 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis B. HC Management We have completed the formulation of a Human Capital Master Plan in order to optimize the potentials of human capital within the Telkom Group. The Human Capital Master Plan has been prepared as a comprehensive and integrated formulation with reference to our long- term and annual strategic plan, as well as the business strategies of each companies within the Telkom Group. The formulation of the Human Capital Master Plan is also based on an accurate and measurable supply and demand analysis using relevant reference data, particularly on productivity ratios of a number of peer companies. Our Telkom Group Human - develop staffing plan Capital Master Plan consists and employee career of the following information: development plan; and - Projections of Telkom - measure the human capital Group human capital numbers, calculated on productivity. the basis of the business The requirement for portfolios for the next five human capital and related years. infrastructure is addressed - Projections of the with emphasis on the synergy composition of our human and optimization of internal capital with reference to resources existing within the job stream, education, age Telkom Group. and position. - A workforce plan that Our human capital contains annual human management strategies capital planning for each emphasized on the company in the Telkom harmonization of the number Group. and competencies of our workforce in line with our Formulating an integrated business portfolio that has Human Capital Master Plan increasingly focused on helps our Company to: TIMES. We are also striving - acuratelly project the to improve synergy and human capital needs, in efficiency among companies terms of both numbers within Telkom Group and will and competencies; continue to and to inculcate Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 91 preferred corporate values. 1. HC Recruitment any vacant position will be We pursue these objectives in HC recruitment is a five year workforce plan as undertaken by optimizing filled internally. On the external well as an annual staffing plan internal resources recruitment, we intend to that together provide a more through synergies within improve the composition accurate information base in support of our company’s growth. Our staffing plan is normally the Group aimed at promoting efficiency in recruitment costs and employee turnover costs in each company, of employees in terms of age and education level. Therefore we are focusing our effort on recruiting fresh graduates finalized no later than the as well as attracting the with graduate and post- fourth quarter of each year and is valid for the best candidates with the graduate degree, majoring specified qualifications in fields that are in line following year. The staffing needed. This synergy also with our business portfolio, automatically facilitates talents with excellent soft employees in developing skills and hard skills to their careers within Telkom become the future leaders Group. Where possible, of the company. plan contains a variety of information including employees’ past, current and future position; position layer; job stream; work location; number of formations; monthly staffing plans, including promotion, mutation, employment status (temporary/permanent) as well as in and out mutations. Our workforce plan is formulated by identifying staffing needs, with reference to our Telkom Group Human Capital Plan or Rolling Human Capital Plan. Our workforce plan focuses on increasing both productivity and efficiency by reference to competitive benchmarks. We expect to increase efficiency by reducing the workforce size, while maintaining recruitment at approximately 20% of our retiring employees. Our workforce plan explains our resource profile that is calculated based on business activities of each companies within the Telkom Group, and gives details about scope of work, position, age and educational backgrounds. 92 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis have been developed and improved to encourage fair and transparent employees’ competency assessment. We have a directory of competencies specifying the competencies needed by our Company, which is regularly updated to keep pace with business progresses, including a number of skills and knowledge essential for our business portfolio transformation into TIMES. Our employee competency development emphasizes the following aspects: - Character development based on The Telkom Way, which refer to the Philosophy to be The Best (Ihsan), Principle to be The Star (Solid, Speed, Smart) and Practices to be the Winner (Imagine, Focus, Action). - Competence development with global standard. - Leadership development based on Telkom Leadership Architecture referring to the principles of Lead by Heart and Manage by Head. In 2013, the recruitment was done three times through job fairs. The scope of the implementation of synergies includes: – Implementation of job fairs / career days. – Implementation of joint selection stage I (aptitude test). – Co-utilization of the candidate database. – Synergy initiatives in other fields of recruitment. constantly updated every year to adjust to the changing dynamics of our business. Its implementation is also aligned with our business strategy, which refers to our Corporate Strategic Scenario (“CSS”), Master Plan for Human Capital (“MPHC”), Human Capital Development Plan (“HCD Plan”), organizational transformation and our During 2013, we hired 838 financial position. new employees. 2. HC Competency Development a. Competency Based Human Resources Management (“CBHRM”) We have established competency development strategies as articulated in Human Capital Human Capital Master Plan, which is We use CBHRM approach to assess our existing human capital competencies. This CBHRM model consists of Core Competency (values), Generic Competency (Personal Quality) and the Specific Competency (Skill & Knowledge). All of these three models Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 93 In line with our prominent educational program is determined business transformation institutions/external focusing on TIMES, we strengthened our human capital trainings. To improve competencies through collaboration between education and trainings to either shift competencies or develop competencies, whether directly or indirectly related to our business and our business units and encourage cost efficiency, we have promoted synergies on program cooperation, participant cooperation and cooperation on operational strategies. facilities. Training for shifting competencies aims to develop employee competencies in response to telecommunication system transformation from TDM based to IP based and IMES competencies. Meanwhile, training for developing competencies has been tailored to equip employees with specific competencies to support our business portfolio. During 2013, the employee training and education programs focused on technology, telecommunication marketing and management, business information, and new wave business development to support our vision of becoming the market leader in TIMES. Most of these trainings were held at Telkom Corporate University and a number of Meanwhile, to groom our future leader, we engage in leadership development training programs attended by 897 employees, including program: - Basic Level Leadership (Emerging Leaders Development Program, First Line Development Program, Coaching for Supervisor); - Intermediate Level Leadership (Managerial Development Program, Coaching for Manager, 4DX Certification); and - Senior Level Leadership (Executive Development Program, Commissionership Executive Program, Directorship Executive Program). Employee participation in competence by the Company’s needs and those of employees with respect to gender equality and equal opportunity to all employees. We have also made other efforts in competencies development including Knowledge Management where employees can exchange ideas and concepts and share information through articles made accessible to all of them. In order to motivate employees to participate in our competency development tracks, we have adopted an objective performance assessment system. Employee assessment is performed on two aspects: results, based on individual targets, and process, based on required competencies. An online assessment is conducted of a number of demonstrated behaviors of our employees at work. b. Telkom CorpU In delivering our corporate values which are commitment to long term and caring meritocracy, we invested heavily in development or training people. Consequently, 94 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis qualified people as we understand that it is always people that play the most significant role in a company’s success. - Center of certification (creating a global standard) Telkom CorpU is also expected to produce global HR standards. Each of leadership and competency development programs will be supported by international standards and produce man of international certification and standards. work assignments, predeparture briefing, assignments in and outside the country, final exam and placement. We have been sending GTP talents gradually in order to give them global exposure and global experience to be able to compete with international scale companies. In 2013 we sent 1,010 of our employees to 25 countries. Telkom’s CorpU has another program in 2013, which is an international certification in various fields for 1,471 persons. Global Talent Program, 3. Employee Remuneration here in after reffered We provide a competitive as GTP, is a special assignment to the remuneration package, benchmarked against talented employees to labor market prices, be formed into Great which consists of basic People aiming winning salary and allowances, the competition and achieving business benefits, and performance- related incentives and objectives by providing bonuses, as well as other them with overseas benefits, including health assignment experience benefits for employees coaching for leadership and employee (people) has become our first and most important strategic initiative which is formulated as “Center of Excellence”. To establish this objective, Telkom CorpU was founded on September 28, 2012, which is expected to create a system capable of producing great leaders and people. There are three main functions of Telkom CorpU as a center of excellence, namely: - Center of chiefship (creating great leader) Telkom CorpU is expected to create future leaders who are highly qualified and globally ready, capable of performing in successions amid the grinding demands of the changing world. We believe that a successful leader will leave behind himself another CorpU is just the right vehicle to - Center of competence (creating great people) Telkom CorpU is great leader. Telkom Initiated in 2012, this and certification. program is designed to and post-employment supporting this aim. with reliable and provide the company globally competitive talents to compete with recruitment process, which based with foreign companies. pace with market price This program begins movements. and families. We also provide pension plans health programs. Those remuneration packages are regularly evaluated to ensure that they keep Bonuses were accrued in the current year but were distributed in the year following that in expected to produce on predetermined tough and highly criteria, matching the talent’s profile with Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 95 aforementioned infrastructure is the Human Capital & General Affairs website, that can be accessed by employees who wish to comprehend policies and other information related to HR management and development. The HR application, IHCMS Telkom Group (Integrated Human Capital Management System Telkom Group), is designed to meet the needs of Telkom Group. The IT-based HR services consisting of online which they were accrued. the Company’s level of Individual Work Targets Over the last five years, the Company paid out annual bonus ranging from Rp326.9 billion to Rp513.9 billion. For interest, which include giving an opportunity to take a pilgrimage/ religious services, ("SKI"), online attendance, online Travel Warrant ("SPPD"), online leave, online career and Annual benchmarking to global Tax Payment ("SPT"). We the 2013 bonus, we will scale telecommunications have also implemented refer to our 2013 audited industry and enterprises, various IT applications financial statements and as well as the opportunity such as corporate business the approval of GMS. Our to attend international automation processes, subsidiaries also provide seminar, and special competitive remuneration incentives. Reward which include electronic memos, virtual meetings, packages for their employees. 4. Employee Awards Every year, we simultaneously give a number of awards as token of appreciation program was also carried shared files, online out by the companies in the Telkom Group in order to motivate their employees. 5. IT-based HR Services To help employees surveys and intranet. In the implementation of "Go Green" program, we replaced the HR administration with Employee Self Service application ("ESS"). for employees showing performing their duties, we remarkable contributions developed an integrated In principle, we have to our business targets communications implemented the "Go achievements. The infrastructure to facilitate Green", which is HR award giving policy was the coordination and administration has stipulated in Telkom dissemination of corporate been replaced by the Employee Reward policy policy and business application of ESS for individuals or groups in a variety of types strategy among policy makers, HR managers (Employee Self Service), so it can be categorized as and forms, according to and employees. The Paperless Office. 96 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 6. Retirement Program calculated based on environment, we also The retirement age for all our their latest basic salary have an Early Retirement employees is 56. We have two or take-home pay and pension schemes, which are years of services. PT (a) Defined Benefit Pension Plan (“DBPP”) tailored for permanent employees who were hired prior to July 1, 2002, and (b) Defined Asuransi Jiwasraya (Persero) manages this program after they secured annual insurance contracts. Contribution Pension Plan Up to 2004, employees (“DCPP”) that applies to other would contribute 5% permanent employees. of their monthly basic Program (“ERP”). The program is run in line with the execution of the 2013-2017 Human Capital Master Plan which is expected to release 1,548 employees. This program is offered to employees who are deemed to have met certain requirements a. Defined Benefit Pension salaries to the program, in terms of education, Plan (“DBPP”) DBPP is calculated for participants based on years of service, salary level at retirement and is while Telkomsel would contribute the balance. Since 2005, Telkomsel has contributed the entire amount to the transferable to dependent program. age, position and performance. From 2002 through December 31, 2013 we spent Rp7.3 trillion as compensation for 14,195 employees who participated in the b. Defined Contribution program. In 2013, we Pension Plan (“DCPP”) We operate a Defined did not execute an early retirement program. families if the respective employee passes away. Telkom Pension Fund Division administers the program while the main source of pension fund comes from us and employee contributions. Employees participate in the program with 18% of their basic salary (before March 2003, employee contribution rate was Contribution Pension Plan for permanent employees who were recruited on or after July 1, 2002. DCPP is managed by several appointed financial institutions pension fund from which 8.4%) while we contribute employees can choose. the balance. The minimum Our contribution monthly pension benefit to the financial for retired employees is approximately institutions pension fund is determined Rp425,000 per month. Our by the portion taken contribution to the pension from participating fund reached Rp187 billion, employee’s basic salary, Rp186 billion and Rp182 which totalled Rp5 billion, respectively, for the billion, Rp5 billion and years ended December 31, Rp6billion, respectively, 2011, 2012 and 2013. for the years ended December 31, 2011, 2012 7. Health Service Program a. Employee Health Management We believe that improving employees’ welfare has a positive impact on our productivity. Hence, we provide health services for our employees and retirees and their direct family members, which is managed by our Health Foundation (“Yakes”). As of December 31, 2013, a total of 113,629 employees, retirees and their families were registered in Yakes. Telkomsel operates its own and 2013. b. Post-Employment DBPP for its employees. With this program, To create a more effective employees are entitled and competitive business to retirement benefits Health Services Our employee welfare includes post retirement benefits, including health Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 97 insurance for all retired 8. Management of employees’ union, employees as well as their spouses and children. We provide two types of funding for these benefits, which are: (i) Employees who were hired before November 1, 1995 and have more than 20 years of Employee Relations with “SEPAKAT”, has 3,972 Managament Pursuant to the Presidential Decree No.83/1998 regarding Ratification of ILO Convention No.87/1948 regarding Freedom of Association and Protection members or representing 92.5% of Telkomsel’s total employees. Neither we nor our subsidiaries with employees union have experienced material labor action. of the Right Organize, our 9. Extracurricular Activities employees established the Telkom Employees We provide the opportunity for all services are entitled Union (“SEKAR”). As of employees to participate to health care December 31, 2013, SEKAR in various extracurricular benefits managed represented a total of activities, especially those by Yakes Telkom. Our contribution to this program amounted to Rp361billion, Rp300 billion and Rp301 billion respectively for the years ended December 31, 2011, 2012 and 2013. 16,283 employees or 91.1% that support employee of our total workforce productivity. Our employee which work in Telkom and extracurricular activities employed in the JVC. covered religious, cultural Pursuant to Law and sporting activities. These activities are also No.13/2003 regarding open to employees’ Manpower and Regulation of the Minister of Manpower families, such as Al-Quran reciting competitions, church choirs, and Hindu chanting (Utsawa Dharma (ii) All other permanent and Transmigration employees are entitled to health services in the form of insurance benefits. Our contribution to this program amounted No.PER.16/2011 concerning Gita) as well as a range of Procedures Preparation sports activities. and Ratification of Company Regulations and Preparation and Registration Collective C. Costs of Education & HR Training We allocated Rp265.3 billion Work Agreement (“CWA”), for our HR training and to Rp19 billion, Rp18 SEKAR is entitled to education programs during billion and Rp17 billion respectively for the years ended December 31, 2011, 2012 and 2013. represent employees in 2013, or an average of Rp10.6 the negotiation of the million for each participating CWA with management. employee. In 2012, we Currently, the applicable allocated Rp158 billion. of CWA is CWA V which took effect from the date Our subsidiaries provide of August 23, 2013, and health benefits through ending on August 23, 2015. health insurance program Telkomsel and Infomedia sponsored by the also have employees’ government, known widely unions. Telkomsel’s as Jamsostek. 98 98 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Preface Preface Highlights Highlights Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Management’s Discussion and Analysis of the Company’s Performance 102 Operational Review by Segment 122 Receivable Collectibility 107 Financial Overview 122 Capital Structure 109 Comprehensive Income Comparison 123 Capital Expenditures 119 Net Cash Flows 120 Obligation and Commitment 121 Liquidity 122 Working Capital 122 Solvency 124 Material Commitment For Capital Investment 125 Changes In Accounting Policies 125 Changes In Laws And Regulation 126 Exchange Controls 127 Quantitative And Qualitative Disclosures About Market Risks 131 Related Party Transactions 132 Property, Plant & Equipment 132 Insurance 132 Material Information and Facts Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 99 99 Management’s Discussion and Analysis of the Company’s Performance 100 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Management’s Discussion and Analysis of the Company’s Performance Honesti Basyir Director of Finance Financial growth above the industry average Growth in revenue was driven by increased revenue from data, internet and information technology services by 14.8% and increased revenue from cellular by 4.6% 7.5% revenue EBITDA grew by 8.6% in 2013 We generated net profit of Rp14,205 billion, growth by 10.5% from previous year 10.5% We succeed to maintain growth above the industry average both in terms of revenue, EBITDA and profitability, as well as continue to allocate sufficient capital expenditures to support sustainability growth in the future The following discussion and analysis should be read in We are the principal provider of local, domestic and conjunction with our Consolidated Financial Statements international telecommunications services in Indonesia, for the years ended December 31, 2011, 2012 and as well as the leading provider of mobile cellular services 2013 included elsewhere in this Annual Report. These through our majority-owned subsidiary, Telkomsel. Our Consolidated Financial Statements were prepared in objective is to become a leading TIMES player in the accordance with IFAS, which differs in certain significant region. As of December 31, 2013, we had approximately respects from IFRS. See Notes 48 to our Consolidated 175.5 million subscribers in service, comprising 131.5 Financial Statements for our reconciliation to IFRS. million cellular subscribers through Telkomsel, 9.4 million Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 101 subscribers on our fixed wireline network, 6.8 million December 31, 2013, compared to 39.8% for the year ended subscribers on our fixed wireless network and 27.8 million December 31, 2012. broadband subscribers. We also provide a wide range of other communication services, including telephone In Indonesia mobile phones become the primary tool for network interconnection services, multimedia, data telecommunication. Not only with regard to telephony, and internet communication-related services, satellite but also in terms of internet usage. Over 50% of our transponder leasing, leased line, intelligent network and cellular revenues is derived from voice services, but the related services, cable television and VoIP services. We growing popularity of smartphones, contributes to the also operates Multimedia businesses such as content and growing of our data revenues. We believe the shape of applications. We intend to continue to cope with market competition in low voice tariffs began stabilized, while and industry challenges that may arise from time to time the data revenue start to contribute in our ARPU. This by leveraging our customer base, network quality, brand phenomenon is reflected in our increasing monthly ARPU name and strategic execution capabilities. from approximately Rp37,000 in 2012 to approximately Rp37,500 in 2013 due to by increased revenue from data, The economy of Indonesia in 2013 was buffeted as growth internet and information technology services. in gross domestic product slowed from average 6.3% in 2010-2012 to 5.8% in 2013, inflation accelerated from We believe that the competition has become more rational average 4.5% in 2009-2012 to 8.4% in 2013 and the rupiah in Indonesia, however, we still consider it as a major risk depreciated from average Rp9,282 in 2009-2012 to Rp12,170 to our businesses. See “Risk Factors – Risks Related to in 2013 (source: Center of Statistic Bureau). Though the Our Business – Competition Risks Related to Our Cellular exposure of our Company and our subsidiaries to foreign Business (Telkomsel)”. exchange rates are not material, we are exposed to foreign exchange risk on sales, purchases and borrowings that are Increase in Data, Internet and Information Technology primarily denominated in US Dollars and Japanese Yen. Services Revenues Data, internet and information technology services See “Quantitative and Qualitative Disclosure about Market revenues accounted for 38.2% of our consolidated Risks – Exchange Rate Risk”. revenues for the year ended December 31, 2013, compared to 35.9% for the year ended December 31, 2012. Revenues Our revenues for the two-year period from 2012 through from our data, internet and information technology 2013 reflected growth in revenues. This growth was largely services increased by 14.8% from 2012 to 2013. The driven by increases in revenues from data, internet and increase in data, internet and information technology information technology services, which increased by 14.8% services revenues in 2013 was primarily due to a 23.7% driven largely by increased mobile phone data usage and increase in revenues from internet, data communication mobile broadband subscriptions, and cellular revenues and information technology services, largely driven by which increased by 4.6%. increased mobile phone data usage and mobile broadband subscribers. As part of our transformation into a TIMES Our operating results from 2012 to 2013 also reflected an provider, and our corporate objective of growing our new increase in expenses. This increase was mainly driven by wave businesses, we seek to continue to increase such operation, maintenance and telecommunication services revenues. expenses, which increased primarily as a result of an increase in our network capacities to better serve our customers especially for internet and data service. Principal Factors Affecting our Financial Condition and Results of Operations Decrease in Fixed Lines Telephone Revenues Our fixed lines telephone revenues decreased by 9.0% from Rp10,662 billion in 2012 to Rp9,701 billion in 2013 as a result of an 8.3% decrease in fixed wireline revenues and an 14.3% decrease in fixed wireless revenues. We believe that fixed lines telephone revenues have been declining due to Increase in Cellular Telephone Revenues with Increase in the increased usage and declining tariffs of mobile cellular Subscribers ARPU Our cellular telephone revenues increased by 4.6% from services and increased penetration of cellular subscribers in Indonesia. Cellular provide increased convenience, and 2012 to 2013 due to an increase in the number of our in certain cases where subscribers call other subscribers cellular subscribers by 5.1% in 2013. Telkom's revenues using the same provider’s network, tariffs can be lower from cellular phone services (usage charges, monthly than fixed wireline calls that are made to subscribers of subscription charges and features) accounted for 38.7% of another provider. We expect that the trend of declining our consolidated revenues for the year ended fixed lines telephone revenues will continue. 102 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Operational Review by Segment Our revenues from personnel segments still the major contributor in 2013 which increased by 9.1% from 2012. This is in line with our main program which supports Telkomsel to grew double digits Segment Overview As part of the Company’s strategy to provide a one-stop solution to its customers in the Company’s organizational structure to accommodate decision-making and performance assessment based on a customer-centric approach. These changes result in our segment information presentation in 2012 when the management change segment reporting from fixed wireline, fixed wireless, cellular and other into the corporate segment, home and other. We have four main operating segments, namely: corporate, home, personal and others, as follows: 1. Our corporate segment provides telecommunications services including interconnection, leased lines, satellite, VSAT, contact center, broadband access, information technology services, data and internet services to companies and institutions. 2. Our home segment provides fixed wireline telecommunications services, pay TV, data and internet services to home consumers. 3. Our personal segment provides mobile cellular and fixed wireless telecommunications services including mobile access and information technology services, data and internet services to individual consumers. 4. Our others segment provides building management services. For more detailed information regarding our segment information, see Note 38 to our Consolidated Financial Statements. Our segment results for the year 2012 and 2013 were as follows: A. Services based on Customer Segments Corporate Segment Satellite Transponder Leased Channel & Satellite IPLC Datacomm Corporate Internet Fixed wireline Fixed broadband (Speedy) Home Segment Fixed wireline Fixed broadband (Speedy) Personal Segment Cellular Fixed wireless (Classy + Trendy) Mobile broadband (Flash) Blackberry Unit (000) MHz (000) e1 (000) Mbps (000) Mbps (000) Mbps (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers As and for year ended December 31, 2013 2012 3,007 415,540 9,421 381,440 62,687 1,408 315 7,943 2,698 131,513 6,766 17,271 7,556 2,650 388,462 15,782 281,063 66,340 1,343 263 7,603 2,078 125,146 17,870 11,039 5,764 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 103 B. Results of Operations by Segment Year Ended December 31, 2013 2012 2011 (Rp billion) US$ (million) (Rp billion) (Rp billion) Corporate Revenues External revenues Inter-segment revenues Total segment revenues Total Segment Expenses Segment Results Depreciation and amortization Provision for impairment of receivables and inventory Home Revenues External revenues Inter-segment revenues Total segment revenues Total Segment Expenses Segment Results Depreciation and amortization Provision for impairment of receivables and inventory Personal Revenues External revenues Inter-segment revenues Total segment revenues Total Segment Expenses Segment Results Depreciation and amortization Provision for impairment of receivables and inventory Other Revenues External revenues Inter-segment revenues Total segment revenues Total Segment Expenses Segment Results Depreciation and amortization Provision for impairment of receivables and inventory 17,041 8,549 25,590 (20,375) 5,215 (2,423) (994) 6,669 2,794 9,463 1,400 703 2,103 15,579 6,468 22,047 14,279 5,289 19,568 (1,674) (17,976) (15,659) 429 (199) (82) 548 230 778 4,071 (2,079) (92) 7,360 2,223 9,583 (8,885) (730) (7,939) 578 (1,487) (390) 59,028 2,358 61,386 48 (122) (32) 4,850 194 5,044 1,644 (1,168) (505) 54,087 2,188 56,275 3,909 (1,890) (255) 8,171 1,888 10,059 (8,322) 1,737 (1,389) (454) 48,733 2,180 50,913 (39,463) (3,243) (36,372) (34,679) 21,923 (11,234) (202) 229 909 1,138 1,801 (923) (17) 19,903 16,234 (10,940) (11,007) (318) (174) 19 75 94 117 648 765 70 350 420 (1,008) (83) (685) (342) 130 (40) (35) 11 (3) (3) 80 (22) - 78 (14) - 104 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis C. Segment Results 2. Home Segment Year ended December 31, 2013 compared to year ended December 31, 2012. 1. Corporate Segment Our corporate segment revenues increased by Rp3,543 billion, or 16.1% from Rp22,047 billion in 2012 to Rp25,590 billion in 2013. The increase was mainly due to an increase of Rp1,192.4 billion, or 35.7%, in revenues from other telecommunications services, as a result of the increase in tower lease revenues in line with the growth in tenancy ratio, Our home segment revenues decreased by Rp120 billion, or 1.3% from Rp9,583 billion in 2012 to Rp9,463 billion in 2013, mainly due to the decline of Rp710.9 billion, or 13.2%, in fixed wireline revenue, reflecting the decline in local usage revenue and in monthly subscription revenue in line with the shift in customer communication behavior trends. These were compensated by an increase in other telecommunication services of Rp225.9 billion, or 24.6%, due to increases in CPE rent revenue and sales of Flexi handsets. Data and Internet and the increase in support CPE revenues. Network revenues increased by Rp159.3 billion, or 4.7% due revenues increased by Rp516.9 billion, or 16.1%, to the increase in monthly subscription revenue primarily reflecting the increase in C-band satellite for Speedy in line with the 28.7% growth in transponder monthly subscription revenue due to higher market demand, and the increase in Speedy customer base to 3.0 million subscribers. Interconnection revenues increased by Rp197.3 Intel Ethernet Private Line (IPL) revenue. Data and billion, or 98.2%, due to the increase in local cellular Internet revenues increased by Rp1,395.1 billion, or 27.0%, reflecting the increase in Value Added Services revenue as well as the increase in Metro-E E-line monthly revenue due to the migration from low cap connectivity to high cap connectivity. Interconnection revenues increased by Rp347.4 billion, or 6.2%, mainly as a result of the increase in IP transit monthly subscription revenue due to higher demand for Internet connectivity from ISPs and corporate customers, and the increase in revenues from wholesale voice. A decline of revenue. Our home segment expenses increased by Rp946 billion, or 11.9% from Rp7,939 billion in 2012 to Rp8,885 billion in 2013, primarily due to an increase of Rp1,496.7 billion, or 136.8%, in operation and maintenance expenses as a result of the increase in operation & maintenance expenses for Radio Base Station ("RBS"). Interconnection expenses increased by Rp193.9 billion, or 103.2%, due to the increase in domestic wire line cellular interconnection expense Rp243.4 billion, or 29.3%, was recorded in IDD 007 in line with the growth of cellular subscribers. A retail OLO origin interconnection revenue Our corporate segment expenses increased by Rp2,399 billion, or 13.3%, from Rp17,976 billion in 2012 to Rp20,375 billion in 2013, primarily due decline of Rp568.5 billion, or 86.0%, was recorded in other expenses, due to the decline in other non- operations expenses and in Biaya Pokok Penjualan ("BPP") construction expense. to the increase of Rp1,985.3 billion, or 26.9%, in 3. Personal Segment operation and maintenance expenses as a result of higher tower rent expenses as well as the increase in hardware system integration expense in line with the growth of solution services provided to Our personal segment revenues increased by Rp5,111 billion, or 9.1%, from Rp56,275 billion in 2012 to Rp61,386 billion in 2013, mainly due to the increase of Rp1,316.8 billion, or 4.3%, in our corporate customers. General & administration cellular revenues, reflecting the increase in long expenses increased by Rp1,087 billion, or 99.0%, reflecting increases in provision expenses for distance cellular revenue as well as in cellular monthly subscription revenue due to a 5.1% telecommunication services receivables, bonuses for growth in cellular subscriber base to 131.5 million Directors, and in employee training expenses due to our Global Talent Program. Marketing expenses increased by Rp252.7 billion, or 52.6%, reflecting increases in customer education expense and in marketing expenses. A decline of Rp897.6 billion, or 69.2%, was recorded in other expenses due to a decline in other non-operating expenses, while the decline of Rp6.4 billion, or 0.2%, in personnel subscribers. Interconnection revenues increased by Rp203 billion, or 5.4%, reflecting increases in cellular IDD revenue and in local cellular revenue, offset by a decrease of Rp48.9 billion, or 35.6%, in incoming IDD OLO cellular revenue. Data and Internet revenue increased by Rp3,275.1 billion, or 16.3%,due to the increase in cellular data communication revenue in line with the 10.8% expenses reflected a decline in employee severance growth in data services users to 60.5 million users, payment, compensated by an increase in post- retirement healthcare benefit expenses. and the 86.1% growth in data traffic. Cellular SMS revenue also increased due to successful promotion Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 105 of our simPATI and kartu As products. Other 4. Other Segment telecommunication services revenue increased Our other segment revenues increased by Rp373 by Rp270.9 billion, or 114.3%, from USO revenue. billion, or 48.8%, from Rp765 billion in 2012 to Network revenues increased by Rp173.5 billion, or Rp1,138 billion in 2013, reflecting the increase of 64.8%, due to the increase in leased line colocation Rp372 billion, or 48.6%, in TelkomProperty's other revenue. Revenue from fixed wireless decreased telecommunication revenues, mainly as a result of by Rp221.5 billion, or 18.2%, reflecting the decline an increase of Rp105 billion, or 31.0%, in building of Rp129.1 billion, or 22.2%, in local prepaid usage maintenance services revenue as well as the in line with our retrenchment strategy for our fixed increase in security services revenue due to tariff wireless business. adjustments. Revenue from project management increased by Rp57.5 billion, or 51.3%, reflecting Our personal segment expenses increased by enhanced synergy within the Telkom Group. Rp3,091 billion, or 8.5% from Rp36,372 billion Revenue from management transport services a in 2012 to Rp39,463 billion in 2013, mainly due new line of business recorded an increase of Rp56.9 to an increase of Rp1,475.5 billion, or 14.6%, in billion, or 100%, from 2012, while revenue from depreciation expense, which reflected increases building lease increased by Rp46.2 billion, or 65.0%, in provision for asset impairment loss and in due to an increase in rent rates. depreciation of leased assets. Operation and maintenance expenses increased by Rp1,930.3 Our other segment expenses increased by Rp323 billion,or 13.2%, as a result of the increase in billion, or 47.2%, from Rp685 billion in 2012 to operation & maintenance expenses for support Rp1,008 billion in 2013, mainly reflecting the facilities, operation & maintenance expenses increase of Rp260.4 billion, or 46%, in operation and for antenna and towers due to accelerated BTS maintenance expenses, due to increases in project construction by Telkomsel, and in operation and management expenses, electricity bills, and in third- maintenance expenses for building installations. party cooperation expenses. Personnel expenses increased by Rp28.9 billion, or 44%, mainly due to the increase outsourcing expense. Home Segment (in billion) Personal Segment (in billion) 1.3% 9.1% 61,386 56,275 9,583 9,463 2012 2013 2012 2013 Corporate Segment (in billion) Other Segment (in billion) 16.1% 25,590 22,047 2012 2013 48.8% 1,138 765 2012 2013 106 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Year ended December 31, 2012 compared to year increase in cellular revenues of Rp4,957 billion, or ended December 31, 2011 1. Corporate Segment 15.0% and an increase in interconnection revenue by Rp444 billion, or 14.1% compared to 2011. The Our corporate segment revenues increased by increase in cellular revenues was primarily due to an Rp2,479 billion, or 12.7%, from Rp19,568 billion in increase in data and internet revenue by Rp2,553 2011 to Rp22,047 billion in 2012. The increase in billion in 2012 as compared to 2011, or 49.1%, and corporate segment revenues was primarily due to an increase in long distance cellular revenue by an increase in interconnection revenue of Rp1,632 Rp 1,397 billion in 2012 as compared to 2011, or billion, or 40.8%, primarily resulting from an increase 20.6%. The increase in interconnection revenue was in IP transit and outgoing IDD revenues. Data and primarily due to an increase in local cellular revenue. internet revenues increase of Rp705 billion, or 15.8%, primarily due to an increase in revenues from Metro Our personal segment expenses increased by Ethernet and data, internet and telecommunication Rp1,693 billion, or 4.9%, from Rp34,679 billion in service in-line with an increase of 70.8% in Metro 2011 to Rp36,372 billion in 2012, primarily due to Ethernet data volume from 140,733 Mbps in 2011 to an increase in interconnection expenses of Rp196 240,315 Mbps in 2012. billion, or 4.2% and an increase in operation and maintenance expenses of Rp1,025 billion, or 7.6%. Our corporate segment expenses increased by The increase in operation and maintenance expense Rp2,317 billion, or 14.8%, from Rp15,659 billion in 2011 was primarily due to an increase in transport to Rp17,976 billion in 2012, primarily due to increase expense and an increase in radio frequency in operation and maintenance expense by Rp1,763 expenses. On the other hand, depreciation expenses billion, or 31.4%, primarily resulting from cooperation decreased by Rp1,066 billion or 9.9% due to the expense and operating and maintenance expense changes in the estimated useful lives of towers and for antennae and towers. Personnel expense also certain equipment. increased by Rp459 billion, or 15.1%, from 2011. 2. Home Segment 4. Other Segment Our other segment revenues increased by Our home segment revenues decreased by Rp476 Rp345 billion, or 82.1%, from Rp420 billion in billion, or 4.7%, from Rp10,059 billion in 2011 to 2011 to Rp765 billion in 2012, due to the increase Rp9,583 billion in 2012, primarily due to a decrease in TelkomProperty’s other telecommunication in fixed wireline telephone revenues of Rp616 billion, services of Rp273 billion, or 368%, resulting from or 10.2%, which resulted from both decreased fixed the increase in management project of Rp57 billion, wireline ARPU and usage due to shifting usage to or 102.8% and security services of Rp206 billion, cellular and fixed wireless telephone services. or 100%. In addition, lease revenues also increase by Rp71 billion, or 20.5% due to the increase in Our home segment expenses decreased by Rp383 building lease of Rp24 billion, or 48.7% and building billion, or 4.6%, from Rp8,322 billion in 2011 to maintenance of Rp46 billion, or 15.6%. Rp7,939 billion in 2012, primarily reflecting an increase in claim revenue by Rp521 billion due to an Our other segment expenses increased by Rp343 insurance claim relating to the unsuccessful launch billion, or 100.3%, from Rp342 billion in 2011 to of the Telkom-3 satellite and increase in personnel Rp685 billion in 2012, primarily due to an increase expenses Rp382 billion or 11.7% in 2011. in operating and maintenance expenses of Rp154 3. Personal Segment billion, or 37.4%, primarily resulting from an increase in project management expenses, expenses Our personal segment revenues increased by relating to the operation of buildings and land and Rp5,362 billion, or 10.5%, from Rp50,913 billion in electricity, gas and water expenses. 2011 to Rp56,275 billion in 2012, primarily due to an Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 107 FINANCIAL OVERVIEW Our assets increased by 14.9% to Rp127,951 billion, while liabilities and equity attributable to owners of the parent increased by 13.8% and 17.5% to Rp50,527 billion and Rp60,542 billion. We success to record the revenue of Rp 82,967 billion, which was followed by net income of Rp14,205 billion. A. Financial Position Comparison Consolidated Statements of Financial Position Total Current Assets Total Non-Current Assets Total Assets Total Current Liabilities Total Non-Current Liabilities Total Liabilities Total equity attributable to owners of the parent company As of December 31, 2013 2012 2011 (Rp billion) (US$ million) (Rp billion) (Rp billion) 33,075 94,876 127,951 28,437 22,090 50,527 60,542 2,718 7,796 10,514 2,337 1,815 4,152 4,975 27,973 83,396 111,369 24,107 20,284 44,391 51,541 21,258 81,796 103,054 22,189 19,884 42,073 47,510 Year ended December 31, 2013 compared to year an increase in property, plant and equipment ended December 31, 2012 1. Assets a. Current Assets of Rp9,714 billion, or 12.6% and advance and prepaid expense of Rp1,784 billion or 50.8%. As of December 31, 2013, our current assets This increase was partially offset by a were Rp33,075 billion (US$2,718 million) decrease of Rp105 million, or 10.2% in prepaid compare to Rp27,973 billion as of December pension benefit costs. 31, 2012. The increase in current assets was mainly due to the increase of Rp2,534 billion, or 58.4% in other current financial assets and 2. Liabilities and Equity a. Current Liabilities in cash and cash equivalents Rp1,578 billion, Current liabilities were Rp28,437 billion or 12.0% and our third party trade receivable (US$2,337 million) as of December 31, 2013 of Rp604 billion, or 13.3%. and Rp24,107 billion as of December 31, 2012. This increase was primarily due to: This increase was partially offset by a - An increase of Rp3,926 billion, or 57.3% in decrease of Rp426 billion, or 97.7% in claim third party trade payable; and for tax refund. - An increase of Rp761 billion, or 27.9% in unearned income. b. Non Current Assets As of December 31, 2013 our non current This increase was partially offset by a assets were Rp94,876 billion (US$7,796 decrease of Rp899 million, or 14.6% in million) and Rp83,396 billion as of December accrued expense. 31, 2012. This increase was primarily due to 108 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis b. Non Current Liabilities b. Non Current Assets Non current liabilities were Rp22,090 billion As of December 31, 2012 our non current (US$1,815 million) as of December 31, 2013 assets were Rp83,396 billion (US$8,653 and Rp20,284 billion as of December 31, 2012. million) and Rp81,796 billion as of December Our non-current liabilities increase primarily 31, 2011. This increase was primarily due to due to an increase of Rp2,507 billion, or an increase of Rp2,150 billion, or 2.9% in 138.2% in obligation under finance lease. This property, plant and equipment. This increase increase was partially offset by a decrease of was partially offset by: Rp1,148 million, or 16.9% in bank loan. - A decrease of Rp307 million, or 8.0% in c. Equity advances and other non-current assets as a result of a decrease in advances in long Total equity increase by Rp10,446 billion, or term investment; and 15.6%, from Rp66,978 billion as of December 31, 2012 to Rp77,424 billion as of December 31, 2013. The increase of equity was primarily the result of increase of total comprehensive income for the year - A decrease of Rp346 million, or 19.4% in intangible assets. 2. Liabilities and Equity a. Current Liabilities attributable to owners of the parent of Current liabilities were Rp24,107 billion Rp14,317 billion in 2013, the sale of treasury (US$2,501 million) as of December 31, 2012 stock of Rp2,262 billion, paid in capital of and Rp22,189 billion as of December 31, 2011. Rp1,250 billion. This increase offset by cash This increase was primarily due to: dividend of Rp Rp7.068 billion. As a result - An increase of Rp1,373 billion, or 28.7% in of foregoing, our retained earnings increase accrued expenses, which mainly related by Rp5,851 billion, or 15.6% and total equity to salaries and benefits of Rp591 billion attributable to owner of the parent increase and early retirement program of Rp699 by Rp9,001 billion, or 17.5% from Rp51,541 billion; and billion as of December 31, 2012 to Rp60,542 - An increase of Rp805 billion, or 77.5% billion as of December 31, 2013. taxes payable. Year ended December 31, 2012 compared to year ended December 31, 2011 1. Assets a. Current Assets This increase was partially offset by a decrease of Rp1,042 million, or 13.2% in third party trade payable, which mainly related to purchases of equipments, As of December 31, 2012, our current assets materials and services from third parties. were Rp27,973 billion (US$2,901 million) compare to Rp21,258 billion as of December b. Non Current Liabilities 31, 2011. The increase in current assets was Non current liabilities were Rp20,284 billion mainly due to the increase of Rp3,965 billion, (US$2,105 million) as of December 31, 2012 or 1,063.0% in other current financial assets and Rp19,884 billion as of December 31, 2011. and in cash and cash equivalents Rp3,484 Our non-current liabilities increase primarily billion, or 36.2%. due to an increase of Rp1,500 billion, or 477.7% in obligation under finance lease. This This increase was partially offset by: increase was partially offset by: - A decrease of Rp791 billion, or 100.0% in - A decrease of Rp735 million, or 19.4% in asset held for sale because it has been deferred tax liabilities; sold/realized in the year 2012 and the - A decrease of Rp448 million, or 6.2% in absence of additional assets available for bank loan; sale in 2012; and - A decrease of Rp221 million, or 11.0% in - A decrease of Rp415 billion, or 52.7% in two step loan; and prepaid taxes. - A decrease of Rp171 million, or 5.0% in bonds and notes. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 109 c. Equity Total equity increase by Rp5,997 billion, or 9.8%, from Rp60,981 billion as of December 31, 2011 to Rp66,978 billion as of December 31, 2012. The increase of equity was primarily the result of total comprehensive income for the year attributable to owners of the parent of Rp18,388 billion in 2012, offset by cash dividend of Rp10,734 billion and the acquisition cost of treasury stock of Rp1,744 billion. As a result of foregoing, our retained earnings increase by Rp5,723 billion, or 18.0% and total equity attributable to owner of the parent increase by Rp4,031 billion, or 8.5% from Rp47,510 billion as of December 31, 2011 to Rp51,541 billion as of December 31, 2012. B. Comprehensive Income Comparison The following table sets out our Statement of Comprehensive Income, itemized according to our main products and services, for the three years 2013 through 2011. Each item is expressed as a percentage of total revenues or expenses: Revenues Telephone Revenues Cellular Revenues Usage charges Monthly subscription charges Features (Rp billion) 2013 (US$ million) 30,722 2,525 730 686 60 56 Total Cellular Revenues 32,138 2,641 Fixed Line Revenues Usage charges Monthly subscription charges Call Center Installation charges Others Total Fixed Line Revenues Total Telephone Revenues 6,453 2,682 324 12 230 9,701 41,839 530 220 27 1 19 797 3,438 Data, Internet and Information Technology Services Revenues Years Ended December 31, 2012 2011 % (Rp billion) % (Rp miliar) % 37.0 0.9 0.8 38.7 7.8 3.2 0.4 - 0.3 11.7 50.4 29,477 696 558 38.2 0.9 0.7 27,189 571 838 30,731 39.8 28,598 7,323 2,805 228 112 194 10,662 41,393 9.5 3.6 0.3 0.1 0.2 13.7 53.5 8,114 3,004 198 135 168 11,619 40,217 38.1 0.8 1.2 40.1 11.4 4.2 0.3 0.2 0.2 16.3 56.4 Internet, data communication and information technology services Short Messaging Service ("SMS") VoIP e-Business Total Data, Internet and Information Technology Services Revenues Interconnection Revenues Network Revenues Others Telecommunications Services Revenues Total Revenues Expenses 18,373 1,509 22.2 14,857 19.3 10,740 15.0 13,134 1,079 15.8 12,631 16.4 13,093 18.4 119 83 10 7 0.1 0.1 81 55 0.1 0.1 53 38 0.1 0.1 31,709 2,605 38.2 27,624 35.9 23,924 33.6 4,843 1,253 3,323 398 103 273 5.9 1.5 4.0 4,273 1,208 2,645 5.5 1.6 3.5 3,509 1,301 2,302 4.9 1.9 3.2 82,967 6,817 100.0 77,143 100.0 71,253 100.0 Operations, Maintenance and Telecommunication Services Expenses Operations and maintenance Radio frequency usage charges Concession fees and Universal Service Obligation (USO) charges 10,667 3,098 1,595 877 255 131 18.5 5.4 2.8 9,012 3,002 1,452 16.7 5.6 2.7 9,191 2,846 1,235 18.4 5.7 2.5 Electricity, gas and water 1,063 87 1.8 879 1.6 836 1.7 110 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Cost of phone,set top box, SIM and RUIM cards Cost of IT service Leased lines and CPE Vehicles rental and supporting facilities Insurance Project Management Expenses Traveling expenses Others Total Operations, Maintenance and Telecommunication Services Expenses Depreciation and Amortization Expenses Personnel Expenses Salaries and related benefits Vacation pay, incentives and other benefits Employees’ income tax Net periodic pension costs Net periodic post-retirement health care benefits costs Housing Insurance Other employee benefit Other post-retirement benefits costs LSA expense Early Retirement Program Others Total Personnel Expenses Interconnection Expenses Marketing Expenses General and Administrative Expenses Loss (gain) on foreign exchange - net Other expenses Total Expenses Other Income Operating Profit Finance income Finance costs Share of loss of associated companies Profit Before Income Tax Income Tax (Expense) Benefit Profit for the Year Total other comprehensive income - net Total comprehensive income for the year Profit for the year attributable to owners of the parent company Total comprehensive income for the year attributable to owners of the parent company (Rp billion) 2013 (US$ million) Years Ended December 31, 2012 2011 % (Rp billion) % (Rp miliar) % 752 677 440 439 374 138 53 36 62 56 36 36 31 11 4 3 1.3 1.2 0.8 0.8 0.6 0.2 0.1 0.1 687 222 407 293 671 102 57 19 1.3 0.4 0.8 0.5 1.2 0.2 0.1 - 879 144 406 291 431 46 54 13 1.8 0.3 0.8 0.5 0.9 0.1 0.1 - 19,332 1,589 33.6 16,803 31.1 16,372 32.8 15,780 1,297 27.3 14,456 26.8 14,864 29.7 3,553 3,252 1,160 873 374 220 92 71 66 19 - 53 9,733 4,927 3,044 4,155 249 480 57,700 2,579 27,846 836 (1,504) (29) 27,149 (6,859) 20,290 112 292 267 95 72 31 18 8 6 5 2 - 4 800 405 250 341 20 39 4,741 212 2,288 69 (124) (2) 2,231 (564) 1,667 - 20,402 1,676 14,205 14,317 - - - 6.2 5.6 2.0 1.5 0.6 0.4 0.2 0.1 0.1 0.1 - 0.1 16.9 8.5 5.3 7.2 3,257 3,400 1,022 789 90 200 83 38 65 121 699 22 9,786 4,667 3,094 3,036 0.4 189 0.8 1,973 6.0 6.3 1.9 1.5 0.2 0.4 0.2 - 0.1 0.2 1.3 0.1 18.2 8.6 5.7 5.6 0.3 3.7 3,001 2,815 1,043 501 199 198 70 - 65 96 517 52 8,555 3,555 3,278 2,934 210 192 100.0 54,005 100.1 49,960 2,559 25,696 596 (2,055) (11) 24,226 (5,866) 18,360 26 - (0.1) - - - (0.1) - (0.1) - 665 21,958 546 (1,637) (10) 20,858 (5,387) 15,471 11 6.0 5.6 2.1 1.0 0.4 0.4 0.2 - 0.1 0.2 1.0 0.1 17.1 7.1 6.6 5.9 0.4 0.4 100.0 - (0.0) - - - (0.0) - (0.0) - 18,386 (0.1) 15,481 (0.0) 12,850 12,876 134 - - - 10,966 10,977 112 - - - - - - - - - - - - - - - - Income per share (full amount) 147.4 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 111 Year ended December 31, 2013 compared to year c. Data, Internet and Information Technology ended December 31, 2012 Services Revenues 1. Revenues Our total data, internet and information technology service revenues accounted for Total revenues increased by Rp5,824 billion, or 38.2% of our consolidated revenues for the 7.5%, from Rp77,143 billion in 2012 to Rp82,967 year ended December 31, 2013, compared to billion in 2013. The increase in revenues in 2013 35.9% for the year ended December 31, 2012 was due to the increase in all sub revenues exclude revenues from fixed lines telephone. Data, internet and information technology The increase in revenues in 2013 was primarily services revenues increased by Rp4,085 contribute by cellular telephone revenues and billion, or 14.8%, from Rp27,624 billion in 2012 data, internet and information technology to Rp31,709 billion in 2013. This increase was services revenues. a. Cellular Telephone Revenues primarily due to an increase in revenues from internet, data communication and information technology services by Rp3,516 billion, or Cellular telephone revenues increased by 23.7%, which was driven by this following Rp1,407 billion, or 4.6%, from Rp30,731 revenues: billion in 2012 to Rp32,138 billion in 2013 due to increases in all sub cellular telephone - cellular data communication revenues revenues. The increased primarily due to 5.1% from an increase in Flash mobile increase in our cellular subscriber. broadband subscribers of 56.5%, from 11 million subscribers in 2012 to 17.3 million Usage charges increased by Rp1,245 billion, subscribers in 2013. or 4.2%, from Rp29,477 billion in 2012 to - Speedy monthly subscription revenues Rp30,731 billion in 2013 due to an increase in due to an increase in Speedy subscribers both our prepaid and postpaid subscriber, of 28.7% from 2.3 million subscribers in also due to increasing of our Long Distance 2012 to 3.0 million subscribers in 2013. Usage. Revenues from features increased by - data communication Ethernet revenue Rp128 billion or 22.9%, from Rp558 billion due to increase in data volume which pass in 2012 to Rp686 billion in 2013. Monthly subscription charges increased by Rp34 through metro ethernet of 39.4%, from 240,315 Mbps in 2012 to 334,935 Mbps in billion, or 4.9%, from Rp696 billion in 2012 to 2013, and Rp730 billion in 2013 due to 15.8% increase in - data communication VPN revenue due our postpaid subscriber. Our total cellular telephone revenues to increase in data volume which pass through VPN network of 14.1%, from 40,750 Mbps in 2012 to 46,505 Mbps in accounted for 38.7% of our consolidated 2013. revenues for the year ended December 31, 2013, compared to 39.8% for the year ended SMS revenues increased by Rp503 billion, December 31, 2012 b. Fixed Lines Telephone Revenues or 4.0%, from Rp12,631 billion in 2012 to Rp13,134 billion in 2013 due to a 25.2% increased of our SMS volumes from 118.1 Fixed lines telephone revenues decreased billion messages to 147.9 billion messages in by Rp961 billion, or 9.0%, from Rp10,662 2013. Effective June 1, 2012, in line with the billion in 2012 to Rp9,701 billion in 2013. The cost-based interconnection regime for voice decrease in fixed lines telephone revenues calls, the Government implemented cost- was primarily due to a decrease in usage based interconnection for SMS. As Telkomsel charges, of Rp870 billion, or 11.9%, and historically had more incoming SMS than monthly subscription charges revenues of outgoing SMS, cost-based interconnection Rp123 billion, or 4.4% which was primarily for SMS resulted in an overall benefit for caused by a decrease in local and domestic Telkomsel. long distance usage due to the shifting usage to cellular telephone services. 112 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis d. Interconnection Revenues g. Other Income Interconnection revenues comprised Other income increased by Rp20 billion, from interconnection revenues from our fixed Rp2,559 billion in 2012 to Rp2,579 billion in line network and interconnection revenues 2013. from Telkomsel’s mobile cellular network. Interconnection revenues included incoming 2. Expenses international long-distance revenues from Total expenses increased by Rp3,695 billion, or our IDD service (TIC-007). 6.8%, from Rp54,005 billion in 2012 to Rp57,700 billion in 2013. The increase in expenses was Interconnection revenues increased by attributable primarily due to increases in Rp570 billion, or 13.3%, from Rp4,273 operations, maintenance and telecommunication billion in 2012 to Rp4,843 billion in 2013. services, depreciation and amortization also This increase was triggered by an increase general and administrative expenses. These in domestic interconnection and transit expenses are further explained below: revenues of Rp353 billion, or 13.5%, primarily due to an increase in cellular interconnection a. Operations, Maintenance and revenues of Rp335 billion, or 14.5%, and Telecommunications Services Expenses an increase of Rp218 billion, or 13.2% in Operations, maintenance and international interconnection revenues, due telecommunications services expenses to our promotion rate offers for international increased by Rp2,529 billion, or 15.1%, from calls and the increased number of incoming Rp16,803 billion in 2012 to Rp19,332 billion in calls to mobile subscribers. 2013. e. Network Revenues The increase in operations, maintenance and Network revenues increased by Rp45 telecommunications services expenses was billion, or 3.7%, from Rp1,208 billion in 2012 attributable by the following: to Rp1,253 billion in 2013 mainly due to a - An increase in operations and increase in our revenues from leased lines maintenance of Rp1,655 billion, or 18.4%, services by Rp37 billion, or 4.5%, from Rp824 due to a decrease in expenses associated billion in 2012 to Rp861 billion in 2013. This with increasing the capacity of receiver increase was due to increasing number of our and transmission stations and Telkomsel’s subscriber by 27,078 or 7.0%. broadband services. f. Other Telecommunications Services - Cost of IT services increased by Rp455 billion, or 205.0%, from Rp222 billion in Revenues from other telecommunications 2012 to Rp677 billion in 2013. This increase services increased by Rp678 billion, or 25.6%, was primarily due to the increase in from Rp2,645 billion in 2012 to Rp3,323 integration system expenses. billion in 2013. The increase was primarily due - Electricity, Gas and water expenses to an increase of Rp260 billion, or 64.8%, in increased by Rp184 billion, or 20.9%, from lease revenue, an increase in revenues from Rp879 billion in 2012 to Rp1,063 billion USO compensation due to an increase in in 2013, due to an increase in electricity USO projects to establish internet service expenses due to increasing number of centers in various provincial capital cities our BTS and network for Telkomsel’s in 2013 and an increase of Rp151 billion, or broadband services and electricity tariff. 14.4%, in CPE and terminal revenue. The above increases were offset by Insurance The increase was partly offset by a decrease expenses decreased by Rp297 billion, or in revenues from pay TV of Rp131 billion, or 44.3%, from Rp671 billion in 2012 to Rp374 32.3%due to our corporate action the sale of billion in 2013 due to no satellite insurance TelkomVision one of our subsidiaries in pay TV. payment for Telkom-3. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 113 Our total operations, maintenance and to Rp3,044 billion in 2013 primarily due to telecommunications services expenses a decrease in advertising and promotion accounted for 33.5% of our consolidated expenses by Rp93 billion, or 3.9%, due to expenses for the year ended December 31, using selective media for promotion and 2013, compared to 31.1% for the year ended increasing group synergy. December 31, 2012. b. Depreciation and Amortization Expenses General and administrative expenses f. General and Administrative Expenses Depreciation and amortization expenses increased by Rp1,119 billion, or 36.9%, from increased by Rp1,324 billion, or 9.2%, Rp3,036 billion in 2012 to Rp4,155 billion in from Rp14,456 billion in 2012 to Rp15,780 2013 due in part to an increase in provision billion in 2013 primarily due to increased in for impairment of receivables by Rp674 depreciation expense by Rp1,476 billion, or billion, or 73.7.0%, from Rp915 billion in 2012 10.8% from Rp13,635 billion in 2012 to Rp15,109 to Rp1,589 billion in 2013. This increase billion in 2013. The increase in depreciation primarily resulted from current year individual expense primarily related to depreciation and collective assessment for impairment of of transmission installation and equipment receivables. The increased also contribute amounting to Rp1,065 billion or 14.0% and by a 59.0% increased in training, education an increase of loss in impairment of Rp349 and recruitment by Rp153 billion and a billion, or 141.3% compare to prior year. 28.1% increased by Rp148 billion in general c. Personnel Expenses expenses, Personnel expenses decreased by Rp53 This increase above was partially offset by billion, or 0.5%, from Rp9,786 billion in 2012 a 34.1% decreased in social contribution to Rp9,733 billion in 2013 due to no early expenses by Rp44 billion, or 34.4%. retirement programs were offered in 2013 that cause a decrease by Rp699 billion or g. (Loss) gain on Foreign Exchange - net 100.0% in early retirement program expenses Loss on foreign exchange - net increased by Rp60 billion, from Rp189 billion in 2012 This decrease above was partially offset by to Rp249 billion in 2013. The increase was an increase in salaries and related benefits primarily due to the appreciation of the US by Rp296 billion or 9.1% from Rp3,257 billion Dollar by 26.3%. in 2012 to Rp3,553 billion in 2013 and an increase in net periodic post-retirement h. Other expenses health care benefit costs by Rp284 billion, or Other expenses decreased by Rp1,493 billion, 315.6%. d. Interconnection Expenses from Rp1,973 billion in 2012 to Rp480 billion in 2013. The decrease primarily related to derecognition in 2012 of the carrying value Interconnection expenses increased by of the Telkom-3 Satellite, which was built and Rp260 billion, or 5.6%, from Rp4,667 billion launched, but failed to reach usable orbit, in 2012 to Rp4,927 billion in 2013 primarily amounting to Rp1,606 billion. due to an increase of Rp256 billion, or 7.4% in domestic interconnection and transit interconnection expenses, inline with an 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increase of 13.5% in domestic interconnection increased by Rp2,148 billion, or 8.4%, from and transit revenues. Rp25,698 billion in 2012 to Rp27,846 billion in 2013. Operating profit margin increased from e. Marketing Expenses 33.3% in 2012 to 33.6% in 2013. Marketing expenses decreased by Rp50 billion, or 1.6%, from Rp3,094 billion in 2012 114 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 4. Profit before Income Tax and Pre-Tax Margin was primarily due to the increase in revenues As a result of the foregoing, profit before income from cellular telephone, data, internet and tax increased by Rp2,921 billion, or 12.1%, from information technology services, interconnection Rp24,228 billion in 2012 to Rp27,149 billion in and other telecommunications services, partly 2013. Pre-tax margin increased from 31.4% in offset by decreases in revenues from fixed lines 2012 to 36.7% in 2013. telephone and network. 5. Income Tax Expense a. Cellular Telephone Revenues Income tax expense decreased by Rp993 billion, Cellular telephone revenues increased by or 16.9%, from Rp5,866 billion in 2012 to Rp6,859 Rp2,133 billion, or 7.5%, from Rp28,598 billion billion in 2013, following the increase in profit in 2011 to Rp30,731 billion in 2012 primarily before income tax. due to increases in usage and monthly subscription charges, partially offset by a 6. Other Comprehensive (Expenses) Income decrease in revenues from features. Other comprehensive expenses increased by Rp86 billion, or 330.8%, from Rp26 billion in 2012 Usage charges increased by Rp2,288 billion, to Rp112 billion in 2013 due to increase in foreign or 8.4%, from Rp27,189 billion in 2011 to currency translation by Rp89 billion offset by Rp29,477 billion in 2012 due to an increase in decrease in change in fair value of available-for- minutes of usage of 184.8 billion minutes, or sale financial assets by Rp3 billion. 11.1% and a 16.9% increase in total subscribers. 7. Comprehensive Income for the Year Monthly subscription charges increased by Rp125 billion, or 21.9%, from Rp571 billion in Comprehensive income for the year increased by 2011 to Rp696 billion in 2012 due to increase Rp2,014 billion, or 11.0%, from Rp18,388 billion in in Flash and Blackberry subscribers of 93.1% 2012 to Rp20,402 billion in 2013. 8. Profit for the Year Attributable to Non- controlling Interest Profit for the year attributable to non-controlling with revenue growth of 21.5%. The increase was partly offset by a decrease in revenues from features, which decreased by Rp280 billion, or 33.4%, from Rp838 billion in 2011 to Rp558 billion in 2012 as a result of MoCI interest increased by Rp573 billion, or 10.4%, from Regulation No. 01/PER/M.KOMINFO/01/2009 Rp5,512 billion in 2012 to Rp6,085 billion in 2013. regarding the provision of premium messaging service and broadcasting short 9. Profit for the Year Attributable to Owners of the message to many receivers. Parent Company Profit for the year attributable to owners of the b. Fixed Lines Telephone Revenues parent company increased by Rp1,355 billion, or Fixed lines telephone revenues decreased 10.5%, from Rp12,850 billion in 2012 to Rp14,205 by Rp957 billion, or 8.2%, from Rp11,619 billion in 2013. 10. Net Income per Share billion in 2011 to Rp10,662 billion in 2012. The decrease in fixed lines telephone revenues was primarily due to a decrease in usage Net income per share increased by Rp14, or charges, of Rp791 billion, or 9.7%, from Rp8,114 10.4%, from Rp134 in 2012 to Rp148 in 2013. billion in 2011 to Rp7,323 billion in 2012 which was primarily caused by a decrease in local Year ended December 31, 2012 compared to year and domestic long distance usage. Further, ended December 31, 2011 1. Revenues monthly subscription charges revenues also decreased by Rp199 billion, or 6.6% in 2012. The decrease in fixed lines telephone Total revenues increased by Rp5,890 billion, or revenues was primarily due to shifting usage 8.3%, from Rp71,253 billion in 2011 to Rp77,143 to cellular telephone services. billion in 2012. The increase in revenues in 2012 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 115 c. Data, Internet and Information Technology d. Interconnection Revenues Services Revenues Interconnection revenues comprised Data, internet and information technology interconnection revenues from our fixed services revenues increased by Rp3,700 line network and interconnection revenues billion, or 15.5%, from Rp23,924 billion in 2011 from Telkomsel’s mobile cellular network. to Rp27,624 billion in 2012. This increase Interconnection revenues included incoming was primarily due to an increase in revenues international long-distance revenues from our from internet, data communication and IDD service (TIC-007). information technology services by Rp4,117 billion, or 38.3%, from Rp10,740 billion in 2011 Interconnection revenues increased by Rp764 to Rp14,857 billion in 2012, which was in turn billion, or 21.8%, from Rp3,509 billion in 2011 largely driven by increases in cellular data to Rp4,273 billion in 2012. This increase communication revenues from increased was triggered by an increase in domestic mobile phone data usage and an increase interconnection and transit revenues of in Flash mobile broadband subscribers Rp547 billion, or 26.4%, from Rp2,071 billion of 99.5%, from 5.5 million subscribers in in 2011 to Rp2,618 billion in 2012 primarily 2011 to 11.0 million subscribers in 2012. The due to an increase in cellular interconnection increase in revenues from internet, data revenues of Rp538 billion, or 30.2%, and communication and information technology an increase of Rp217 billion, or 15.1% in services was also due in part to an increase in international interconnection revenues, due Speedy subscribers of 30.9%, from 1.8 million to our promotion rate offers for international subscribers in 2011 to 2.3 million subscribers calls and the increased number of incoming in 2012, a 41.9% increase in data volumes calls to mobile subscribers. through our VPN network, from 28,702 Mbps in 2011 to 40,748 Mbps in 2012, and a Our total interconnection revenues accounted 70.8% increase in data volumes through our for 5.5% of our consolidated revenues for the metro ethernet, from 140,733 Mbps in 2011 to year ended December 31, 2012, compared to 240,315 Mbps in 2012. 4.9% for the year ended December 31, 2011. SMS volumes decreased by 47.8% from e. Network Revenues 226.4 billion messages in 2011 to 118.1 billion Network revenues decreased by Rp93 billion, messages in 2012, while SMS revenues or 7.1%, from Rp1,301 billion in 2011 to Rp1,208 decreased by a smaller degree, by Rp462 billion in 2012 mainly due to a decrease in our billion, or 3.5%, from Rp13,093 billion in 2011 revenues from leased lines services by Rp87 to Rp12,631 billion in 2012. The decrease in billion, or 9.5%, from Rp911 billion in 2011 to SMS volumes is in line with general increase Rp824 billion in 2012. This decrease was due in usage of internet-based messaging. to declining prices for leased lines. Revenues declined by a smaller percentage primarily due to the implementation of cost- f. Other Telecommunications Services based interconnection for SMS on June 1, Revenues from other telecommunications 2012. Prior to June 2012, SMS were sent and services increased by Rp343 billion, or 14.9%, received among operators on a "Sender Keep from Rp2,302 billion in 2011 to Rp2,645 billion All" basis. Effective June 1, 2012, in line with in 2012. The increase was primarily due to an the cost-based interconnection regime for increase of Rp307 billion, or 41.5% in CPE and voice calls, the Government implemented terminal revenue, an increase of Rp182 billion, cost-based interconnection for SMS. As or 83.1% in lease revenue, and an increase Telkomsel historically had more incoming of Rp146 billion, or 56.4% in revenues from SMS than outgoing SMS, cost-based pay TV. The increase in pay TV revenues was interconnection for SMS resulted in an overall primarily due to a 19% increase in the number benefit for Telkomsel’s SMS revenues. of subscribers from 1.0 million subscribers in 2011 to 1.2 million subscribers in 2012. 116 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis This increase above was partially offset - Radio frequency usage expenses by a decrease in revenues from USO compensation due to a decrease in USO increased by Rp156 billion, or 5.5%, from Rp2,846 billion in 2011 to Rp3,002 billion projects to establish internet service centers in 2012, due to an increase in bandwidth in various provincial capital cities in 2012 used for cellular. and a decrease in our directory assistance revenues. g. Other Income The above increases were offset by the following: - A decrease in the cost of handset phone, Other income increased by Rp1,894 billion, or set up top box, SIM and RUIM cards of 184.8%, from Rp665 billion in 2011 to Rp2,559 Rp192 billion, or 21.8%, from Rp879 billion billion in 2012. The increase primarily related in 2011 to Rp687 billion in 2012. This to insurance compensation received from decrease was caused by the use of less the insurer amounted to Rp1,772 billion with expensive packaging for SIM and RUIM regards to the insured Telkom-3 Satellite that cards; was built and launched, but failed to reach its orbit on August 7, 2012. See Note 11 to our - A decrease in operations and Consolidated Financial Statements. 2. Expenses maintenance of Rp179 billion, or 1.9%, from Rp9,191 billion in 2011 to Rp9,012 billion in 2012 due to a decrease in Total expenses increased by Rp4,044 billion, or expenses associated with increasing the 8.1%, from Rp49.960 billion in 2011 to Rp54,004 capacity of receiver and transmission billion in 2012. The increase in expenses was stations and Telkomsel’s broadband attributable primarily due to increases in services. operations, maintenance and telecommunication services, personnel and interconnection b. Depreciation and Amortization Expenses expenses. These expenses are further explained Depreciation and amortization expenses below: a. Operations, Maintenance and decreased by Rp407 billion, or 2.7%, from Rp14,863 billion in 2011 to Rp14,456 billion in 2012, primarily due to lower impairment Telecommunications Services Expenses charge on fixed wireless cash generating Operations, maintenance and unit (“CGU”) by Rp316 billion, or 56.1% from telecommunications services expenses Rp563 billion in 2011 to Rp247 billion in 2012. increased by Rp431 billion, or 2.6%, from In addition, amortization expense decreased Rp16,372 billion in 2011 to Rp16,803 billion in by Rp23 billion, or 3.8%, from Rp599 billion in 2012. 2011 to Rp576 billion in 2012 due to decrease in goodwill impairment expense and license The increase in operations, maintenance and amortization expense, and depreciation telecommunications services expenses was expense decrease by Rp68 billion, or 0.5%, attributable by the following: from Rp13,701 billion ini 2012 to Rp13,633 - Insurance expenses increased by Rp240 billion in 2012. Decrease in depreciation billion, or 55.7%, from Rp431 billion in 2011 expense primarily due to switching to Rp671 billion in 2012 due to payment of equipment and cable network expenses. Telkom-3 satellite insurance; - Concession fees and USO charges c. Personnel Expenses increased by Rp217 billion, or 17.6%, from Personnel expenses increased by Rp1,231 Rp1,235 billion in 2011 to Rp1,452 billion in billion, or 14.4%, from Rp8,555 billion in 2011 2012. This increase was primarily due to to Rp9,786 billion in 2012 due in part to an the increase in our total revenues, which increase in vacation pay, incentives and other we use to calculate the amount spent on benefits by Rp586 billion, or 20.8%, from USO projects, by Rp5,889 billion, or 8.3%; Rp2,814 billion in 2011 to Rp3,400 billion in and 2012, an increase by Rp182 billion or 35.2% Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 117 in early retirement program expenses from Rp129 billion in 2012. This decrease resulted Rp517 billion in 2011 to Rp699 billion in from our shareholders’ decision to lower 2012, and an increase in salaries and related the amount of net profit spent on corporate benefits by Rp256 billion or 8.5% from social responsibility from 2.0% in 2011 to 1.0% Rp3,001 billion in 2011 to Rp3,257 billion in in 2012. 2012. d. Interconnection Expenses Professional fees decreased by Rp48 billion, or 20.4%, while security and screening Interconnection expenses increased by expense decreased by Rp35 billion, or 36.1%, Rp1,112 billion, or 31.3%, from Rp3,555 billion from Rp97 billion in 2011 to Rp62 billion in in 2011 to Rp4,667 billion in 2012 primarily 2012. due to an increase of 43.5% in domestic interconnection and transit interconnection g. (Loss) gain on Foreign Exchange – net expenses and an increase of 16.5% in international interconnection fees. Loss on foreign exchange - net decreased by Rp21 billion, or 10%, from Rp210 billion in 2011 to Rp189 billion in 2012. The decrease Our total interconnection expenses was primarily due to the depreciation of the accounted for 8.6% of our consolidated Japanese Yen by 4.3% wich was partially expenses for the year ended December 31, offset by the appreciation of the US Dollar by 2012, compared to 7.1% for the year ended 6.3%. December 31, 2011. h. Other expenses e. Marketing Expenses Other expenses increased by Rp1,781 billion, Marketing expenses decreased by Rp184 or 927.6%, from Rp192 billion in 2011 to billion, or 5.6%, from Rp3,278 billion in 2011 Rp1,973 billion in 2012. The increase primarily to Rp3,094 billion in 2012 primarily due to related to derecognition of the carrying value a decrease in advertising and promotion of the Telkom-3 Satellite, which was built and expenses by Rp249 billion, or 9.1% due to launched, but failed to reach usable orbit on marketing cost optimization. August 7, 2012, amounting to Rp1,606 billion. See Note 11 to our Consolidated Financial f. General and Administrative Expenses Statements. General and administrative expenses increased by Rp101 billion, or 3.4%, from 3. Operating Profit and Operating Profit Margin Rp2,935 billion in 2011 to Rp3,036 billion in As a result of the foregoing, operating profit 2012 due in part to an increase in general increased by Rp3,740 billion, or 17.0%, from expenses by Rp201 billion, or 61.7%, from Rp21,958 billion in 2011 to Rp25,698 billion in Rp326 billion in 2011 to Rp527 billion in 2012. Operating profit margin increased from 2012. The increase in general expenses 30.8% in 2011 to 33.3% in 2012. was primarily due to vehicle facility reimbursement expenses related to changes 4. Profit before Income Tax and Pre-Tax Margin of our policy and directors’ severance pay As a result of the foregoing, profit before income due to the Board of Directors changes in tax increased by Rp3,371 billion, or 16.2%, from 2012. Provision for impairment of receivables Rp20,857 billion in 2011 to Rp24,228 billion in increased by Rp32 billion, or 3.6%, from 2012. Pre-tax margin slightly increased from Rp883 billion in 2011 to Rp915 billion in 2012. 29.3% in 2011 to 31.4% in 2012. This increase primarily resulted from current year individual and collective assessment for 5. Income Tax Expense impairment of receivables. Income tax expense increased by Rp479 billion, or 8.9%, from Rp5,387 billion in 2011 to Rp5,866 The increase in provision for impairment of billion in 2012, following the increase in profit receivables was partially offset by a decrease before income tax by 17.2%. in social contribution expenses by Rp161 billion, or 55.5%, from Rp290 billion in 2011 to 118 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis 6. Other Comprehensive (Expenses) Income Year ended December 31, 2013 compared to year Other comprehensive income increased by Rp15 ended December 31, 2012 billion, or 136.4%, from Rp11 billion in 2011 to Rp26 billion in 2012 due to the increase foreign 1. Cash Flows from Operating Activities currentcy translation by Rp24 billion offset by Net cash provided by operating activities in decrease in change in fair value of available for 2013 was Rp36,574 billion (US$3,005 million) sale financial asset by Rp9 billion. compared to Rp27,941 billion in 2012. The 7. Comprehensive Income for the year increase was primarily due to an increase of Rp5,103 billion, or 7.1%, in cash receipts from Comprehensive income for the year increased by customers and from other operators of Rp528 Rp2,907 billion, or 18.8%, from Rp15,481 billion in billion or 13.2% due to the increase of our 2011 to Rp18,388 billion in 2012. operating revenue and also due to the decrease in cash payment for our expense of Rp.6,211 8. Profit for the Year Attributable to Non- billion, or 18.5%. This was partially offset by an controlling Interest Profit for the year attributable to non-controlling increase of Rp1,809 billion, or 32.4%, in payment for income tax and cash payment to employees interest increased by Rp1,018 billion, or 22.6%, of Rp1,721 billion, or 21.1%. from Rp4,505 billion in 2011 to Rp5,512 billion in 2012. 2. Cash Flows from Investing Activities Net cash flows used in investing activities in 9. Profit for the Year Attributable to Owners of the 2013 was Rp22,702 billion (US$1,865 million) Parent Company Profit for the year attributable to owners of the compared to Rp11,311 billion in 2012. This increase was primarily due to an increase of Rp11,423 parent company increased by Rp1,885 billion, or billion in acquisition of property and equipment. 17.2%, from Rp10,965 billion in 2011 to Rp12,864 This was partially offset by a decrease of Rp1,720 billion in 2012. 10. Net Income per Share Net income per share increased by Rp21.9, or billion or 42.9% in placement in time deposit and an increase of cash received in divestment of subsidiary and associate company Rp926 billion. 19.6.0%, from Rp111.9 in 2011 to Rp133.8 in 2012. 3. Cash Flows from Financing Activities C. Net Cash Flows Net cash flows used in financing activities totaled Rp13,327 billion (US$1,095 million) in The following table sets out information concerning 2013 compared to Rp13,314 billion in 2012. This our consolidated cash flows, as set out in (and increase by Rp13 billion, or 0.1%, was primarily prepared on the same basis as) our Consolidated due to a increase of Rp2,368 billion in proceed Financial Statements: from sale of treasury stock and a decrease of Years ended December 31, 2013 2012 2011 (Rp billion) (US$ million) (Rp billion) (Rp billion) Net cash flows: provided by operating activities used in investing activities used in financing activities Net increase in cash and cash equivalents Effect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year Ending balance of disposed subsidiary Cash and cash equivalents at end of year 36,574 (22,702) (13,327) 545 1,039 13,118 (6) 14,696 3,005 (1,865) (1,095) 45 85 1,078 - 1,208 27,941 (11,311) (13,314) 3,316 168 9,634 - 30,553 (14,505) (15,539) 509 5 9,120 - 13,118 9,634 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 119 Rp1,744 billion, in payments for treasury stock. and a decrease of Rp4,976 billion, or 37.7%, in This was partially offset by an increase of cash payments for the acquisition of property Rp1,227 billion, or 17.2%, in cash dividends paid to and equipment. This was partially offset by our stockholders and Rp1,083, or 30% to non- a decrease of Rp1,862 billion or 14,323.1% in controlling stockholders subsidiaries due to the proceeds from insurance claims relating to increase of our operating profit and a decrease unsuccessful launch of the Telkom-3 satellite. of Rp1,271 billion obtain from additional bank loan. Apart from cash on hand and cash in banks, we invest the majority of our excess cash from time Year ended December 31, 2012 compared to year to time in time deposits. Since May 14, 2004, we ended December 31, 2011 also have been investing a part of our excess cash in Rupiah-based mutual funds and other 1. Cash Flows from Operating Activities marketable securities. As of December 31, 2012, Net cash provided by operating activities in other current financial assets totaling Rp4,338 2012 was Rp27,941 billion (US$2,898 million) billion (US$450 million) in mutual funds and compared to Rp30,553 billion in 2011. The other marketable securities were outstanding. decrease was primarily due to an increase of Rp8,235 billion, or 32.4%, in cash payments for 3. Cash Flows from Financing Activities expenses. This was partially offset by an increase Net cash flows used in financing activities of Rp4,391 billion, or 6.5%, in cash receipts from totaled Rp13,314 billion (US$1,381 million) in customers due to the increase of our revenues. 2012 compared to Rp15,539 billion in 2011. This decrease by Rp2,225 billion, or 14.3%, was 2. Cash Flows from Investing Activities primarily due to a decrease of Rp3,075 billion, or Net cash flows used in investing activities in 2012 41.9%, in repayment of two-step loans and bank was Rp11,311 billion (US$1,173 million) compared loans and a decrease of Rp315 billion, or 15.3% in to Rp14,505 billion in 2011. This decrease was payments for treasury stock. This was partially primarily due to an increase of Rp3,975 billion, offset by an increase of Rp1,058 billion, or 17.4%, in purchases of available for sale financial assets in cash dividends paid to our stockholders. D. Obligation and Commitment 1. Contractual Obligation The following table sets forth information on certain of our material contractual obligations as of December 31, 2013. Contractual Obligations Total (Rp billion) Less than 1 year (Rp billion) 1-3 years (Rp billion) 3-5 years (Rp billion) More than 5 years (Rp billion) By Payment Due Dates Short-Term Loan(1)(6) Long-Term Debts(2)(6) Capital Lease Obligations(3) Interest on Short-term Loans, Long-term Debts and Capital Lease Obligations(7) Operating Leases(4) Unconditional Purchase Obligations(5) 432 14,855 4,969 1,935 14,037 18,461 432 4,445 648 423 1,845 18,461 5,405 1,060 360 3,270 - 1,756 1,097 782 3,249 2,164 370 3,095 5,827 - - Total 54,689 25,254 10,095 6,730 11,610 (1) Related to liabilities under short-term loans obtained from Bank CIMB Niaga Bank UOB, Bank Danamon, BRI and other banks. See Note 17 to our Consolidated Financial Statements. (2) See Notes 18-20 to our Consolidated Financial Statements. (3) Related to the leases of the slot site of the tower, property and equipment under RSA, transmission installation and equipment, data processing equipment, office equipment, vehicles and CPE assets. (4) Related primarily to leases of leased line, telecommunication equipment and land and building. (5) Capital expenditures committed under contractual arrangements. (6) Excludes the related contractually committed interest obligations. (7) See “Business Overview – Risk Factors – Risks Related to Our Business – Financial Risks – We are exposed to interest rate risk”.. 120 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis See Note 41 to our Consolidated Financial Statements for further details on our contractual commitments. In addition to the above contractual obligations, as of December 31, 2013, we had long-term liabilities for pension, post-retirement health care benefits and long service awards. In 2013 we contributed Rp302 billion to our post-retirement health care benefits plan and to our defined benefit pension plan Rp182 billion. See Notes 34 and 36 to our Consolidated Financial Statements. 2. Indebtedness Consolidated total indebtedness (consisting of long-term liabilities, current maturities of long-term liabilities, short-term bank loans and deferred consideration for business combinations) as of December 31, 2011, 2012 and 2013 were as follows: Indonesian Rupiah US Dollar(1) Japanese Yen(2) Total As of December 31, 2013 2012 2011 (Rp billion) (US$ million) (Rp billion) (Rp billion) 17,553 1,724 979 20,256 1,441 142 80 1,663 16,192 2,052 1,031 19,275 14,142 2,561 1,168 17,871 (1) The amounts as of December 31, 2011, 2012 and 2013 translated into Rupiah at Rp9,075, Rp9,645 and Rp12,180 = US$1, respectively, being the Reuters sell rates for US Dollar at each of those dates. (2) The amounts as of December 31, 2011, 2012 and 2013 translated into Rupiah at Rp117.0, Rp111.8 and Rp115.9 = Yen 1, respectively, being the Reuters sell rates for Yen at each of those dates. Of our total indebtedness, as of December 31, 2013, Rp5,525 billion, Rp6,465 billion and Rp2,853 billion were scheduled for repayment in 2014, 2015 to 2016 and 2017 to 2018 and thereafter, respectively. For further information on our Company’s indebtedness, see Notes 17-21 to our Consolidated Financial Statements. 3. Material Contract In 2013 and 2012, we did not enter into any new material contracts nor did we amend any existing material contracts, other than contracts entered into or amended in the ordinary course of business. E. Liquidity 1. Liquidity Sources The main source of our corporate liquidity is cash provided by operating activities and long-term debt through the capital markets as well as long-term and short-term loans through bank facilities. We divide our liquidity sources into internal and external liquidity. a. Internal Liquidity Sources To fulfill our obligations we rely primarily on our internal liquidity. As of December 31,2013, we had Rp14,696 billion in cash and cash equivalents available. In 2013, cash and cash equivalents increased by Rp1,578 billion. In 2012, the increase of cash flow provided by operating activities primarily arise from cash receipts from customers of Rp5,103 billion. We made net repayments of current indebtedness for borrowed money of Rp7,967 billion in 2011, Rp5,843 billion in 2012 and Rp6,239 billion in 2013. Cash outflows in 2013 reflected payments for long- term liabilities of Rp4,803 billion and Short-term liabilities of Rp407 billion; and Our internal liquidity strength reflected in our current ratio, which we calculate as current assets divided by current liabilities, increased from 116.0% as of December 31, 2012 to 116.3% as of December 31, 2013. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 121 b. External Liquidity Sources - An increase of Rp105 billion in asset held for sale. Our primary external sources of liquidity are short and long-term bank loans, two-step We believe that our working capital is sufficient loans, bonds and notes payable. During the for our present requirements. We expect that our year 2013 we used external liquidity bank working capital will continue to be addressed loans of Rp2,665 billion; and Short-term bank by various funding sources, including cash from loans of Rp813 billion. operating activities and bank loans. c. Outstanding Liquidity Sources G. Solvency We had undrawn loan facilities which include Our solvency or our ability to meet our short- the following sources of unused liquidity: term and long-term obligations highly influenced - Bank CIMB Niaga loan facility in the by our source of liquidity. Refer to explanation on amount of Rp1,053 billion; “Liquidity”. - Japan Bank for International Cooperation loan facility in the amount of 1. Current Liabilities USD31,350,000; Our ability to pay our current liabilities is - BNI loan facility in the amount of Rp350 indicated by the ratios on the table below: billion; - UOB loan facility in the amount of Rp70 billion; - BRI loan facility in the amount of Rp49 billion; Ratios 2013 2012 Current ratio Quick ratio Cash ratio 116.3% 114.5% 75.8% 116.0% 113.6% 72.4% - Bank Ekonomi Raharja loan facility in the 2. Non-Current Liabilities amount of Rp18 billion; Our ability to pay our debt is indicated by the - Bank Bukopin loan facility in the amount ratios on the table below of Rp9 billion; - BRI Syariah loan facility in the amount of Rp1,402 million; - Bank Syariah Mandiri loan facility in the amount of Rp1,297 million; and - Syndicated loan facility of BNI, BRI and Bank Mandiri in the amount of Rp749 million. F. Working Capital Net working capital, calculated as the difference between current assets and current liabilities, amounted to a deficit Rp3,866 billion as of December 31, 2012 and surplus Rp4,638 billion (US$381 million) as of December 31, 2013. The increase in net working capital was primarily due to: - A substantial increase of Rp2,534 billion in other current financial assets; - An increase of Rp1,578 billion in cash and cash equivalents; and - An increase of Rp3,926 billion in trade payables from third parties. This was partially offset by: - A decrease of Rp899 billion in accrued expense; - A decrease of Rp528 billion in current maturities of long-term liabilities; and Ratios 2013 2012 Debt to equity ratio Debt to EBITDA 33.5% 46.4% 37.4% 48.0% Times interest earned ratio 29.0 times 19.5 times For detail discussion about our debt, see Notes 17-21 to our Consolidated Financial Statements. H. Receivable Collectibility Our receivable collectability, indicated by the ratios average collection period that show an average of days that we take to collect our receivable and receivable turnover that show how many times in average the funds invested in receivable are turned in one year. Our average collection period were 26.5 days in 2013 and 24.7 days in 2012. Our receivable turnover for 2013 and 2012 were 13.8 and 14.8 We have made provision for impairment of receivables based on the collectability amount of the historical impairment rates and individual account of its customers’ credit quality and credit history, amounted to Rp2,872 in 2013 and Rp2,047 billion in 2012. As of December 31, 2012 and 2011, the carrying amount of our receivables considered past 122 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis due but not impaired amounted to Rp2,418 billion ratios with reference to regional peers in the and Rp2,189 billion, respectively. We concluded that telecommunications industry. past due but not impaired receivables, along with receivables that are neither past due nor impaired, For detail discussion about management policy on are due from customers with good debt history and capital structure, see Note 45 to our Consolidated are expected to be recoverable. Financial Statements. For detail discussion about our receivable, see Note J. Capital Expenditures 6 to our Consolidated Financial Statements. In 2013, we incurred capital expenditures of I. Capital Structure Rp24,898 billion (US$2,046 million), less than the originally budgeted Rp27,243 billion. This Our capital structure as of December 31, 2013 is decrease was mainly due to the delay of our SCCS described as follows: development projects. Short Term Debt Long Term Debt Debt Total Equity Attributable to Owner Amount (Rp billion) Portion (%) Our capital expenditures are grouped into the following categories for planning purposes: 432 19,824 20,256 60,542 0.5 24.6 25.1 74.9 - Broadband services, which consist of broadband, IT, application and content and service node; - Network infrastructure, which consists of core transmission network, metro-ethernet and Total Invested Capital 80,798 100.0 Regional Metro Junction (“RMJ”), IP backbone and satellite; We take a qualitative approach towards our capital - Optimizing legacy, for wireline; and structure and debt levels. Under our syndicated loan - Capex supports. agreement with BNI, BRI and Bank Mandiri, we are required to maintain a debt to equity ratio of not Of our Rp24,898 billion capital expenditure in more than 2.0 and debt service coverage ratio of 2013, Telkom (as parent company) incurred capital more than 1.25. As of December 31, 2013, our debt expenditures of Rp5,313 billion (US$437 million), to equity ratio was 33.5% and our debt service Telkomsel incurred capital expenditures of Rp15,662 coverage ratio was 6.2, indicating our strong ability billion (US$1,287 million) and our other subsidiaries to meet our debt obligations. Our debt levels are incurred capital expenditures of Rp3,923 billion primarily driven by our plans to develop our existing (US$322 million) as follows: and new strategic businesses. In determining our optimum debt levels, we also consider our debt Table of realization of our capital expenditure Telkom (parent company) Broadband service Network service Optiming legacy Support Subtotal for Telkom Subsidiaries Telkomsel Others Subtotal for subsidiaries Total for Telkom Group Years Ended December 31, 2013 (Rp billion) 2012 (Rp billion) 2011 (Rp billion) 3,285.5 1,674.4 191.0 162.1 1,662.0 2,060.0 86.0 232.0 1,875.0 1,979.0 156.0 192.0 5,313.0 4,040.0 4,202.0 15,662.0 3,923.0 19,585.0 24,898.0 10,656.0 2,576.0 13,232.0 17,272.0 8,472.0 1,929.0 10,401.0 14,603.0 Actual future capital expenditures may differ from the amounts indicated above due to various factors, Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 123 including but not limited to the Indonesian economy, For more detailed discussion regarding our the Rupiah/US Dollar and Rupiah/Euro exchange material commitments for capital expenditures, rates and other applicable foreign exchange rates, see Note 41A to our Consolidated Financial the availability of vendor or other financing on terms Statements. acceptable to us, technical or other problems in obtaining or installing equipment and whether we 2. Source of Funds enter any new lines of business. K. Material Commitment For Capital Investment Historically, we have good leverage and funded our capital expenditures from cash operating activities and external funds are still in the optimal capital structure. In 2014, we allocate capital expenditure increased 1. Purpose of the Commitment significantly in accordance with the company's As of December 31, 2013, we had material business expansion plan, the amount of capital commitments for capital expenditures under expenditure to revenue ratio in the range of 25%- certain contractual arrangements of Rp18,461 30%. The increase in capital expenditure is the billion, principally relating to procurement and most significant will be allocated in proportion to installation of switching equipment, transmission the increase in broadband services and also to equipment and cable network. These include, the subsidiary entities. among others, broadband access development with MSAN platform, GPON project, metro We expect to fund the above commitments with Ethernet expansion project, Sumatra-Bangka our internal and external sources of funds. See SBCS project, Tarakan-Tanjung Selor TSCS explanation on “Capital Expenditures”. project, Luwuk-Tutuyan TSCS project, DWDM and DWDN project, new fiber optic cable 3. Denomination of Currency deployment as an alternative route, JASUKA ISP As of December 31, 2013, details of material WDM Sumatera Bangka Cable System , IP Radio commitment for capital investment by currency Equipment project, XGPON project, Telkom are as follows: cache system project, TITO project, Indonesia Wi-Fi project, VPN CISCO project, OSP FTTH Currencies project, Internet Protocol Backbone (“IPBB”) project, Wireless Access Gateway project, Sulawesi Maluku Papua cable system, PE Speedy project, Surabaya-Ujung Pandang-Banjarmasin Backbone Ring Capacity project and Wi-Fi CISCO project. Our subsidiary, Telkomsel, has material commitments for capital expenditures related, among others, to the construction of combined 2G and 3G core network as well as maintenance and procurement of equipment and related services for Next Generation Convergence, IP RAN Rollout and Technical Support, Next Generation Convergence Core Transport Rollout, Gateway GPRS Support Node (“GSSN”). In addition, TelkomProperty, Mitratel and Telin also have material commitment for capital expenditures, each related to construction of Telkom Landmark Tower building, telecommunication towers and OSS-BSS-VAS System Rollout and Radio Access Network (“RAN”) procurement.. Rupiah US Dollar JPY Euro SGD Amounts in Foreign Currencies (in millions) Equivalent in Rupiah - 660 58.0 0.3 0.2 10,404 8,043 7 5 2 18,461 4. Planned Actions to Mitigate Foreign Exchange Risks We are exposed to foreign exchange risk on sales, purchases and borrowings transactions that are denominated in foreign currencies, primarily in US Dollars and Japanese Yen. Nevertheless, our exposure to foreign exchange rates risk is not material. Management provides written policy for foreign currency risk management mainly through time deposits placements and hedging to cover foreign currency risk exposures for the time range of 3 up to 12 months. Increasing risks of foreign currency exchange rates on our 124 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis obligations are expected to be offset by time deposits and receivables in foreign currencies that are equal to at least 25% of the outstanding current liabilities. For detail discussion on material commitments for capital investment, see Notes 41 and 44 to our Consolidated Financial Statements. OTHER DISCLOSURES A. Changes In Accounting Policies There are no changes in accounting policies implemented in the preparation of the 2013 Consolidated Financial Statements, except for the implementation of a number of financial accounting standards (SAK) that have been revised and are effective as of January 1, 2013 , among others: SAK PSAK 38 (revised 2012) , "Common Control Business Combination " PSAK 60 (revised 2010), "Financial Instruments: Disclosures Impact of SAK Application The company shall: - implement pooling of interest method for an entity that received the business, with assumption at the initial business merger under common control, and not since the beginning of the comparative period; - the entity that receives as well as the one that dispose the business, in a business combination under common control, shall recognize the difference between compensation transferred or received, and the carrying amounts of each transaction of the business combination under common control, or the carrying amounts of the business disposed in the equity statement and present it as the additional paid-in capital. The company shall: - provide qualitative disclosure in the context of quantitative disclosures related to credit risk, liquidity risk and market risk; - eliminate the requirement on exception to disclosures of credit risk, liquidity risk and market risk due to materiality limits; - exception to disclosure of maximum value of credit risk exposure of financial instruments which carrying amount represent the best amount of maximum exposure to credit risk; disclosure of financial effect of collaterals held as security and other credit quality improvement, with reference to the numbers that best reflects the maximum exposure to credit risk; and remove the disclosure requirements of the carrying amount of financial assets that are not yet due, or those that are not impaired based on renegotiated; - eliminate disclosure requirements description of collateral held as security and other credit quality improvement and the estimated fair value of financial assets that are past due at the end of the reporting period but not impaired, and for financial assets that are individually determined to be impaired; - emphasizing the disclosure requirements of financial assets or non-financial assets acquired during the period through transfer of ownership of collateral held as security, or require other credit quality improvement (eg. guarantees), and those assets meet the recognition criteria in other relevant PSAK; - eliminate the requirement on implementing guidelines for disclosure related to materiality, as this requirement is basically covered in PSAK 1 "presentation of financial statements" For comprehensive discussions on significant changes of statement of financial accounting standards (PSAK), see Note 2a to the Consolidated Financial Statements. B. Changes In Laws And Regulation During the year 2013 there were no changes in laws and regulation that significantly influence the Company. See discussion in “Additional Information (for ADR Shareholders) – Legal Basis and Regulation”. C. Exchange Controls 1. Exchange Rate Information The following table shows the exchange rate of Indonesian Rupiah to US Dollar based on the middle exchange rate which is calculated based on the Bank Indonesia buying and selling rates for the periods indicated. Exchange Rate Information Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 125 Calendar Year at Period End Average Low High (Rp Per US$1) 2009 (1) 2010 (1) 2011 (1) 2012 (1) 2013 September(2) October(2) November(2) December(2) 2014 January(2) February(2) 9,400 8,991 9,068 9,670 12,189 11,613 11,234 11,977 12,189 11,634 12,226 11,634 10,356 9,078 8,773 9,419 11,597 11,346 11,367 11,613 12,087 12,057 12,180 11,935 11,980 9,365 9,170 9,670 12,270 11,613 11,593 11,977 12,270 12,267 12,267 12,251 9,400 8,924 8,508 9,000 10,922 10,922 11,018 11,354 11,830 11,620 12,047 11,620 Source: Bank Indonesia (1) Determined based upon the last day middle exchange rate of each month announced by Bank Indonesia applicable for the period. (2) Determined based upon the daily middle exchange rate announced by Bank Indonesia during the applicable period. Under the current exchange rate system, the exchange rate of the Indonesian rupiah is determined by the the exchange system. For example, only banks market, reflecting the interaction of supply and demand in the market. However, Bank Indonesia are authorized to deal in foreign exchange may take measures to maintain a stable and execute exchange transactions related to exchange rate. For the year 2013, the average the import and export of goods. In addition, rate of Rupiah to the US Dollar was Rp11,597, with Indonesian banks (including branches of foreign the lowest and highest rates being Rp12,270 and banks in Indonesia) are required to report to Rp10922, respectively. Bank Indonesia any fund transfers exceeding US$10,000. As a State-Owned Company, and The exchange rates used for translation of based on the decree of the Head of PKLN, we monetary assets and liabilities denominated are required to obtain an approval from PKLN in foreign currencies are the buy and sell rates prior to acquiring foreign commercial loans and published by Reuters in 2011, 2012 and 2013. The must submit periodical reports to PKLN during Reuters buy and sell rates, applied respectively the term of the loans. to monetary assets and liabilities, were Rp9,060 and Rp9,075 to US$1.00 as of December 31, D. Quantitative And Qualitative Disclosures 2011, Rp9,630 and Rp9,645 to US$1.00 as of December 31, 2012 and Rp12,160 and Rp12,180 to About Market Risks We are exposed to market risks that arise from US$1.00 as of December 31, 2013. changes in exchange rates, interest rates, credit risk and liquidity risk, each of which will have an The Consolidated Financial Statements are impact on us. We do not generally hedge our long- stated in Rupiah. The translations of Rupiah term liabilities in foreign currencies but hedge our amounts into US Dollar are included solely for obligations for the current year. As of December the convenience of the readers and have been 31, 2013, assets in foreign currencies reached made using the average of the market buy and 87% against our liabilities denominated in foreign sell rates of Rp12,170 to US$1.00 published by currencies. Our exposure to interest rate risk is Reuters on December 31, 2013. managed through a mix of fixed and variable rate 2. Foreign Exchange Controls liabilities and assets, including short-term fixed rate assets. Our exposure to such market risks fluctuated Indonesia operates a liberal foreign exchange during 2011, 2012 and 2013 as the Indonesian system that permits the free flow of foreign economy was affected by changes in the US Dollar- exchange. Capital transactions, including Rupiah exchange rate and interest rates themselves. remittances of capital, profits, dividends and We are not able to predict whether such conditions interest, are free of exchange controls. A number will continue during 2014 or there after. of regulations, however, have an impact on 1. Exchange Rate Risk We are exposed to foreign exchange risk on 126 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis sales, purchases and borrowings that are denominated in foreign currencies, primarily in U.S. dollar and Japanese yen. Our exposures to other foreign exchange rates are not material. Increasing risks of foreign currency exchange rates on our obligations are expected to be offset by time deposits and receivables in foreign currencies that are equal to at least 25% of the outstanding current liabilities. The information presented in the following table is based on assumptions of selling and buying rates in US Dollar as well as other currencies, which were quoted by Reuters on December 31, 2013 and applied respectively to monetary assets and liabilities. The buying and selling rates as of December 31, 2013 were Rp12,160 and Rp12,180 to US$1, respectively. However, we believe these assumptions and the information described in the following table may be influenced by a number of factors, including a fluctuation and/or depreciation of the Rupiah in the future. Outstanding Balance as of December 31, 2013 Foreign Currency (million) Rp Equiv. (Rp million) Expected Maturity Date 2014 2015 2016 2017 2018 There After Fair Value (Rp million) ASSETS Cash and Cash Equivalents US Dollar 394.30 4,801,232 4,801,232 Japanese Yen 1.23 142 142 Other(1) 11.42 138,826 138,826 Other Current Financial Assets US Dollar 10.78 131,256 131,256 Trade Receivables Related Parties US Dollar 2.44 29,660 29,660 Third Parties US Dollar Other(1) Other Receivables US Dollar Other(1) Other Current Assets 66.27 806,437 806,437 0.17 2,030 2,030 0.68 0.13 8,271 1,584 8,271 1,584 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,801,231 142 138,825 - 131,256 - 29,660 - - - - 806,437 2,030 8,271 1,583 US Dollar - - - - - - - - - Other(1) - - - - - - - - - Advances and Other Non-current Assets US Dollar 5.76 70,253 70,253 - - - - - 70,253 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 127 Outstanding Balance as of December 31, 2013 Foreign Currency (million) Rp Equiv. (Rp million) Expected Maturity Date 2014 2015 2016 2017 2018 There After Fair Value (Rp million) LIABILITIES Trade Payables Related Parties US Dollar 1.40 17,014 17,014 Third Parties US Dollar 275.35 3,356,036 3,356,036 Other(1) 4.33 52,711 52,711 Other Payables US Dollar Other(1) Accrued Expenses 7.62 92,939 92,939 0.09 1,145 1,145 US Dollar 51.41 626,637 626,637 Japanese Yen 18.63 2,158 Other(1) 0.01 175 2,158 175 Advances from Customers and Suppliers US Dollar Other(1) Current Maturities of Long-term Liabilities 1.60 0.01 19,526 19,526 122 122 US Dollar 34.85 424,611 424,611 Japanese Yen 767.90 88,976 88,976 Promissory Notes - - - - - - - - - - - - - - - - - - - - - - - - US Dollar 28.67 349,169 276,022 39,690 33,457 Long-term Liabilities(2) - - - - - - - - - - - - - - - - - - - - - - - - - - - 17,014 - 3,356,036 - 52,711 - - - - - - - 92,938 1,145 626,637 2,158 175 19,526 122 - - 465,501 116,603 - 348,665 US Dollar 78.82 960,416 Japanese Yen 7,678.98 889,763 - - 352,264 240,707 154,036 54,318 159,091 972,764 88,976 88,976 88,976 88,976 533,859 893,355 (1) Assets and liabilities denominated in other foreign currencies are presented as US Dollars equivalents using the buy and sell rates quoted by Reuters prevailing at the end of the reporting period. (2) Long-term liabilities for the purpose of this table consist of loans denominated in foreign currencies from two-step loans, obligation under finance leases and long-term bank loans, which in each case include their current maturities. 2. Interest Rate Risk Our exposure to interest rate fluctuations results primarily from changes to the floating rate applied for long-term debt. This risk relates to loans under the Government on-lending program that has been used to finance our capital expenditures. Interest rate fluctuation is monitored to minimize any negative impact to 128 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis financial position. Borrowings at variable interest rates expose our Company and our subsidiaries to interest rate risk. To measure market risk fluctuations in interest rates, our Company and our subsidiaries primarily use interest margin and maturity profile of the financial assets and liabilities based on changing schedule of the interest rate. The actual cash flows from our debt are denominated in Rupiah, US Dollar and Japanese Yen, as appropriate and as indicated in the table. The information presented in the table has been determined based on the following assumptions: (i) fixed interest rates on Rupiah time deposits are based on average interest rates offered for three month placements in effect as of December 31, 2013 by the banks where such deposits were located; (ii) variable interest rates on Rupiah denominated long-term liabilities are calculated as of December 31, 2013 and are based on contractual terms setting interest rates based on average rates for the preceding six months on three month certificates issued by Bank of Indonesia or based on the average three month deposit rate offered by the lenders; (iii) fixed interest rates on US Dollar deposits are based on average interest rates offered for three month placements by the various lending institutions where such deposits are located as of December 31, 2013 and (iv) the value of marketable securities is based on the value of such securities on December 31, 2013. However, these assumptions may change in the future. These assumptions are different from the rates used in our Consolidated Financial Statements; accordingly, amounts shown in the table may differ from the amounts shown in our Consolidated Financial Statements. Interest Rate Risk Outstanding Balance as of December 31, 2013 Original Currency (million) Rp Equiv. (Rp million) Rate (%) Expected Maturity Date 2014 2015 2016 2017 2018 There after Fair Value (Rp million) ASSETS Fixed Rate Cash and Cash Equivalents Time deposit Rupiah 8,185,170 8,185,170 US Dollar 309 3,767,769 1.00- 10.75 0.03- 3.00 8,185,170 3,767,769 Available- for-Sale Financial Assets Rupiah 140,782 140,782 1.60- 10.50 140,782 US Dollar 11 131,256 1.00-1.10 131,256 - - - - - - - - - - - - - - - - - 8,185,170 - 3,767,769 - 140,782 - 131,256 LIABILITIES Short-term Bank Loans Variable Rate Rupiah Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 129 Outstanding Balance as of December 31, 2013 Original Currency (million) Rp Equiv. (Rp million) Rate (%) Principal 431,751 431,751 431,751 Interest 8,868 8,868 8,868 - - - - - - US Dollar Principal Interest Long-term Liabilities Variable Rate Rupiah Expected Maturity Date 2014 2015 2016 2017 2018 There after Fair Value - - - - - - - - (Rp million) - - - - - - - - - - - - - - - - 431,751 - - - Principal 9,233,335 9,233,335 3,685,445 2,651,044 950,368 835,399 1,101,079 - 9,026,752 Interest 1,661,906 1,661,906 6.58-11 635,136 416,386 221,357 141,741 247,286 - - US Dollar Principal 83 1,008,692 473,948 264,718 175,757 94,269 Interest 2 21,332 1.17-3.25 11,228 6,402 2,806 896 - - - 1,033,891 - - Fixed Rate Rupiah Principal 3,000,000 3,000,000 - 1,005,000 - - 1,995,000 - 3,141,774 Interest 1,471,571 1,471,571 6-11 299,970 253,070 203,490 203,490 511,551 US Dollar Principal 53 643,807 196,624 126,358 53,911 53,911 213,003 Interest 7 82,847 4-11 24,982 16,136 12,331 10,142 19,256 - - - - 671,332 - Japanese Yen Principal 8,447 978,739 88,976 88,976 88,976 88,976 622,835 - 1,009,958 Interest 1,506 174,511 3.1 29,646 26,887 24,197 21,371 72,410 - - Finance Leases Rupiah Principal 4,897,255 4,897,255 619,554 505,559 516,397 547,251 544,922 2,163,572 4,897,255 Interest 1,927,184 1,927,184 419,551 357,392 310,156 260,375 208,217 371,493 1,927,184 US Dollar Principal Interest 7 1 71,100 9,085 28,000 19,541 18,138 5,068 353 3,215 2,639 2,506 685 40 - - 71,100 9,085 (1) Long-term liabilities consist of loans which are subject to interest; namely two-step loans, bonds and notes, obligation under finance leases and long-term bank loans, which in each case include their maturities. 130 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis E. Related Party Transactions We are party to certain agreements and engage in transactions with certain parties that are related to us, such as cooperatives and foundations. Such parties include the Government and entities related to or owned or controlled by the Government, such as other State-Owned Enterprises. It is the Company's policy that the pricing of these transactions be the same as those of arm’s-length transactions. For further details on our related party transactions, see Note 37 to our Consolidated Financial Statement. Revenue and Expenses Transaction with Affiliate 2013 2012 Description Amount % of total revenue Amount % of total revenue Difference % REVENUE Entity Under Common Control Kisel Indosat Gratika Lintasarta Sub total Associated Company Indonusa2 CSM Patrakom1 Others (each below Rp30 billion) Total 2,751 1,053 342 64 4,210 45 31 - 99 4,385 3.3 1.3 0.4 0.1 5.1 0.1 0.0 - 0.1 5.3 2,351 1,033 3 85 3,472 - 47 80 27 3,626 3.1 1.3 0.0 0.1 4.5 - 0.1 0.1 0.0 4.7 400 17.0 20 1.9 339 11.300 (21) (24.7) 738 21.3 45 100 (16) (34.0) (80) (100.0) 72 266.7 759 20.9 2013 2012 Description Amount % of total expense Amount % of total expense Difference % EXPENSES Entity Under Common Control Indosat Kisel Kopegtel PLN 1,008 743 692 651 1.8 1.3 1.2 1.1 1,004 825 817 660 1.9 1.6 1.6 1.3 4 0.4 (82) (9.9) (125) (15.3) (9) (1.4) Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 131 Jasindo SPM PT Pos Indonesia Jamsostek Sub total Entity under significant influence Yakes Associated Company PSN CSM Patrakom1 Sub total Others (each below Rp30 billion) Total 333 118 64 39 3,648 0.6 0.2 0.1 0.1 6.4 370 25 51 36 0.7 0.0 0.1 0.1 (37) (10.0) 93 372.0 13 3 25.5 8.3 3,788 7.3 (140) (3.7) 159 0.3 150 0.3 9 6.0 187 63 - 250 80 4,137 0.3 0.1 - 0.4 0.1 7.2 165 100 73 338 34 0.3 0.2 0.1 0.7 0.1 22 13.3 (37) (37.0) (73) (100.0) (88) (26.0) 46 135.3 4,310 8.3 (173) (4.0) (1) Patrakom become a subsidiary on September 25, 2013. (2) On October 8, 2013,the Company sold its 80% ownership in Indonusa. F. Property & Equipment Our property and equipment is used for telecommunication operations, which mainly consist of transmission installation and equipment, cable network and switching equipment. A description of these is contained elsewhere in Note 11 to our Consolidated Financial Statements. Except for ownership rights granted to individuals in Indonesia, reversionary rights to land rests with the Republic of Indonesia, pursuant to Agrarian Law No.5/1960. Land title is designated through land rights, including Right to Build (Hak Guna Bangunan or HGB) and Right of Use (Hak Guna Usaha or HGU). Land title holders enjoy full use of the land for a specified period, subject to renewal and extensions. In most instances, land rights are freely tradable and may be pledged as security under loan agreements. We own several pieces of land located throughout Indonesia with right to build and use for a period of 2-45 years, which will expire between 2014 and 2052. We believe that there will be no difficulty in obtaining the extension of the land rights when they expire. As of December 31, 2013, we, including our subsidiaries, had land use rights to 2,995 properties. We hold registered rights to build and use for most of our properties. Pursuant to Government Regulation No.40/1996, the maximum initial period for the right to build is 30 years, renewable for an additional 20 years. We are not aware of any environmental issues that could affect the utilization of our property and equipment. All assets owned by our Company have been pledged as collateral for bonds. Certain property and equipment of our subsidiaries with gross carrying value amounting to Rp6,214 billion as of December 31, 2013 have been pledged as collateral for lending agreements. 132 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Preface Highlights Management Report Business Overview Management’s Discussion & Analysis Our property and equipment, excluding land, are transaction has been reviewed by an insured against risks arising from earthquake, tsunami, eruption, fire, theft, lightning, acts of God and other risks. Our assets are covered under Property All Risk Insurance Policies on a independent party. This SPA results in the Company’s ownership in Patrakom to increase from 40% to 80%. sum insured basis and a first loss basis scheme. (i). Transaction With Non Affiliate Our insurance policies also include coverage On November 29, 2013, based on notarial against temporary interruptions of our business. deed No. 54 of Ashoya Ratam, S.H., Our Telkom-1 and Telkom-2 satellites are insured M.Kn, the Company entered into a SPA separately. Our management believes that our with PT Tanjung Mustika, Tbk for the insurance coverage is adequate to cover potential Company’s acquisition of the remaining losses from the insured risks. G. Insurance 20% Patrakom for Rp24.8 billion. This SPA results in the Company’s ownership in Patrakom to increase from 80% to 100%. Our property and equipment, excluding land, are Through the acquisition of Patrakom, insured against risks arising from earthquake, tsunami, eruption, fire, theft, lightning, acts of God and other risks. Our assets are covered under Property All Risk Insurance Policies on a the Company can integrate Patrakom’s business activities accordance with the Company’s business development plan. sum insured basis and a first loss basis scheme. b. Divestment Our insurance policies also include coverage On October 8, 2013, the Company sold against temporary interruptions of our business. 80% of its ownership in Indonusa to PT Our Telkom-1 and Telkom-2 satellites are insured Trans Cospora and PT Trans Media Corpora separately. Our management believes that our amounted Rp926 billion. Further on the insurance coverage is adequate to cover potential same date, the Company, Metra and PT losses from the insured risks. H. Material Information and Facts 1. Business Combination a. Acquisition (i). Transaction With Affiliate Trans Corpora signed a Shareholders Agreement in relation to mutual relationship as shareholders of Indonusa, included the right to the Company and Metra to sell its 20% remaining ownership in Indonusa to PT Trans Corpora in 24 months after second year of closing transaction on certain price On September 25, 2013, based on notarial (Put Option). deed No. 22 of Ashoya Ratam, S.H. ,M.Kn, the Company entered into a Sales and 2. Off-Balance Sheet Arrangements Purchase Agreement (SPA) with PT Our contingencies are described in Note 42 Elnusa Tbk for the Company’s acquisition while our commitments are described in Note of the 40% ownership in PT Patra 41a to our Consolidated Financial Statements Telekomunikasi Indonesia (“Patrakom”) and summarized in the Table of Contractual for Rp45.6 billion. The Company is Obligations on page 110-114 Other than the related with Elnusa because of major above, as of December 31, 2013, we had no shareholder of the Company which is off-balance sheet arrangements that were the State of the Republic of Indonesia is reasonably likely to have current or future also the major shareholder of Pertamina material effects on our financial position, which is Pertamina is a shareholder of revenues or expenses, results of operations, Elnusa with 41.10% shareholding but liquidity, capital expenditures or capital there is no affiliate relationship in terms resources. of management between the Company and Elnusa. In compliance with the 3. Subsequent Events after the Reporting Date stock exchange regulation this affiliated Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 133 No Date Events 1 2 3 4 January 10, 2014 Sigma entered into short-term and long-term working capital credit facility agreements involving Rp25 billion and Rp322 billion, respectively, for the development of data center located in Sentul. January 15, 2014 PT Graha Telkom sigma (GTS) and PT Granary Reka Cipta signed an agreement for the development of utilization, and the development and processing of assets that belong to GTS located in Baturiti, Tabanan Bali. The cooperation is carried out under a revenue-sharing agreement for 10 years. January 20, 2014 The Company filed an objection to the Tax Underpayment Assessment for VAT for the year 2007 that was received by the Company in November 2013 (Note 31). January 22, 2014 Telkomsel received a formal verdict from the Tax Court concerning Telkomsel’s claim for tax refund for import duties. Based on its verdict, the Tax Court accepted a portion of Telkomsel’s appeal. As of the issuance date of the consolidated financial statements, Telkomsel plans to refund the accepted portion of the claim amounting to Rp8.5 billion (Note 31). 5 January 23, 2014 The Company established subsidiary named PT Infrastruktur Telekomunikasi Indonesia (Telkom Infratel) that had been legalized based on the Ministry of Law and Human Rights (MoLHR) Decision Letter No. AHU-03196.AH.01.01. Year 2014. 6 January 29, 2014 The MoCI issued Decision Letter No. 42 Year 2014, granting Telkomsel the license to provide: (1) Mobile telecommunication services with radio frequency bandwidth in the 900 MHz and 1800 MHz bands; (2) Mobile telecommunication services IMT-2000 with radio frequency bandwidth in the 2.1 GHz bands (3G); and (3) Basic telecommunication services. These license replaced Decision letter No. 101/KEP/M.KOMINFO/10/2006 dated October 11, 2006. 7 January 30, 2014 The ITRB of Telkomsel, in its letter No. 118/KOMINFO/DJPPI/PI.02.04/01/2014, decided to implement the new interconnection tariffs effective from February 2014 until December 2016, subject to evaluation on an annual basis. 8 February 20, 2014 Infomedia made a drawdown from the credit facility from Bank UOB amounting to Rp70 billion. The events above are expected to improve the Company’s performance in the future without posing a material risk to the Company. For a complete discussion regarding subsequent events after the reporting date, see Note 47 to our Consolidated Financial Statements. 4. Subsequent Events after the Accountant’s Report Date We are not aware of any subsequent events occurred after the accountant’s report date until the issuance date of this Annual Report. 134 134 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Highlights Highlights Preface Preface Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Corporate Governance 136 Concept and Foundation 137 Telkom’s GCG Framework and Performance 172 Committees Under Board of Director 185 Administrative Sanctions 175 Corporate Secretary/Investor Relations (“IR”) 141 Corporate Governance Structure 178 Internal Audit Unit 145 Board of Commissioners 180 Internal Control System 149 Board of Directors 181 Independent Auditor 185 Public Access to Information 186 Code of Ethics and Corporate Culture 189 Whistleblowing System 192 GCG Implementation Consistency 158 Committees Under the Board of Commissioners 182 Risk Management 197 GCG Evaluation 183 Legal Proceeding and Lawsuits Involving the Company Corporate Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 135 135 136 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Concept and Foundation We have a commitment to become a learning organization, by turning its organization into a knowledge based enterprise through competences development in line with the company’s business needs in order to establish center of excellent human capital in TIMES industry which can support business performance and new culture implementation. Competent employees will create business through blended-learning process, engaging resources in learning process to participant to create a learning organization. We will be able to respond the changes and to seize the opportunities provided by the changes and capitalizing it to further build the company’s capacity and values in order to achieve long term objectives and sustainability. It is none other than a true embodiment of GCG which lead to our sustainable growth and future existence. (GCG in the context of organizational learning perspective) Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 137 The year 2013 saw the strengthening of corporate governance in the entire group with the objective of making the GCG principles adhered and aligned with business demand and the dynamic of the industry, to which we cope by transforming our business portfolio and organization. The commitment to implement GCG in organization reflect the faith that GCG is a key element for the successful achievement of an effective, efficient and sustainable business performance needed to win the competition, and thus ensures that the company could properly fulfill its obligations to its shareholders, customers, employees, business partners, the general public, and other company’s stakeholders. As our shares are listed and traded at the BEI as well as NYSE, not only is the implementation of GCG shall conform to stipulations set out in the Law for Limited Liability Company and the Indonesian Code of GCG as published by National Committee on Governance Policies ("KNKG") in Indonesia, but the effective practice of GCG shall also conform to the provisions of Sarbanes Oxley Act of 2002 ("SOA") and other applicable rules of the US SEC. There are several provisions of the issuance and signing of a Pact SOA that apply to us, in particular, of Integrity, proofing their full those under: (i) SOA Section 404 commitment to the implementation that require our management to of GCG. be responsible for the creation and maintenance of adequate internal The year 2013 was a year of control over financial reporting strengthening of GCG throughout (“ICOFR”) to ensure the reliability the group with the objective of of our financial statements and that ensuring that GCG implementation they are prepared according to the is always aligned with the growing applicable accounting standards demands in today’s business and under Indonesia's Statements of industry, to which we responded Financial Accounting Standards by transforming our business and/or the IFRS; and (ii) those portfolio and organization. The under SOA section 302 that require strengthening of our GCG was our management to be responsible built and the implementation of for formulating, maintaining and which is developed throughout evaluating the effectiveness the group towards the creation of of our disclosure procedures ethical business practices (GCG and controls to ensure that as ethics), integrity, proving that information disclosed in reports is GCG principles are inseparable part in compliance with the Exchange of day-to-day activities, focusing Act and is recorded, processed, on human and system. Through summarized and reported within the implementation of GCG, we the period provided and then strive to create a phase in which accumulated and communicated the company has been managed to our management, including the well (good-governed company President Director and Director - GGC). At this stage, we are not of Finance, so that they can take only able to manage risk well, but decisions related to required also has the ability to respond disclosures. to various changes, and seizing the opportunities presented by In regards the independence these changes to improve the of audit, we are in comply with capacity and the value of the provisions issued by the OJK company, so as to support the and the US SEC concerning the achievement of company long- independence of Audit Committee term objectives and sustainability. members. (GCG in the perspective of learning In line with the transformation of our business portfolios into TIMES businesses managed by us, the implementation of GCG has been further strengthened and organization). TELKOM’S GCG FRAMEWORK AND PERFORMANCE developed within a group GCG Our commitment to implement framework. The commitment to GCG is realized through the policies create group GCG begins with on the implementation of GCG strengthening the commitment and is stipulated in BoD Decree from our BoC and BoD, through No.29/2007 and strengthened 138 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis by the Guidance for Group ensuring that every transaction, internal control and supervision, GCGNo.602/2011. This framework whether internal or external, is leadership, management of duties integrates certain management conducted in an ethical manner and responsibilities, empowerment systems as requirement or integral and in accordance with good of management and employee part of GCG implementation, corporate governance practices. competences, performance aiming to provide assurance for The various systems involved evaluation, and award and the effective implementation include: business ethics, policies recognition. of GCG up to operational level, and procedures, risk management, Road Map GCG Investors Vision & Mission Shareholders BoC BoD Committee Corporate Secretary I n t e F i n a n r n a l c i a l a n C d o External Transactions E x t e m m u r n a l n i t y A u d i t G overn m ent and regulator m unication & Disclosure C o m Internal Transactions Business Ethics Policy & Procedures Risk Management Internal Control & Supervision Effective Leadership Clarity of Tasks and Responsibilities Management Capability and Employee Competence Effective Performance Evaluation Reward and Acknowledgement Measurement and Accountability Bussines Players and Business Community A. Road Map & Good Corporate Governance Strengthening Initiatives Over time, we continuously mutually supporting each of the company's performance other towards the company’s in a sustainable manner. sustainable business growth. We realize the need to anticipate Our GCG implementation refines and strengthen our GCG the dynamics of business, has gained recognition from implementation, especially through new initiatives of integrating the management of governance risk and compliance (“GRC”) by managing business performance, GCG, risk management, legal compliance, and corporate social responsibility, which therefore a number of GCG external assessors and from the initiatives will be continuously perceptions of investors, and explored and are designed to we continually strive to improve ensure the sustainability of the the policy and infrastructure of organization as we believe that GCG support system through rather than an impediment, new initiatives to strengthen GCG is actually capable of governance, which we grouped supporting a sustainable growth into three main pillars include: Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 139 1. Strengthening of Governance Structure Develop governance initiatives to strengthen effective communication and relationships between the elements of the corporate structure to avoid potential agency problems and to create an effective chemistry between these elements by monitoring checks and balances and to ensure that it is characterized by the speed and accuracy of decision making, through: evaluation and improvement of BoD/ BoC/Audit Committee Charter, empowerment of committees, implementation of ”six-eyes principles” to ensure accountability of business initiatives, internal control over financial reporting, strengthening leadership systems, and implementation of notarial others. proxy, and others. 3. Strengthening of Culture 2. Strengthening of Governance Process Develop governance initiatives to strengthen the effective and efficient governance of company management, through: implementation of Enterprise Risk Management, implementation of Pact of Integrity within the scope of business group, strengthening IT governance, remediation of internal control and particularly of Instill strong values through the implementation of our corporate culture and business ethics as our capital in doing business and having an honorable workforce with morals and integrity, through implementation of segregation of duty (“SOD”) in business processes, leadership role modeling, ensuring business ethics and prudent practices, strengthening our corporate values, and others. Organizational Sustainable Chart BUSINESS PERFORMANCE GOVERNANCE BoD Charter BoC Charter Audit Charter Audit Independen STRUCTURE GOVERNANCE Executive Committee Six Eyes Principle Notarial Proxy Audit Committee & KEMPR ERM PMS IT Governance Internal Control & CSA Early Warning Regularization Memorandum & Discrepancies Report Anti Fraud Program whistleblowing System RISK PROCESS GOVERNANCE COMPLIANCE CORPORATE SOCIAL RESPONBILITY GCG SOD Integrity Pact Job Manual Policy & Procedures Leadership System Competencies Development Reward & Consequences Legal & Compliance Prudential Communication CULTURE Role Modeling Business Ethics Core Values ORGANIZATIONAL BELIEFS KEMPR ERM PMS : Planning and Risk Evaluation and Monitoring Committee : Enterprise Risk Management : Performance Management System CSA SOD : Control Self-Assessment : Segregation of Duties 140 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Following is the road map of the implementation and reinforcement of GCG from 2003-2015: 2003 – 2009 - Strengthening of GCG, Business implementation of ”six eyes principle” in business initiation 2013 - Strengthening of governance Ethics, Distinct Job Manual process. ("DJM") management, evaluation of policies and procedures, human resources competences 2010 - Strengthening of governance structure through the development, implementation of GCG which involve business group, by establishing Board development, leadership structure through policies in of Executive to prepare the development, strengthening of notarial deeds and strengthening Company’s capability in taking independent audit, and others, in of The Telkom Way corporate strategic steps in managing support of compliance with SOA culture. portfolio, which was supported section 404 and section 302. - Strengthening of governance by a more suitable parenting - Implementation of integrated processes through risk mechanism for business audit (financial audit integrated management as a culture. ecosystem demand. with ICOFR audit). - Strengthening of IT governance. - Evaluation and mapping of 2011 - Strengthening of governance - Continuing to strengthening of governance processes to ensure harmonization of policies, business processes and structure through initiatives in business process and business operational processes. developing Telkom Group GCG transformation and organization - Strengthening of governance by establishing Telkom Group transformation to “New Telkom” structure involving: strengthening GCG Manual as regulated in in accordance with the Company of BoC/BoD/Audit Committee Company Policy No.PD.602/2011. Office Organization Policy of Charter, revitalization of executive - Strengthening of governance Telkom Group No.202.11/2013. committees, development of processes to ensure effective risk Enterprise Risk Management management and compliance ("ERM"), development of early functions at the Company. warning reports, implementation of anti-fraud programs. - Strengthening of governance 2012 - Strengthening of governance 2014 - Strengthening of governance structure through the implementationof GCG of organization with a character processes by ensuring the structure through empowerment of a holding company, which existence of formal policies in all of Telkom Group GCG, processes to ensure responsibility development of GCG include the subsidiaries, through the implementation of Board of and accountability. implementation checklist and Executive mechanism and its - Strengthening of governance GCG self-assessment manual for refinement. structure through management subsidiaries, and establishment - Strengthening of governance initiatives, among others: of Directors of subsidiaries processes through disciplined implementation of regularization as members of Telkom Group implementation of ISO memorandum, discrepancy Executive Board and Vice certification-based processes in reporting, and strengthening of President Telkom according to the ”New Telkom”. whistleblowing system. the duties and responsibilities - Strengthening of governance as Group Head Telkom Group, processes to realize risk as regulated in Company 2015 - Strengthening of governance management as a necessity in Office Organization Policy structure through the each process and a discipline risk No.PD.202/2012. implementation of GCG implementation. - Strengthening of governance assessment of subsidiaries. - Strengthening of governance processes to ensure - Strengthening of governance structure through policies harmonization of business processes to ensure ISO of Pact of Integrity and the processes with business and certification/surveillance. organization transformation. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 141 CORPORATE GOVERNANCE STRUCTURE assure the supervision on the implementation of GCG was conducted independently and In enhancing our GCG practices, comprehensively to reach the we aim to improve both the target of efficiency throughout structure and the implementation the company, as well as process and ensure that the principles of transparency, accountability, responsibility, independence and fairness are applied at each level of the company. This is aimed at mitigating the risk of conflict of interest in the execution of the duties, functions and responsibilities of our BoC, BoD, management and employees. Internally, the structure and the safeguarding the company’s integrity before the authorities and public in general. A. General Meeting of Shareholders (“GMS”) Subject to our Articles of Association, the GMS, comprising the Annual GMS (“AGMS”) and Extraordinary GMS (“EGMS”) constitute our highest governance body and are the primary forums through which procedure of GCG implementation shareholders exercise their is stipulated in the BoD Decree on Guidance of GCG Management No.29/2007 and No.602/2011, which sets out an integrated operational framework to ensure that every transaction, both internal and external, is conducted in accordance with the code of conduct or the best GCG practices. Every year we evaluate the effectiveness of our implementation of this policy. In the same time, we also rights and authority over the management of our company. The AGMS must be held once a year, while an EGMS may be convened at any time, as needed. 1. Telkom Shareholders There are 2 (two) classes of shares in Telkom, namely 1 Series A Dwiwarna Shares (as controlling shareholder) and 97.100.853.599 Series B Shares. For more detail Our GCG implementation has gained recognition by external assessors as well as investors’perceptions, and we strive to improve the policies and infrastructure in support of GCG through new initiatives in strengthening our corporate governance, which falls into three main pillars, namely: Strengthening Governance Structures, Strengthening Governance Processes, Strengthening Culture. 142 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis about our shareholder benefits of members of its influence over management composition diagram, see the BoC and BoD; in voting sessions or on other Company Profile – Stock - evaluating the matters. The Government has Overview – Shareholder Company’s performance exclusive rights to approve Composition. during the year under mergers, acquisitions and 2. Shareholders Rights & review; divestment, or to liquidate our Responsibility At the AGMS and EGMS, shareholders are entitled to equal treatment and standing, particularly in expressing their opinions and contributing to the - deciding on the use of Company based on decisions of the Company’s profits, the AGMS or EGMS. including dividends; and - amendments to the The mechanism for exercising Articles of Association. voting rights by shareholders The AGMS also has the during an AGMS or EGMS authority to approve the provides for shareholders to process of taking important Financial Statement and exercise their right to vote either and strategic decisions in Annual Report. in person or through their legal relation to: proxy. - the election and The Government of Indonesia, as termination of the BoC our controlling shareholder and In 2013 we held the AGMS on and the BoD; holder of the Dwiwarna Series A 19 April 2013 with agenda & - setting the amount shares, is required to be aware of resolutions as follow: of remuneration and its responsibility when exercising Agenda Agenda 1 Approve the Company’s Annual Report as presented by the Board of Directors, on the Company’s condition and operation for the 2012 Financial Year including the Board of Commissioners’ Supervision Duty Report for the 2012 Financial Year. AGM'S Decisions Agenda 2 1. Ratify: a. The Company’s Consolidated Financial Statements for the 2012 Financial Year audited by the Public Accounting Firm Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) according to its report No.RPC-3302/PSS/2013 dated February 28, 2013 with unqualified opinion. b. Partnership and Community Development Annual Report for the 2012 Financial Year in conformity with Ministry of State Owned Enterprises Regulation with comprehensive accounting bases besides Indonesian Financial Accounting Standards, audited by the Public Accounting Firm Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) according to its report No.RPC-3319/PSS/2013 dated March 11, 2013 with unqualified opinion. 2. Consequently, by the approval of the Company’s Annual Report and Consolidated Financial Statements) for the 2012 Financial Year and Annual Report on Partnership and Community Development Program for the 2012 Financial Year, the AGMS hereby gives a full acquittal and discharge (volledig acquit et decharge) to all members of the Board of Directors and Board of Commissioners (including all of the Board of Directors and the Board of Commissioners who quit/ended his term of office at the closing AGMS held in 2012) for their management and supervision and for their management and supervision of Partnership and Community Development Program performed during the 2012 Financial Year, to the extent are reflected in the Company’s Annual Report, Consolidated Financial Statements for 2012 Financial Year and Annual Report of Partnership and Community Development for the 2012 Financial Year above and the actions do not contradict the prevailing laws and regulations. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 143 Agenda AGM'S Decisions Agenda 3 1. Approve the appropriation of the Company’s net profit for the 2012 Financial Year in the amount of Rp12,850,149,714,095,- which will be distributed as follows: a. Cash dividend 55% of the net profit or in the amount of Rp7,067,582,342,752,- or at least of Rp369.082 per share based on the number of shares issued (not including the shares bought back by the Company) as of the Meeting date; b. Special cash dividend 10% of the net profit or in the amount of Rp1,285,014,971,410,- or at least of Rp67.016 per share based on the number of shares issued (not including the shares bought back by the Company) as of the Meeting date; c. Recorded as Retained Earning in the amount of Rp4,497,552,399,933,- which will be used for the Company’s development. 2. Approve that the distribution of dividends for the 2012 Financial Year will be conducted with the following conditions: a. those who are entitled to receive Dividends are shareholders whose names are recorded in the Company’s Register of Shareholders on June 3, 2013 at 16:00 hours Western Indonesia Standard Time; b. the Cash Dividend and Special Cash Dividend shall be paid in one lump sum on June 18, 2013. 3. The Board of Directors shall be authorized to regulate further the procedure of Dividend distribution and to announce the same with due observance of the prevailing laws and regulations. 4. Approve the amount of Partnership and Community Development Fund for the 2013 Financial Year as follows: a. Partnership Program of 0.0% of the Company’s net profit for the 2012 Financial Year. b. Community Development Program of Rp87,907,879,618,- equal to 0.68% of the Company’s net profit for the 2012 Financial Year. Agenda 4 Delegate authority and authorize the Board of Commissioners with the prior approval of the holders of shares of Series A Dwiwarna to determine the amount of bonus given to members of the Board of Directors and the Board of Commissioners for the 2012 Financial Year as well as salary/ honorarium, allowances and benefits, and other benefits for members of the Board of Directors and Board of Commissioners for the 2013 Financial Year. Agenda 5 1. Approve the reappointment of Public Accounting Firm Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) to conduct an integrated audit of the Company for the 2013 Financial Year which audit will consist of the audit of the Consolidated Financial Statements of the Company and audit of the Internal Control over Financial Reporting for the 2013 Financial Year. 2. Approve the reappointment of the Public Accounting Firm Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) to conduct an audit the appropriation of funds for the Partnership and Community Development Program for the 2013 Financial Year. 3. Grants authority to the Board of Commissioners to determine an appropriate audit fee and other terms and conditions of appointment of the relevant Public Accounting Firm. 4. Grants authority to the Board of Commissioners to appoint an alternate Public Accounting Firm as well as to determine the terms and conditions of its appointment; in the event the appointed Public Accounting Firm cannot perform or continue its engagement, including audit fee. 144 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Agenda AGM'S Decisions Agenda 6 1. To Approve the changes to the Company’s plan for the use of treasury stock as result of the Share Buyback I through IV, subject to the provisions of Bapepam-LK No.XI.B.2 about Buyback Shares Issued by Public Listed Company, to include a way as the following: a. Market placement b. Cancellation; c. Employee/ Management Stock Option Plan or Employee/ Management Stock Purchase Plan; d. Equity conversion; e. Funding. 2. The Board of Directors, in the implementation of the use/transfer of treasury stock from Share Buyback Phase I, II, III and IV, must take into account the provisions of prevailing laws and regulations, and obtain prior approval from the Board of Commissioners and reported the use/ transfer of the treasury stock to the Annual General Meeting of Shareholders; 3. The Board of Commissioners before giving approval must obtain prior approval from the holders of shares of Series A Dwiwarna. Agenda 7 1. Changing the nomenclature of Directors positions as follows: a. Director Information Technology Solution and Strategic Portfolio became Director; b. Director Enterprise & Wholesale became Director; c. Director Compliance & Risk Management became Director; d. Director Human Capital & General Affair became Director; e. Director Network & Solution became Director; f. Director Consumer became Director. 2. The composition of the Board of Directors who have been appointed in the AGMS dated May 11, 2012 are as follows: a. Mr. Arief Yahya as President Director b. Mr. Honesti Basyir as Director of Finance; c Mr. Indra Utoyo as Director; d. Mr. Muhammad Awaluddin as Director; e. Mr. Ririek Adriansyah as Director; f. Mr. Priyantono Rudito as Director; g. Mr. Rizkan Chandra as Director; h. Mr. Sukardi Silalahi as Director. 3. Segregation of duties and authority for each member of the Board of Directors along with the nomenclature for each member of the Board of Directors outside President Director and Director of Finance are subsequently regulated by the Board of Directors. Agenda 8 a. To ratify the application of Regulation of Minister of State Owned Enterprises State Number: PER-12/MBU/2012 dated August 24, 2012 on Supporting Body of the Board of Commissioners in State-Owned Enterprise, as one of references for the arrangement of supporting body of the Company’s Board of Commissioners. b. To delegate authority to the holders of shares Series A Dwiwarna necessary to invoke the exception to the Company for the Regulation of Minister of State Owned Enterprises State Number: PER-12/MBU/2012 dated August 24, 2012 on Supporting Body of the Board of Commissioners in State-Owned Enterprise in accordance with the prevailing laws and regulations in Indonesia, including but not limited to, the laws and regulations in the field of capital market and labors. Agenda 9 1. Approve the Amendment to certain provisions of the Company’s Articles of Association, as follows: a. Article 4, paragraph 1 and paragraph 2 of the capital structure in connection with the stock split of the Company of the original Rp250,- (two hundred and fifty rupiah) to Rp50,- (fifty rupiah) per share and the subsequent delegation of authority to the Board of Directors with the prior approval of the Board of Commissioners on the execution the Company's stock split. b. Article 22 paragraph 1 letter f, by removing the Partnership and Community Development Program from the Company’s Work Plan and Budget; both amendments are in accordance with Articles of Association Amendments Matrix that have been distributed to the Shareholders of the Company. 2. Grants authority to the Board of Directors of the Company with the right of substitution to restate the resolutions of this Meeting in a notarial deed, and further to submit a request of approval and to notify the changes in Articles of Association of the Company to the Ministry of Law and Human Rights of the Republic of Indonesia, and to register it in Company Register and announce it in the Supplement to the State Gazette, in accordance with the prevailing laws and regulations. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 145 Agenda AGM'S Decisions Agenda 10 1. Approved the appointment of Mr. Gatot Trihargo as Commissioner of the Company with a term commencing from the closing of this Meeting and ending at the close of the fifth AGMS after his appointment which will be held in 2018; 2. Therefore the complete composition of the member of the Board of Commissioners are as follows: a. Mr. Jusman Syafii Djamal as President Commissioner; b. Mr. Parikesit Suprapto as Commissioner; c. Mr. Hadiyanto as Commissioner; d. Mr. Virano Gazi Nasution as Independent Commissioner; e. Mr. Johnny Swandi Sjam as Independent Commissioner; f. Mr. Gatot Trihargo as Commissioner. with terms of office effective up to the closing of the Company’s AGMS which will be held in 2017, except for Mr. Jusman Syafii Djamal and Mr. Johnny Swandi Sjam up to the closing of the Company’s AGMS which will be held in 2015; while Mr. Gatot Trihargo up to the closing of the Company’s AGMS which will be held in 2018. 4. Grants authority to the Board of Directors of the Company with substitution rights to restate the resolutions of this Meeting in a notarial deed and further notify the changes in Articles of Association of the Company to the Minister of Law and Human Rights of the Republic of Indonesia and other necessary actions in accordance with the prevailing laws and regulations. All of the notes to the AGMS have been addressed Commissioners is not authorized to run properly in 2013. B. Board of Commissioners and manage the company, except in situations where all members of the Board The Board of Commissioners (“BoC”) is the of Directors are suspended for a certain company’s organ that supervises and advises the reason. company’s management run by its Directors’. The - To give advice and opinions to the AGMS BoC is collectively responsible to shareholders. regarding annual financial reporting, BoC members are appointed and dismissed by development plan, the appointment of a shareholders through a GMS. The term of office public accounting firm as the company’s for each member of Board of Commissioners is auditor and on other important strategic 5 (five) years from the date of his/her election, issues related to the company's corporate unless the date of expiration of the term of office actions. falls on a day other than a workday, in which case - To evaluate the company’s work plan and such term of office shall expire on the following budget, to keep up with progresses made workday. within the company, and to coordinate with the Board of Directors when there are 1. Authorities and Responsibilities of the Board indications that the company is in trouble, of Commissioners - To supervise the Company’s management thus allowing the Directors to immediately inform the shareholders immediately and performed by Board of Directors, including to recommend the necessary corrective in corporate planning and development, measures. operations and budgeting, and compliance - To ensure that the corporate governance with the company’s Articles of Association program has been implemented and as well as in the implementation of GMS’s maintained in accordance with prevailing mandate and decisions. The Board of rules and regulations. 146 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis 2. BoC Composition Brief profiles of members of the Board are Board of Commissioners has 6 (six) members, available on page 238-239 of this Annual consisting of a President Commissioner as the Report. board chair, and five (5) Commissioners, two of whom are Independent Commissioners. 3. Independence of BoC and Independent From January 1, 2013 through April, 19, 2013, the composition of the Board of Commissioners of Telkom comprised: 1) Jusman Syafii Djamal, President Commissioner. 2) Hadiyanto, Commissioner. Commissioners Membership of our BoC has complied with prevailing legislations and capital market regulations regarding independence of BoC membership and number of Independent Commissioners in order to maintain independence in BoC’s supervisory roles and 3) Parikesit Suprapto, Commissioner. to ensure the implementation of the process 4) Johnny Swandi Sjam, Independent of checks and balances. None of our BoC Commissioner. members is related by marriage or by blood 5) Virano Gazi Nasution, Independent to each other up to the third degree, both in Commissioner. On April 19, 2013, AGMS approved a straight line or lines to the side. We have 2 (two) Independent Commissioners, or 33% of the total members of the Board. This number changes to the composition of its Board of has also exceeded the 30% minimum limit set Commissioners. Thus, as of April 19, 2013, the for independent commissioners set by the new composition of Board of Commissioners Indonesia Stock Exchange. The primary task comprised: of independent commissioners in addition 1) Jusman Syafii Djamal, President oversight is to represent the interests of Commissioner. minority shareholders. 2) Hadiyanto, Commissioner. 3) Parikesit Suprapto, Commissioner. 4) Johnny Swandi Sjam, Independent Commissioner. 4. Procedure of Determination of BoC Remuneration Each member of the Board of Commissioners 5) Virano Gazi Nasution, Independent is entitled to monthly remuneration and Commissioner. 6) Gatot Trihargo, Commissioner benefits. They are also entitled to bonuses based on the Company’s performance and Each member of the Board of Commissioners also holds related assignments and activities in committees under the BoC as follows: Commissioner Related Assignment and Activities Jusman Syafii Djamal Apart from holding the position of President Commissioner, he is also the (President Commissioner) Chairman of the Nomination and Remuneration Committee. Johnny Swandi Sjam Also serves as the Chairman of the Audit Committee, member of the (Independent Commissioner) Virano Gazi Nasution (Independent Commissioner) Hadiyanto Evaluation and Monitoring of Planning and Risk Committee (“KEMPR”), and member of the Nomination and Remuneration Committee. Also serves as a member of the Audit Committee, KEMPR and the Nomination and Remuneration Committee. Also serves as a member of KEMPR and the Nomination and Remuneration (Commissioner) Committee. Parikesit Suprapto Also serves as the Chairman of KEMPR and member of the Audit Committee (Commissioner) and the Nomination and Remuneration Committee. Gatot Trihargo (Commissioner) Also serves as a member of KEMPR and the Nomination and Remuneration Committee. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 147 achievement which amount is determined by - Execution of the 2013 Work Plan and the shareholders in GMS. Commissioners are also entitled to a lump sum allowance upon resignation (at the end of their term). BoC Remuneration is calculated based on a formula set by the Nomination and Remuneration Committee that is also used for the determination of BoD salaries, and in percentage refers to the President Director's salary that has been approved by the GMS. Pursuant to Minister of SOE Regulation Budget (“RKAP”) and including the 2013 Capex, and ratifying the draft for 2014 RKAP. - Overseas expansion to 10 countries (Singapore, Hong Kong-Macau, Timor Leste, Australia, USA, Taiwan, Malaysia-Brunei, SaudiArabia, New Zealandand Myanmar) as the embodiment of our vision to become the leading TIMES player in the region. PER-07/MBU/2010. The GMS could specify - Corporate action plan on a different type of income and/or certain amount from that which has been set out in this ministerial regulation. The procedure to determine BoC remuneration are as follows: - The BoC asks the Nomination and Remuneration Committee to draft a proposal for BoC remuneration. PT Indonusa Telemedia, Patrakom and establishment of InfraCo. - Plan for treasury stock transfer. - Key Performance Indicator (“KPI”) for all members of the BoD based on the Management Contract formulated by the BoC and constituting part of the evaluation of individual members of the BoD by the BoC. - The Nomination and Remuneration ii. Provide response on periodic reports Committee asks an independent party to submitted by the Directors. Provide develop a remuneration framework for BoC. response on the Company's Financial Statements for Quarter I year 2013, - The Nomination and Remuneration Quarter II year 2013, and Quarter III year Committee proposes such framework to 2013 and forwarded such responses to BoC. the Dwiwarna Shareholder. - The BoC then proposes remuneration for iii. Perform such duties related to the BoC members to the GMS. implementation of GMS: - The GMS determines remuneration of BoC - Discuss the agenda for the Annual members. GMS for fiscal year 2012. - Discuss the stock split plan. For the year 2013, the total remuneration of - Discuss and propose the Public our Commissioners is Rp18,3 billion, or each of Commissioner received remuneration amounting to Rp3,1 billion. 5. Board of Commissioners Activity Report a. Implementation of Duties of BoC In broad terms, throughout 2013, the Board Accountant Firm ("KAP") to perform the audit on Financial Statements for the fiscal year ending on December 31, 2013. - Discuss and propose the remuneration for the Board of Directors and the Board of of Commissioners has engaged in the Commissioners. following: i. To discuss, give opinion and advice, and b. BoC Meeting ask for clarification, concerning, among The BoC holds a meeting at least once a others, the following: - Changes in the organization structure. month or when deemed necessary by one or more members of the BoC, or upon the written request from one or more - Ratifying the RJPP/CSS for 2014- shareholders holding at least one tenth of 2018. our outstanding shares. 148 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis The mechanism for decision-making in BoC meetings is based on consensus by deliberation. If no consensus is reached, decisions are based by majority voting of members that are present or represented by proxy at the meeting. If there are equal votes for and against a decision, then the decision shall be based on the opinion of the Chairman of the meeting. The quorum for all meetings of the BoC is more than half the BoC members who are present at the meeting, or represented by proxy to a member present at such meeting. In 2013, BoC met 13 (thirteen) times. BoC also held 14 joint-meetings with BoD throughout 2013. Table of Attendance of BoC Meetings Name Position Attendance Jusman Syafii Djamal President Commissioner Johnny Swandi Sjam Independent Commissioner Virano Gazi Nasution Independent Commissioner Hadiyanto Parikesit Suprapto Gatot Trihargo* * since 19 April 2013 Commissioner Commissioner Commissioner 13 from 13 12 from 13 13 from 13 9 from 13 13 from 13 8 from 10 Table of Attendance of BoC and BoD Joint Meetings. Name Position Attendance Jusman Syafii Djamal President Commissioner Johnny Swandi Sjam Independent Commissioner Virano Gazi Nasution Independent Commissioner Hadiyanto Commissioner Parikesit Suprapto Commissioner Gatot Trihargo* Commissioner Arief Yahya President Director /CEO Muhammad Awaluddin Director of Enterprise &Business Service Honesti Basyir Director of Finance Priyantono Rudito Director of Human Capital Management Rizkan Chandra Director of Network, IT & Solution Sukardi Silalahi Director of Consumer Service 14 from 14 14 from 14 13 from 14 12 from 14 14 from 14 11 from 11 13 from 14 11 from 14 12 from 14 11 from 14 10 from 14 14 from 14 Ririek Adriansyah Director of Wholesale & International Service 11 from 14 Indra Utoyo Director of Innovation & Strategic Portfolio 13 from 14 * since 19 April 2013 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 149 6. Competency Improvement Program for Commissioners In 2013, we held a number of trainings to improve the competence of BoC members. Training Program for Commissioners Improvement Name Program Location Date Jusman Syafii Djamal Mobile World Congress 2013 Barcelona, Spain February 25 – 28, 2013 Parikesit Suprapto Mobile World Congress 2013 Barcelona, Spain February 25 – 28, 2013 Technology Development Update China October 17 – 21, 2013 7. Assessment on the Performance of Board of 9. BoC Address Commissioners As a general rule, the GMS performs the BoC's official address is Graha Merah Putih Building, 5th Floor assessment on the performance of the BoC, Jl. Jend. Gatot Subroto Kav.52 regarding the discharge of BoC duties and Jakarta 12710, Indonesia. responsibilities in the respective year. C. Board of Directors Accountability of the duties and 1. Structure of the Board of Directors responsibilities of the Board of Commissioners The BoD are elected and dismissed by the for fiscal year 2013 will be carried out in the GMS. To be elected, candidates must be GMS in 2014. GCG Assessment for Board of Commissioners We also conduct an assessment on the nominated by the Government as holder of the Dwiwarna Series A Share. The term of office for each Telkom's Director is 5 (five) years from the date of his/her election, unless implementation of GCG by the BoC as an the date of expiration of the term of office organ of GCG. The GCG assessment process falls on a day other than a workday, in which is performed by the IICG, an independent case such term of office shall expire on the agency that perform a CGPI rating on Telkom. following workday. Shareholders, through There are eleven aspects being assessed an AGMS or an EGMS, have the right to in the implementation of GCG towards an discharge a Director at any time before the ethical, honorable, fair and accountable expiration of his/her term of office. business, namely the aspects of commitment, transparency, accountability, responsibility, On April 19, 2013, AGM has approved independence, fairness, competence, the changes of the Board of Directors leadership, strategy, policies, and knowledge compositionas follow: management. 1. Arief Yahya, President Director (CEO) 2. Honesti Basyir, Finance Director (CFO) In this GCG assessment, we received the 3. Indra Utoyo, Director rating of “Indonesia's Most Trusted Company”. 4. Priyantono Rudito, Director 8. BoC Secretary 5. Sukardi Silalahi, Director 6. RizkanChandra, Director BoC is assisted by a Secretary of the BoC for 7. Muhammad Awaluddin, Director ensuring that in performing their tasks, has 8. Ririek Adriansyah, Director. complied with Telkom’s Articles of Association and applicable legislations. 150 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Furthermore, based on the AGM resolution, Telkom Group’s business portfolio and the division of tasks and responsibilities risk management as well as interfacing for each member of the Board of Directors, with external constituent. along with the nomenclature for each - To control the strategic planning member of the Board of Directors, aside the function within the Telkom Group and President Director and Financial Director, is determined based on the BOD’s decision. to direct businesses development by focusing on new businesses portfolio. That BOD’s decision was determined on June - To control corporate direction in driving 28, 2013 with the division of task, authorities new business, entering/developing new and nomenclature BOD as follows: 1. Sukardi Silalahi as the Director of Consumer Service (CONS) markets and for internationalization/ regionalization. - To control the management of strategic 2. Muhammad Awaluddin as the Director of aspects and finance, human capital Enterprise & Business Service (EBIS) 3. Ririek Adriansyah as the Director of and innovation and strategic portfolio management on the entire businesses Wholesale & International Service (WINS) portfolio of Telkom's group. 4. Rizkan Chandra as the Director of - In charge of leadership development Network, IT & Solution (NITS) program in Telkom Group, and to 5. Indra Utoyo as the Director of Innovation appoint and to dismiss certain official & Strategic Portfolio (ISP) 6. Priyantono Rudito as the Director of Human Capital Management (HCM) positions, in accordance with the established career management regulations, and leadership development program for the entire 2. Scope and Main Duties of the Board of Telkom Group. Directors Pursuant to the Company's Articles of - To submit reports on the Company’s performance as required for a public Association, the BoD is primarily responsible company on a regular basis. for leading and managing the company's operations as well as controlling and b. Director of Innovation & Strategic Portfolio managing its assets, under the supervision of (“ISP”) the BoC. - To determine the concept and formula of the Company's Long-Term Plan The BoD also has the right to act for and on (corporate strategic scenario). behalf of the company, inside or outside the - To determine the governance Court of Law, on any matters and for any events, with any other parties. policies and the mechanisms of the management of corporate planning and strategy (policies on the level of The main duties of each Director are as planning and strategy - corporate level, follow (according to PD.202.11/r.00/HK.200/ business level and functional level). COP-B0400000/2013 on the Organization of - To determine the strategy and the Telkom Group): policy of the Telkom Group's business a. President Director as CEO of Telkom portfolio. Group - To coordinate the process of structuring and/or reconstruction of the aspects of corporate philosophy, which includes but is not limited to - To determine the strategy, policy and recommendation for corporate action and strategic investment for the development of Telkom Group's business. vision, mission, objectives, corporate - To determine the innovation strategy in culture, and leadership architecture. order to explore new sources of growth - To formulate and to state the strategic for Telkom Group's business portfolio. direction for the conditioning ofthe - To determine the parenting strategy to Company’s capability in realizing harmonize and optimize the capability sustainable competitive growth across of the Telkom Group's business entities Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 151 in enhancing the Company’s value. - To facilitate the process of formulating - To determine the policy, governance, corporate level strategy, particularly and mechanisms of innovation to develop Telkom Group's business portfolio. on aspects related to the development of center of excellent, organization behavior, corporate culture, and - Determining the policy, governance, leadership architecture; and mechanisms of managing the - To determine the strategy and policies synergy of Telkom Group. - To carry out the advisory function in the process of determining the for human capital function, including but is not limited to human capital policy, organisation development, and corporate level strategy, especially on industrial relation; matters related to business portfolio - To determine the governance development. policy, and the mechanism for the - To ensure the effectiveness of risk management and planningof resources management in all business processes related to the development, utilization for the entire units under the ISP Directorate. c. Finance Director (“KEU”) - To determine the concept and the and management of human resource. - To determine the policy, governance, and mechanism for the development and interrelation of the entities/ institutions related to human formula of the Company’s Long-Term resources management, including Financial Planning for Telkom Group; but is not limited to the pension fund - To facilitate the process of concepting management institutions, employee and the corporate level strategy, particularly retire health care institutions, skill and the financial perspective on, but is not competence development insitution limited to, strategic budgeting, business or educational institution, and labour & investment, parenting strategy, union; subsidiary performance, and capital - To conduct the advisory role in management; - To determine financial and logistic strategy and policies, which include, but is not limited to Financial Policy, determining corporate level strategy, especially for matters related to Telkom Group’s human resources development. Financial System Support Policy, Asset e. Director of Network, IT& Solution (“NITS”) Management & Logistic Policy, Asset - Determining the business plan and Management & Logistic. - To determine the governance policies and the financial accounting strategy in order to leverage the capability of company’s resources to develop/exploit the established management (accounting), accounting business/ services by utilizing management (budgeting), and corporate finance (treasury). infrastructure, IT and solution to support Telkom Group business - To determine the policies, governance, portfolio synergistically; and mechanism of managing the Annual Work Plan Budget (RKAP); - To carry out the advisory role in - Determining the policy, governance, and mechanism for the utilization of infrastructure/ network to support determining corporate level strategy, the growth of Telkom Group business particularly for matters related to Telkom Group’s financial resources. portfolio; - Determining the policy, governance, and mechanism for the utilization of IT d. Director of Human Capital Management to support the growth of Telkom Group (“HCM”) business portfolio; - The determine the concept and formula - Determining the policy, governance, for Human Capital Long Term Plan and and mechanism for the conditioning Human Capital Master Plan in Group; 152 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis of excellent performance of services/ g. Director of Enterprise Business Service solutions to support sustainable (“EBIS”) competitive growth of Telkom Group; - To define the business strategy and - To manage and to control the parenting planning to leverage the Company's mechanism in accordance with the parenting strategy on the entire units under the Directorate of NITS and/ or other units directly involved in the process of managing the infrastructure utilization and operation; resources capability in creating a competitive advantage to win the competition and to achieve long term growth of the corporate segment business portfolio (enterprise and business) of Telkom Group. - Ensuring the effectiveness of risk - To determine the parenting policies management in all business processes in all units under the Directorate of NITS. f. Director of Consumer Service (“CONS”) - To define the strategy and business and mechanisms in order to create value through the optimization and harmonization of the interrelation between the parent company and the entities managing the corporate segment business (enterprise and planning to leverage the Company's business) of Telkom Group resources capability in creating competitive advantage to win the competition and long term growth of the consumer segment business - To determine the policy, governance, and mechanisms of the management of corporate segment marketing function (enterprise and business); portfolio (consumer home services and - To determine the policy, governance, consumer personal services) within Telkom Group; and mechanisms of the management of the corporate segment sales and/ - To determine the parenting policies or account management function and mechanisms in order to create value through the optimization and harmonization of the interrelation between the parent company and the (enterprise and business). - Determine the policy, governance, and mechanism of customer relationship management for corporate segment entire entities managing the consumer (enterprise and business); segment business within Telkom Group. - Ensuring the effectiveness of risk - To determine the policy, governance, management in all business processes and mechanisms of the management of the consumer segment marketing functions; of the entire units under the Directorate of Enterprise Service. - To determine the policy, governance, h. Director of Wholesale & International and mechanisms of the management Service (“WINS”) of the consumer segment sales and/ or - To define the strategy and business partnership function; planning to leverage the Company's - To determine the policy, governance, resources capability in creating and mechanism of the management of competitive advantages to win the customer relationship management on competition and to achieve long term the consumer segment; growth of the Wholesale & International - Ensuring the effectiveness of business segment business portfolio of Telkom risk management in all units under the Group. Directorate of Consumer Service. - Determining the parenting policies and mechanisms in order to create value through the optimization and harmonization of the interrelation between the parent company and the entire entities managing the business Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 153 operations for the Wholesale & 5. Determination of the Board of Directors’ International segment of Telkom Group. - Determining the policy, governance, Salary, Allowances and Facilities The Nomination and Remuneration and mechanisms of the management Committee is responsible for formulating the of Wholesale & International segment Directors’ salaries, which is further discussed marketing functions; in a joint meeting of the BoD and BoC for - Determine the policy, governance, and approval. Following review by the Nomination mechanisms of the management of and Remuneration Committee and approval the Wholesale & International segment by the joint meeting of BoD and BoC, the sales and/or account management formula is then submitted to the AGMS for function. consideration and approval. - Determining the policy, governance, and mechanisms of the management of In compliance with prevailing regulations, customer relationship management for the remuneration, allowances and facilities Wholesale & International segment. for members of the BoD are reported to the - Ensuring the effectiveness of risk capital market authorities and the Dwiwarna management in all business processes Series A Shareholder. of the entire units under the Directorate of Wholesale & International segment. For the year 2013, the total remuneration 3. BoD Charter of our Directors is Rp59,5 billion, or each of Director received remuneration amounting to In the case of activities and actions in the Rp7,4 billion. management of the Company that are not governed by our Articles of Association or the 6. Board of Directors’ Meetings provisions of the law, procedures are followed Meetings of the BoD are chaired by the that support the principle of accountability President Director. In the event that the through consensus, agreement and/or rules President Director is unavailable or absent between the members of the BoD. This for a reason, the meeting will be chaired by a charter is aimed at expediting the decision member of the BoD appointed in the meeting. making process, reducing bureaucracy in the administration of the Company’s The BoD meeting may be held at any time management, and supporting improvements deemed necessary at the request of one or in performance. This charter also governs the more members of the BoD, at the request of working relationship between the BoD and the BoC or upon a written request from one the BoC, which is an institutional relationship or more shareholders representing one-tenth in that it is based on countable management or more of the total number of outstanding and supervisory mechanisms in accordance shares of Common Stock. with the prevailing provisions. 4. Policies on BoD Remuneration The decisions of the BoD meeting shall be reached by consensus through deliberation. If Each Director is entitled to a remuneration this method fails, the decision shall be passed consisting of a monthly salary and other by voting based on the majority votes by BoD allowances (including pension benefits). members cast in the meeting. A quorum is Directors also receive an annual bonus reached at a BoD meeting if more than half based on our business performance and of the members of the BoD are present or achievements, which amount is determined represented legally in the meeting. Each BoD by shareholders at our GMS. The bonus and member who is present at the meeting shall incentive are budgeted every year based be entitled to cast one vote (and one vote for on recommendations of the Directors and each other member of the BoD that he/she confirmation from the BoC before being represents). considered by shareholders at an AGMS. 154 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis In 2013 BoD met 46 times. Table of BoD Attendance BoD Position Arief Yahya Indra Utoyo President Director Director of Innovation & Strategic Portfolio Honesti Basyir Director of Finance Priyantono Rudito Director of Human Capital Management Sukardi Silalahi Director of Consumer Service Muhammad Awaluddin Director of Enterprise Business Service Ririek Adriansyah Director of Wholesale & International Service Rizkan Chandra Director of Network, IT & Solution Attendance 39 from 46 43 from 46 42 from 46 40 from 46 44 from 46 41 from 46 41 from 46 35 from 46 7. Competence Enhancement Programs for Directors Throughout 2013, members of our BoD have attended a number of training programs, workshops, conferences and seminars, as participant, in order to enhance their professional competences. Table of Competence Enhancement Programs for Directors: Name Arief Yahya Program Location Date CEO Roundtable Discussion - OPTUS SINGTEL GROUP Melbourne, Australia January 24-25, 2013 Mobile World Congress 2013 Barcelona “Future Thinking and Grand Strategy Development” Melbourne Business School, Victoria, Australia February 24-28, 2013 September 15-19, 2013 ABAC (APEC Business Advisory Meeting) Conference 2013 Ayana Resort, Bali October 2-5, 2013 APEC CEO Summit BNDCC, Bali Bandung Cloud of knowledge Institute Teknologi Bandung, Bandung October 5-6, 2013 October 26, 2013 US - ASEAN Meeting Plasa Mandiri, Jakarta November 12, 2013 International Seminar Conference Learning Organization (ISCLO) Bandung December 4, 2013 Indra Utoyo Seminar Paradox Marketing Nanyang Technopreneurship Center, Singapore March 28, 2013 APEC Summit 2013 Nusa Dua, Bali October 5-8, 2013 Executive Development for BOD, subject: Corporate Financial. Kellogg , Northwestern University, USA October 21-25, 2013 Training Spirituality In Work Islam for Senior Leader Hotel Grand Lembang, Bandung November 14-16, 2013 Honesti Basyir MANDIRI CFO Forum KOMPAS 100 CEO Forum The Ritz Carlton Hotel, Jakarta Jakarta Convention Center, Jakarta International Seminar Conference Learning Organization Hotel Trans Studio, Bandung Priyantono Rudito Philip Kotler Live “ One Day Seminar” The Rizt Calton Hotel, Jakarta April 22, 2013 November 27, 2013 December 4, 2013 March 18, 2013 Program “Future Thinking and Grand Strategy Development” Melbourne Business School, Australia September 16-19, 2013 “International Seminar Conferent Learning Organization” Hotel Trans Studio, Bandung December 4-5, 2013 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 155 Name Sukardi Silalahi Program Location Date Phillip Kotler Live One Day Seminar The Ritz Carlton Hotel, Jakarta March 18, 2013 BUMN Marketing Day Hotel Borobudur, Jakarta August 27, 2013 High Performance Board Lausanne, Switzerland October 7-10, 2013 Mark Plus Converence The Ritz Carlton Hotel, Jakarta Muhammad Awaluddin BUMN Marketers Club "Transformasi Pegadaian" Auditorium Pegadaian, Jakarta Phillip Kotler "The World is Shaking, Indonesia is Standing : 8 Ways To Grow" The Ritz Carlton Hotel, Jakarta General lecture of MOCI chance of North Sumatra to become province of cyber Universitas Sumatera Utara, Medan Paradox Marketing Seminar CMO Forum "Paradox Marketing" Nanyang Technological University, Singapore Menara Multimedia, Jakarta December 12, 2013 February 20, 2013 March 18, 2013 March 22, 2013 March 28, 2013 April 16, 2013 BUMN Marketers Club "Leading Through Innovation" BUMN Marketers Club "Brighten The Future" ABAC (APEC Business Advisory Meeting) Conference 2013 Executive Education "Innovation For Growth : Strategies & Best Practice" Plaza Mandiri, Jakarta May 22, 2013 Perum Peruri, Jakarta September 25, 2013 BICC, Nusa Dua Bali October 5-9, 2013 Wharton University of Pennsylvania, Philadelphia, USA November 11-14, 2013 Chambers of commerce seminar Four Season, Jakarta January 30, 2013 Low Forum of SOE State Own Enterprise (SOE) Ministry, Jakarta 14th forum SOE marketers Plaza Mandiri, Jakarta Declaration of transparency SOE roadmap State Own Enterprise (SOE) Ministry, Jakarta March 18, 2013 May 22, 2013 May 22, 2013 Discussion of SOE position in state's financial KPK Building, Jakarta September 12, 2013 Ririek Adriansyah Rizkan Chandra Executive Course Managing Customers for Competitive Advantage Parkville, University of Melbourne, Australia June 13-14, 2013 Meeting coordination of APEC National committee BNDCC-1, Bali September 14, 2013 APEC CEO Summit Bali, 2013 BNDCC-1, Bali CAFEO (Conference of ASEAN Federation Engineers Organization) Jakarta Convention Center, Jakarta October 5-7, 2013 November 11, 2013 Supply Chain Operations Referrence (SCOR) Training with Problem Solving Graduate House, Carlton, Melbourne, Australia November 18-20, 2013 156 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis 8. Assessment on the Performance of Board of namely financial, customer, internal Directors a. Process for the Assessment on the Performance of Board of Directors business process, and learning and growth, translated into three types of KPI, namely shared KPI, common KPI, and specific KPI. The assessment on the performance of Shared KPIs are the same in name, target, the BoD is performed by the BoC as well realization and achievement for all the as the GMS, regarding the achievement Directors. Common KPIs have the same of key performance indicator (“KPI”) of name and target, but specify different the BoD in the discharge of its duties realization and achievement for each of and responsibilities as established by the the Director. Specific KPIs are different Articles of Association, the achievement for each of the Directors and represent on the RKAP. Achievement of Directors' KPIs as a basis for the evaluation by the BoC is specific programs as the primary duty and priority for the respective Director and Directorate. determined through internal processes. c. Parties Performing the Assessment The assessment process was initiated The internal parties performing the with completion of an online form of the achievement of Management assessment on the Management Contract of the BoD are the Performance Contract (“KM”) and followed by face- Committee and the President Director. to-face meeting for clarification and the Overall, assessment on the performance of determination of final performance scores the BoD is performed by the BoC through to be submitted to the Performance the GMS mechanism in accordance with Committee and President Director for final established provisions. decision and subsequently forwarded to the Board of Commissioners. d. GCG Assessment for Board of Directors We also conduct an assessment on the In 2013, the Directors' performance was BoC’s as well as the BoD’s implementation also evaluated by a Team appointed by the of GCG The GCG assessment process is State Ministry of SOE, which assessed the performed by the IICG, an independent performance of the company on the basis agency that perform a CGPI rating of the Excellent Performance Assessment on Telkom. There are 11 aspects being Criteria ("KPKU") for SOE. The KPKU was assessed in the implementation of GCG an adaption from the Malcolm Baldrige towards an ethical, honourable, fair Criteria for Excellence ("MBCFPE"), according to which our criteria was assessed at the level of "Emerging and accountable business, namely the aspects of commitment, transparency, accountability, responsible, independence, Industry Leader". This achievement ranks fairness, competence, leadership, strategy, among the highest of the SOEs assessed, policies, and knowledge management. reflecting the success of our earlier efforts since 2000 to implement and assess its In the GCG assessment, we are rated as performance and those of its using the “Indonesia Most Trusted Company”. MBCFPE criteria. 9. Affiliated Relationship between members b. Criteria Used in the Assessment on the of Directors and Major and/ or Controlling Performance of the Board of Directors. The criteria used in the assessment on Shareholders. Currently there is no family relation of the performance of the BoD is based up to the third degree either vertically or on the balanced scorecard method with horizontally or by marriage between members measurements on four main aspects, of BOC and members of BOD, and or between fellow members of the two boards. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 157 Table of affiliated relationships among members of BOC, members of BOD and major or controlling shareholders. Board of Commissioners Board of Directors Controlling Shareholders Affiliation with l i n d d u a w A d a m m a h u M o t i d u R o n o t n a y i r P h a y s n a i r d A k e i r i R a r d n a h C n a k z R i s E O S f o r e t s i n M i √ √ l a m a D j i fi a y S n a m s u J X m a S j i d n a w S y n n h o J X o t p a r p u S t i s e k i r a P X n o i t u s a N i z a G o n a r i V o t n a y d a H i X X o g r a h i r T t o t a G a y h a Y f e i r A r i y s a B i t s e n o H o y o t U a r d n I i h a a l l i S i d r a k u S X X X X X X X X X X No Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Jusman Syafii Djamal (President Commissioner) Johnny Swandi Sjam (Independent Commissioner) Parikesit Suprapto (Commissioner) Hadiyanto (Commissioner) Virano Gazi Nasution (Independent Commissioner) Gatot Trihargo (Commissioner) Arief Yahya (President Director) Honesti Basyir (Director of Finance) Indra Utoyo (Director of Innovation& Strategic Portfolio) Sukardi Silalahi (Director of Consumer Service) Muhammad Awaluddin (Director of Enterprise & Business Service) Rizkan Chandra (Director of Network IT & Solution) Priyantono Rudito (Director of Human Capital Management) Ririek Adriansyah (Director of Wholesale & International Service) 15. Minister of SOEs Note: X = There is no affiliate relationship √ = There is affiliate relationship 158 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis D. Committees under the Board of a. Audit Committee Profile Commissioners 1. Audit Committee The Audit Committee conducts its duties based on the mandate of the Audit Committee Charter established by a Decree of the Board of Commissioners. The Audit Committee Charter is regularly evaluated and, if necessary, amended to ensure the Company's compliance to OJK and SEC regulations and other relevant regulations. In December 2012, the Capital Market Financial Institution Supervisory Board (Bapepam-LK) - now the Financial Services Authority (“OJK”) issued the Regulation No.Kep-643/BL/2012 dated 7 December 2012 on the Establishment and Implementation of Audit Committee Work Implementation replacing Regulation of Bapepam-LK No.Kep- 29/PM/2004 dated 24 September 2004 on the same matter. The new legislation is intended to increase the independence, role and authority of the Audit Committee to assist the oversight function of the board of commissioners of a public company. Audit Committee Charter has been updated in line with the new regulation and the new Audit Committee Charter is established with the Decree of the Board of Commissioners No.07/KEP/DK/2013 dated 22 July 2013. As of August 2013, we have an Audit Committee consisting of six members: two Independent Commissioners, one Commissioner and three independent external members who are not affiliated with Telkom. In 2013, there were changes in the composition of the Audit Committee membership. As of August 2013, the Audit Committee consists of: (i) Johnny Swandi Sjam (Independent Commissioner - Chairman), (ii) Salam (Secretary), (iii) Virano Gazi Nasution (Independent Commissioner), (iv) Parikesit Suprapto (Commissioner) no voting right because of his affiliation with Government, (v) Sahat Pardede, and (vi) Agus Yulianto. Salam, Sahat Pardede, and Agus Yulianto are independent external members who are not affiliated with Telkom. The tenure of Salam as a member/Audit Committee secretary ended in August 2013. The composition of the Audit Committee as of December 31, 2013 is as follow: Membership Name Chairman Johnny Swandi Sjam Secretary AgusYulianto Member Virano Gazi Nasution Parikesit Suprapto Sahat Pardede Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 159 Brief profiles of each member of the Audit Agus Yulianto is a certified accountant Committee are provided below: with experience in auditing, accountancy Johnny Swandi Sjam – Independent Commissioner As Chairman of the Audit Committee, and finance. From 1983–1999, he was an employee of the Financial and Development Supervisory Board. He has also worked as a senior consultant Johnny Swandi Sjam is responsible for with the Jakarta Initiative Task Force directing, coordinating and monitoring the as a procurement audit specialist for execution of the duties of each member of World Bank-funded projects. Before his the Audit Committee. Agus Yulianto - Member Agus Yulianto is in charge of supervising and monitoring the effectiveness of appointment as a member of the Audit Committee, he worked for the Public Accountant Firm of HLB Hadori Sugiarto Adi & Rekan as Chair of the Financial Management Specialist Team for a risk management (particularly financial project in Aceh that was managed by reporting risks) implemented by our the World Bank and funded by the Multi Board of Directors, monitoring possible Donor Fund. He graduated with a degree occurrence of fraud and/or irregularities in Accountancy from Sekolah Tinggi that could potentially harm the Company, Akuntansi Negara Jakarta and received and complaint handling. his Master’s in Accountancy from Case Western Reserve University, Cleveland, In addition, starting in August 2013, Ohio, USA. Agus Yulianto also served to facilitate the implementation of the tasks of the Audit Committee members, correspondence, preparing documentation, preparing the Virano Gazi Nasution – Independent Commissioner Virano Gazi Nasution’s prime duty is to Annual Report of the Audit Committee and supervise and monitor the Company’s the independent auditors to coordinate information technology. the selection process. 160 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Parikesit Suprapto – Commissioner Parikesit Suprapto is responsible for supervising and monitoring the Company’s Degree in Business Administration from Saint Mary’s University in Halifax, Canada. GCG and keeps himself updated on b. Duties and Responsibilities of the Audit capital market regulations as well as other Committee laws that are relevant to the Company’s The Audit Committee Charter outlines operations. Sahat Pardede – Member Sahat Pardede’s primary duty is to the Committee’s purpose, function and responsibilities. It provides that the Audit Committee is responsible for: - Supervise the Company's audit and supervise and monitor the integrated reporting process on behalf of the BoC. audit process and consolidated financial - Providing recommendations to the Board reporting, including the implementation of Commissioners regarding the selection of financial accounting standards and of external auditor. the effectiveness of Internal Control Over - Discuss with internal and external auditors Financial Reporting (“ICOFR”). on the overall scope, for both of audit and non audit work as well as their audit plan. Sahat Pardede is a public accountant - Reviewing the Company's consolidated and a Managing Partner in the Public Accountant Firm of Ghazali, Sahat & financial statements as well as the effectiveness of ICOFR. Associates. Moreover, currently, he served - Examine complaints relating to the as Advisor to the Special Task Force for Company's accounting process and Upstream Oil and Gas Business Activities financial reporting. Republic of Indonesia (“SKK Migas”). He - Convening regular meetings with internal has considerable experience and expertise and external auditors, without the in auditing and possesses extensive presence of management, to discuss the knowledge of financial accounting and results of their evaluation and audit of internal control under SOA Section 404. our internal controls as well as the overall From 1981 to 2000, he was an employee quality of our financial reporting. of the Financial and Development - Carrying out additional tasks that are Supervisory Board. He graduated in assigned by the BoC, especially on financial accounting from Sekolah Tinggi Akuntansi and accounting-related matters as well as Negara - Jakarta and holds a Master other obligations required by SOA. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 161 In addition, the Audit Committee also has the provided auditing services and other financial duty to receive and handle complaints. To services to numerous private companies support the implementation of its duties, the and public institutions. He is a Certified Audit Committee may appoint independent Public Accountant and is also a member of consultants or professional advisors. the Indonesian Institute of Certified Public c. Independence of Audit Committee Accountants. Regulations of OJK on Audit Committee e. Audit Committee Pre-Approval Policies and require that the Audit Committee comprises Procedures at least three members, one of whom must be We have adopted pre-approval policies and an Independent Commissioner who serves as procedures under which all non-audit services chairman, while the other two members must provided by our independent registered be independent. At least one of these two public accounting firm must be pre-approved members must have expert knowledge (in the by our Audit Committee, as set forth in the context of item 16A Form of 20 F) in the field Audit Committee Charter. Pursuant to the of accountancy and/or finance. In order to be charter, permissible non-audit services may considered independent under the prevailing be performed by our independent registered Indonesian rules, the external members of the public accounting firm provided that: Audit Committee: (i) our Board of Directors must deliver to - May not be an executive officer of a public the Audit Committee (through the Board of accountant firm that has provided audit Commissioners) a detailed description of the and/or non-audit services to us within the non-audit service that is to be performed six months prior to his or her appointment by the independent public accounting firm, as an Audit Committee member. and (ii) the Audit Committee will determine - May not have been our executive officer whether the proposed non-audit service will within the six months prior to his or her affect the independence of our independent appointment as an Audit Committee public accounting firm or would give rise to member. any conflict of interest. - May not be affiliated with our majority shareholder. Pursuant to Section 10(i)(1)(B) of the - May not have a family relationship with any Exchange Act and paragraph (c)(7)(i)(C) member of the BoC or BoD. of Rule 2-01 of Regulation S-X issued there - May not own, directly or indirectly, any of under, Audit Committee Charter waives the our shares. pre-approval requirement for permissible - May not have any business relationship non-audit services where: (i) the aggregate that relates to our businesses. amount of the fees for such non-audit services constitutes no more than five percent d. Audit Committee Financial Expert of the total amount of fees paid by us to our The Board of Commissioners has determined independent registered public accounting that Sahat Pardede, as an independent firm during the year in which the services are member of our Audit Committee, qualifies provided, or (ii) the proposed services are not as an Audit Committee Financial Expert in regarded as non-audit services at the time accordance with the requirements of Item the contract to perform the engagement is 16A of Form 20-F and as an “independent” signed. In addition to these two requirements, member pursuant to the provisions of Rule the performance of non-audit services must 10A-3 of the Exchange Act. Mr. Pardede has be approved prior to the completion of the been a member of our Audit Committee since audit by a member of the Audit Committee February 2004. Prior to his appointment as who has been delegated pre-approval a member of our Audit Committee, Sahat authority by the full Audit Committee or by Pardede practiced and is currently practicing, the full Audit Committee itself. as a Public Accountant in Indonesia and 162 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Audit Committee Report On the recommendation of the Audit Committee, the Board of Commissioners has approved the Consolidated Financial Statements and Notes to the Consolidated Financial Statements, and Management Evaluation on the Effectiveness of Internal Control over Financial Reporting, for inclusion into the Company’s Annual Report on Form 20F to be submitted to the US SEC. Below is the report of the Audit reviewed and discussed with E&Y, E&Y’s professional judgment Committee for 2013 fiscal year: which is responsible for providing may reasonably be deemed to Independent Auditor and Auditor Independency In 2013, Telkom has re-appointed an opinion on the effectiveness interfere on independence. E&Y of internal control on financial has discussed its independence reporting, as well as the quality with our Audit Committee and has and acceptability of financial confirmed in its letter to us that, KAP Purwantono, Suherman & accountng standards used by the in its professional judgment, E&Y Surja, member firm of Ernst & Company. Young Global Limited ("E&Y") as is independent from us. The Audit Committee has also discussed independent auditor to perform The Audit Committee has also with E&Y regarding the public the integrated audit for 2013 fiscal reviewed and discussed with E&Y accounting firm’s independence year. The re-appointment of E&Y as regarding such other matters from our management and from independent auditor was approved as are required to be discussed our Company, including the during the Annual General Meeting with the Audit Committee matters in the letter from E&Y, and of Shareholders on April 19, 2013. by the auditing standards on considered the influence of the communications with the Audit public accounting firm’s non-audit The Audit Committee has Committee from the Public services. reviewed and discussed with E&Y, Company Accounting Oversight which is responsible for providing Board (“PCAOB”), the rules of OJK Integrated Audit an opinion on the fair presentation and the US SEC and any other - The Audit Committee has of our consolidated financial applicable regulations. statements and notes to the reviewed management’s report on its assessment consolidated financial statements, The Audit Committee has of the effectiveness of our with regard to the generally obtained a letter from E&Y that ICOFR as well as E&Y’s accepted accounting principles provides disclosures, such as report on the effectiveness in Indonesia and the International those required by PCAOB Rule of our Internal Control over Financial Reporting Standard 3526, regarding any relationship Financial Reporting. The Audit (IFRS). The Audit Committee has between E&Y and us that in Committee has discussed Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 163 with management and E&Y On the recommendation of the Audit Committee, the Board of the significant deficiencies Commissioners has approved the Consolidated Financial Statements identified during the course and Notes to the Consolidated Financial Statements, and Management of the assessment, and management’s plan to Evaluation on the Effectiveness of Internal Control over Financial Reporting, for inclusion into the Company's Annual Report on Form 20F remediate the deficiencies to be submitted to the US SEC. of our internal control over financial reporting. Whistleblower - The Audit Committee has - The Audit Committee has formulated whistleblower procedures discussed with the Company’s regarding accounting, internal controls and auditing matters, including Internal Auditors and E&Y the procedures to ensure employee confidentiality and the anonymous overall scope and plans for submission of concerns in accordance with Bapepam Regulation their respective audits. The No.IX.1.5 and Section 301 of the Sarbanes-Oxley Act of 2002 regarding Audit Committee met with Public Company Audit Committees. the Internal Auditors and E&Y, - With regard to enterprise risk management, the Audit Committee without management present, monitored and supervised fraud and financial reporting risks that to discuss the results of their would have a material effect on financial statements. examinations, their evaluations of our Internal Control over Financial Reporting and the Audit Committee Meeting During 2013, the Audit Committee held 30 meetings. These meetings overall quality of our financial were held pursuant to the Audit Committee Charter and intended to reporting. facilitate members of the committee in performing their duties and responsibilities. The following is the audit meeting attendance table. The Audit Committee also reviewed and discussed the Meetings of the Audit Committee Name Number of Meetings Number in Attendance Attendance Percentage Johnny Swandi Sjam Parikesit Suprapto Virano Gazi Nasution Salam * Sahat Pardede Agus Yulianto 30 30 30 20 30 30 26 21 20 19 29 30 87% 70% 67% 95% 97% 100% (*) Up to August, 2013 Jakarta, March 10, 2014 Johnny Swandi Sjam Chairman of Audit Committee Consolidated Financial Statements and the Notes to the Consolidated Financial Statement in the Annual Report (Form 20-F) with our management, including a discussion of the quality and the acceptability of our financial accounting standards, the reasonableness of significant accounting judgments and the adequacy of disclosures in the Consolidated Financial Statements. Management has confirmed to our Audit Committee that such consolidated financial statements: (i) have been prepared with integrity and objectivity and are the responsibility of management; and (ii) have been prepared in conformity with the accounting principles generally accepted in Indonesia as well as the International Financial Reporting Standard (IFRS). 164 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis 2. Nomination and Remuneration Committee The Nomination and Remuneration Committee was formed pursuant to the Board of Commissioners Decree No.003/KEP/DK/2005 dated April 21, 2005 regarding the Establishment of Nomination and Remuneration Committee. a. Profile of Nomination and Remuneration Committee The following is the membership composition of the Nomination and Remuneration Committee as of December 31, 2013 based on the Decree of the Board of Commissioners No.15/KEP/ DK/2013 dated December 16, 2013. Membership Name Chairman Jusman Syafii Djamal Member Secretary/ Member Parikesit Suprapto Hadiyanto Gatot Trihargo Johnny Swandi Sjam Virano Gazi Nasution Ario Guntoro Jusman Syafii Djamal – Chairman/Commissioner Jusman Syafii Djamal is the chairman of the Committee whose prime responsibility is to direct and coordinate the Committee’s functions. Hadiyanto - Commissioner Hadiyanto is a member of the Committee and is responsible for coordinating inputs from parties related to the controlling shareholders with regard to nomination and remuneration issues. Parikesit Suprapto - Commissioner Parikesit Suprapto is a member of the Committee and is responsible for coordinating inputs from the controlling shareholders with regard to nomination and remuneration issues. Gatot Trihargo - Commissioner Gatot Trihargo is a member of the Committee and is responsible for coordinating inputs from the controlling shareholders with regard to nomination and remuneration issues. Johnny Swandi Sjam - Independent Commissioner Johnny Swandi Sjam is a member of the Committee and is responsible for addressing nomination and remuneration issues with the management and external independent parties. Virano Gazi Nasution - Independent Commissioner Virano Gazi Nasution is a member of the Committee and is responsible for addressing nomination and remuneration issues with the management and external independent parties. Ario Guntoro - Secretary to the Board of Commissioner Ario Guntoro is the secretary of the Committee who is not a Member of the Committee and is responsible for preparing and managing the Committee’s administration and documentation. b. Duties and Responsibilities of Nomination and Remuneration Committee The Nomination and Remuneration Committee was established to perform, regulate and uphold the principles of GCG related to the nomination process of strategic management positions as well as to determine the BoD’s remunerations. The duties and responsibilities of the Nomination and Remuneration Committee are: i. Nomination - To formulate policies on criteria and selection that are required for strategic positions within the Company that is one level below the office of the Director and the Board (the Board of Directors and the Board of Commissioners) of consolidated subsidiaries with adherence to the principles of good corporate governance. – To assist the Board of Commissioners with or consult with the Board of Directors in selecting candidates for strategic positions within the Company that is one level below Director’s level and the Board (the Board of Directors and the Board of Commissioners) of consolidated subsidiaries. – To provide recommendations to the Board of Commissioners to be submitted to the holders of the series of A Dwiwarna shares on: a. Composition of position of the Board of Directors. b. Succession planning of the member of the Board of Directors. c. Assessment based on standards developed as evaluation materials for the purpose of skill improvement of members of the Board of Directors. ii. Remuneration - Provide recommendations to the Board of Commissioners, to be submitted to the General Meeting of Shareholders through the holders of A Dwiwarna series of shares, regarding policy, amount and/or structure of the remuneration of the Board of Directors and the Board of Commissioners. – Remuneration of the Board of Directors and the Board of Commissioners is in the form of salary or honoraria, benefits and permanent facilities as well as variable incentives. – Conduct reviews on employment contracts and/ or the performance of each member of the Board of Directors. c. Independency of Nomination and Remuneration Committee To ensure independency in carrying out its duties, the Nomination and Remuneration Committee shall not have members that have direct and indirect relations with the Company. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 165 Report of the Nomination and Remuneration Committee The Committee has submitted inputs pertaining to the composition of the Audit Committee and the Committee of Planning and Risk Evaluation and Monitoring to help the Board of Commissioners preparing the remuneration of member of the Board of Directors Nomination and Remuneration Committee has participated in joint discussions with the Financial Services Authority (“OJK”) on draft regulation that Meeting of the Nomination and Remuneration Committee During 2013, the Nomination and Remuneration will be implemented in all public companies listed Committee held as many as 25 meetings, out of which, 14 in BEI regarding the Nomination and Remuneration meetings were held in form of circulation of letters. Committee. As for the activities of the Committee during 2013 in conducting discussion to nomination and remuneration issues are as follows: Nomination In 2013, the Committee has addressed suggestions related to the organ membership composition at the Secretariat of the Board of Commissioners such as Audit Committee and Planning and Risk Evaluation and Monitoring Committee (“KEMPR”). Remuneration Throughout 2013, the Committee assists the Board of Commissioners in preparing proposals regarding the remuneration of members of the Board of Directors to be proposed to the Shareholders of Series of A Dwiwarna shares. The proposal utilizes a formula created by an independent consultant in 2012, the materials for remuneration proposed are based on remuneration benchmark in the Information and Communication Technology (“ICT”) industry both at domestic and regional levels. Table of Meetings of Nomination and Remuneration Committee Number of Meetings 25 25 25 25 25 22 18 6 Meeting Attended 25 24 24 25 20 19 17 6 Percentage of Attendance 100% 96% 96% 100% 80% 86% 94% 100% Name Jusman Syafii Djamal Johnny Swandi Sjam Virano Gazi Nasution Parikesit Suprapto Hadiyanto Gatot Trihargo1 Yuki Indrayadi2 Ario Guntoro3 (1) Since April 19, 2013 (2) Until October 7, 2013 (3) Since October 7, 2013 Jakarta, March 10, 2014 Jusman Syafii Djamal Chairman of Nomination and Remuneration Committee 166 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis 3. Planning and Risk Evaluation and Monitoring memberships are as follows: Committee The establishment and work implementation of Planning and Risk Evaluation and Monitoring Committee or KEMPR (previously Planning and Risk Review Committee) refers to KEMPR Charter which was last issued through the Decree of the Board of Commissioners No.04/ KEP/DK/2011 dated 24 March 2011 on KEMPR Charter of PT Telekomunikasi Indonesia, Tbk. The Board of Commissioners Decree is an amendment to the Board of Commissioners Decree No.02/KEP/DK/2009 dated 26 February 2009 which was also issued as an amendment to the Board of Commissioners Decree No. 06/KEP/DK/2006 dated 19 May 2006. KEMPR is formed to, among other things, review the Company’s long-term strategic plan and the annual work and budget plan, and to provide recommendations to the BoC on policies related to the above issues. The Committee also monitors the execution of the Company's business plans, as well as to perform a comprehensive review on the results of such monitoring as a reference for the BoC in its oversight function over the Company’s business process, capital expenditure budgeting, and risk management. a. Profile of Planning and Risk Evaluation and Monitoring Committee In 2012, the membership of KEMPR based on BOC Decree No.07/KEP/DK/2012 dated May 28, 2012 consist of: Membership Name Chairman Secretary Member Parikesit Suprapto Ario Guntoro Hadiyanto Johnny Swandi Sjam Virano Gazi Nasution Adam Wirahadi Widuri Meintari Kusumawati Membership Name Chairman Secretary Member Parikesit Suprapto Ario Guntoro Hadiyanto Johnny Swandi Sjam Virano Gazi Nasution Gatot Trihargo Widuri Meintari Kusumawati In December 2013, KEMPR membership was amended as the stipulation of Ario Guntoro as Secretary of the Board of Commissioners, and Agus Yulianto as KEMPR secretary replace Ario Guntoro. Based on the Board of Commissioners Decree No.17/KEP/DK/2013 dated December 18, 2013 regarding the Membership Structure of Planning and Risk Evaluation and Monitoring Committee of PT Telekomunikasi Indonesia, Tbk., KEMPR membership are as follows: Membership Name Chairman Secretary Member Parikesit Suprapto Agus Yulianto Hadiyanto Johnny Swandi Sjam Virano Gazi Nasution Gatot Trihargo Adam Wirahadi Widuri Meintari Kusumawati Parikesit Suprapto - Commissioner Parikesit Suprapto, 62 years old, has served as our Commissioner since May 11, 2012. Previously he was the Deputy of Business Services at the Ministry of SOE (2010- 2012), Deputy Head of Banking and Finance Industry at the Ministry of SOE (2008- 2010) and Advisor to the Minister of SOE for Small Business Sector (2006-2008). In corporate environment, have served as a Commissioner of PT Indosat Tbk. (2011-2012) and a Commissioner of In May 2013, KEMPR conducted a change PT Bank Negara Indonesia (Persero) Tbk. of the membership, as Gatot Trihargo He earned a Bachelor’s degree in Corporate stipulated as KEMPR member. The changes Economics from Sekolah Tinggi Manajemen outlined in the Board of Commissioners Industri, Jakarta (1980), a Master’s degree Decree No.05/KEP/DK/2013 dated May 14, in Economic Development from Indiana 2013 regarding the Membership Structure University, Indiana, USA (1990) and a PhD of Planning and Risk Evaluation and degree in Development Economics from Monitoring Committee of PT Telekomunikasi the University of Notre Dame, Indiana, USA Indonesia, Tbk. Based on the decree, KEMPR (1995). Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 167 Parikesit Suprapto, Commissioner, is the Guntoro was dismissed as the Secretary of chairman of KEMPR who coordinates KEMPR, and was appointed as Secretary to and monitors the rest of the Committee’s the Board of Commissioners. members in performing their respective tasks and responsibilities. Ario Guntoro – Secretary (up to October 4, 2013) Ario Guntoro is a professional with extensive Agus Yulianto – Secretary (effective October 4, 2013) Agus Yulianto is a certified accountant and has experiences in auditing, accounting, and finance. In 1983-1999, he is a staff experience in the field of finance, investment in State Audit and Development Board. and banking. Having been engaged in the Agus Yulianto is also worked as a senior private banking sector nationwide from consultant in Jakarta Initiative Task 1994 to 1999 as a Corporate Officer to Force, procurement audit specialist for Branch Manager, Ario Guntoro worked for projects funded by the World Bank. Prior the National Banking Restructuring Agency to being appointed as a member of the ("BPPN") from 1999 to 2004, with the last Audit Committee, he worked in the Public post of Assistant Vice President of the HIPA Accountant Office HLB Hadori Sugiarto Division. Prior to joining the KEMPR in 2004, Adi & Rekan as the Head of Financial served as a special adviser at Management Specialist Team for a project PT (Persero) PPA. Ario Guntoro obtained his in Aceh which is managed by the World degree in Economics from the University of Bank and funded by Multi Donor Fund. He Gadjah Mada in 1993. Effective on October obtained his degree in Accounting from the 4, 2013, by the Decree of the Board of State College of Accountancy, Jakarta and Commissioners No.10/KEP/DK/2013 dated acquired his Masters in Accounting from October 4, 2013 on the Appointment of Case Western Reserve University, Cleveland, Mr. Ario Guntoro as Secretary to the Board Ohio, United States of America. Effective of Commissioners of the Company (Persero) on October 4,2013 , by the Decree of the PT Telekomunikasi Indonesia, Tbk, Ario Board of Commissioners No.11/KEP/DK/2013 168 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis dated October 4, 2013 on the Appointment State College of Accountancy, Jakarta. of Mr. Agus Yulianto as Secretary to the And a Master's degree in Accountancy Planning and Risk Evaluation and Monitoring and Financial Information Systems from Committee of Limited Liability Company Cleveland State University in Ohio, USA. (Persero) PT Telekomunikasi Indonesia. As secretary to the KEMPR, Agus Yulianto is in Commissioner Gatot Trihargo was appointed charge of coordinating the implementation as a members of KEMPR based on the of all tasks of the Committee and the scheduling and execution of the Decree of the Board of Commissioners No.05/KEP/DK/2013 dated May 14, 2013 Committee's work, as well as evaluating on the Membership Composition of the and monitoring the achievement of Capital Planning and Risk Evaluation and Monitoring Expenditure. Hadiyanto – Commissioner Hadiyanto, 51 years old, has served as our Committee of Limited Liability Company (Persero) PT Telekomunikasi Indonesia, Tbk. As a member of KEMPR, Gatot Trihargo is responsible for monitoring and Commissioner since May 11, 2012. Currently, supervision of RJPP/CSS implementations, he also serves as Director General of State RKAP implementations, and enterprise risk Treasury at the Ministry of Finance of the management implementations, as well as Republic of Indonesia. He has assumed, the development of non-organic business among other positions, Head of the Legal initiative implementations. Bureau, Secretariat General of the Ministry of Finance and was the Alternate Executive Johnny Swandi Sjam – Independent Director at the World Bank, Washington D.C., US. In the corporate environment served as Commissioner Johnny Swandi Sjam, 53 years old, has the President Commissioner of PT Garuda served as our Independent Commissioner Indonesia Tbk (2007-2012) and President since January 1, 2011. Currently he is also Commissioner of PT Bank Export Indonesia the Chairman of the Standing Committee (2007-2009). He holds a Bachelor’s degree on Infrastructure and Telecommunications in Law from the University of Padjadjaran, Services at the Indonesian Chamber of Bandung, a Master of Law Degree (“LLM”) Commerce and Industry (“KADIN”). He from Harvard University Law School, USA, previously served, among other positions, as and a PhD. in Law from the University of a Commissioner at PT Inti Limited (2010- Padjadjaran, Bandung. 2011), the President Director of PT Indosat Tbk. (2007-2009), the Director of PT Indosat In KEMPR, Hadiyanto who is also a Tbk. (2005-2007), the President Director Commissioner of the Company monitors of Satelindo (2002-2003), and several and supervises the RJPP/CSS executions, other important positions at subsidiaries RKAP implementation, and enterprise risk of Indosat like Satelindo, Sisindosat and management as well as inorganic business Intikom (1997-2002). He holds a Diploma initiative development. Gatot Trihargo – Commissioner Gatot Trihargo, 53 years old, serves as III in Computer Engineering from Bandung Institute of Technology, a Diploma IV from Sekolah Tinggi Manajemen Industri of the Department of Industry of Indonesia, a Commissioner since 19 April 2013. He a Bachelor’s degree in Informatics currently serves as a Deputy of Services Management from Gunadarma University, Business in the Ministry of State-Owned Jakarta, and a Master’s degree in Business Enterprises of the Republic of Indonesia. Policy and Administration from the Holds a degree in accounting from the University of Indonesia, Jakarta. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 169 In KEMPR, Johnny Swandi Sjam who is and member of academic and regulatory also an Independent Commissioner of the compiler teams at several ministries during Company monitors and supervises the 2001- 2003. Adam Wirahadi earned his RJPP/CSS execution, RKAP implementation, Bachelor Degree in Economic Accounting and enterprise risk management as well as (1998) and in Law (2007) both from inorganic business initiative development. Universitas Indonesia. Virano Gazi Nasution – Independent Commissioner Virano Gazi Nasution, 45 years old, has Widuri Meintari Kusumawati – Member Widuri Meintari Kusumawati's main task is evaluating the RKAP as proposed by served as our Independent Commissioner the management and monitoring how the since May 11, 2012. He was previously the RKAP progresses while also monitoring the Commercial Director of PT Indonesia Comnet Plus, a subsidiary of PT PLN (Persero) (2009-2012), Advisor to the Company’s subsidiary’s business. Prior to joining the KEMPR, Widuri Meintari Minister of Communications and Informatics Kusumawati worked for the Ministry of (2008-2009), and the President Director Finance of the Republic of Indonesia (2000- of PT Bakrie Telecom Tbk. (2001-2005). He earned his Master of Science degree 2003) and for a domestic private bank (2003-2004). She earned her Bachelor in Engineering Economics from Stanford Degree in Economics Accounting from the University, USA. Universitas Gadjah Mada in 2000. In KEMPR, Virano Gazi Nasution who is b. Duties and Responsibilities of Planning and also an Independent Commissioner of the Risk Evaluation and Monitoring Committee Company monitors and supervises the KEMPR scope of work covers: RJPP/CSS execution, RKAP implementation, - Submit an evaluation report on the RJPP and enterprise risk management as well as or CSS as well as the RKAP as proposed inorganic business initiative development. by BoD according to a schedule Adam Wirahadi – Member Adam Wirahadi’s main task in the specified by the BoC. - Provide recommendations to the BoC related to the approval of CSS and RKAP. Committee is monitoring the Company’s risk - Submit evaluation reports to the BoC on management, its compliance with applicable the execution of CSS and RKAP as well rules and regulations and evaluating Directors’ legal actions that need prior as the implementation of the Company's risk management. approval from the Board of Commissioners. - Provide recommendations on the implementation of risk management. Prior to his appointment as KEMPR member in 2003, Adam Wirahadi served in the c. Independence of Planning and Risk Ministry of Finance of the Republic of Evaluation and Monitoring Committee Indonesia during 1999-2000. In 2001-2003, All members of the Planning and Risk he was as a researcher/analyst at an NGO Evaluation and Monitoring Committee and concurrently a business environment (except for Parikesit Suprapto, Hadiyanto, consultant, an expert staff at the House Johnny Swandi Syam, Gatot Trihargo, and of Representative during 2001-2002, Virano Gazi Nasution) comprise of external and independent members. 170 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Report of the Planning and Risk Evaluation and Monitoring Committee The activity of the Committee of Planning and Risk Evaluation and Monitoring in 2013 was to oversee the implementation of RJPP / CSS and implementation of RKAP which include monitoring the realization of RKAP, aiming at strengthening the business. Throughout 2013, the KEMPR Annual Message ("CAM") and monitoring the realization of supervises and monitors the 2014 RKAP. In line with the 2013 RKAP both in achieving implementation of CSS current strategy for regular updates on revenue, cost, and profit. In year, implementation of 2013 RKAP, RJPP, the CSS for 2014-2018 is monitoring the achievement of capital expenditures in 2013 RKAP, an update on the CSS for 2013- revenue, the focus of KEMPR the Company's risk management 2017. analysis investments in Subsidiaries. is aimed at strengthening the broadband business efforts as In addition, the KEMPR also 2. Annual Business and Budget a growth base of the Company. evaluates the proposal for CSS Plan While focus on monitoring 2014-2018, the proposal for RKAP In performing the 2013 Annual cost is directed at ensuring the 2014, and engages in such other Business Budget Plan, the Board growth of cost do not exceed duties as assigned by the BoC. of Commissioners instructs the the set target. Board of Directors to ensure Activities of the KEMPR in 2013 1. Corporate Strategic Scenario the timely implementation of To monitor the performance capital expenditure, especially of its subsidiaries, in addition in order to support the to Telkomsel, KEMPR also (“CSS”) broadband development. The conducts monitoring on The KEMPR monitors the integrated supply chain concept Dayamitra, Indonusa, and implementation of RJPP/ CSS for the period 2013- is currently being developed Metra. KEMPR monitoring in the Company to anticipate on Telkomsel is directed at 2017, in particular related to the dynamic changes of micro monitoring the growth of the developments in current year, demand. and evaluates the proposed CSS for the period 2014-2018, The focus of KEMPR in company both core and new wave revenue growth, as well as margin growth. The focus which forms the basis for the monitoring the implementation of Dayamitra monitoring formulation of 2013 Corporate of the 2013 RKAP includes is aimed at optimizing the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 171 telecommunication towers Outsourcing. Entering the second half of 2013, significant risk grew with collocation ratio as well as the addition of exchange rate risk. KEMPR specifically monitors efforts increased margins. As for to mitigate risks that fall into significant risk. the monitoring of Indonusa is focused on management's 4. Actions by the Board of Directors that Require Prior Approval of the efforts in improving Board of Commissioners financial and operational Throughout 2013, the KEMPR has reviewed actions by the BoD that management in Indonusa. require prior approval of the Board BoC, including: While monitoring in Metra is - Review on threshold adjustments towards the Board of Directors focused on Metra's efforts actions which require prior approval of the Board of Commissioners. in managing the business – Evaluation on the advance request for Capex budget release 2013. portfolio ranging from the – Evaluation on approval application for the divestment in PT Indonusa telecommunication, information, shares. media and edutainment - Evaluation on the takeover of Elnusa shares in Patrakom segments contained in Metra's subsidiaries. Meeting of the Planning and Risk Evaluation and Monitoring Committee Throughout 2013, the KEMPR held 20 committee meetings. In order to obtain more optimal results in monitoring, KEMPR conducted several field visits to monitor the progress of implementation of capital expenditure and the development of RKAP achievements. Field visits Table of Meeting by Planning and Risk Evaluation and Monitoring Committee Name Number of meetings Number Percentage CSS RKAP ERM CA of Meeting of Attended Attendance 2 2 0 Parikesit Suprapto conducted by KEMPR in 2013 Hadiyanto include field visits to the following constructions: - SKKL JB2S (Jakarta- Gatot Trihargo(1) Johnny Swandi Sjam 2 Bangka-Batam-Singapura) - SKKL LTCS (Luwuk-Tutuyan Cable System) Virano Gazi Nasution Ario Guntoro(2) - Indonesia Wi-Fi area Bali Agus Yulianto(3) - Monitoring of Mitratel telecommunication towers field Adam Wirahadi(4) Widuri Meintari 2 2 0 1 2 9 9 7 9 9 3 6 8 9 0 0 0 0 0 1 0 1 1 5 5 5 5 5 5 3 4 8 17 16 12 16 16 11 9 14 20 85% 80% 80% 80% 80% 100% 100% 100% 100% 3. Enterprise Risk Management (“Manajemen Risiko Perseroan”) KEMPR is in charge of monitoring the implementation of ERM in 2013, including the handling of risks which have significant impact on the 2013 RKAP. Some of the risk types which fall into the significant risk category in 2013 are Regulation Risk, Speedy Business Risk, Wi-Fi Business Risk, and Risks associated with (1) Joined KEMPR effective on April 19,2013 (2) As KEMPR Secretary up to October 4, 2013 (3) Effective on October 4, 2013 as Secretary of KEMPR (4) Effective since May 4, 2013 up to November 6, 2013 conducting assignments outside KEMPR Jakarta, March 10, 2014 Parikesit Suprapto Chairman of KEMPR 172 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis E. Committees under BoD 1. Legal Basis In discharging its duties and responsibilities in 4. Profile of Members of Executive Committees Members of the Executive Committees are members of the BoD, see Profile of Directors in managing the Company, the BoD has established page 240-241 for complete profiles. a mechanism for decision-making or approval of the BoD through a number of committees under BoD called Executive Committees (joint approval authority) as defined in the BoD Charter. The Committees are expected to bring more efficiency and expedite BoD decision-making process in the respective areas of each Committee. The following are descriptions of each of the Executive Committees: a) Ethics and HR Committee i. Composition of Ethics and HR Committee Chairman : President Director Secretary : VP Human Capital Policy or VP Organization Development The Chairman and Executive Committee members Members : 1) Director of Human Capital are the Company’s Directors. In exercising its duties, the Executive Committees may hire independent parties for assistance. The existence of Executive Committees changes from time to time according to the dynamics of business and organizational changes. BoC issued company regulation that establishes the following Executive Committees: a. Ethics and HR Committee. b. Treasury and Financial Committee. c. Subsidiary Management Committee. d. Investment Committee. e. Risk, Compliance and Revenue Assurances Committee. f. Disclosure Committee. g. Procurement Committee. h. Single Point Margin Committee. Management 2) Director of Wholesale & International Service 3) Relevant Directors Unit : 1) SGM Human Capital Center 2) One of the VPs in HCM Directorate 3) Coordinator Performance Measurement Group 4) VP Legal & Compliance ii. Authority - To determine and to approve the policies in implementing and upholding Good Corporate Governance. - To determine and to approve the policies on the corporate ethics and employee discipline. - To determine and to approve the policies 2. Company Policy on Independence of Committees on human capital management. The Committees are established by the BoD, with the authority to make decisions/approvals b) Treasury and Financial Committee on policies/operating transactions that require i. Composition of Treasury and Financial approval from at least 2 (two) Directors. Committee 3. Company Policies and Formal Practice on Committees Meetings - Committee Meetings are meetings attended by Committee members, and approvals or proposals for decisions of Executive Committees are made directly during Committee meetings, which are legitimate if attended by more than half of the Committee Chairman : Director of Finance Secretary : VP Corporate Finance Members : Director of Innovation & Strategic Portfolio Unit : 1) VP Financial & Logistic Policy 2) VP Management Accounting 3) VP Risk & Process Management members. ii. Authority - The mechanism for Committee decisions - Determine and approve treasury/ with respect to its duties, responsibilities and authorities are made through Committee Meetings or without a Committee meetings (Circular Decision), both of which are legally binding. financial transactions related to financial accounting, treasury and tax, accounting management, asset and procurement management. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 173 - Determine and approve strategies for corporate cash management. - Determine and approve the corporate financial risk acceptance. c) Subsidiary Management Committee i. Composition of Subsidiary Management Committee Chairman : Director of Finance Secretary : VP Strategic Business Development or VP Management Accounting will be delivered by the Company’s representative/proxy as shareholders at such GMS of subsidiaries, including the appropriation of net profit by subsidiaries, determination of components and amounts of the remuneration and or compensation for members of the BoD and BoC of subsidiaries, that under provisions of the subsidiaries’ Articles of Association require the Company’s approval as a shareholder. Members : 1) Director of Innovation & - Conduct the fit and proper test Strategic Portfolio 2) Director of Wholesale & International Service 3) Relevant Director for candidates for BoD and BoC of subsidiaries that are selected from outside the Company. Unit : 1) VP Corporate Strategic d) Investment Committee Planning i. Composition of Investment Committee 2) VP Legal & Compliance Chairman : President Director 3) VP Financial Logistic Policy Secretary : VP Management Accounting atau VP Management Members : 1) Director of Finance Accounting ii. Authority - Determine or approve strategic plans, directions and policies related to business management and risk management at the subsidiaries. 2) Director of Network, IT & Solution 3) Director of Innovation & Strategic Portfolio 4) Director of Wholesale & International Service 5) Relevant Directors - Approve the related transactions and/ Unit : 1) VP Infrastructure Service & or business initiatives of subsidiaries in order to expedite decision making process with due adherence to GCG practices and prudence principles. - Approve actions proposed by the BoD of subsidiaries that under the provisions of subsidiaries' Articles of Association must have written approval from the Company Governance 2) VP Consumer Product Planning 3) VP Corporate Strategic Planning 4) VP Risk & Process Management as shareholder of the subsidiaries. ii. Authority - Approve corporate actions planned - Determine and approve the Company’s to be executed by subsidiaries, such as addition and subtraction of capital investment capex programs. (issuance of new shares/capital e) Risk, Compliance, and Revenue Assurance injection/equity call/divestment) at the Committee subsidiaries, mergers, and acquisitions. i. Composition of Risk, Compliance and - Approve the GMS agenda of subsidiaries Revenue Assurance Committee proposed in writing by the BoD, BoC or Chairman : Director of Wholesale & shareholders of subsidiaries that under International Service the provisions of the relevant subsidiary’s Secretary : VP Risk & Process Management Articles of Association are eligible to propose such GMS agenda to be discussed at the GMS of subsidiaries. - Approve the planned decisions made at the GMS of subsidiaries which Members : 1) Director of Finance 2) Relevant Directors Unit : 1) Head of Internal Audit 2) VP Legal & Compliance 3) VP Risk & Process Management 174 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis ii. Authority deficiencies, individually or collectively, - Determine the Company’s risk profile and pose material weaknesses that must be risk appetite. disclosed in a report to the US SEC, as - Determine policies in risk management well as reported to External Auditors and and compliance. the Audit Committee. - Eliminate inefficient business processes, - Provide recommendations and/or a letter strengthen internal controls and risk mitigation. of representation to Certifying Officer/ Approver to certify/approve a disclosure - Monitor the effectiveness of the revenue to be submitted to external parties. assurance process. - Recommend prevention and resolution g) Procurement Committee of potential leaks in revenue cycle. i. Composition of Procurement Committee f) Disclosure Committee Chairman : Director of Wholesale & International Service i. Composition of Disclosure Committee Secretary : VP Supply Planning & Control Chairman : Director of Finance Vice : Director of Wholesale & International Service Members : 1) Director of Human Capital Management 2) Director of Finance Secretary : VP Enterprise Management 3) Director of Network, IT & Audit or SGM Finance Billing & Collection Center or VP Investor Relations Solution 4) Director of Innovation & Strategic Portfolio Member : Set in more details in the Unit : 1) SGM Supply Center relevant Company Regulations concerning Disclosure Guidelines. 2) VP Legal & Compliance 3) VP of Directorate of Relevant User ii. Authority ii. Authority - Approve disclosures of historical information and forward looking statements, defined as all information that contain elements of projections - Approve the procurement in accordance with the provisions stipulated in the applicable logistic policies. (future result) in terms of operations, h) Single Point Margin Committee financial position, financial performance, i. Membership Composition of Single Point and other financial and statistical issues. Margin Committee - Determine the materiality level of Chairman : Director Innovation & Strategic an event or risk to be disclosed, and ensure that all material information Portfolio Secretary : VP Enterprise Business Strategy that may influence the preparation of Member : 1) Director Enterprise & such disclosure have been completely, accurately and consistently disclosed in detail pursuant to the applicable rules (compliance). Business Service 2) Director of Network, IT & Solution 3) Relevant Director - Discuss significant deficiencies related Unit : 1) VP Innovation, Strategy & to internal control over financial reporting as reported by Internal Audit (based on findings from Test of Control and the audit of internal control by external auditors) to see whether these Synergy 2) VP Management Accounting 3) VP of relevant business Directorate Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 175 ii. Authority to investors and filing through online media, - To approve and determine the amount of designing details of meetings and presentations Single Point Margin on price offering for and dissemination of statements. End User outside Telkom Group b. Coordinating the implementation of - To oversee and to evaluate the Shareholder Relations, which includes implementation of Single Point Margin in responding to requests for information from Telkom Group. Shareholder. F. Corporate Secretary/Investor Relations (“IR”) c. Coordinating investor relations program development that includes identification interaction target, approach program to all investors and other activities related to intensity Chaired by a Vice President ("VP") under Head of development of investor interest. Corporate Communication & Affair, previously under d. Coordinating information development the Director of Finance, IR is responsible for preparing program, which consists of information disclosure of information around the inter-relationship development including a series of tasks such as between the Company and its shareholders in information platform development, feedback accordance with specified procedure, and for management, strategic information processing keeping up a systematic feedback mechanism to related to stock price fluctuations and trends assist the management in responding to the dynamic and other activities related to the enrichment of shareholders and the capital market in a timely and information the Company needs to obtain. effective manner. e. Coordinating the implementation of annual meeting and conference calls. 1. Profile of Corporate Secretary f. Coordinating the selections of communications The Corporate Secretary is currently held media for periodic reports and disclosures, by Honesti Basyir. Currently, he is also as our provisions of document filing, website Director of Finance since May 11, 2012. Prior to management and other activities related to the his appointment he has held a number of key information provisions needed by investors and positions with Telkom, including Vice President the capital markets community. (“VP”) for Strategic Business Development at g. Providing recommendations/advice to BoD on ITSS Directorate (2012), VP for Strategic Business issues related to corporate action in response Development at SICP (2010-2012), Project to various investor information and matters Controller of Project Management Office (2009- relating to the capital market. 2010) and Assistant Vice President (“AVP”) for Business & Finance Analysis (2006-2009). He We really pays attention to the two important holds a Bachelor’s degree in Industrial Technology principles of GCG, which are accountability and from Institut Teknologi Bandung (1992) and a transparency. Through the IR unit and marketing Master’s degree in Corporate Finance from Sekolah unit, we continuously strives to ensure that all Tinggi Manajemen Bandung (2004). information released is accurate, clear, precise and 2. Activities of the Corporate Secretary The main activities of the Corporate Secretary/IR comprehensive in order to increase and maintain market integrity and stakeholders’ confidence. are as follows: The Corporate Secretary has strategic roles and a. Directing, organizing and controlling duties to ensure GCG implementation both at administration process, fulfilling requests for the company and within the scope of the group’s information for annual reports, information overall businesses (subsidiary governance). 176 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis The duties and role of the Corporate Secretary are performed by several work units, namely: No. Duties and Roles of the Corporate Secretary Person in Charge 1. Corporate Governance a. Communication, coordination with other divisions/ units/ subsidiaries Head of Corporate related to the implementation, monitoring, assessment and review of Communication & Affair GCG b. Build trusts towards the management’s ability to manage the company and build long-term values for stakeholders c. Facilitate and promote effective relations between the BoC and BoD by focusing on agency problems while upholding check and balance procedure d. Ensure the management of contracts between owners and managers and BoD and BoC charters to ensure effective control on decisions not explicitly made in the contract and during certain condition to ensure the company’s going concern. e. Balance out competence and information adequacy to the BoC and BoD to prevent competency gap and asymmetric information between the BoC and BoD. f. Manage and ensure that the Company’s Annual Report has covered Investor Relations Sub GCG implementation in the Company. CSR g. Coordinate the Company’s activities related to Corporate Social Responsibility. Directorate – Head Of Corporate Communication & Affair Public Relation Unit - CDC Corporate philosophy h. Socialize and monitor the implementation of Corporate Philosophy, Organizational Corporate Values, System, Business Ethics and Corporate Culture. Development Sub GCG Policy i. Prepare a policy and framework of GCG management within the Directorate – DIT HCM Subdit Risk Process Company including GCG policies within subsidiaries (subsidiary Management – Head of governance). CRMGA 2. BoD Administration & Corporate Office Assist the BoD with various activities, information and documentation, Corporate Office Support Administrations - Sub Unit, including: Corporate Communications a. Prepare special List of Members of BOD and BOC and their families & Affairs Unit either within the company or its affoliate with regards to share ownership, business relationship, and other related roles at the Company and its subsidiaries that have potentials to bring conflict of interests. b. Prepare Shareholder List. c. Attend BOD meetings and prepare minutes of meetings. d. Organize GMS. 3 Synergy and Coordination a. Communicate and build synergy with the Group’s Corporate Subdit Innovation Strategy Secretary to address issues on information and other matters related & Synergy to Telkom Group’s vision, mission, and GCG. b. Programs of communication and synergy within Telkom Group. War Room Subdit Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 177 No. Duties and Roles of the Corporate Secretary Person in Charge 4 Legal/Regulatory Compliance a. Compliance with financial and capital market provisions: Investor Relations - Remind and provide advices to BOD to ensure that the Company Sub Directorate – always comply with and follow the Capital Market Regulations and Head of Corporate uphold the Company’s Business Ethics and Work Ethics. Communication & Affair, - Keep updated with the capital market more particularly with and Legal Compliance regards to its prevailing regulations and with GCG international Sub Directorate- Head of practices. CRMGA - As a contact person that facilitates communication between the Company and stakeholders as well as with OJK and IDX, on which the Company’s shares are listed. b. Regulatory Compliance: Regulatory Management - Remind and provide advices to BOD to ensure that the Company Sub Directorate–Head of always complies with prevailing regulations and follow all Corporate Communication stipulations. & Affairs - Keep updated on the industry, particularly the regulations inforce and shall apply to the company. c. Compliance with the company’s law and legal. Legal & Compliance Sub Keep updated on prevailing regulations and ensure that the Company Directorate – Head of always complies with the law. 5 Communication/Disclosure (Liaison Officer) CRMGA a. Communication with Financial Authorities, investors, and the capital Investor Relations Sub market: Directorate – Head of - Manage two-way communications and maintain good relationship Corporate Communication with OJK and IDX. & Affair - Prepare and communicate accurate, comprehensive, and true information with regards to the Company’s performance and prospects with stakeholders, and the Capital Market Community in collaboration with relevant Units. - Provide services to shareholders in terms of information related to the company’s condition (for instance: through information to investor, journalist gatherings and regular analysis of the impacts of macro economy on the company. - Publicize the Company’s corporate actions in a tactical, strategic and punctual manner. b. Communication with the public, customers and internal functions: Public Relations Sub - Determine criteria for type and contents of information to be Directorate – Head of disclosed to stakeholders, including information that can be Corporate Communications released as a public document. & Affairs - Revise display and governance of internal media and build good relationship with stakeholders through significant events. - Keep and updated all information regarding the Company to be distributed to stakeholders through the Company’s website, bulletin or other media. 178 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis G. Internal Audit Unit Number of Personnel at Internal personnel with Certified Fraud Internal Audit Unit (“IA”) has an Audit Examiner (”CFE”) certification, active role in applying control function over the Company’s business activities. 1. Head of Internal Audit Unit Internal Audit appointed and discharged by the President Director after approval from the Board of Commissioners. As per 31 December 2013, this strategic post was assumed by Erry As at December 31, 2013, the two personnel with Certified IA unit is supported by 50 Information System Audit qualified staff. (“CISA”) certification, and one personnel with Certified Management Audit (“CMA”) certification. Throughout 2013, IA actively engages its auditors improve auditor’s competence to prepare for international in performing audit tasks and certifications such as Certifed secure business growth, IA Information System Auditor continuously made efforts such (“CISA”) and Certified Internal IA is headed by a Group Chief 2. Qualification/Professional Certification In order to maintain and Anwardiredja. as: Auditor (“CIA”). Brief profile of Erry Anwardiredja: Served as Head of Internal Audit of Telkom since 2012 and appointed to the position based on a decree signed by the President Director. Pursued a career with Telkom and its subsidiaries since 1989, with 19 - engaging IA auditors in trainings, seminars and 3. Internal Audit Unit Structure workshops on technical subjects; and and Status As stipulated in Capital - engaging IA auditors Market regulations, IA is an in continuous learning programs that have independent unit to other units and reports directly to the local and international President Director. certifications. Presented below is Telkom’s years of professional experience At present, IA has seven Internal Audit organizational in various management positions. His immediate prior positions were as VP Internal Audit and VP Financial System at Telkomsel (2009-2011). auditors with national structure. certification as Qualified Internal Auditor (“QIA”), and six auditors with international certifications, namely one Head of Internal Audit ERRY ANWAR DIREDJA VP Infrastructure & Operations Audit HARRY SUSENO HADISOEBROTO VP Enterprise Management Audit PURWOTO VP Support & Subsidiary Audit PURWADI SISWANA AVP Service & Delivery Audit SETIA DWI KUSUMAWARDHANI AVP Financial & Asset Management Audit SAUL RUDI NIXSON AVP Service Operations Audit JOKO PRIYONO AVP Share Service Audit JONI PATHIBANG AVP Infrastructure & Supply Audit IMAM SANTOSO AVP ICOFR & Risk Management Audit TATANG BASARI AVP Subsidiary Audit ENDRIZAL AVP IT Support Audit I KETUT DARSUMANTRA AVP Quality Assurance & System Development Audit EDI DJOKO SUWASONO Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 179 4. Vision, Mission, Duties and and defined by the Company and make recommendations Responsibilities of Internal Audit As an integral part of the as well as based on the IA's for improvements in terms of professional assessment. design and implementation. company, IA has a vision to To facilitate the risk-based The next step is to participate be “a smart partner” to the audit paradigm in carrying out in the activities of internal Board of Directors, the Board of its duties and responsibilities, consulting services. Internal Commissioners, the Business/ IA has implemented the Audit consulting services, among Work Units and Subsidiaries, in Management System (“AMS”) other objectives, focus on order to achieve the Company's management tool, an online the implementation of the objectives and as a driving application to document all of Company's operations classified force in the creation of a the implementations of risk- into infrastructure management disciplined culture at all levels based audits. of the organization in regard the implementation of all Improvements in IA’s (of production tools), as well as product and service support operations, including stipulations of prevailing laws, participation are carried out by identification of Group Financial regulations, policies, procedures improving the quality assurance Reporting Risk/”GFRR”, and business processes. As for the company's operations preparation of subsidiaries’ “a smart partner”, IA has a through audit and non-audit business process and human mission to provide professional, activities. Audits are performed resource management. Internal objective and independent to ensure that potential consulting activity is more internal audit services and business risks are mitigated of a preventative solution to consultation to the BoD, the by effective internal controls. secure that business operations BoC and the Work/Business If deficiencies are found in the remain in the right direction and Units, to provide assurance regarding the adequacy of internal control mechanism of within the corridor of prevailing a certain business process, or regulations. financial reporting, to actively when certain risks turned out to ensure the implementation of be out of control, a substantive As part of a company highly internal controls, to support test is performed on the audit committed to successful GCG, the improvement of GCG practices, and to evaluate the implementation of risk management. object as the next step to find IA has an important role in the the root cause of the problem. whistleblower mechanism which is the domain of the Audit In addition, as consequence Committee and the Executive of our dual listing in the IDX Investigative Committee (“EIC”) The vision and mission and the NYSE, IA periodically of which Head of IA is also statements of IA is implemented examines and audits the the secretary. Whistleblower through systematic and effectiveness and adequacy of mechanism serves to measurable activities in line with internal control mechanism in accommodate any “complaint” prevailing standards in each terms of financial reporting in filed by employees and phase of the audit process from line with the Internal Control forwarded to the management. preparation, implementation over Financial Reporting and monitoring of follow-up ("ICOFR") standards. actions. Therefore, a risk-based If the Audit Committee and the EIC consider that the complaint needs further investigations, audit methodology is used In order to support audit IA is to prepare follow-up during the preparation phase and encourage each unit’s actions as part of the audit of an audit as the primary awareness of the importance assignment. guideline to determine the of internal control, all relevant auditability of units based on business units perform quarterly Findings from such activities the risk level, that is, the higher Control Self Assessment are reported to the President the risk, the higher is the need (“CSA”) over its internal control Director with a copy for the for an audit. The risk levels of responsibilities. Periodically, Audit Committee and later an auditeeare based on risks IA also reviews findings in the distributed to the respective that have been mapped out CSA to assess their adequacy auditee for follow-ups and corrective measures. 180 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Further control are necessary of the company's disclosure transactional level. Our to ensure that an auditee has controls and procedures compliance activities in 2013 provided adequate response under the supervision and included: over the results of the audit and with the participation of the - Supporting business consulting service. Operational management, including the follow-ups are conducted President Director, which is by the auditee while being of the same level as Chief monitored by the IA. For this Executive Officer (“CEO”) purpose, follow-ups are limited and Finance Director, which to significant business process is of the same level as Chief activities with legal advice by delivering legal opinions on planned actions and issues in relation to their compliance with the applicable laws or areas with an agreed time frame Financial Officer (“CFO”) (as regulations (legal advisory). of completion. such term is defined in Rules - Supporting business/ 5. Internal Audit Charter Telkom’s IA unit has an 13a-15(e) and 15d-15(e) under the Securities Exchange Act). corporate transactional activities by conducting Based on this evaluation, the review of any draft Internal Audit Charter as CEO and CFO have concluded one of the company’s formal that, as of December 31, 2013, documents containing a broad the company’s disclosure agreements/contracts (procurement and non- procurement) to ensure description of the vision, controls and procedures were in advance that the mission, structure, status, duties, effective. Disclosure controls procurement or partnerships responsibilities and authority of and procedures conducted the IA, including competence by the management include requirements for its auditors. controls and procedures Internal Audit Charter has that are designed to ensure been formulated based on that information required procedure has complied with the procurement/ partnership procedures established by the Company and the external regulations. international standards for the to be disclosed in reports - Conducting a legal review of professional internal auditing filed or submitted under the planned business initiatives, practices issued by the Institute Exchange Act is recorded, policies and planned of Internal Auditors (“IIA”), processed, summarized and and had been approved by reported within the time cooperation (legal review of business & policy initiatives). the President Director and the periods specified in the SEC’s - Settlement of litigation Audit Committee. rules and forms, and that such and non-litigation cases information is accumulated (litigation). 6. The Implementation of Audit and communicated to our Work and Consulting Activities management, including the CEO C. Evaluation on the Effectiveness in 2013 In accordance with the 2013 and CFO, as appropriate, to of Internal Control allow timely decisions regarding 1. Management’s Report Annual Internal Audit Work required disclosure. on Internal Control over Plan,,during the year 2013 the IA has conducted and completed B. Compliance Financial Reporting The Company's 67 auditee and consultation Our corporate compliance Management is responsible objects from its 2013 Annual is managed by the Legal & Work Plan. INTERNAL CONTROL SYSTEM Compliance unit under the Directorate of CRMGA. This unit endeavors to ensure that our policies, corporate for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act decisions and business activities Rules 13a-15(f) and A. Financial and Operational are done in compliance with 15d-15(f). The internal control Control Disclosure Controls and Procedures prevailing law and regulations, over financial reporting both internal and external. We is a process designed by, are proactively implementing or under the supervision Management conducted an compliance policies at the evaluation on the effectiveness business unit level and the of, the CEO and CFO, and executed by the Board of Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 181 Directors, management and become inadequate because to materially affect, our other personnel, to provide of changes in conditions, Company’s internal control reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted or that the degree of compliance with the over financial reporting. policies or procedures may We are committed to deteriorate. The management has continual improvements in internal control processes, and will continue to review assessed the effectiveness and monitor the control of the company’s internal over financial reporting and accounting principles, and control over financial includes those policies and reporting as of procedures that (1) pertain December 31, 2013. In to the maintenance of records that, in reasonable detail, accurately and fairly making this assessment the management used the criteria set forth in its procedures in order to ensure compliance with the requirements of Sarbanes- Oxley Act and related regulations as stipulated by COSO. We will also continue reflect the transactions and Internal Control – Integrated to assign significant dispositions of the assets of Framework issued by the company resources from the Company, (2) provide Committee of Sponsoring time to time to improve its reasonable assurance that transactions are recorded as necessary to permit Organizations of the Treadway Commission (“COSO”). Based on this internal control over financial reporting. preparation of Consolidated assessment, management INDEPENDENT AUDITOR Financial Statements in concluded that as of accordance with generally December 31, 2013, our In line with existing procedures accepted accounting internal control over financial and taking into consideration the principles, and that receipts reporting was effective. independence and qualifications of and expenditures of the independent auditors, our Annual Company are being made 2. Attestation Report of General Meeting of Shareholders only in accordance with authorizations of the Company’s management and Board of Directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the the Registered Public (“AGMS”) on April 19, 2013 appointed Accounting Firm the Public Accountant Firm (or The effectiveness of our “KAP”) Purwantono, Suherman & internal control over financial Surja (a member firm of Ernst & reporting as of December Young Global Limited), a registered 31, 2013 has been audited by KAP with OJK, to perform the KAP Purwantono, Suherman audit on our Consolidated Financial & Surja, an independent Statements for the fiscal year ending registered public accounting December 31, 2013. The fee for the firm, as stated in their audit on the Consolidated Financial Company’s assets that could report which appears on Statements for fiscal year 2013 was have a material effect on the Consolidated Financial agreed at Rp28.2 billion (excluding the Consolidated Financial Statements. VAT). Statements. 3. Changes in Internal Control The independent auditor for our Because of its inherent over Financial Reporting Consolidated Financial Statements limitations, internal control There have been no for fiscal year 2011 was KAP over financial reporting significant changes in our Tanudiredja, Wibisana & Rekan, a may not prevent or detect Company’s internal control member firm of the PwC global all misstatements. Also, over financial reporting network. projections of any evaluation during the most recently of effectiveness to future periods are subject to the risk that controls may completed fiscal year that KAP Purwantono, Suherman would materially affect or are reasonably likely & Surja has been our public accountant firm since 2012. The 182 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis public accountant whose signature appears on the Independent Auditor continuity of competency Report for fiscal year 2013 is Hari Purwantono. development. Regularly assessing the quality of KAP Purwantono, Suherman & Surja is also assigned to perform an audit on implementation of risk the Effectiveness of Internal Control on Financial Reporting for fiscal year management through Risk 2013 and an audit on funds utilization of the Partnership and Community Management Index, Risk Development Program (“PKBL”) for fiscal year 2013. Fees and Services of the External Auditor The following table summarizes the fees for audit service in 2011, 2012 and 2013 For years ended December 31 2011 1 20122 20132 (Rp million) Audit Fees Tax Service Fee All other fees 40,503 26,619 28,240 70 400 - 326 - - (1) Audited by KAP Tanuredja, Wibisana & Rekan. (2) Audited by KAP Purwantono, Suherman & Surja. . RISK MANAGEMENT A. Risk Management System Since 2006, we have has initiated the implementation of a risk management system with reference to the COSO Enterprise Risk Management framework. Risk management is inherent in the implementation of GCG as well as internal control mechanism within the company. Our stated vision with regards to risk management is: "Promoting a risk management as EMBEDDED CULTURE within all scopes of business processes and operations." Therefore, since 2008 we have established and developed: - Structural Aspects which include developing risk management vision, mission, commitment, tone at the top, conducive internal environment, policy, competence development, IT tools and systems. - Operational Aspects which include determination of Risk Acceptance Criteria, conducting risk assessment and developing specific-functions risk management. - Maintenance Aspects which include monitoring risk management implementation, periodical risk reporting report, safeguarding the Culture Survey and Risk Maturity Level. Currently, the implementation of risk management in the Company is integrated across the entire entity. We have established road map of the Entity Risk Management development as follows: - 2013 : improvement of ERM Maturity Level at Quantified Level initial stage. - 2014 : improvement of ERM Maturity Level at Quantified Level intermediate stage. - 2015 : improvement of ERM Maturity Level at Quantified Level Advanced stage. - 2016 : improvement of ERM Maturity Level to Optimized Level. B. Evaluation of the Effectiveness of Risk Management Systems The effectiveness of the Risk Management System is evaluated through: 1. Quarterly review and monitoring of unit risk management. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 183 2. Preparation of regular changes in currency (i.e. Information System quarterly Risk and Compliance Analysis Reports. exchange rate and deficient funding. Security through implementation of ISO - Legal & compliance risks 27000). 3. Meetings to discuss including legal issues 6. Development of Corporate corporate risks through encountered by the Internal Control Program. meetings at BoD as well as Company. 7. Development of Regulatory BoC level. - Regulatory risks Management. 4. Measurement of risk culture including regulatory implementation through provisions that Company internal surveys conducted should comply with. on a number of respondents. - Competition risks 5. Measurement of risk including potential LEGAL PROCEEDING AND LAWSUITS INVOLVING THE COMPANY management maturity level tighter competition In the ordinary course of business, (ERM Maturity Level). across entire business we have been named as defendant C. Risks encountered by the portfolio. in various legal actions related to land disputes, monopolistic Company D. Efforts to Manage Risks practice and unfair business Risks encountered by us are To manage the aforementioned competition, and SMS cartel detailed in “Business Overview” risks, hawse have undertaken practices. With regard to the legal – “Risk Factors”. In general, following efforts: proceedings described below, we these risks include: 1. Established and developed do not believe that subsequent 1. Country-related risks such as structural, operational investigations or court decisions changes in politics, society, and maintenance aspects regarding those cases will have macro economy and natural over risks management significant financial impact on disasters that are likely to implementation across entire us or our subsidiaries. Based on occur in Indonesia. our subsidiaries. management's estimates on the 2. Company-related risks that 2. Improving the Quality of probable outcomes of those cases, include: Risk-based Decision Making we have made provisions of Rp49 - Operational risks, (six eyes principles). billion as at December 31, 2013. including potential 3. Development of Business disruptions on productive Continuity Management and See Note 42 in the Company’s assets, security of the Crisis Management. Consolidated Financial Statements. assets from external 4. Development of Revenue interference, potential Assurance to prevent The following describes revenue leakage, changes leakage and Anti Fraud certain current significant legal in technology and risks Program. proceedings involving us, our arising from satellite 5. Development of Enterprise subsidiaries and our Board of business. Security Governance in Commissioners and Board of - Financial risks including safeguarding physical and Directors: changes in interest rates, non-physical assets 184 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis A. Cases Involving the Company Case Legal Status Financial Impact (Rp) Commission for the Supervision of Business Competition (“KPPU”) We are the defendant with KPPU as plaintiff in the case of In appeal at the Central allegation of violation of Article 5 of Law No.5 of 1999 on Jakarta District Court Prohibition of Monopolistic and Unfair Business Competition Practices Civil Court Telkom and Achmad Mansuri collectively as Defendant with In appeal at the Supreme R. Hady Soentoro as Plaintiff in the appeal case to the court Court decission Telkom, the Provincial Government of South Sulawesi, the Regional Government of Gowa Regency, and the National Land In appeal at the Supreme Agency collectively as Defendant with Andi Jindar Pakki et al. as Court Plaintiff in the land right dispute at Telkom Makassar Indonesia National Board of Arbitration (“BANI”) Telkom as Defendant and PT Giland Teknikatama as Plaintiff in the arbitration case of allegation of default in PKS PPLT Appeal at Bandung District Court for annulment of BANI decision Telkom as Defendant and PT Khatulistiwa Dwi Bhakti as Plaintiff in Administration process of the arbitration case of allegation of default in PKS PPLT payment 18 billion 110 billion 57,6 billion 1,7 billion 4 billion Assosiasi Pengusaha Wartel Indonesia (“APWI”) Telkom, Telkomsel, BRTI and MoCI collectively as Defendant, with BPP APWI as Plaintiff in the dispute case of allegation of unlawful act related to distribution of airtime rights revenues of Internet In appeal at the Supreme Court 3,7 billion kiosk (wartel) operators B. Cases Involving Subsidiaries Financial Impact (Rp) 18 billion Case Legal Status Lawsuit by APWI Telkomsel has been sued by APWI related to the payment of air Telkomsel is currently in the appeal process at the time by telecommunication kiosks (wartel), which also involved Supreme Court Telkom and BRTI. Bankruptcy Lawsuit Telkomsel faced a bankcruptcy lawsuit related to the Telkomsel has been declared free from implementation of the business cooperation agreement with bankruptcy status based PT Prima Jaya Informatika. Telkomselis alleged to incur liabilities on the Appellate Decision, due to the suspension of distribution after the Purchase Order which is upheld by a issued by PT Prima Jaya Informatika is rejected. Judicial Review decision at KPPU Telkomsel and certain other Operators were investigated by KPPU the Supreme Court. Telkomsel is currently waiting for the notification related to allegation of SMS cartel practices by said Operators. from the Central Jakarta KPPU has issued a Decision which sentenced Telkomsel to pay District Court regarding 25 billion Rp 25 billion in penalty, for which decision Telkomsel has filed an the start of the Joint appeal at the District Court. Proceedings at the court. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 185 C. Cases Involving Members of Board of are published in print or electronic mass media or Commissioners and Board of Directors In 2013, there were no legal proceedings involving disseminated specifically to employees and their families. Some corporate information is also published any serving member of the BoC and BoD. in our internal magazine. ADMINISTRATIVE SANCTIONS In addition, we can be contacted directly at: During 2013, there were no administrative sanctions by Investor Relations the capital market authority or other authorities to the Graha Merah Putih 5th Floor Company or members of its BoC and BoD. Jl. Jend. Gatot Subroto Kav.52 PUBLIC ACCESS TO INFORMATION Jakarta 12710 Tel. Fax. : 62-21-521 5109 : 62-21-522 0500 Our corporate disclosures can be accessed through Email/mailist : investor@telkom.co.id our website (www.telkom.co.id). Certain disclosures Below is a list of our disclosure and coordination activities for fiscal year 2013: Information Transparency Activities Number of Activities Date Conference Call(*) Analyst/Investor Meetings Public Expose General Meeting of Shareholders Investor Release Investor Conference Roadshow Newspaper Announcement: a. GMS b. Financial Statements c. Dividend d. Stock Split 3 181 1 1 5 3 4 3 2 1 1 1 May, 23 July, 6 November 9, 10, 11, 15, 16, 17, 23, 30 January, 6, 20 February, 13, 14, 20, 21, 25, 26, 27, 28 March, 2, 3, 4, 9, 10, 11, 24 April, 2, 8, 15, 16, 23, 29, 30 May, 5, 11, 12, 13, 19, 20, 25, 26, 27 June, 3, 4, 10, 11, July, 1, 21, 22, 28, 29 August, 2, 5, 11, 12, 13, 18, 19, 23 September, 9, 10 October, 7, 13, 14, 18, 20, 21, 25, 28 November, 4, 11, 12, 17, 19 December 2013 27 November 19 April 11, 15 January, 6 March, 31 July, 28 November 18-22 March, 20-22 May, 2-3 October 27-28 September, 1 October, 3-4 October, 28-30 October 20 March, 4 April, 23 April. 7 March, 19 July 23 April 21 August *) A Conference call is a meeting forum between our BoD and investors, both domestic and international, to report the results of the quarterly financial statements through electronic media, namely a teleconference. Conference calls are usually held to coincide with the publication of quarterly report, which is issued in the form of an Info Memo. 186 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis from our previous management of C. Business Ethics of Telkom Group Strengthening Accordance to the direction A code of ethics for all Telkom Group employees which require that employees to: 1. Acts and carries out his/her CODE OF ETHICS AND CORPORATE CULTURE Given that an organization is none other than the people within it our morals and ethics are the foundation for the application of GCG in our company. Learning governance, our application of GCG is an integral part of our approach to excellence in our performance: being profitable, obeying the law, being ethical and instilling an awareness among our employees of our social responsibility to the public as we strive to be a good citizen to ensure that we will continue to grow and be loved by our customers. and can be viewed on our 5. The company protect website at http://www.telkom. anyone who reports co.id/en/investor-relations/ information about legal tata-kelola-perusahaan/kode- violations, unethical actions etik. Amendments of the code or other actions that violate of ethics will similarly be posted the principles of GCG. on our website. of the GCG development and duties honestly and fairly. implementation surrounding 2. Places the interests of the Group, we have issued a policy on the application of the Company above any personal or group interests. GCG in Telkom Group (No. 3. Respects individual rights PD.602.00/r.00/HK000/ and diversity as a source COP-D0030000/2011) which of strength for the Telkom articulates our measures to Group. strengthen our corporate 4. Upholds the corporate culture and business ethics culture. A. Business Ethics within the Group. Our 5. Safeguards corporate We believe that a good business commitment to our code of assets and maintains the principle is ethical business, which refers to doing business sustainably and with excellent performance, in compliance with ethical principles on the basis of prevailing laws and regulations. In line with Decree of the Directors No.KD.05/2005, we have a business ethics that defines the standards of organizational behavior as well as employee behavior in the interactions with customers, suppliers, contractors, colleagues, and other parties that have an interaction with the company. ethics in managing the Group is confidentiality of corporate as follows: information. 1. The companies within 6. Produces quality products the Telkom Group strive to be companies that can be role models by and provides the best service to customers. 7. Pursues corporate profits operating a strong, healthy and growth by complying and fair business driven by honorable values and complying with the law while respecting all stakeholders. with the provisions of the law and business ethics. 8. Is responsible for all his/her decisions and actions. 9. Upholds and enhances the 2. The companies within the reputation of the Telkom Telkom Group must operate Group. or manage their business 10. Respects the public and the with due attention to ethical environment. business principles and the prevailing laws and D. Socialization and Enforcement B. Implementation of Code regulations. 3. The companies within the of Business Ethics Socialization and assessment of Ethics by the Board of Commissioners, Board of Directors and Employees In compliance with the Telkom Group practice the are undertaken each year principles of GCG and are to instill and reinforce the concerned with the public, comprehension of Corporate provisions of Section 406 of the culture and the environment. Values and Business Ethics by Sarbanes Oxley Act (“SOA”) 2002, our code of ethics applies equally to our Board of Commissioners, Board of Directors and other key officers as well as all of our employees 4. Any act against the law or all employees. The socialization breach of ethics is forbidden, programs involves aspects of even if undertaken for GCG, business ethics, integrity business reasons or while pact, fraud, risk management, under pressure from any internal control ("SOA"), party. whistleblowing, prohibition Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 187 of gratuities, IT governance, COSO framework on internal security of information, and control audit at the entity level. other issues related to the practice of good corporate E. Corporate Culture governance. The assessment Systems and cultures are meanwhile is carried out continuously developed to through a Business Ethics meet the demand and to cope Survey involving all employees with the business changes in as survey respondents. This order to realize our aspirations survey is implemented online to continue to advance, be through the Company's portal/ valued by our customers, be intranet media. At the end of competitive in our industry the survey, each employee is and be a role model for other required to sign a statement of companies. In 2009, we began compliance with business ethics the transformation to a new applicable at the Company. corporate culture known as “The Telkom Way”. Our culture The comprehension and were further developed in practice of business ethics, 2013 with the enactment of along with the results of the Leadership Arcitecture and yearly survey, are audited Corporate Culture (“LACC”) of internally as well as externally Telkom Group through the SOA 404 audit process, related to the The company’s culture is fully implementation of control described as follows: environment in accordance with Moral and ethic are the foundation for the implementation of GCG in our Company, given that organization is merely an assembly of people. Over time, we learn that the implementation of GCG can not be separated from conducting business ethically and building the awareness of the Company and employees. Practices to be the winner IMAGINE - FOCUS - ACTION Principles to be the Star SOLID SPEED SMART Philosophy to be the Best Always The Best 188 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Philosophy to be the Best: Always The Best Philosophy to be the Best: Integrity, Enthusiasm, Always the Best is a basic belief to always provide Totality the best in every job we do. Always the Best Always the Best requires our employees to have have the essence of "Ihsan" which in this sense is integrity, enthusiasm, and totality. translated to "best". Employees who have Ihsan spirit will always provide better results than it Principles to be the Star: Solid, Speed, Smart should be, so the ihsan attitude will automatically Principles to be the Star of the Telkom Way is the 3S, be guided by a sincere heart. When every activity namely Solid, Speed, as well as a Smart which is that we do is a form of worship to the God also the core values or great spirit. Explanation of Almighty. Solid, Speed Smart is as follows: SOLID SPEED SMART One Heart Starting Point Intuition Mental One Mind Setting Direction Innovation Reasoning One Action Taking Action Impressive Physical Practices to be the Winner : Imagine - Focus – Action Practices to be the Winner of The Telkom Way is the IFA which is Imagine, Focus, Action as well as the Key Behaviors. Explanation of Imagine, Focus and Action is as follow: Always The Best (ATB) It is the result of Imagine, Focus and Action Imagine I Always The Best F A Focus Action Imagine - Begin from the end Focus - First thing comes first Action - The world can only be changed - The vision or dreams of a true - Establish proof of progress through imagination plus action leader - Prioritize resources allocation - A vision without action is just a - Start with what is desired, not from what is feasible fantasy, action without vision is just a momentary sensation - Create quick wins Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 189 F. Evaluation of the Implementation of Business Telkom Group employees, or third Ethics and Corporate Culture Each year, we conduct an internal survey to assess the effectiveness of the application of our corporate culture and business ethics. This is known as the Business Ethics Family Survey. The survey, which is conducted online to allow us to reach all our employees quickly, asks questions about GCG, business ethics, The Telkom Way, anti fraud, internal control, the integrity pact, the whistle blowing system and more. The survey results for 2011, 2012, and 2013 were 74.87 points, 79.07 points, and 75.80 points out of a possible 100 points. party, may submit complaints regarding the accounting and auditing issues, breach of policy, allegations of fraud and/or corruption, and violations of code of ethics, directly to the President Commissioner, or to the Chairman of the Audit WHISTLEBLOWING SYSTEM Committee of As part of our entity level controls, Telkom has since 2006 implemented a whistleblower program that is PT Telekomunikasi Indonesia, Tbk. designed to receive, examine, and follow up complaints - Information reported must be supported by from employees of Telkom Group and third parties in sufficient evidence and considered reliable for confidentiality. The implementation of whistleblower further investigation. program is administered by the Audit Committee established on the BoC Decree further ratified by the B. Protection for Reporting BoD Decree. The Company’s policy on whistleblowing protection is stipulated in BoD Decree A. Whistleblowing Management No. KD.48/2009to accommodate and ensure the Telkom Group's employees or any third party safety of employees and third parties who file may submit complaints regarding accounting complaints or report violations. and auditing issues, policy violations, fraud and/ or corruption, and violation of code of conduct C. Parties managing Complaints directly to the President Commissioner or the Complaints are managed by the Audit Committee Chairman of the Audit Committee of who will follow up complaints received in PT Telekomunikasi Indonesia, Tbk. via email, fax or accordance with established procedures. mail to the following address: Email : ka301@telkom.co.id Fax : (62-21) 527 1800 D. Complaints Handling In order to meet the OJK Rule No.IX.1.5 and the Sarbanes-Oxley Act of 2002 Section 301 regarding Website : www.whistleblower.telkom.co.id the Audit Committee of a Public Company Audit Letter : Audit Committee Committee, complaint handling must be included PT Telkomunikasi Indonesia Tbk., in GCG improvement framework. Therefore, certain Graha Merah Putih, 5th floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710 conditions for filing complaints are necessary to ensure that a complainant has full sense of responsibility and does not intend to defame someone's reputation. In filing complaints the following criteria must be met: The Audit Committee will follow up complaints - a complaint is filed via website, email, fax or filed by third parties including, and especially those mail. from the Telkom Group's employees relating to: - it provides information on issues of internal - Accounting and Auditing control, accounting, auditing, regulatory violations, fraud and/or corruption, and violations of the code of ethics. Accounting and internal control problemsover financial reporting that might lead to material misstatements in the financial statements and 190 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Learning from our audit issues, especially concerning the independence of the Public Accountant Firm. previous management - Violations against regulations of governance, our application of GCG is an integral part of our approach to excellence in our performance: being profitable, obeying the law, being ethical and instilling an awareness among our employees of our social responsibility to Violation of capital market regulations and laws pertaining to the operation of Telkom and violations of internal regulations that could potentially harm the Company. - Frauds/or suspected corruption Fraud and/or corruption by officials and /or Telkom’s employees. - Code of Ethics Unhealthy attitudes of Directors and Management that may ruin Telkom’s reputation or cause harm to our business. These dishonorable actions may include: dishonesty, conflict of interest or misleading information to the public. We have also established a working mechanism between the Audit Committee and both the Internal Audit and Investigations Committee, including with subsidiaries to follow up incoming complaints. In addition, the whistleblower program has also been socialized to and comprehended by majority employees. During 2013, the Audit Committee followed up two complaints filed that were worth investigations and fell into the category of complaints that are related to accounting, internal control, regulatory violations, the public as we strive suspected fraud, and code of ethics violations. to be a good citizen to ensure that we will continue to grow and be loved by our customers. The application and results of whistleblowing systems: Description Quantity Remarks Number of complaints Qualified Complaint category Complaint progress 3 2 2 1 Complaints received Complaints deemed worth follow ups Suspected Fraud Complaint being processed and followed up Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 191 E. Whistleblowing System Procedure WHISTLE BLOWER • • • • Website Email Fax Letters WHISTLEBLOWING SYSTEM PROCEDURE THE AUDIT COMMITTEE / BOARD OF COMMISSIONERS PARTIES Initial Review Does it have anything to do with BoD NO Initial Review by the Internal Audit YES Report Does it need more information YES • • • Initial Review Formulating TOR and Independent Auditor Procurement Investigative audit and follow up by Investigative Committee YES • • • • Accounting and Auditing Violations on Regulations Frauds and or Corruption Code of Ethic NO Does it meet the procedure NO BoC Opinion Investigative Audit? YES Supervision of the Audit Committee Investigative audit by Independent Auditor • • Report discussion Follow up Report Report and recommendation Shareholders NO Report to shareholders? Documented Information NO BoD 192 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis GCG IMPLEMENTATION CONSISTENCY At our environment, an extensive and increased comprehension towards GCG has been achieved as the company experienced and learnt things during its implementation. Telkom strongly believes that GCG is a dynamic system that needs to be strengthened from time to time to make it always adaptable to changes in our business. Through continuous updating, instead of getting in the way, GCG implementation will contribute more to our business growth. Our GCG implementation is integrated with the management of compliance, risk management and internal control. This practice requires us to be able to manage GRC in alignment with the management of our business performance and ensure the business as a going concern. Initially, implementing risk management was not easy, requiring time to master the competencies, achieve greater accuracy in recognizing the industry and organizational risks and embed a culture of risk within the corporate culture. However, thanks to the commitment, consistency and patience of the management, risk management is now making a very positive contribution to the planning and decision making processes, and A. Performance Management Management System System To instigate GCG, particularly Application which principally measures basic elements of accountability, we manage individual performance and our accountability for our employees’ performance through an Employee individual competencies (core competency and specific competency). The individual Performance Management performance assessment refer System, as stated in Company to realization of management policy No.PD.208.00/2011. contract and employee In accordance with the purposes and objectives competencies assessment done using 360 degrees of the policy, the principles assessment by the employee of objectivity, fairness and itself, employee’s supervisor, transparency are applied by subordinates and colleague. referring to the guidelines Both assessment process on responsible performance performed online using web measurement and appraisal based information system in the management contract application through our portal/ mechanism, the determination intranet. of performance indicators according to the scope of B. Implementing the Integrity work and role of each unit Pact and Strengthening the and individual within the organization and the setting of Anti-Gratuity Policy We began to implement the agreed targets that refer to the Integrity Pact consistently Company’s performance targets after the Integrity Pact as stated in the corporate plan. Performance targets policy was issued in 2009. The Integrity Pact policy is are formulated on the basis aimed at sharpening GCG of the corporate plan and are implementation, particularly broken down to the unit, sub in relation to the GCG unit and employee level with implementation areas namely due attention to the SMART integrity code, business ethics, principle Specific, Measurable, avoiding conflict of interest, Achievable, Realistic, and prohibition on gratuities, Time Related. Evaluation is prohibition on insider trading, conducted regularly (daily, information confidentiality, weekly, monthly, quarterly preventing actions intended and annually) according to for self-enrichment of the the performance indicator enrichment of other party that measured in the management could cause financial loss in reinforcing GCG implementation at review mechanism, which is the areas of procurement and Telkom Group. The following key activities have been implemented consistently to support GCG practices and ensure that it is aligned with the management of the business: supported by various online partnership, service integrity applications. and financial reporting integrity. To complement the existing Although the Company already Decree No.PD.208.00/2011, practices GCG, it is important we have passed the regulation to allot particular attention No.PR.208.01/r.00/PS730/ to certain areas to prevent COP-B0011000/2012 dated potential financial loss to the March 22, 2012 regarding Company and to create “islands the Employee Performance of integrity” as one of the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 193 instruments of bureaucracy performance is assessed by related activities are carried reform and the prevention KPKU of the Ministry of SOE out effectively, responsibly and of collusion, corruption and internally self-assessment transparently and are able to and nepotism (“KKN”), by is performed at Business Unit/ deliver sustained added value concentrating on measures to Division level. create openness, accountability to the company, while avoiding any conflict with the interests of and participation. D. Corporate Planning the stakeholders. The direction of the President Governance Consistency in planning E. IT Governance Director and the Integrity Pact governance is a key concern for As a company engaging in the in the presence of senior leader management in implementing business of information and Telkom Group. GCG. According to Company data provider for customers,in policy, the management ensures which security must be C. ISO-Based Process that the corporate planning is guaranteed, we always strives to Management Since 1996 we have consistently systematic, simple, organized, strengthen our IT governance. integrated, aligned with the We also strives to always applied the ISO-based quality corporate vision and mission, maximize the use of technology management system and and can be properly executed in managing the company, since integrated it with the Malcolm according to previous plans, it it will directly contribute to the Baldrige-based performance should also facilitate evaluation improvement of good corporate excellence criteria since and control when applied. governance implementation. 2001. Our second application of the ISO and Malcolm Baldrige-based quality The corporate planning model corporate value chainwhich comprises three phases: covers all production equipment Almost all points in our management system is aimed 1. Aligning stakeholder infrastructure networks and at establishing governance expectations. all important aspects of processes and performance 2. Formulation the corporate management such as finance, through disciplined processes strategy (strategic logistics and human resources, and proper documentation formulation). including services to employees, to achieve process-based performance excellence in the Company refers to the 3. Implementation of the customers, suppliers and business strategy. other stakeholders have been integrated into the IT network. assessment of performance GCG guarantees and provides excellence Malcolm Balridge. In assurance that the entire The IT governance management 2013, the Company’s excellent planning process and all framework refers to Control 194 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Objectives for Information and Several examples of IT other criteria to create supplier related Technologies (“COBIT”), governance practice in our ranking and shorter suppliers and is articulated in our policy operation are user access list, and Eligible Bidder stage, on Information Security review, password management, which is the final selection for Systems (No.KD.57/Year 2007), audit log/audit trail and end suppliers eligible for bidding or comprising: 1. Information, data/ user computing. being engaged in a procurement process. information processing systems, networks and F. e-procurement Implementation As a manifestation of GCG The benefits of the system are, supporting facilities, which and Integrity Pact, we have among others, the speed of the are critically important been consistent with our tender process, the electronic information assets. application-based procurement selection of tender participant 2. An information security management to curtail according to the specified system to assure information meetings between suppliers and requirements, electronic selection integrity and assets, in order the procurement committee as of the winner, and other benefits to protect our competitive all tenders and negotiations are related to enhanced quality of value, cash flow, profitability, done through the monitors in the process, reasonable prices, legal compliance and commercial image. 3. An information security system covering risk assessment, security assessment, legal and order to make making them fair fairness, transparency and and transparent. absence of any intervention. We select suppliers through G. Human Resource (“HR”) three main stages which are supplier registration stage Competence Development The gradual change in business regulatory compliance and where suppliers register their portfolio from infocom to TIMES business requirements. names online through Supply has created shifts in terms of 4. The successful Management and Logistic necessary competence. Based on implementation of information security Enhancement (“SMILE”), our formulated GCG framework, followed by Selection stage the competence and capability systems through shared where we make assessment on of human resource is one of understanding, control, suppliers depending on their important elements in GCG monitoring and evaluation of business classification and practice. policy implementation. Knowledge management processes in KAMPIUN Business Strategy Knowledge Needs Inventarisation Knowledge Sources Inventarisation KNOWLEDGE ACQUISITION Knowledge Collection Database and Capture Tools Telkom KM Networks Workstation Group Workstation Group User User KNOWLEDGE SHARING Project Document Project Work KNOWLEDGE UTILISATION Individual Work Individual Work Sharing Tools Collaborative Tools Communications Links Network Intranets Working Document Brosur Webpages Document Distribution System Collaborative Tools Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 195 In the implementation, is an ideal condition where we H. The Management of knowledge management is will keep running without being Information Ownership and focused on creating business dependent upon any particular values that can produce employee. This is to be Intangible Assets Information and all intangible sustainable and competitive achieved by projecting us into assets, including research, advantages by optimizing a knowledge-based enterprise technologies, and intellectual the acquisition, sharing and through the transformation property rights earned through utilization of knowledge the of Learning Center into a assignments within and/or at company needs for continuous Corporate University (CorpU), the expense of the company improvements. which has become a channel are the property of Telkom. for competence improvement hawse have a regulations on To support our knowledge to support our business needs the Management of Intellectual management process, we had so as to establish a center of Knowledge and Intellectual a Knowledge Management excellence human capital who Property Rights in accordance System called KAMPIUN, have international standards with No.PD.605/2011. which is a sort of data bank within the TIMES industry. They Through the protection and (repository) used as a tool are then expected to support management of intellectual for all employees to improve business improvement and property we expect to be able insights and knowledge by the implementation of our to increase income generation uploading or downloading any new culture tag-lined “from and maintain our competitive knowledge they may need via competence to commerce" advantage. Creativity and the system to find solutions which means that competent innovation with regard to new for many different problems employees are likely to create and existing products and they find at work, which in business. turn will help improving work services is a corporate asset. We manage a database of productivity and quality. Please refer to "Human Capial" creations, brands, industrial section on page 88 for more designs, inventions, trade The final objective of knowledge detailed information on secrets, copyrights, trademarks, management is to create a human resource competence industrial design rights, patents, learning organization, which development. and rights to trade secrets. CorpU transformation to become the international center of excellent human capital Great Spirit: - Corporate University - Telkom University - Assessment Center Center of Excellence LE AR NING SOLUTIONS DELIVERY SYSTEMS Biz Learning Solutions Learning Programs Req. Manpower Supply Future Biz. Leaders Dev. Gaps Analysis Learning Innovations Learning Programs Str. Learning Partnership Knowledge Management LEARNING SOLUTIONS architecture Leadership Academy Functional Academy Consumers EWS Network ITSS Assessment Centre Telkom University Organizational Research Centre Suppliers/Customers Dev. School Alliance & Partnership Centre LEARNING FOCUS LE ARNING STRATEGY GOVERN ANCE INTE RNATIONAL LANGUAGE AND BUS INESS Learning Infrastructure 196 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis We routinely manage various activities that constitute intangible assets, such as innovation, through our portal http://inovasi.telkom.co.id which can be accessed by all employees. I. Relations with Stakeholders Understanding and comprehending the needs and expectations of stakeholders are an important part of the GCG management to create fairness among all stakeholders. Through our corporate culture "The Telkom Way", the management has strived to foster corporate values and culture by leading all employees to a shared understanding of values that should always be informed to all stakeholders and make such values including inherent norms and principles of governance as the center of their inspiration. The following are some identified stakeholder values: Stakeholder Stakeholder Value Customer Shareholder Employees Government Competitor Investor and Finance Community Community Product and service satisfaction level Accuracy and transparency in invoicing and operating Guarantee product and service continuity Continuously provide dividend to shareholder Increasing trend on share Adaptable to new environment Win over market and ready to compete Continuous growth of financial performance Guarantee of business governance expansion World class practice Employee Welfare Good career place Abide to government regulation Transparent and abide to tax regulation Role model for all SOE Participant in increasing PDB Fair business competition Mutual business partner Resource sharing to press cost Transparency in company report Good financial report Employment Economy multiplier effect Provide positive impact for public at large Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 197 Follow ups on Complaints from SOE or companies other than A part from assessment by Customers and the Community Under current business conditions, listed companies or SOEs. IICG, we are frequently chosen to be observed by other rating where telecommunications The process for CGPI assessment agencies since we are considered penetration has exceeded, growth and rating consists of four stages as benchmark or model for other in voice (telephone use) has with different weighing: companies. Following is some of reached saturation point and the 1. Self assessment, the company our other achievements: competition is getting fiercer, was asked to complete the 1) Ranked 1st as the Most maintaining a balance between questionnaire in accordance Committed to a Strong the needs and expectations with the GCG assessment Dividend Policy from Finance of all our stakeholders brings theme. Asia Best Companies Award its own challenges for GCG 2. Observing document, the 2013. implementation. Complaints company submitted policies, 2) The Best of Asia for the have been made by customers procedures and other evidence category of Asia’s Icon on and the public about the demonstrations our application Corporate Governance in telecommunications services of GCG. Corporate Governance Asia among others are tariff war 3. Assessment of papers and Annual Recognition Award that leads to a decline in ARPU presentations, the company 2013. and diminishing of service prepared a paper describing 3) The Best Corporate Overall quality, fixed billing complaints, GCG activities in line with from Indonesian Institute for pulse credit absorption. We the assessment theme and Corporate Directorship (“IICD”) use the complaints as input to presented it to the jury. on Corporate Governance evaluate and improve its services 4. Observation, where the IICG practices in listed companies quality, and responding and jury visited us for interview, in Indonesia. follow up every customers and observation and an on- 4) Ranked 2nd The Best GCG society complaints, as it is our site review to confirm the Implementation in Anugerah commitment to put forward implementation of GCG in Business Review. ethical business practices and the company, referring to the 5) The Best GCG Implementation provide satisfactorily services to results of the self-assessment, from Anugerah BUMN. customers and other shareholders. document and paper 6) Corporate Governance GCG EVALUATION assessment Perception Index – The Most Trusted Companies 2013 as the As a result, we are again awarded most trusted company from We monitor GCG performance the recognition as The Most IICG in collaboration with SWA through annual evaluations by the Trusted Company, in line with the Magazine based on investor, IICG, an independent GCG rating GCG assessment theme for 2013, analyst and fund manager company in Indonesia. The IIGC namely "GCG in Perspective of survey. routinely conduct CGPI surveys Knowledge". and ratings on listed companies, 198 198 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Highlights Highlights Preface Preface Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Social and Environmental Responsibility 201 CSR Strategy 212 Social and Community Development 202 Environment Preservation 220 Responsibility to Consumer 206 Employment, Health and Work Safety (“K3”) Corporate Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 199 199 200 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Priyantono Rudito Director of Human Capital Management Social and Environmental Responsibility Our CSR strategy is based on the “Triple Bottom Line” concept for sustainable business existence and growth through a balanced. A business entity should pay attention to the achievements aspects of Profit-People-Planet (“3P”) in a balance. In addition to the pursuit of financial gain (profit), a business entity should also be actively involved in supporting the welfare of society (people) while contributing to the preservation of the environment (planet). Our CSR commitments made in line with our core competencies in the fields of Information and Communication Technology (ICT) to encourage the acquisition and utilization of ICTs for the improvement the welfare of Indonesian society. In Indonesia, the implementation Regulation (“PP”) No.47/2012 of Social and Environmental on Social and Environmental Responsibility for corporations, Responsibility in Limited Liability also known universally as Company, as the implementing Corporate Social Responsibility regulation for the stipulations of (“CSR”), is mandatory for business Article 74 of Law No.40/2007 entities incorporated as a limited on Limited Liability Company. liability company with business Thus, PP No.40/2012 serves as activities in the area of, and/ the basis for us in developing and or related to, natural resources. implementing our CSR programs, This is regulated in Government internally as well as externally. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 201 In addition, as a State-Owned and growth through a balanced vision & mission statements as Enterprise (“SOE”), we are approach towards achievements well as the Company's business also obliged to implement a in aspects of Profit-People- portfolios, whereby we have Partnership and Community Planet (“3P”). In addition to the defined its existence as a business Development Program (“PKBL”). pursuit of financial gain (profit), entity under the theme of Activities carried out within the a business entity should also be "Telkom Indonesia for Indonesia". scope of PKBL are governed by actively involved in supporting the In regard CSR, this theme is the Minister of SOE Regulation welfare of society (people) while pursued through the objective of No.PER-05/MBU/2007 dated contributing to the preservation "Enlightening Society", namely April 27, 2007, on Partnership of the environment (planet). supporting progress of people in Program of SOE and Small Scale Indonesia towards greater welfare Businesses and Community The achievement of corporate through activities in the three Development Programs, which has sustainability encompassing main pillars of Telkom CSR that been lastly amended by Minister aspects of economic are in line with the Triple Bottom of SOE Regulation No.PER-08/ sustainability, social sustainability, Line concept, as follow: MBU/2013 dated September 10, and environmental sustainability - Digital Environment. 2013. In essence, activities in PKBL also refers to the guidance We concern for the have a purpose similar to CSR, procedures of ISO 26000 for environment is manifested and thus represent one form of socially responsible conduct of through the provision the implementation of CSR. business organizations as part of and management of the practice of good corporate telecommunication CSR STRATEGY Our CSR strategy is based on the governance (“GCG”). infrastructure and a variety of Information & Communication “Triple Bottom Line” concept for Further, our CSR activities are Technology (“ICT”) facilities sustainable business existence also aligned to the Company's to support and connect the CSR strategy base on concept “Triple Bottom Line” Telkom Indonesia For Indonesia ENLIGHTENING SOCIETY PLANET PEOPLE PROFIT E n viro n m e ntal Preserv atio n Infrastru cture Disaster R elief E d u c atio n P u blic H e alth C ulture & Civilizatio n P artn ership P u blic S ervic e Get Connected Be Empowered Go Commerce L A T G D I I T N E M N O R V N E I y t i l i i b a n a t s u S l a t n e m n o r i v n E L A T G D I I I Y T E C O S y t i u q E & y t i n u m m o C L A T G D I I Y M O N O C E h t w o r G c m o n o c E i Enrich Capacity Empowering Comunity Enabling Creativity Provides a Variety of Public ICT Facilities Community Empowerment Through Education Supporting Creative Ideas Implementation GOOD CORPORATE GOVERNANCE GOOD CORPORATE CITIZEN 202 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis activities of communities, provision of ICT facilities in development of infrastructures including in environment a variety of public services, and facilities for the community, preservation of the respective as well as by supporting the and disaster assistance, and (iv) areas as well as in emergency development of micro, small programs related to responsibility response situations during and medium enterprises, and to consumers. natural disasters. - Digital Society. We also contributes to the empowerment of especially those in the creative industry sector, related to the optimization of ICT utilization. ENVIRONMENT PRESERVATION communities, in line with Overall, the three main pillars We realize the importance of current global trends where of our CSR are implemented preserving the environment, social interactions are through a variety of programs in and thus strive at all times to being increasingly shaped 7 (seven) activity areas, namely: minimize the negative impact by progress in ICT. In this (i) partnership, (ii) public service, to the environment due to our regard, we intend to empower (iii) education, (iv) healthcare, operational activities as well as the communities through (v) culture & civilization, (vi) the activities of communities and education on the optimum environmental preservation, and the society in general. We are utilization of ICT, so that (vii) disaster relief/social charity. also active in supporting various community members may national programs related to benefit in their daily life and Following is a description of environment preservation. activities. our social and environmental - Digital Economy. responsibility activities conducted A. Policy We actively seeks to create during 2013, which for reporting Our commitment to be synergy with relevant purposes are grouped into environmentally responsible stakeholders in creating programs in (i) environment is stipulated in Circular Letter greater economic welfare preservation, (ii) programs in No.ED.130/PS000/SDM- for the nation and people of employment, work health and 20/2008 regarding efficiency Indonesia by supporting the safety, (iii) programs in PKBL, measures within Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 203 PT Telekomunikasi Indonesia, Tbk, which are carried out through a variety of internal and community programs. Environmental impacts caused by the company's operations must be kept at a minimum level and we assume responsibility for such impacts. B. Type of Program We strive to run a variety of programs related to environment preservation summarized in Telkom’s Go Green Action, which is a program that covers carbon emissions mitigation, office building energy efficiency, BTS energy efficiency, use of renewable energy, paperless office concept, waste management, water treatment and recycling, bike to work and earth hour. 1. Carbon Emissions Mitigation Efforts We have yet to specifically calculate the carbon footprint from its operations. Nevertheless, since 2009 we have engaged in a number of initiatives to consistently and purposely reduce the consumption of electricity in our operational activities. Thus, we also contributes to efforts in carbon emission mitigation, the electricity consumed was generated by power plants using conventional fossil fuels (coal and diesel fuel) that are sources of carbon (“CO2”) emission into the atmosphere. In our implementation, these initiatives are undertaken through a strategy of utilizing highly efficient equipment with new technologies that are more environment friendly, among others: - The use of AC equipped with inverter technology, retrofiting existing fluid and thermodynamics systems with Artticmaster technology, and replacing freon in AC equipment with hydrocarbon refrigerant. - Replacing TL lamps with LED lamps that feature higher energy efficiency of up to 90%. - Installing capacitor banks at our STOs to reduce energy loss due to reactive power. - Replacing TDM-switches in switching equipment with soft-switches that consume less electricity, dissipate less heat, and have smaller footprint. We strive to conduct various programs environmental conservation, which is summed up in the Telkom Go Green Action program. - Replacing existing linear-mode type rectifiers with switch-mode type rectifiers that require lower input power while giving higher efficiency conversion. - Construction and operation of green data centers, which feature zero depletion refrigerant (no CFC), zero depletion FAP (N2 100% natural gas), environment friendly materials (mercury-free) and energy-efficient (from the use of LED lamps and cooling system management). Aside from contributing to carbon emission mitigation efforts, these initiatives to reduce electricity consumption have also result in efficiencies in operational and maintenance costs, as well as reduced equipment down time due to failure of air conditioning system. 2. Office Building Energy Efficiency We have made energy systems in our office buildings more efficient. A variety strategic measures is applied, such as: - The use of capacitor banks to improve the power factor, to comply with the KVAR limit of PLN, and to reduce wasted electricity due to the large apparent power from capacitive loads. In 2013, we conducted a series of joint trials with PT Excelindo Chandra Mulia (holder of Top Saver 2000) and have implemented the use of Top Saver for non-inverter equipment in order to reduce power losses and will continue in the following years. - Installation of reflective glass of 6 mm thickness to reduce heat from the outside, allowing for more efficient use of air conditioning systems. A series of joint trials were conducted during 2013 with PT Sadean Energy Indonesia, 204 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis holder of Reflecto Coatings for Building operations of 3.996 units of outdoor BTSs on the use of film-coating materials on allowed us to save energy for cooling purpose external windows and glass wall panels by 30% or an equivalent of Rp48 billion. on buildings. The film-coated glass allows visible light to pass, while reflecting all or 4. Use of Renewable Energy most of the radiant heat from outside. This Significant carbon emissions mitigation results in considerable reduction in the effort has been made by changing energy use electricity for air conditioning and for consumption pattern from using non- lighting. Implementation of the program renewable energy to using renewable energy started near the end of 2013 and will such as energy from solar, water and the wind. continue in the coming years. Although small in scale, we have begun to - Replacement of conventional lighting with implement the concept of "carbon free" for LED lighting that are energy-efficient and some operational activities. The use of solar also environment-friendly as they do not contain mercury. - Retrofitting chiller AC with modern, cells as energy to run BTSs allows 961.39 ton of CO2 emission reduction each year. energy-efficient technology used in Telkomsel is the pioneer in operating BTS’s building automation system (“BAS”), that use renewable energy from solar energy, resulting in more efficient operation by micro hydro, and low power consumption, and building operators as well as the use of has operated thousands environment-friendly more environment-friendly refrigerants. BTS. Implementation of the program started in mid-2013 and will continue in the coming Renewable energy is used in some islands and years. other cities that 24/7 still used generators, - The proper and strict implementation of by starting to use hybrid power plants that operational schedules for lighting and combine solar cells and wind power. The use equipment, without compromising the of renewable energy like hybrid power plant comfort and safety of building occupants, is expected to save electricity consumption, in order to reduce inefficient use of maintenance costs and fuel consumption by electricity. 98%. Meanwhile, the remaining 2% of fuel - Provide continuous and consistent consumption is still needed for maintenance education on energy conservation purpose. to building occupants, including the placement of signage/stickers at various 5. Paperless Office Concept strategic locations to remind employees to Another initiative in the mitigation of carbon reduce the use of electricity and water. emissions is through the implementation of - Implementing a lighting zoning scheme the paperless office concept. We have already by segregating areas with lights-on based implemented this concept through the online on their needs, in order to improve the appropriate use of energy and thus saving energy. - Installation of timers for outdoor lighting. 3. BTS Energy Efficiency A significant energy saving is achieved by using outdoor BTS for all Telkom Flexi and Telkomsel BTSs. Outdoor BTSs are smaller in compare with indoor BTSs and require no substations and cooling system. The By upholding the vision of being a company that superior in providing TIMES in the region, with the mission of providing high quality TIMES services at competitive prices, as well as to be the model for the best managed corporation. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 205 office memo system since 1998 in a number of carbon emissions mitigation efforts. In of work units nations-wide. Subsequently, this regard, we have a strong commitment to our management has issued policies to responsible of water use and treatment. significantly reduce the budget for office papers. By minimizing paper use, we have Our water consumption is relatively low, used succeeded in reducing the amount of paper mainly for building operations and drinking waste. water for employees, which is majority supplied by the local Water Company At present, all of our works units have ("PDAM") of the areas in which we operate. implemented the online official memo However, we have made a strategic step application for internal office memo traffic. in water treatment by making bio pores Throughout 2013, the number of internal and installing storage tanks around our official memos generated by all of our works office buildings to hold rain water, as well units through the online official memo as implementing a simple water recycling application has reached 221,286 memos. process using charcoal-based filtration. The filtered water is then used to wash cars and Assuming that on the average, a single official water plants. memo consists of 2 (two) pages and is directed to 3 (three) recipients, which in turn 8. Bike to Work forwarded further to another 3 (three) people In order to live a healthy life and mitigate each. These 221,286 memos require a total carbon emissions, we urges employees to of 3,983,148 pieces of paper, or equivalent bike to work on Fridays. The suggestion to 7,966 reams of paper. By using the online was initiated in 2009 and has gained good official memo applications, we have saved on responses from most of our employees the use of 7,966 reams of paper. even until 2013. We hope this habit will be long preserved and is part of "Bike to We have also socialized the implementation Work" national movement instilled among of the concept among employees as well as employees. our customers, inter alia through the use of electronic billing, and centralized bill payment 9. Earth Hour through teller service, automated teller We participates in the annual "Earth Hour" machine ("ATM"), phone banking, internet promoted by WWF that aims to preserve banking, mobile banking and auto debit. the environment by reducing electricity consumption. This activity is carried out 6. Management of Hazardous and Toxic ("B3") by keeping a power outage for 1 hour on Waste Saturday in the fourth week of March of each Waste disposal is managed jointly with year, which is scheduled at 20:30 to 21:30. local Sanitation Department. It is routinely monitored to reduce the amounts of left C. Certification in the Field of Environment over waste. We also manages waste and Embracing the vision to be a leading company its disposal in a responsible manner at all in TIMES business across the region and to operational offices. actualize a mission to provide high quality TIMES services at competitive prices while trying to 7. Use and Management of Recycled Water become a role model of corporate management, Water is vital for human life and plays an we shall also consider environmental control, important role in maintaining the ecosystem. and health and work safety. To meet government Therefore, the use and management of water regulations in applying SMK3, in 2013 Telkom and has become an issue no less important than our subsidiary, property earned SMK3 certificates. 206 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis EMPLOYMENT, HEALTH AND WORK SAFETY (“K3”) A. Employment 1. Policy The policy of HR management is directed on the attainment of vision, mission and corporate target (sustainable competitive growth) as well as HR management target. The HR management target is to establish great leader and great development for existing employees. External recruitment is focused on hiring professionals to fill positions that competence is not owned by existing employees and recruit fresh graduates with the aim to fill the position left by employees due to retirement, improving the composition of employees in terms of education, age and streams (corporate people with productivity above industry average function). with high level of engagement in managing Telkom Group business portfolio which focusing c. Competence Development on TIMES. We are also striving to improve synergy and efficiency among companies within Telkom Group and will continue to focus on how to deliver our values. Law No.13 on Employment and Collective Work The human resource competency development was brought about through education and training in competence conversion as well as competence development, both directly or indirectly related to our business strategies and Agreement (“CWA”) between the management operations. and the union, serves as a reference throughout the employment policy to ensure the compliance with the applicable rules and legislation and to minimize the occurrence of violations of human rights in the employment relationship. a. Management of Employee Relations with Management Referring to The Presidential Decree No.83 year 1998 on Ratification of ILO Covention In addition, we also hold a variety of programs to improve employee competencies, which are currently managed through Telkom CorpU. Among of the programs are international certification and GTP, which provide opportunities for company’s best talents to have global exposures and experiences by stationing them in many countries. No.87 year 1948 on Freedom of Association d. Employee Remuneration and Protection of the Right to Organize Convention, a group of Telkom employee established “Serikat Karyawan Telkom” or “SEKAR”. Up to 31 December 2013, SEKAR has 16.283 employee member or 91,1% of total employee working for Telkom and JVC. To We offer competitive employee remuneration packages that consist of monthly salary, various allowances and facilities such as housing, pension plan and health pursuant to prevailing rules and regulations, which are regularly revisited to secure competitiveness avoid the potential conflict arising in the next within the industry. PKB, the Management enhances the role of LKS Bipartit which conducted on monthly e. Health Care basis. b. HR Recruitment Our recruitment is done through internal and external recruitment. Internal recruitment is done by optimizing the Telkom Group existing resource through synergy to achieve cost efficiency for employee turnover, and to obtain the best talent suitable for needs and at the same time facilitating career Managed by Yakes, we provide medical benefits for employees and their family intended at improving the Company's productivity. To monitor the employees’ health, we organized annual medical check up in order to obtain employees’ health status (stakes). In addition, we also issued a policy of of healthy living paradigm. Health benefit is also provided for all retiree, including their family, categorized in two types of funding, namely: Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 207 – Employees who were hired prior to The awards are presented to motivate for November 1, 1995 and have served over improved contribution in the future. 20 years, are eligible for helath insurance managed by Yakes Telkom; and h. Level of employees turnover – The Remaining employees are given access Employee turnover is due to situations in which to health services in the form of insurance employees leave the company for various benefits. reasons like voluntary resignation, being For our subsidiary employees, medical assigned as officials at Telkom, our subsidiaries benefits are provided though health insurance or other government entities, death, retirement program sponsored by the government, and early retirement, which is a program that known as Jamsostek. f. Retirement Program is offered openly and voluntarily in nature, to employees that meet certain criteria. We offers two pension schemes, namely i. Gender equality and equal employment Defined Benefit Pension Plan ("PPMP") opportunity tailored for permanent employees who We have no gender discrimination policies were hired prior to July 1, 2002, and Defined related to employment. All regulations are Contribution Pension Plan ("PPIP") that apply applied consistently and equitably to all to other permanent employees. employees regardless of gender. Similarly, the g. Employee Awards employment opportunities offered apply to all employees, with positions available to us do On regular basis, we give a number of awards not specify the qualifications that differentiate to high achievers individuals and units who by gender. Position requirements specifies only have shown remarkable contributions to our the education and competencies (soft skills business targets achievements. and hard skills) requirement. Employee rights 208 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis (compensation, benefits, career development g. The pension program opportunities and competencies, working - PPMP time, working facilities) and obligations PPMP is managed by Dana Pensiun and applicable to all employees regardless of the benefit is calculated by an actuary gender. 2. Type of Program based on years of service, salary level at retirement and is transferable to dependent families if the respective During 2013, we implemented the following employee passes away. activities in employment aspect: - PPIP a. Negotiation of CWA between Management PPIP is a pension plan for permanent and employees is conducted every two years. employees who were recruited after July 1, b. 838 employees were hired during 2013 through recruitment. 2002, managed by several appointed Pension Fund Financial Institutions c. Competency development in 2013 is provided from which employees can choose. The for employee both still in active duty and Company's annual contribution to the PPIP entering retirement period. d. A variety of International certification is determined by a portion taken from participating employee’s basic salary. programs for 1,471 employees. - Welfare support for retired employees. e. Employee remuneration was based on their h. A number of awards were given to high performance and annually adjusted to market achievers by both internal and external parties benchmark. while other awards were given to outstanding f. By the end of 2013, the number of employees units, with the following details: and retirees and their families who - internal awards to 443 employees; participated in its core health services Yakes - honor medals from the Indonesian we reached 113.629 people. President were given to eight employees; and Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 209 - unit awards were given to four units. i. Staff turnover during 2013 involved 1.327 people, including 781 who took early retirement. 3. Financial Impact Following is the financial impact of some employment programs: a. Expenses for pre-retirement training for employees of Rp1.5 billion. b. Expenses for welfare support for retired employees of Rp10.2 billion. c. The expenditures for recruitment program reached Rp7.5 billion. d. Budget allocation for Competency development amounted to Rp265.3 billion. e. The Company’s contribution for post- retirement health care and insurance benefits during 2012 are Rp302 billion and Rp17 billion, respectively. f. Our contributions for PPMP and PPIP during 2013 respectively reached Rp182 billion and Rp6 billion. Zero accident program is organized pursuant to labor regulations and K3 rules evaluated and assessed each year. Our commitment to realize security and safety in work environment is manifested in the policy set out in the Company’s Board of Directors Decree regarding the Determination of the Company’s. Decree regarding the Determination of the Company’s (Enterprise Security Governance and Safety Regulation) No.KD.37/UM400/COO- D0030000/2010 dated October 26, 2010. 2. Type of Program g. Cost incurred for the award was Rp8.5 billion. In 2012-2013, various activities were carried out Please see the Human Capital section on page 88 for more detailed information on employment. B. Health and Work Safety 1. Policy Since 2009, K3 was managed focusing on how to accomplish zero accident rate. The program is organized pursuant to labor regulations and K3 rules evaluated and assessed each year. Our commitment to realize security and safety in work environment is manifested in the policy set out in the Company's Board of Directors related to the K3 program including: a. Training on work safety - Training for General HSE Expert and SMK3 Internal Auditor. - Simulation of Fire Emergency Response at Witel Bogor. - Earthquake Emergency Response Training and simulation in Jakarta Timur. - Simulation of Flood Emergency Response against vital objects in collaboratoin with Indonesian Navy ("TNI AL") at Witel Bekasi. - K3 Seminar held each two-monthly in collaboration with Jaring K3. 210 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis b. Achievement of ”zero accident” Location Safety Hours Telkom Bekasi Area Telkom Bogor Area Telkom West Jakarta Area Telkom South Jakarta Telkom East Jakarta Area Telkom North Jakarta Area Telkom Tangerang Area Telkom Regional Sumatera Telkom Regional West Java Telkom Regional Central Java Telkom Regional East Java Telkom Regional Kalimantan Telkom Regional KTI Telkom GMP Bandung Telkom GMP Jakarta Telkom GCC Central Jakarta 1.638.569 2.143.736 2.503.164 1.592.892 4.077.024 2.269.530 3.834.832 2.012.569 2.094.151 2.044.573 2.041.061 5.092.684 8.671.826 2.025.063 3.404.798 4.086.952 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 211 c. Online SMK3 Application and Online Safety - Awards fromthe Ministry of Care Manpower,Directorate General of - The development of online SMK3 Supervision and Fostering Employment on application, in accordance with the the on audits on OHSE management system Government Regulation No. 50 Year 2012, recommended to obtain a "Satisfactory can be accessed by all organic employees, Level for the Advanced category", for contains SMK3 measurement criteria Telkom Area Jakarta Barat, Telkom Area and can be used for online monitoring, Balikpapan Kalimantan Timur, Telkom Area evaluating and analyzing purposes to Jakarta Selatan, Gedung Kantor Pusat simplify and to expedite the implementation Telkom, and Gedung Telkom in Solo. process andinformation updating nationwide. e. Internal Audit on SMK3 - Online Safety Care Application is a means To ensure that the company has set the HSE to raise employee awareness on aspects goals, objectives and programs that meet related to their respective work place, for the HSE policy, SMK3 audit was conducted example, to inform working conditions with internally once a year (in the West, South, potential risk of K3 to prepare its solutions. Central, East, North Jakarta, Bekasi, Bogor, Tangerang areas) and by regionally through d. Awards received in K3 (Zero accident) sampling (West Java/Lembong, East Java/ - Awards received in OHSE (Zero accident) Malang, Central Java/Semarang, Sumatra/ from the Ministry of Man power between Medan, KTI/Bali) 1 January 2009 untill 31 December 2012 for 13 office locations. 3. Financial Impact - Awards received in OHSE (Zero accident) The expenditures for programs related to K3 in from the Governor of Banten between 2013 reached Rp1.7 billion. 1 January 2009 untill 31 December 2012 for Telkom Area Tangerang. 212 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Social and Community Development The object of these programs is the economic activities of communities, which can be directly or indirectly related to our core business, with the aim of building harmonious relationship with these communities A. Policy With reference to the Board of Directors Decree No.KD.21/ PR000/COP-B0030000/2010, we implements the Partnership Program and Community Development Program, as well as a variety of CSR initiatives related to community development. The object of these programs is the economic activities of communities, which can be directly or indirectly related Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 213 to our core business, with the aim of building painted batik artisans in its production harmonious relationship with these communities process. while also contributing directly to improve their welfare. ii. Arul Jewellery B. Type of Program 1. Partnership and Economic Empowerment of Communities a. Partnership Program The Partnership Program provides H.M. Fakhrurozzi, a resident of Martapura, Banjar Regency, South Kalimantan, is a traditional gold and gemstone artisan who inherited the skills and business in gemstone from his forefathers. From his home at Jl. Kertak Baru, Martapura, revolving loan facilities for working capital H.M. Fakhrurozzi began to expand his as well as funds assistance for training in entrepreneurship for Small and Medium gold and gemstone jewellery business under the trademark Arul Jewellery. To Enterprises (“SME”) in the manufacturing, get the necessary funding, he applied trading, agriculture, animal husbandry, plantation, fisheries, services, and other for a working capital loan under our SME Partnership Program. Aside from the economic sectors. Up until the end of 2013, working capital loan, we also provided we have 3,975 SME Partners throughout Indonesia, while total disbursement of training in business and product knowledge, as well as assistance in revolving loans amounted to Rp124.4 billion. product marketing through participation Following is brief descriptions of the activities those with a national scope held in Jakarta. in various local trade exhibitions as well as of a couple of our SME Partners. i. Batik Bulan Gemilang So far, his business is progressing well. Batik Bulan Gemilang is the trademark of a Starting from just three assistants, Arul hand-painted batik business initiated since Jewellery now employs ten employees, 1997 by Wulan Utoyo, a housewife living while its turnover has increased from in Batang, Pekalongan Regency, Central Rp20 million per month to around Java, who started a small home business Rp50 million per month. of producing and selling hand-painted batik products with the help of just two 2. Social and Community Assistance assistants. Subsequently, Wulan Utoyo Throughout 2013, we have provided a total of became a our SME Partner, and received Rp57.2 billion within the Social and Community assistance in the form of working capital assistance scheme. These funds were used for a loans, marketing assistance for national variety of assistance programs in natural disaster and export sales, as well as training in the assistance, community training and education, management of business. About 70% of community healthcare, construction of public and these products, comprising batik clothing worship facilities, and environment preservation. articles for men and women, are sold in a. Community Education and Training the domestic market (local as well as Aiming to improve the quality of education national), while the remaining are exported be it stakeholders’ expertise, knowledge to overseas markets, mainly to Malaysia, and behavior, which in this case refers to Singapore and Japan, but also to the Telkom Groups community and employees’ United States and a number of European family. Activities involved include programs countries. like “Dedicated to My Teachers”, Bandung Knowledge Cloud, Scholarship Program, Batik Bulan Gemilang contributes to the Internet Education at Disadvantaged Villages, economy in the immediate communities, Integrated Digital School, Edu Campus by involving some 300 independent hand- Development Center, Assistance for National 214 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Sports Achievement and Indonesia Digital iii. Internet Education at Disadvantaged School. i. Dedicated to My Teachers Villages To help broaden the horizons of people, This program has run for 7 (seven) years especially the young generation, living at and is one of our initiatives to help create disadvantaged villages with poor road education quality in Indonesia, mostly access, We provides internet education through the provision of training and other through site visit by teams using assistance to improve the capability and motorcycles that have been specially quality of teachers in Indonesia. equipped with a computer set and wireless Internet connection. In 2013, this activity In 2013, the program was organized in the was concentrated in several areas in form of training for teachers of high school Banten dan West Java provinces. and equivalent level school in 6 (six) cities (Banyuwangi, Kendari, Banjarmasin, Kudus, Bukit Tinggi and Mataram), with training iv. Bandung Knowledge Cloud We developed the Bandung materials in Information Technology, public Knowledge Cloud in cooperation with speaking, effective writing, and character Lembaga Pengembangan Inovasi Dan building (“ESQ”). ii. Scholarship Program Kewirausahaan (“LPIK”) ITB. Bandung Knowledge Cloud is a repository of knowledge developed by school teachers, In cooperation with a leading higher and can be used by students nation- learning institution in Jakarta, we provided wide to improve the quality of education. scholarship grants to economically Activities in Bandung Knowledge Cloud disadvantaged, high performing students. began with organizing workshops to Unlike other existing our scholarship programs, this particular scholarship program is given without a service obligation. improve the capability of teachers in creating digital teaching contents. This was followed by a series of competitions, including competition in digital teaching content development for teachers. On the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 215 initiative of these teachers, and particularly in relation to Bandung Knowledge cloud, a Digital Teacher Community (“KGD”) forum has also been established. v. Integrated Digital School A CSR program in education by Telkomsel, our subsidiary, providing DNA (device- network-application) technology-based educational support facilities for schools. The program was first launched in 2012, and in 2013 has been expanded to 25 schools in Central Java, Yogyakarta, East Java and Bali. vi. Edu Campus Development Center The Edu Campus Development Center (“ECDC”) program from Telkomsel, our subsidiary, is intended to provide non- academic skills for under-graduate students at universities to help them prepare for the job market. Program participants will receive training to obtain international certification from Adobe Certified Associate (“ACA”), Microsoft Office Specialist (“MOS”) dan Microsoft Technology Associate (“MTA”) through online exams. In 2013, the ECDC program was conducted at five universities in Indonesia, namely ITB, ITS, USU, Unmul and Undip, with a total of 2,000 participants. vii. Assistance for National Sports Achievement We have assisted the national sports achievement through the following programs and activities such as funding assistance for the try-out and training of the golf team to participate at the 2013 SEA Games in Myanmar, multi-event cooperation between Telkom and KONI for the preparation of bicycle racing athletes that will participate in 2013 SEA Games, 2014 Asian Games, 2015 SEA Games, and 2016 Olympic Games, funding assistance for 2 junior tennis players to participate in various tennis competitions for one year, assistance of coaching tennis Telkom FIKS national championship, help participation in SOE Sport Event 2013, and assistance IndiSchool is one of our CSR initiatives in the field of education, and as part of our participation to help building the nation and the state of Indonesia by providing broadband internet facilities in schools. for sending bridge athlete of Telkom Group on the 19th Transnational Open Team Championship. viii. Indonesia Digital School (“IndiSchool”) The IndiSchool program is a CSR initiative in the field of education, and part of our participation in supporting the progress of the people and nation of Indonesia. Through IndiSchool, we provides broadband internet access facilities in schools in Indonesia in our efforts to “Develop a Smart Indonesia” using information and communication technology. With better and more affordable access to information, and especially to educational contents, students and teachers will benefit from the improved quality of learning and teaching activities. IndiSchool program targets the installation of broadband internet Wi-Fi access points at 100,000 schools throughout Indonesia. The IndiSchool program is also intended to help reduce the gap in education quality between schools in urban areas and those located in Indonesia's backward regions, outermost islands, and border regions uses a VSAT (Very Small Aperture Terminal) installation with parabolic antenna equipment to provide internet access. As of December 2013, We have installed Wi-Fi internet access points at 17,845 schools throughout Indonesia. 216 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis b. Development of Infrastructure and Public iii. Assistance for the Construction of Public Facilities A variety of activities aimed at improving services to the community in the field of telecommunications infrastructure. The Facilities Assistance is provided in the form of participation in various activities to construct public facilities and activities undertaken include Listrik Rakyat infrastructures. This type of assistance may Mandiri Program, Broadband Learning Center be initiated by the local governments and Program ("BLC"), assisting the development non-profit organizations in collaboration of public facilities, and Taman Bungkul. with Telkom consist of: i. Listrik Rakyat Mandiri Program - Assistance in the construction/ This program aims to help accelerate the renovation of school buildings in national electrification program to bring Deli Serdang, Jakarta, Bekasi, Bogor, electricity to areas not yet served by PLN Bandung, Ciparay, Rancaekek, electricity grid, using a simple pico-power Sukabumi, Bojonegoro, Pontianak, technology that is easy to implement Balikpapan, Singaraja, Atambua. independently by local communities. In - Construction of public bath, wash 2013, the program was conducted at two and toilet (“MCK”) facilities in locations, namely at Dusun Dampit, Desa Jakarta, Bandung, Garut, Banjarmasin, Dampit, Kecamatan Bringin, Kabupaten Palangkaraya. Ngawi, and at Dusun Jambu, Desa Sedayu, - Renovation of public sport facilities, Kecamatan Arjosari, Kabupaten Pacitan, maintenance of public roads/sewers, both in the East Java Province. ii. Broadband Learning Center ("BLC") Another initiative to broaden public clean water provision, maintenance of community security centers, and others, in various locations. access to Telkom’s TIMES facilities is by iv. Taman Bungkul providing assistance to build wide internet Taman Bungkul is located at Jalan Raya access. Our main target is the various Darmo, Surabaya, East Java, in a location local government ("Pemda") through the that was previously a slums area. In 2007, provision of computers with Wi-Fi facilities. the area was completely renovated with BLC’s current roles as a training center for funds from Community Development those who want to learn internet basics, Program totalling Rp1.2 billion. Following educating the public through internet the renovation, the 1,400 square meters training, and educating SMEs, particularly area has now become a city park in the our partners, through trainings on how middle of Surabaya, featuring a skate park to create a blog to market their products and BMX bike tracks, a jogging track, an online. Broadband Learning Center facilities have been built at various locations, including Banda Aceh, Aceh Besar, Lubuk open stage area used for a variety of live performances, and a green park area. We also installed public phone booths and free Wi-Fi in the area. Linggau, Pekan Baru, Yogyakarta, Klaten, Taman Bungkul is now one of Surabaya's Salatiga, Kendal, Jepara, Surabaya, Malang, public recreation places, visited by city Banyuwangi, Pontianak, Kapuas Hulu, residents as well as out-of-town visitors to Kendari, Tana Toraja, and Abepura. We supported the development of public facilities, including school renovations, toilets and sports facilities. the city, and especially during the evening times when visitors can enjoy a variety of recreational activities in the park, including local culinary delights. Taman Bungkul received the 2013 Asian Townscape Sector Award, one of several award categories in the annual Asian Townscape Award (“ATA”) competition. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 217 c. Community Health Improvement - Construction of Al-Quran School at We provided healthcare assistance to travelers Kecamatan Cibodas, Tangerang, Banten. during the annual Lebaran homecoming - Construction of Al-Quran Reading Center season in 2013 in cooperation with STIKES at Bantar Gebang, Bekasi, West Java. Dharma Husada Bandung, we established - Donations for the contruction of churches Healthcare Command Center facilities at six in Toraja, Papua, Simalungun, and Toba locations that are prone to traffic accidents Samosir. Cikalong Wetan, Rajamandala, Jalan Cagak - Assistance the construction of mosque in Subang, Patok Beusi, Puska Nagara and various regions. Limbangan Garut. With 130 personnel, these - Construction of Tahfidz Tanbihul Ghofilin facilities operated from D-5 (August 3, 2013) to boarding school's dormitory in Cibinong. D+1 (August 10, 2013). Other initiatives in community healthcare Assistance support were blood donor drives in Bandung, We have always active in helping victims of Jember, Surabaya, Jakarta, and Medan, mass natural disasters throughout Indonesia, during circumcision, maternal health clinics and infant the emergency response period as well as nutrition, and donation of leg prosthesis. post-disaster period. The assistance comprise e. Natural Disaster Relief and Community d. Improvement Worship Facilities of donations of the nine staple items and community kitchens, medication and health We also participate in efforts to improve the command posts, bath-wash-toilet tents, and quality of religious life in Indonesia, among free telecommunication facilities. other things through assistance in the construction and maintenance of places of In 2013, activities in post-disaster assistance worship such as mosques, churches and those include: of other religions. - Assistance for refugees from Mount Sinabung eruption, September 2013. In 2013, assistance for worship facilities took - Assistance for victims of floods at a number the form of, among others: of other areas such as Jabodetabek, - Construction of An-Nahl Islamic boarding Pekalongan, Sukoharjo, Bojonegoro, school at Leuwiliang, Bogor, West Java. Sampang Madura, and Kendari. 218 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis - Disaster response for Aceh earthquake. A Island, the Thousand Islands, to help Crisis Management Team (“CMT”) was set lessen the impact of environment up to handle the impact of the earthquake pollution from the dumping of some 100 in Aceh, through the set up of a command tons of garbage each day from Jakarta post to distribute aids for disaster victims, to the sea in the Thousand Islands area. as well as to secure and rehabilitate the - The planting of 15,000 mangrove trees damaged telecommunication infrastructure at Kampung Garapan, Desa Tanjung in the area. Pasir, Tangerang, on 8 June 2013. - Telkomsel, our subsidiary, operates the - Built the Green Belt to minimize coastal TERRA (Telkomsel Emergency Response erosion in Indramayu. and Recovery Activity) program as an - Planting trees in Bandar Lampung, emergency response program on the Makassar, the banks of Bengawan Solo occasion of natural disasters in Indonesia. River, Jember, and Madura. During 2013, the TERRA program was - Making the biopori holes in Bogor and active in, among others Aceh earthquake Bandung. disaster, Ambon floods disaster, and Eruption of Mount Sinabung disaster. f. Environment Preservation These activities also involve the participation of school/university students, environmental activists, and local We participate in planting activities in various community members. regions in Indonesia that organized with the social institutions. i. Go Green Smile An activity program representing our concern for the preservation of the environment, by engaging in: ii. CSR Bahari Telkomsel, our subsidiary, organized the CSR Bahari program as its participation in preserving Indonesia's maritime and coastal environment. The activities consist of coral - Beach cleaning activity at Pramuka reef planting and beach cleaning, as well Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 219 as donation of cellular telecommunication national unity through its telecommunication facilities for personnel of Indonesian Armed services. The activities consist of coral Forces on duty at the locations and the local reef planting and beach cleaning, as well fishermen. The first event in CSR Bahari as donation of cellular telecommunication program was conducted on October 28, facilities for personnel of Indonesian Armed 2013 at four locations, namely Weh Island, Forces on duty at the locations and the local Biak, Sangihe and Maumere. The date and fishermen. locations, corresponding with Youth Pledge Day commemoration and the four outermost C. Financial Impact points of the Indonesian archipelago, In 2013, funds for Community Social Development represents the contribution of Telkomsel to Program reached Rp181.7 billion. 220 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Responsibility to Consumer As part of GCG practice, related to our responsibility towards our customers and communities as stakeholders, we continue to maintain communication with customers. In line with our mission to provide products and services with the best quality and at competitive prices, as well as part of the practice of good corporate governance (“GCG”) related to our responsibility to the consumer and society as our stakeholders, we have always takes care to maintain communication with its customers. Proactive and smooth flow of communication is a prerequisite for ensuring the rights of consumer and the customers, which will eventually determine the continuation of the Company's business as well as its sustainable growth. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 221 A. Policy We have a commitment to uphold at all times the interests of consumer and customers of its products and services. This commitment is continually adjusted to market needs and demands, as formally regulated in a series of our management's policies regarding aspects of product development, product safety, service level guarantee, and customer complaint handling. To ensure that our newly developed product is just the right product, in terms of commercial,and is well received in the market, we apply a guideline in incubating innovation product. B. Type of Program Throughout 2013, we continued to engage in various initiatives designed to ensure protection of idea submission, customer and idea validation, product validation, business model validation, and market to the right of the consumer for validation. quality products and convenient services. 1. Products/Services Development In line with the rapid advances made and changes in Information and Communication Technology ("ICT"), we are fully aware that product/ service development in the TIMES business portfolios demands a high degree of innovation capability, while also carrying a high level of uncertainties in terms of customers, problems and solutions. To ensure that the development of a particular new product will lead to the right product commercially acceptable in the market, we implements standard guidelines for the incubation process of innovation products. An incubation process is needed to support the innovation and creation of a new product through successive phases In this way, we strive to ensure the best result with optimum efforts in new product/service development, while also ensuring that the consumer receive the benefits in terms of quality, reliability, availability, billing and payment, service coverage, product compatibility, product features, and availability of product support factors. 2. Telkom Integrated Quality Assuranc ("TIQA") Customer satisfaction through TIQA within the ROSE (Raise on Service Excellence) framework a. Upholding the principle of producing high quality products and services that can deliver maximum benefits as well as contribute to national economic growth. b. Consistently maintaining ethical standards in product sales (direct sales), advertisement and promotion. c. Applying ethical advertising practices, taking into consideration the rules on advertising ethics in Indonesia. d. Ensuring that the public has easy access to products and after-sales service. e. Supporting healthy competition principles and practicest. 3. Service Level Guarantee To ensure the fulfillment of standards in after-sales service, we are committed to fair compensation through the implementation of service level guarantee (“SLG”). 4. Service Center and Mechanism for Consumer Complaints We have customer service centers at all our regional and branch offices where customers can visit in person, and we also offer an online complaints center through our corporate website (www.telkom.co.id) as well as a contact center that can be reached by dialing "147" for retail customers and “500250” for business customers. C. Financial Impact In 2013, we expended a total of Rp2.7 billion for programs related to products/services development that are Bandung Digital Valley and Jogja Digital Valley program. 222 222 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Highlights Highlights Preface Preface Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Company Profile 224 A Brief History of Telkom 225 Line of Business 225 Organizational Structure 230 Subsidiaries and Associated Companies 240 Profile of the Board of Directors 236 Telkom’s Subsidiaries Chart 242 Stock Overview 238 Profile of the Board of Commissioners 249 Addresses Corporate Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 223 223 224 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis A brief history of Telkom Pursuant to the Articles of Association, we are engaging in the business of providing telecommunication and informatics networks and services, and optimizing the Company resources. We are a state-owned enterprise that operates in the telecommunications and network services sector in Indonesia. We are subject to the prevailing laws and regulations in this country. Given its status as a state-owned enterprise whose shares are traded on the stock market, the Government of the Republic of Indonesia is the Company’s majority shareholder, while the remainder of the Company’s common stock is owned by the public. The Company’s shares are traded on the Indonesia Stock Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 225 Exchange (“IDX”), the New York utilization of the Company’s Wholesale to the Director of Stock Exchange (“NYSE”), the property, plant and Enterprise & Business Service, London Stock Exchange (“LSE”) equipment and movable who focuses on developing the and Publicly Offered Without assets, information system enterprise and small medium Listing (“POWL”) in Japan. For facilities, education and enterprise business segments. detail information regarding our training facilities and 2. We realigned the division history, see “Strength Born of a maintenance and repair which was formerly under the Long History”. facilities. Director of Compliance & Risk Management to the Director LINE OF BUSINESS A detail description of the of Wholesale & International Company's products and services Service, who focuses on As stated in our Articles of can be found in the section developing the wholesale Association, our business is to “Business Overview - Business business segment. We also provide telecommunications Portfolio”. networks and telecommunications and information services, and to optimize the Company’s resources. To attain the ORGANIZATIONAL STRUCTURE transferred the duties and authority over the compliance, legal and risk management functions to the Head of Compliance, Risk Management aforementioned objectives, the We have adopted a holding & General Affairs. Company may undertake business company approach to corporate 3. We realigned the division activities that incorporate the management, which we believe which was formerly under following: should provide productive the Director of IT, Solution & flexibility for all our business Strategic Portfolio (“ITSSP”) 1. Main Business entities in accordance with the to the Director of Innovation a. To plan, build, deliver, needs of the respective units. & Strategic Portfolio, who develop, operate, market focuses on business innovation or sell/lease, and maintain In implementing this holding and business portfolio telecommunications and company approach: development. information networks in 1. The role of the corporate office 4. We realigned the division the broadest sense with is focused on the Corporate which was formerly under respect to provisions of Level Strategy function the Director of NWS to the laws and regulations. (directing strategy, portfolio Director of Network, IT & b. To plan, develop, deliver, strategy and parenting Solution, who focuses on market or sell and improve strategy). management and utilization of telecommunications and 2. Parenting style is tailored to infrastructure, IT and service information services in the particular characteristics of operation & management, the broadest sense with the business entity. to provide support for the respect to provisions of 3. We seek to empower each development of established laws and regulations. business entity in line with businesses. their respective particular 5. We realigned the division 2. Supporting Business characteristics. a. To provide payment which was formerly under the Director of Human Capital transaction and Accordingly, we have initiated & General Affair to the remittance services via a number of changes in 2013 Director of Human Capital telecommunications and involving reorganization of Management, who focuses information networks. divisions as well as division of on managing human capital. b. To carry out activities duties and authority of the Board We also transferred of duties and other undertakings of Directors, as follows: and authority over the supply in respect of optimizing 1. We realigned the division management function to the the Company’s resources, which was formerly under Head of Compliance, Risk among others the the Director of Enterprise & Management & General Affairs. 226 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis In addition, we introduced Board of Executives to improve our parenting mechanism. The Board’s membership comprises all members of Telkom’s Board of Directors and a number of Chiefs of Business. The Chiefs of Business title is reserved for senior business experts, who are our senior executives and horizontally positioned equivalent to our Directors. Our Chief of Business is meant to serve in formulating corporate level strategy decisions, fostering a harmonious relationship between subsidiaries and the parent. Telkom’s Organizational Structure Directorate Function and Authority NITS Directorate Focuses on managing the Infrastructure Strategy & Governance, IT Strategy & Governance, and Solution, as well as managing the IT utilization and service operation & management, in order to support the capitalization of established businesses and also controlling infrastructure operations through the Network of Broadband, Information System Center Division, Wireless Broadband Division and Broadband Division. ISP Directorate Focuses on managing the functions of Corporate Strategic Planning, Strategic Business Development, Innovation Strategy & Synergy, as well as the operational management of the Solution Convergence Division and Innovation & Design Center units. CONS Directorate Focuses on managing the consumer business segment and the operational management of the Consumer Services Division EBIS Directorate Focuses on managing the enterprise and small medium enterprise business segment as well as managing the Enterprise Services Division and Business Services Division. WINS Directorate Focuses on managing the wholesale and international business segment, and the operational management of the Wholesale Services Division. HCM Directorate Focuses on managing the company’s human resources and the operational management of human resources centrally through the Human Capital Center unit, as well as controlling operations of the Telkom Corporate University Center, Assessment Center Indonesia, and Community Development Center units. FIN Directorate Focuses on the company’s financial management, and managing financial operations centrally through the Finance, Billing & Collection Center unit. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 227 228 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Company’s Organizational Structure President Director (Arief Yahya) Director Human Capital Management (Priyantono Rudito) Head of CCA (Rinto Dwi Hartomo) - VP Public Relation (Arif Prabowo) - VP Regulatory Management (Henry Christiadi) - VP Corporate Office Support (Dodi Irawan) - VP Investor Relation (Honesti Basyir) - VP War Room (Dwi Sasongko Purnomo) Head of CRMGA (Triana Mulyatsa) - VP Legal and Complience (Rudy Agustian) - VP Risk and Process Management (Ikhsan) - VP Supply Planning & Control (I Ketut Dodi Wirawan) - SGM Supply Center (Weriza) Head of Internal Audit (Erry Anwardiredja) - VP Infrastructure and Operations Audit (Harry Suseno Hadisoebroto) - VP Support & Subsidiary Audit (Purwadi Siswana) - VP Enterprise Management Audit (Purwoto) - VP HC Policy (Sofyan Rohidi) - VP Industrial Relation (Wien Aswantoro Waluyo) - VP Organization Development (Danang Baskoro Dwi Nugroho) - SGM Human Capital Center (Pandji Darmawan) - SGM Community Development Center (Nur Hassim Haji Rusdi) - SGM Telkom Corporate University (Tonda Priyanto) - SGM Assessment Center Indonesia (Rini Lestari Utami) Director of Finance (Honesti Basyir) - VP Financial & Logistic Policy (Agus Hery Prasetyo) - VP Management Accounting (Edi Witjara) - VP Corporate Finance (Gatot Rustamadji) - SGM Finance Billing & Collection Center (Martinus Wisnu Adji) Director of Innovation & Strategic Portofolio (Indra Utoyo) - VP Corporate Strategic Planning (Jajat Sutarjat) - VP Strategic Business Development (Setyanto Hantoro) - VP Innovation Strategic & Synergy (Mustapa Wangsaatmadja) - SGM Innovation & Design Center (Joddy Hernady) - EGM Divisi Solution Convergence (Achmad Sugiarto) Director of Consumer Service (Sukardi Silalahi) Director of Enterprise and Business Service (Muhammad Awaluddin) Director of Wholesale & International Service (Ririek Adriansyah) Director of Network IT & Solution (Rizkan Chandra) - VP Consumer Product Planning (Teni Agustini) - VP Enterprise Business Strategy (Wisnu Haryadi) - VP Consumer Relationship Management (Rosyidul Umam Aly) - VP Consumer Marketing & Sales (Jemy) - EGM Consumer Service Division (Suparwiyanto) - EGM West Telkom Division (Prasabri Pesti) - EGM East Telkom Timur (Iskriono Windiarjanto) - VP Enterprise Service (Yusron Hariyadi) - VP Business Service (Ilmianto) - EGM Enterprise Service Division (Siti Choiriana) - EGM Business Service Division (Yusron Hariyadi) - VP Wholesale & International Development (Yusuf Wibisono) - VP Wholesale & International Voice Service (Erik Orbandi) - VP Wholesale & International Network Service (Budi Satria Dharma Purba) - VP Infrastructure Service & Governance (Arief Musta’in) - VP IT Strategy & Governance (Alip Priyono) - VP Solution (Dani Ramdani) - EGM Broadband Division (Revolin Simulsyah) - EGM Wholesale Service Division (Zulheldi) - EGM Wireless Broadband (Pramasaleh Hario Utomo) - EGM Network of Broadband (Era Kamali Nasution) - SGM Information System Center (Halim Sulasmono) Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 229 Company’s Organizational President Director (Arief Yahya) Director Human Capital Management (Priyantono Rudito) - VP HC Policy (Sofyan Rohidi) - VP Industrial Relation (Wien Aswantoro Waluyo) - VP Organization Development (Danang Baskoro Dwi Nugroho) - SGM Human Capital Center (Pandji Darmawan) - SGM Community Development Center (Nur Hassim Haji Rusdi) - SGM Telkom Corporate University (Tonda Priyanto) - SGM Assessment Center Indonesia (Rini Lestari Utami) Director of Finance (Honesti Basyir) - VP Financial & Logistic Policy (Agus Hery Prasetyo) - VP Management Accounting (Edi Witjara) - VP Corporate Finance (Gatot Rustamadji) - SGM Finance Billing & Collection Center (Martinus Wisnu Adji) Director of Innovation & Strategic Portofolio (Indra Utoyo) - VP Corporate Strategic Planning (Jajat Sutarjat) - VP Strategic Business Development (Setyanto Hantoro) - VP Innovation Strategic & Synergy (Mustapa Wangsaatmadja) - SGM Innovation & Design Center (Joddy Hernady) - EGM Divisi Solution Convergence (Achmad Sugiarto) Structure Head of CCA (Rinto Dwi Hartomo) - VP Public Relation (Arif Prabowo) - VP Regulatory Management (Henry Christiadi) - VP Corporate Office Support (Dodi Irawan) - VP Investor Relation (Honesti Basyir) - VP War Room (Dwi Sasongko Purnomo) Head of CRMGA (Triana Mulyatsa) - VP Legal and Complience (Rudy Agustian) - VP Risk and Process Management (Ikhsan) - VP Supply Planning & Control (I Ketut Dodi Wirawan) - SGM Supply Center (Weriza) Head of Internal Audit (Erry Anwardiredja) - VP Infrastructure and Operations Audit (Harry Suseno Hadisoebroto) - VP Support & Subsidiary Audit (Purwadi Siswana) - VP Enterprise Management Audit (Purwoto) Director of Consumer Service (Sukardi Silalahi) Director of Enterprise and Business Service (Muhammad Awaluddin) Director of Wholesale & International Service (Ririek Adriansyah) Director of Network IT & Solution (Rizkan Chandra) - VP Consumer Product Planning (Teni Agustini) - VP Enterprise Business Strategy (Wisnu Haryadi) - VP Consumer Relationship Management (Rosyidul Umam Aly) - VP Consumer Marketing & Sales (Jemy) - EGM Consumer Service Division (Suparwiyanto) - EGM West Telkom Division (Prasabri Pesti) - EGM East Telkom Timur (Iskriono Windiarjanto) - VP Enterprise Service (Yusron Hariyadi) - VP Business Service (Ilmianto) - EGM Enterprise Service Division (Siti Choiriana) - EGM Business Service Division (Yusron Hariyadi) - VP Wholesale & International Development (Yusuf Wibisono) - VP Wholesale & International Voice Service (Erik Orbandi) - VP Wholesale & International Network Service (Budi Satria Dharma Purba) - VP Infrastructure Service & Governance (Arief Musta’in) - VP IT Strategy & Governance (Alip Priyono) - VP Solution (Dani Ramdani) - EGM Broadband Division (Revolin Simulsyah) - EGM Wholesale Service Division (Zulheldi) - EGM Wireless Broadband (Pramasaleh Hario Utomo) - EGM Network of Broadband (Era Kamali Nasution) - SGM Information System Center (Halim Sulasmono) 230 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis SUBSIDIARIES AND ASSOCIATED COMPANIES We have experienced continuous organic and inorganic growth. Organic growth is achieved through expansion of our existing operations and creating synergies between our subsidiaries. Inorganic growth is accomplished through acquisition of companies that we deemed were capable to add strategic value to our entire Group and contributing to the long-term revenue growth and sustainability of business. The following table illustrates our corporate structure as of December 31, 2013, including our direct and indirect equity ownership in our subsidiaries. A complete list of our subsidiaries and investments in associated companies, and our ownership percentage of each entity, as of December 31, 2013, is set forth below and is contained in Notes 1d and 10 to our Consolidated Financial Statements included elsewhere in this report. Direct Subsidiaries Companies Percentage of Ownership Interest Nature of Business Operational Status Description PT Telekomunikasi Selular (“Telkomsel”) 65% Telecommunication Operational PT Multimedia Nusantara ("Telkom metra”) 100% Multimedia and line telecommunication services Operational PT Telekomunikasi Indonesia International (“Telin”) 100% Telecommunication Operational Telkomsel, established on May 26, 1995, provides telecommunication facilities and mobile cellular services. Telkom metra, acquired on May 9, 2003, is our NEB holding company. Telkom metra focuses on network construction, development, maintenance and services, and multimedia services (data communications systems, portal and online transaction services). Previously known as PT Ariawest International, Telin was established on July 31, 2003 and is a wholly owned subsidiary of Telkom. Currently, Telin has obtained the Jartaptup license and Network Access Provider license. Telin provides network services and international telecommunication services, as well as international business. PT Pramindo Ikat Nusantara (“pins”) 100% Telecommunication construction and services Operational Pins was originally established to operate our KSO in Sumatra. It was acquired on August 15, 2002. PT Dayamitra Telekomunikasi (“Dayamitra” or “Mitratel”) 100% Telecommunication Operational Mitratel provides fixed line telephone services, supply of telecommunications facilities and infrastructure and telecommunications services. Acquired on May 17, 2001, Mitratel transformed itself by entering the telecommunications infrastructure supply business, which includes supplying telecommunications towers to meet the BTS installment needs of telecommunications operators all over Indonesia. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 231 Percentage of Ownership Interest 99.99% Companies PT Graha Sarana Duta (“GSD” or “TelkomProperty”) Nature of Business Operational Status Description Operational Acquired on April 25, 2001, TelkomProperty operates throughout Indonesia and manages buildings owned by us and third parties. Leasing of offices and providing building management and maintenance services, civil consultant and developer PT Napsindo Primatel Internasional (“Napsindo”) 60% Telecommunication Ceased operation Napsindo provided Network Access Point (“NAP”), Voice Over Data (“VOD”) and other related services. Established on December 29, 1998, Napsindo ceased operation as at January 13, 2006. PT Telkom Akses (“Telkom Akses”) 100% PT Patra Telekomunikasi Indonesia (“Patrakom”) 100% Construction, services and trade in the field of telecommunication Telecommunication and fixed line communication system Operational Telkom Akses was established on November 26, 2012. Operational Patrakom was established on September 28, 1995 Indirect Subsidiaries Companies Percentage of Ownership Interest PT Infomedia Nusantara (“Infomedia”) 100% PT Sigma Cipta Caraka (“telkomsigma”) 99.99% ownership by Telkom metra Nature of Business Operational Status Description Operational Infomedia was acquired on September 22, 1999 to operate KSO in Sumatra. Infomedia has transformed the from 3 pillars business (directory service, contact services and content services) to become Business Process Outsourching and Digital Media & Rich Content. Operational Telkomsigma was established on May 1, 1987. Which focuses on providing IT and Service solutions. Data and information service – provides telecommunication information services and other information services in the form of print and electronic media and call center services Information technology service – system implementation and integration service, outsourcing and software license maintenance 232 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Percentage of Ownership Interest 100% ownership by Telin Companies Telekomunikasi Indonesia International Pte. Ltd. (“Telin Singapore”) Nature of Business Operational Status Description Telecommunication Operational Telin Singapore was established on December 6, 2007, pursuant to the laws of Singapore. Telin Singapore is a wholly owned subsidiary of Telin Indonesia. The Company has obtained Facility Based Operator License. Currently, it provides wholesale voice, wholesale data and Managed Service. PT Metra Plasa (“metraplasa”) 60% ownership by Telkom metra Website development services Operational Telkom metra established metraplasa with eBay International AG on April 9, 2012. PT Administrasi Medika (“AdMedika”) 75% ownership by Telkom metra Health insurance and administration services PT Finnet Indonesia (“Finnet”) 60% ownership by Telkom metra Banking data and communication Operational AdMedika, established on February 25, 2010. AdMedika is serving the online claim services betwen the hospitals and health insurance companies Operational Finnet was established on October 31, 2005, as a provider of IT infrastructure, applications and content for information systems and financial transactions for the banking and financial services industry. PT Telkom Landmark Tower (“TLT”) 55% ownership by TelkomProperty Service for property development and management Operational TelkomProperty established TLT with Yakes Telkom on February 1, 2012. Telekomunikasi Indonesia International Ltd. (“Telin Hong Kong”) 100% ownership by Telin (Hong Kong) Telecommunication Operational Telin Hong Kong was established in Hong Kong on December 8, 2010. A wholly owned subsidiary of Telin Jakarta, Tellin Hong kong obtained Unified Carrier License on March 1, 2011, Service Based Operator for MVNO on July 27, 2011 and License for Operating Money Service on July 18, 2012. Currently, it provides wholesale voice, wholesale data and retail mobile services. The MVNO service was provided under the brand Kartu As 2in1. PT Metranet (“metranet”) 99,99% ownership by Telkom metra Multimedia portal service Operational Metranet was established on April 17, 2009. Telekomunikasi Selular Finance Limited (“TSFL”) 100% ownership by Telkomsel Finance Still in liquidation process TSFL was established on April 22, 2002 to raise funds for the development of Telkomsel’s business through the issuance of debenture stock, bonds, mortgages or any other securities. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 233 Percentage of Ownership Interest 100% ownership by Telin Companies Telekomunikasi Indonesia International (TL) S.A. (“Telin Timor Leste”) Nature of Business Operational Status Description Telecommunication Operational Telin Timor Leste was a subsidiary of Telin Indonesia established on September 17, 2012. Telin TL has obtained radio spectrum license and general registration certificate. It provides cellular services with coverage all over Timor Leste districts and broadband internet with 3G on 850Mhz frequency, Corporate Solution, as well as Wholesale Voice and Data. TelkomProperty established GYS with Yakes Telkom on April 27, 2012 to focus on hospitality services. PT Graha Yasa Selaras (“GYS”) 51% ownership by TelkomProperty Tourism service Dormant PT Metra Digital Media (“mdmedia”) 99.99% ownership by Telkom metra Telecommunication Information Services Operational mdmedia established on January 8, 2013. PT Infomedia Solusi Humanika (“ISH”) 100% ownership by Infomedia Labor recruitment services Operational Infomedia Solusi Humanika established on October 24, 2012 PT Pojok Celebes Mandiri (“pointer”) 51% ownership by Telkom metra Travel agency/ bureau Operational pointer established on August 30, 2013. PT Satelit Multimedia Indonesia (“SMI”) 99.99% ownership by Telkom metra Trading and services in telecommunication network, satellite, and multimedia equipment PT Metra Media (“MM”) 99.83% ownership by Telkom metra Trading, supplier, construction, services, etc. Telekomunikasi Indonesia International Pty Ltd.,Australia (“Telkom Australia”) 100% ownership by Telin Telecommunications and IT based services Operational SMI established on March 25, 2013. Operational MM established on January 8, 2013. Operational Telkom Australia a wholly owned subsidiary of Telin Indonesia. Established on January 9, 2013, engaging in Business Process Outsourcing (BPO), Information Technology Outsourcing (ITO), and IT Services. PT Metra TV (“Metra TV”) 99.83% ownership by Telkom metra Subscription broadcasting services Operational Metra TV established on January 8, 2013. PT Telekomunikasi Indonesia International (Myanmar Branch) 100% ownership by Telin Providi Network and International Information Communication Service, also International Business. Operational Telin Myanmar is a branch office of PT Telekomunikasi Indonesia International. Established on August 16, 2013, pursuant to the laws of Myanmar. 234 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Percentage of Ownership Interest 100% ownership by Telin Hong Kong 100% ownership by Telin Hong Kong 100% ownership by Telin Companies Telkom Macau Limited Telkom Taiwan Limited Telekomunikasi Indonesia International (USA) Inc Associated Companies Companies Percentage of Ownership Interest Nature of Business Operational Status Description Telecommunication Dormant Telecommunication Dormant Telkom Macau is a subsidiary of Telin Hong Kong and established on May 13, 2013. Telkom Taiwan is a subsidiary of Telin Hong Kong, Established on June 3, 2013. IT and Telecommunications Services (Contents Services) Dormant Telekomunikasi Indonesia International (USA) Inc is a wholly owned subsidiary by Telin Indonesia estabilished on December 11, 2013. Nature of Business Operational Status Description PT Integrasi Logistik Cipta Solusi (“ILCS”) 49% ownership by Telkom metra e-trade logistic services and other related services Operational Telkom metra established ILCS with Pelindo II on September 21, 2012. PT Citra Sari Makmur (“CSM”) 25% PT Pasifik Satelit Nusantara (“PSN”) 22.38% Very Small Aperture Terminal (“VSAT”), network application services and consulting services on telecommunications technology and related facilities Satellite transponder leasing and satellite-based communication services in the Asia Pacific region Operational CSM was established on February 14, 1986. Operational Established on July 2, 1991, PSN held its initial public offering of its ordinary shares in June 1996, listing them on the National Association of Securities Dealers Automated Quotations (“NASDAQ”), but was delisted on November 6, 2001 in connection with its failure to meet certain NASDAQ National Market Listing conditions. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 235 Companies Percentage of Ownership Interest PT Indonusa Telemedia (“Indonusa” or “TelkomVision”) 20% (including through 0.46% ownership by TelkomMetra) Nature of Business Operational Status Description Pay television and content services Operational Joint Venture Companies Company Percentage of Ownership Interest Nature of Business PT Melon Indonesia (“Melon”) 51% ownership by Telkom metra Digital Content Exchange Hub services (“DCEH”) Operational Status Operational Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd. 49% Ownership by Telin Telecommunications, MVNO Services Operational Established on May 7, 1997, TelkomVision is a multimedia (pay-TV, internet service) service provider. Since 2007, TelkomVision was the first Pay TV operator in Indonesia to launch DTH Prepaid (Prepaid Satellite Pay-TV), under the “TelkomVision” brand. on October 8, 2013 company sold Indonusa 1,036,059,483 shares (equivalent 80% of its ownership in Indonusa) to PT Trans Corpora and Trans Media Corpora. Description Melon is a joint venture company between Telkom metra and South Korea Telecom. Melon was established on August 16, 2010. This company, which grew out of our expansion into the Media & Edutainment business, provides digital music and related content services for cell phones, personal computers, consumer electronic channels and other digital media. Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd. is a Joint Venture Company established on July 2, 2013, obtaining Applications Service Provider Class (ASP(C)) on July 23, 2013 and Network Service Provider (NSP) on August 23, 2013. Engaging in the business of providing a full range of telecommunication services and other business related to telecommunications systems, data processing, systems and information systems in Malaysia. 236 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Telkom’s Subsidiaries Chart 53.14% 35% 65% 100% 100% 100% Celluler Multimedia Tower Business Telco Equipment eBay International age Ir. Rinaldi Buchari Ir. Rinaldi Buchari Ir. Harry John Dedy Mardhianto PT Jiraf Imaji Solusi 40% 0.17% 0.01% 60% 99.83% 99.99% 0.01% 99.99% 0.01% 99.99% 49% 51% 99.83% 60% 51% 75% 99.99% 49% 0.17% 40% 25% 0.01% Ir. Rinaldi Buchari PT Mekar Prana Indah 1. PT SWADAYANUSA KENCANA RAHARJA 9.5% 2. Sofian Susantio 9.5% 3. Ravi Varma Kanason 4.75% 4. Shia Kok Rat 1.25% Bambang Lusmiadi Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 237 46.86% Erry Anwardiredja 0.01% 100% 99.99% 100% 100% International Business Property & Construction Netco & Opco VSAT 100% 100% 100% 49% 100% 100% 51% 55% 51% 45% 49% 20% 25% 22.38% 1. Magic Alliance Labuan 80% 38.29% 36.71% - Trans Corpora 80% - Telkom 19,54% - TelkomMetra 0,46% PT TIGATRA MEDIA Media Trio (L) Ine Limited 24.10% 2. The Bank of New York 10% 3. Telesat Canada 3.70% 4. Hughes Telecommunication & Space 3.70% 5. Others 22.80% 238 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Profile of the Board of Commissioners Jusman Syafii Djamal President Commissioner Jusman Syafii Djamal, 59 years old, has served as our President Commissioner since January 1, 2011. Currently, he also serves as President Commissioner (Independent) at PT Cardig Aero Services Tbk, as President Commissioner (Independent) at PT Toba Bara Sejahtera Tbk., as President Commissioner (Independent) at PT Mandala Airline Tbk, and as Chairman at Matsushita Gobel Foundation. Since May 20, 2011, he is by appointment of the President of the Republic of Indonesia, a member of the National Innovation Committee (a think tank of the President of the Republic Indonesia on Innovation Policy). He was served as the Minister of Transportation for the “Indonesia Bersatu Pertama” cabinet (2007-2009) and concurrently a member of the National Transportation Safety and Security Evaluation Team (2007) founded to evaluate and find the “root causes” of accidents in Shipping/Marine, Railways and Highways transportation. He has vast experience in aircraft industry management due to exposures to a variety of strategic positions; as the President Director of PT Dirgantara Indonesia (2000-2002), as Director of Human Resources of PT IPTN (1999- 2000), as Director of Helicopters, Defense Technology and Satellite (1996-1999), as Chairman of PT IPTN’s Restructuring Program Implementation team (1998-2001), and as Chief Project Engineer for N250 Development & Constructional Design (1989-1995). As a professional aerodynamics engineer with twenty years of experience in Computational Aerodynamics and Configuration Development, he holds, an Intellectual Property Right Patent No.ID 0 021 669 for electronic-based Flight Control Systems issued on August 15, 2008 together with the late Bambang Pamungkas. He was awarded the Nararya Dedicational Award from the Republic of Indonesia on August 17, 1995. He is co-author of Grand Techno Economic Strategy- Siasat Memicu Produktivitas (Mizan Publishers, 2009). He earned his Bachelor of Mechanical Engineering in Aeronautical Engineering from Institut Teknologi Bandung (1983). Parikesit Suprapto Commissioner Parikesit Suprapto, 62 years old, has served as our Commissioner since May 11, 2012. Previously he was the Deputy of Business Services at the Ministry of SOE (2010-2012), Deputy Head of Banking and Finance Industry at the Ministry of SOE (2008- 2010) and Advisor to the Minister of SOE for Small Business Sector (2006-2008). He was a Commissioner of PT Indosat Tbk. (2011-2012) and a Commissioner of PT Bank Negara Indonesia (Persero) Tbk. He earned a Bachelor’s degree in Corporate Economics from Sekolah Tinggi Manajemen Industri, Jakarta (1980), a Master’s degree in Economic Development from Indiana University, Indiana, USA (1990) and a PhD degree in Development Economics from the University of Notre Dame, Indiana, USA (1995). Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 239 Hadiyanto Commissioner Johnny Swandi Sjam Independent Commissioner Hadiyanto, 51 years old, has served as our Commissioner since May 11, 2012. Currently, he also serves as Director General of State Treasury at the Ministry of Finance of the Republic of Indonesia. He has assumed, among other positions, Head of the Legal Bureau, Secretariat General of the Ministry of Finance and was the Alternate Executive Director at the World Bank, Washington D.C., US. In corporate environment he had served as the President Commissioner of PT Garuda Indonesia Tbk (2007-2012) and President Commissioner of PT Bank Export Indonesia (2007-2009). He holds a Bachelor’s degree in Law from the University of Padjadjaran, Bandung, a Master of Law Degree (“LLM”) from Harvard University Law School, USA, and a PhD. in Law from the University of Padjadjaran, Bandung. Johnny Swandi Sjam, 53 years old, has served as our Independent Commissioner since January 1, 2011. Currently he is also the Chairman of the Standing Committee on Infrastructure and Telecommunications Services at the Indonesian Chamber of Commerce and Industry (“KADIN”). He previously served, among other positions, as a Commissioner at PT Inti Limited (2010-2011), the President Director of PT Indosat Tbk. (2007-2009), the Director of PT Indosat Tbk. (2005-2007), the President Director of Satelindo (2002-2003), and several other important positions at subsidiaries of Indosat like Satelindo, Sisindosat and Intikom (1997-2002). He holds a Diploma III in Computer Engineering from Bandung Institute of Technology, a Diploma IV from Sekolah Tinggi Manajemen Industri of the Department of Industry of Indonesia, a Bachelor’s degree in Informatics Management from Gunadarma University, Jakarta, and a Master’s degree in Business Policy and Administration from the University of Indonesia, Jakarta. Virano Gazi Nasution Independent Commissioner Gatot Trihargo Commissioner Virano Gazi Nasution, 45 years old, has served as our Independent Commissioner since May 11, 2012. He was previously the Commercial Director of PT Indonesia Comnet Plus, a subsidiary of PT PLN (Persero) (2009-2012), Advisor to the Minister of Communications and Informatics (2008- 2009), and the President Director of PT Bakrie Telecom Tbk. (2001-2005). He earned his Master of Science degree in Engineering Economics from Stanford University, USA. Gatot Trihargo, 53 years old, serves as a Commissioner, Tbk since 19 April 2013. He currently serves as a Deputy of Services Business in the Ministry of State-Owned Enterprises of the Republic of Indonesia. Holds a degree in accounting from the State College of Accountancy, Jakarta. And a Master's degree in Accountancy and Financial Information Systems from Cleveland State University in Ohio, USA. Our Board of Commissioners was appointed based on the resolution of Telkom’s AGMS No.Tel.83/PR000/COP-A0070000/2013 dated on April 23, 2013. There is no affiliation between members of the Board of Commissioners and Board of Directors, but there is an affiliation with shareholders. For a description regarding trainings attended to improve the competency of Board of Commissioners, see “Corporate Governance – Corporate Governance Structure – Board of Commissioners”. 240 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Profile of the Board of Directors Arief Yahya President Director (CEO) Honesti Basyir Director of Finance Arief Yahya, 52 years old, has served as our President Director since May 11, 2012. Concurrently, he also serves as President Commissioner of Telkomsel, our subsidiary. Prior to his appointment as President Director, he led a career with Telkom in various positions, including as Director of Enterprise & Wholesale (2005-2012), Head of Regional Division V East Java (2004-2005) and Head of Regional Division VI Kalimantan (2003-2004). He holds a Bachelor’s degree in Electrical Engineering from Institut Teknologi Bandung (1986) and a Master’s degree in Telematics University of Surrey, UK (1994). from Honesti Basyir, 45 years old, has served as our Director of Finance since May 11, 2012. Prior to his appointment as Director of Finance, he has held a number of key positions with Telkom, including Vice President (“VP”) for Strategic Business Development at ITSS Directorate (2012), VP for Strategic Business Development at SICP (2010-2012), Project Controller of Project Management Office (2009- 2010) and Assistant Vice President (“AVP”) for Business & Finance Analysis (2006-2009). He holds a Bachelor’s degree in Industrial Technology from Institut Teknologi Bandung (1992) and a Master’s degree in Corporate Finance from Sekolah Tinggi Manajemen Bandung (2004). Indra Utoyo Director of Innovation & Strategic Portfolio Sukardi Silalahi Director of Consumer Service Indra Utoyo, 51 years old, Indra Utoyo has served as our Director of Innovation & Strategic Portfolio (“ISP”) since May 11, 2012. He joined Telkom in 1986 and has held a variety of positions, prior to his appointment as Director of ISP he served as Director of Information Technology Solution & Supply (2007-2012). He holds a Bachelor’s degree in Electrical Engineering from Institut Teknologi Bandung (1985) and a Master’s degree in Communication & Signal Processing from Imperial College, UK (1994). Sukardi Silalahi, 48 years old, has served as our Director of Consumer Service since May 11, 2012. He joined Telkom in 1991 and, prior to his appointment as Director of Consumer Service, he served in a variety of positions, including Executive General Manager (“EGM”) of Eastern Consumer Service Division (2011-2012), Deputy EGM of Western Consumer Service Division (2010-2011), EGM of Regional Division VI Kalimantan (2008-2010) and Deputy EGM of Fixed Wireless Network Division (2007- 2008). He holds a Bachelor’s degree in Civil Engineering from Institut Teknologi Bandung (1989). Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 241 Muhammad Awaluddin Director of Enterprise & Business Service Muhammad Awaluddin, 45 years old, has served as our Director of Enterprise & Business Service (“EBIS”) since May 11, 2012. Concurrently, he also serves as President Commissioner of Infomedia, our indirect subsidiary. Prior to his appointment as Director of EBIS, he served, among other positions, as President Director of Infomedia (2010-2012), EGM of Access Network Division (2010) and EGM of Regional Division I Sumatra (2007-2010). He holds a Bachelor’s degree in Electrical Engineering from Universitas Sriwijaya, Palembang (1990) and a Master’s degree in Business Administration from the European University, Antwerp, Belgium (1998). Rizkan Chandra Director of Network IT & Solution Rizkan Chandra, 44 years old, has served as our Director of Network IT & Solution (“NITS”) since May 11, 2012. Concurrently, he also serves as Commissioner of Telkomsel, our subsidiary, and as Commissioner at Metranet, our indirect subsidiary. Prior to his appointment as Director of NITS, among other positions, he served as President Director of Sigma, our indirect subsidiary (2010-2012), Senior General Manager (“SGM”) of Telkom Learning Center (2008-2010) and VP for Infrastructure & Service Planning (2007-2008). He holds a Bachelor’s degree in Informatics from Institut Teknologi Bandung (1992) and a Master’s degree in Management of Technology from the National University of Singapore (2000). Priyantono Rudito Director of Human Capital Management Ririek Adriansyah Director of Wholesale & International Service Priyantono Rudito, 46 years old, has served as our Director of Human Capital Management (“HCM”) since May 11, 2012. Concurrently, he also serves as Commissioner of Telkomsel, our subsidiary. Since he joined Telkom in 1991, he had served in a number of positions, including as VP for Corporate Strategic Planning (2011- 2012) and VP Marketing & Consumer Care (2007-2011). He holds a Bachelor’s degree in Industrial Engineering from Institut Teknologi Bandung (1991) and a Master’s degree of Business in Marketing (1997) and a Doctoral degree in Management (2011) from the Royal Melbourne Institute of Technology, Australia. Ririek Adriansyah, 50 years old, has served as our Director of Wholesale & International Service (“WINS”) since May 11, 2012. Concurrently, he also serves as President Commissioner of Telin, our subsidiary. He joined Telkom in 1990 and, prior to his appointment as Director of WINS, served as, among other positions, President Director of Telin, our subsidiary (2011-2012), Director of Marketing & Sales, Telin (2010- 2011), Director of International Carrier Service, Telin (2008-2010) and Deputy EGM of Infratel Division (2004-2008). He holds a Bachelor’s degree in Electrical Engineering from Institut Teknologi Bandung (1989). Board of Directors has served based on the resolution of our AGMS No.Tel.83/PR000/COP-A0070000/2013 dated on April 23, 2013. There is no affiliation between members of the Board of Directors and shareholders. For a description regarding duties of Board of Directors and trainings attended to improve the competency of Board of Directors, see “Corporate Governance – Corporate Governance Structure – Board of Directors”. 242 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Stock Overview The Government’s ownership of the Dwiwarna share gives it effective control over our Company even if it reduces its ownership of our common stock, and its rights with respect to the Dwiwarna share may only be modified by an amendment of our Articles of Association, which the Government may veto. A. Shareholder Composition Our authorized capital consists of 1 Series A Dwiwarna share and 399,999,999,999 Series B (common stock) shares. Among this authorized shares, 100,799,996,400 of which are issued and fully paid, consists of the Series A Dwiwarna share and 100,799,996,399 common stock. The Series A Dwiwarna share is owned by the Government and carries special voting rights and the right to nominate, and to veto the appointment and removal of, any director or commissioner, the issue of new shares and amendments to our Articles of Association including amendments to merge or dissolve us prior to the expiry of its term of existence, to increase or decrease our authorized capital or to reduce our subscribed capital. The material rights and restrictions placed on the common stock also apply to the Dwiwarna Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 243 share, except that the Government cannot transfer the Dwiwarna share. The Government’s ownership of the Dwiwarna share gives it effective control over our Company even if it reduces its ownership of our common stock, and its rights with respect to the Dwiwarna share may only be modified by an amendment of our Articles of Association, which the Government may veto. See Notes 23 to our Consolidated Financial Statement. Company Shareholders per December 31, 2013 Government Public Capital Subtotal (issued and outstanding) Treasury Stock Total 1 - 1 - 1 Series A Dwiwarna Share Series B Shares (Common Stock) % 53.14 46.86 51,602,353,559 45,498,500,040 97,100,853,599 100.00 3,699,142,800 0 100,799,996,399 100.00 Our shareholder composition as of December 31, 2012 is as follows: 1. Shareholders Owning More Than 5% of Shares Title of Class Person or Group Number of Shares Percentage of Ownership Series A Series B Government Government 1 51.602.353.559 - 53,14 2. Shares Owned by Directors or Commissioners As of December 31, 2013, none of our Directors or senior managers have more than 1.0% of our shares. In addition, on December 31, 2013 the Commissioners have no common stock of our Company’s. Directors or Commissioners Number of Shares Percentage of Ownership Directors Indra Utoyo Honesti Basyir Priyantono Rudito Sukardi Silalahi Total 27,540 540 540 540 28,620 <0.01 <0.01 <0.01 <0.01 <0.01 3. Shareholders Owning Less Than 5% of Shares Group Number of Shares of Common Stock Owned Percent (%) of Common Stock Owned Foreign Local Business Individual Business Entities Companies Mutual Funds 37,225,349,109 15,439,800 2,129,760,716 2,704,444,356 Insurance Companies 1,987,715,400 Pension Funds Others Individuals Total 679,575,650 81,817,350 673,848,287 45,497,950,668 38.34 0.01 2.19 2.79 2.05 0.70 0.08 0.69 46.85 244 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis 4. Proportion of Common Stock Held in Indonesia and Abroad As of December 31, 2013, we had 50,940 common stock shareholders, including the Government. This total includes 38,290,928,072 common stock shares owned by 1,819 shareholders outside Indonesia. As of the same date, there were 106 ADS shareholders who owned 56,880,158 ADS (1 ADS is equivalent to 200 common stock shares). B. Chronology of Stock Issued Date Corporate Actions Share Ownership Composition Government of the Republic Indonesia % Public % 13/11/1995 Pre Initial Public Offering (“Pre-IPO”) 8,400,000,000 100.0 14/11/1995 IPO Sale of Government’s shares (933,334,000) New shares issued by Telkom - - 933,334,000 933,333,000 - - - Share Ownership Composition 7,466,666,000 80.0 1,866,667,000 20.0 11/12/1996 Block Sale of Government’s shares (388,000,000) - 388,000,000 - Share Ownership Composition 7,078,666,000 75.8 2,254,667,000 24.2 15/05/1997 Distribution of incentive shares by the Government to public shareholders (2,670,300) - 2,670,300 - Share Ownership Composition 7,075,995,700 75.8 2,257,337,300 24.2 07/05/1999 Block Sale of Government’s shares (898,000,000) - 898,000,000 - Share Ownership Composition 6,177,995,700 66.2 3,155,337,300 33.8 02/08/1999 Distribution of bonus shares (emission) (every 50 shares acquire 4 shares) 494,239,656 - 252,426,984 - Share Ownership Composition 6,672,235,356 66.2 3,407,764,284 33.8 07/12/2001 Block Sale of Government’s shares (1,200,000,000) - 1,200,000,000 - Share Ownership Composition 5,472,235,356 54.3 4,607,764,284 45.7 16/07/2002 Block Sale of Government’s shares (312,000,000) - 312,000,000 - Share Ownership Composition 5,160,235,356 51.2 4,919,764,284 48.8 Share Ownership Composition 10,320,470,712 51.2 9,839,528,568 48.8 21/12/2005 Share repurchase program (I)1 10,320,470,712 51.7 9,628,238,068 48.3 29/06/2007 Share repurchase program (II)2 10,320,470,712 52.3 9,413,238,068 47.7 20/06/2008 Share repurchase program (III)3 10,320,470,712 52.5 9,348,954,068 47.5 19/05/2011 Share repurchase program (IV)4 10,320,470,712 53.9 8,828,598,108 46.1 14/06/2013 Transferred a portion of Share repurchase program III to employees through ESOP Program 30/07/2013 Transferred share repurchase program I by private placement 10,320,470,712 53.7 8,888,409,508 46.3 10,320,470,712 53.1 9,099,700,008 46.9 Share Ownership 51,602,353,560 53.1 45,498,500,040 46.9 (1) The first share repurchase program started on December 21, 2005 (the date of the Extraordinary General Meeting of Shareholders at which the program was approved) and ended in June 2007. (2) The second share repurchase program started on June 29, 2007 (the date of the Extraordinary General Meeting of Shareholders at which the program was approved) and ended in June 2008. (3) The third share repurchase program started on June 20, 2008 (the date of the Extraordinary General Meeting of Shareholders at which the program was approved) and ended in December 2009. (4) The fourth share repurchase program started on May 19, 2011 (the date of the Annual General Meeting of Shareholders at which the program was approved) and ended in November 2012. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 245 1. Employee Stock Ownership Program The Employee Stock Ownership Program (“ESOP”) is an employee-owner scheme that provides our employee with an ownership interest in our Company. At our initial public offering on November 14, 1995, a total of 116,666,475 shares were issued to 43,218 employees. On June 14, 2013, the Company transferred a portion of the treasury stock to its employees as part of the 2012 annual incentives. The 59,811,400 (equal to 299,057,000 shares after stock split) treasury stock transferred to 24.993 employees which had a total fair value of Rp641 billion. As of December 31, 2013, 284,336,610 of our shares were owned by 28,115 of our employees and our retirees. 2. Purchases of Equity Securities by The Issuer and Affiliated Purchasers Period Total Number of Share Purchased Average Price Paid per Share in (Rp) 2006 2007 2008 2011 2012 - 118,376,500 126,364,000 245,834,000 283,085,460 520,355,960 - 8,044 9,689 8,491 7,337 7,996 Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet Be Purchased Under the Plans - 1,007,999,964 118,376,500 889,623,464 244,740,500 763,259,464 490,574,500 517,425,464 773,659,960 645,161,290 1,010,930,460 124,805,330 246 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis As of December 31, 2012, (ninety) days before the sale, interest at a fixed rate of 17% we had repurchased and Rp11,400 per share, which per annum, payable quarterly 1,010,930,460 common stock is the closing price on the day beginning October 16, 2002. shares, equivalent to 5.0% of before the selling date. The bonds was traded on the our issued and outstanding Surabaya Stock Exchange and common stock, at an aggregate As of December 31, 2013, matured on July 16, 2007. The repurchase price of Rp8,067 our treasury stock balance is trustee of the bonds was BRI billion, excluding broker and 739,828,560 or after stock split (effective from January 17, custodian fees. Under our 3,699,142,800 common stock 2006 replacing BNI) and the repurchase program, we shares, equivalent to 3.7% of custodian was PT Kustodian repurchased 118,376,500 shares our issued and outstanding Sentral Efek Indonesia. The in 2006, 126,364,000 shares in common stock which comprise bonds were fully repaid on 2007, 245,834,000 shares in of Share Buyback Phase II and July 16, 2007. 2008, 283,085,460 shares in IV with average repurchase 2011 and 237,270,500 shares price after stock split were Second IDR bond issued on in 2012. In 2011 and 2012, we Rp1,832 and Rp1,462, excluding June 25, 2010 with a nominal repurchased 520,355,960 broker and custodian fees. See amount of Rp1,005 billion for common stock shares at an Note 25 to our Consolidated a five-year period and Rp1,995 aggregate repurchase price Financial Statement. Rp3,803 billion. billion for a ten-year period for Series A and Series B, We plan to retain, sell or use respectively, were listed on the On April 19, 2013 in accordance repurchased stock for other IDX. with the Resolution of the purposes in accordance with AGMS and regard with Bapepam-LK Rule No.XI.B.2, The underwriters of the bonds clause 4 letter a number Law No.40/2007 regarding are PT Bahana Securities, (3) Bapepam-LK XI.B.2 we Limited Liability Companies PT Danareksa Sekuritas and executed the transfer of and the resolutions of the PT Mandiri Sekuritas. And the 59,811,400, or after stock split AGMS on April 19, 2013, that trustee is PT CIMB Niaga Tbk. 299,057,000 shares of Series require the Board of Directors As of December 31, 2011, the B from Share Buyback Phase to seek prior approval from rating for the bonds issued by III through Employee Stock the Board of Commissioners PT Pemeringkat Efek Indonesia Ownership Program. to undertake any change or (Pefindo) is idAAA (stable transfer of treasury stock and outlook). See “Highlights – On 29 July 2013, we have sold report its utilization or transfer Common Stock and Bond 211,290,500 or after stock split to the AGMS. Before giving Highlights”. 1,056,452,500 shares which are its approval, the Board of part of Share Buyback Phase Commissioners must consult D. Dividend Policy I by private placement. The with the holder of the Series A The AGMS has the authority selling price was Rp11,400 per Dwiwarna share. share, which is not lower than to determine the amount of dividends we pay. Our Rp8,657 per share which is the C. Chronology of Bonds dividend payout ratio for 2013 average repurchase price of On July 16, 2002, the Company will be decided at the AGMS treasury stock, Rp11,288 per issued a five-year bonds scheduled for 2014. share which is the average amounting to Rp1,000 billion, closing price for the last 90 at par value. The bonds bore Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 247 Table Chronology of Cash Dividend Dividend Year Date of AGMS Payout Ratio (%)1 Amount of Dividens (Rp million) Dividend per Share (Rp) 2008 2009 2010 2011 2012 June 12, 2009 June 11, 2010 May 19, 2011 May 11, 2012 April 19, 2013 55 50 55 65 65 5,840,7082 5,666,070 6,345,3503 7,127,3334 8,352,5975 59.39 57.61 64.52 74.21 87.24 (1) Represents the percentage of profit attributable to owners of the parent paid to shareholders in dividends. (2) Including interim cash dividend paid in December 2009 amounting to Rp524,190 million. (3) Including interim cash dividend paid in December 2010 and January 2011 amounting to Rp276,072 million and Rp250,085 million respectively. (4) Consists of cash dividend amounting to Rp6,030.8 million and special cash dividend amounting Rp1,096.5 million. (5) Consists of cash dividend amounting to Rp7,067.6 million and special cash dividend amounting Rp1,285.0 million. Telkomsel Dividend Pursuant to AGMS in April 2013, Telkomsel approved the payment of a cash dividend of Rp13,358 billion, which represented 85% of Telkomsel’s net profit in 2012, Rp4,675 billion of this dividend was distributed to SingTel Mobile. In 2011, 2012, and 2013 cash dividends were paid to SingTel Mobile, a non-controlling shareholder of Telkomsel, amounting to Rp2,726 billion, Rp3,231 billion and Rp4,675 billion. E. Capital Market Supporting Professionals Capital Market Supporting Professionals INDEPENDENT AUDITORS Public Accountant Firm (KAP) Purwantoro, Suherman & Surja (Member firm of Ernst & Young Global Limited) Address Services Fees Service period Rp26,619,000,000 2013 Indonesian Stock Exchange Building Tower 2, 7th Floor Jl. Jend. Sudirman Kav. 52 - 53 Jakarta 12190, Indonesia Tel. : (62-21) 5289 5000 Fax. : (62-21) 5289 4100 Integrated Audit PT Telekomunikasi Indonesia, Tbk. (“Telkom”) and General Audit on the Financial Statements of subsidiaries in fiscal 2012. Public Accountant Firm (KAP) Tanudiredja, Wibisana & Rekan (Member firm of PricewaterhouseCoopers Global Network) Plaza 89 Jl. H.R. Rasuna Said Kav. X-7 No. 6 Jakarta 12940 Tel.: (62-21) 521 2901 Fax.: (62-21) 5290 5555 Issuance of consent letter. Rp4,400,000,000 2013 SHARE REGISTRAR PT Datindo Entrycom Puri Datindo Wisma Sudirman Jl. Jend. Sudirman Kav. 34, Jakarta 10220 Tel. : (62-21) 570 9009 Fax. : (62-21) 570 9026 Performs custodian services for the common stock of Telkom traded at the Indonesia Stock Exchange. Rp136,000,000 Since IPO of Telkom in 1995 248 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Capital Market Supporting Professionals TRUSTEE Address Services Fees Service period PT Bank CIMB Niaga Tbk. Graha Niaga, 7th Floor Rp75,000,000 2010 Representing the interest of bondholders in interaction with the Company related to Telkom II Bonds. - Provides centralized Rp30,000,000 Since 1995 custodian and settlement of share transactions at IDX - Custodian and settlement services in securities transactions and share distribution in corporate actions Provides risk rating on bonds issued by Telkom. Rp140,250,000 2010, 2011 Jl. Jend. Sudirman Kav. 58, Jakarta 12190 Tel. : (62-21) 300 6420 ext. 32001 - 32003 Fax. : (62-21) 250 5777 Jakarta Stock Exchange Building Tower 1, 5th Floor Jl. Jenderal Sudirman, Kav. 52 - 53 Jakarta, 12190 Tel. : (62-21) 529 91099 Fax. : (62-21) 529 91199 Panin Tower - Senayan City, 17th Floor Jl. Asia Afrika Lot. 19 Jakarta 10270 Tel. : (62-21) 7278 2380 Fax. : (62-21) 7278 2370 101 Barclay Street 22nd Floor West New York NY 10286 Tel. : (1-212) 815 8162 Fax. : (1-212) 571 3050 Performs custodian services for ADS traded at the NYSE and LSE. US$57,111 Since 1995 CUSTODIAN PT Kustodian Sentral Efek Indonesia RATING AGENCY PT Pefindo DEPOSITORY FOR ADS The Bank of New York Mellon Depositary Receipts Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 249 ADDRESSES Company: PT Telekomunikasi Indonesia, Tbk No Office Address Telephone Fax 1 2 3 Head Office Graha Merah Putih Telkom www.telkom.co.id Jl. Japati No. 1, Bandung 40133 (62-22) 452 7101 (62-22) 424 0313 Corporate Communication & Affairs corporate_comm@telkom.co.id Graha Merah Putih, 1st Floor Jl. Jend. Gatot Subroto Kav. 52 , Jakarta 12710 (62-21) 529 22007 (62-21) 521 1117 Investor Relation investor@telkom.co.id Graha Merah Putih, 5th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 (62-21) 521 5109 (62-21) 522 0500 4 Network of Broadband Division Graha Merah Putih, 9th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 (62-21) 522 1400 (62-21) 522 1500 (62-21) 522 9600 5 Access Division Graha Merah Putih, 7th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 (62–21) 5290 3482 (62–21) 522 1300 6 Maintenance Service Center Graha Merah Putih, 4th Floor, Jl. Japati No. 1, Bandung 40133 (62-22) 452 4129 (62-22) 452 4125 7 Information System Center ISCenter@telkom.co.id Graha Merah Putih Telkom, 4th Floor Jl. Japati No. 1, Bandung 40133 (62-22) 452 4228 (62-22) 720 1890 8 Wireless Broadband Division Graha Flexi, 2nd Floor, Jl. Kebon Sirih No. 36, Jakarta 10110 (62-21) 344 7070 (62-21) 344 0707 9 Broadband Division Sek.divbb@gmail.com Graha Merah Putih, 7th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 (62–21) 5290 3482 (62–21) 522 1300 10 Solution Convergence Division www.c4.telkom.co.id c4@telkom.co.id Multimedia Tower, 15th - 17th Floor Jl. Kebon Sirih No. 12, Jakarta 10110 11 Research & Development Center Jl. Gegerkalong Hilir No. 47, Bandung 40152 12 Divisi Consumer Services Graha Merah Putih 14th Floor Jl. Jend. Gatot Subroto Kav. 52 , Jakarta 12710 (62-21) 386 0500 (62-21) 386 6267 (62-21) 386 0300 (62-22) 457 1050 (62-22) 457 1051 (62-22) 201 4669 (62-22) 201 3505 (62-21) 7072 6162 (62-21) 520 2764 13 Enterprise Services Division Multimedia Tower 19th Floor Jl. Kebon Sirih No 10-12, Jakarta Pusat 10110 (62-21) 386 6600 (62-21) 386 8400 14 Business Service Division Jl. Letjen S. Parman Kav. 8, 2nd Floor, Jakarta 11440 (62-21) 565 8500 (62-21) 565 2800 15 Wholesale Services Division Graha Merah Putih, 8th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 (62-21) 5291 7007 (62-21) 5289 2080 16 Human Capital Center Graha Merah Putih Telkom, 5th Floor Jl. Japati No. 1, Bandung 40133 (62-22) 452 5428 (62-22) 720 6986 17 Corporate University Jl. Gegerkalong Hilir No. 47, Bandung 40152 (62-22) 201 4508 (62-22) 201 4441 (62-22) 201 4429 18 Management Consulting Center Jl. Cisanggarung No. 2, Bandung 40115 (62-22) 452 1620 (62-22) 452 1549 19 Assessment Service Center Jl. Hegarmana No. 71, Bandung 40141 (62-22) 203 9255 (62-22) 203 5269 (62-22) 203 9231 20 Community Development Center Graha Merah Putih 6th Floor, Jl. Japati No. 1, Bandung 40133 (62-22) 452 6169 (62-22) 452 6130 21 Supply Center Graha Merah Putih 6th Floor, Jl. Japati No. 1, Bandung 40133 (62-22) 452 6327 (62-22) 720 6583 22 Finance, Billing & Collection Center Graha Merah Putih 3rd Floor, Jl. Japati No. 1, Bandung 40133 (62-22) 452 3371 (62-22) 452 3377 250 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Direct Subsidiaries No Entity Address Telephone Fax 1 2 3 4 5 6 7 8 9 PT Telekomunikasi Selular www.telkomsel.com Wisma Mulia 15th Floor Jl. Jend. Gatot Subroto Kav. 42 , Jakarta 12710 PT Graha Sarana Duta www.telkomproperty.co.id Telkom Property Tower, Annex Building Jl. Kebon Sirih No. 10-12 , Jakarta 10110 PT Telekomunikasi Indonesia International www.telin.co.id Jamsostek Tower, North Tower, 24th Floor Jl. Jend. Gatot Subroto Kav. 38 , Jakarta 12710 (62-21) 524 0811 (62-21) 529 06091 (62-21) 380 0900 (62-21) 3483 0653 (62-21) 2995 2300 (62-21) 5296 2358 PT Multimedia Nusantara www.metra.co.id The East Tower, 37th Floor Jl. Dr. Ide Anak Agung Gede Agung Kav. E3.2 No. 1 , Jakarta 12950 (62-21) 521 0123 (62-21) 521 0124 PT Dayamitra Telekomunikasi www.mitratel.co.id Graha Pratama Building, 5th Floor Jl. M.T. Haryono Kav. 15 , Jakarta 12810 PT Pramindo Ikat Nusantara www.pramindo.com Plaza Kuningan, Annex Building, 7th Floor Jl. HR. Rasuna Said Kav. C11-C14, Jakarta Selatan 12940 PT Napsindo Primatel International Elektrindo Building, 6th Floor Jl. Prof. Dr. Supomo No. 139, Tebet, Jakarta Selatan PT Telkom Akses Telkom Building, 7th Floor Jl. S. Parman Kav. 8, Jakarta Barat 11440 PT Patra Telekomunikasi Indonesia www.patrakom.co.id Jl. Pringgodani 2 No. 33 Alternatif Cibubur, Depok 16954 (62-21) 8370 9592 (62-21) 8370 9593 (62-21) 8370 9591 (62-21) 520 2560 (62-21) 5292 0156 (62-21) 520 9202 (62-21) 520 9305 (62-21) 2933 7000 (62-21) 2933 6000 (62-21) 845 4040 (62-21) 845 7610 Indirect Subsidiaries No Entity Address Telephone Fax PT Infomedia Nusantara www.infomedianusantara.co.id Jl. RS. Fatmawati Kav. 77-81, Jakarta 12150 (62-21) 720 1221 (62-21) 720 1226 PT Finnet Indonesia www.finnet-indonesia.com Bidakara Tower, 2th Floor Jl. Jend. Gatot Subroto Kav. 71-73, Jakarta 12870 (62-21) 829 9999 (62-21) 828 1999 PT Sigma Citra Caraka www.telkomsigma.co.id PT Administrasi Medika www.admedika.co.id Telekomunikasi Indonesia International Pte. Ltd. www.telin.sg PT Metra Plasa Dea Tower, 7th & 8th Floor, Kawasan Mega Kuningan Jl. Mega Kuningan Barat IX Kav. E43 No. 1, Jakarta 12950 (62-21) 576 2150 (62-21) 576 2155 Telkom STO Gambir, C Building, 3rd, 4th & 5th Floor Jl. Medan Merdeka Selatan No. 12, Jakarta 10110 1 Maritime Square #09-63 Harbour Front Center, Singapore 099253 (62-21) 3483 1100 (62-21) 3483 5489 (65) 6278 8189 (65) 6273 1169 Mulia Business Park, Building J Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta 12780 (62-21) 7918 7250 (62-21) 7918 7252 PT Telkom Landmark Tower Graha Merah Putih, 6th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 Telekomunikasi Indonesia International Hong Kong Limited www.telin.hk Suite 905, 9F, Ocean Center No. 5 Canton Road, Tsim Sha Tsui Kowloon, Hong Kong PT Metra-Net www.metranet.co.id Mulia Business Park, Building J Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta 12780 Telekomunikasi Indonesia International (TL), S.A www.telkomcel.tl Timor Plasa 4th Floor Rua Presidente Nicolau Labato Comoro, Dili, Timor Leste (62-21) 521 5565 (62-21) 521 5576 (852) 3102 3309 (852) 3102 3306 (62-21) 7918 7250 (62-21) 7918 7252 (670) 7408 0002 (670) 7408 0002 Level 5, 30 Collins Street, Melnourne VIC 3000 (61) 3 963 98 270 Telekomunikasi Indonesia International Australia Pty. Ltd. www.telkom.au Telekomunikasi Indonesia International (Myanmar Branch) 13 Telkom Macau Limited 14 Telkom Taiwan Limited No. #0502, Level 5, Sakura Tower No. 339, Bogyoke aung-san street Kyauktada township, Yangon Av. Praia Grande No. 369, Keng Ou Commercial Building 17/FL, Macau 10F No. 15 Sec.2, Keelung Road Xinyi District, Taipei City 11052 Taiwan PT Metra Digital Media www.mdmedia.co.id Jl. RS Fatmawati No. 77-81 Jakarta Selatan 12940 PT Pojok Celebes Mandiri www.pointer.co.id Jl. Condet Raya No. 333/J Balekambang Kramat Jati, Jakarta Timur 13530 Graha Yasa Selaras www.gys.co.id Jl. Cisanggarung No. 2 Bandung, 40115 (95) 9420182434 (853) 2855 3191 (886) 2875 25071 (62-21) 720 1221 (62-21) 720 1226 (62-21) 520 2560 (62-21) 5292 0156 (62-21) 2937 3372 (62-21) 8087 6387 PT Infomedia Solusi Humanika www.ish.co.id Jl. RS Fatmawati No. 75, Bank Mandiri Building 5th Floor South Jakarta 12150 (62-22) 872 45817 (62-22) 872 45817 1 2 3 4 5 6 7 8 9 10 11 12 15 16 17 18 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 251 No Entity 19 PT Metra Media (MM) 20 PT Metra TV Address Telephone Fax The East Tower 37th Floor. Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No. 1, Kuningan Timur, Setiabudi, Jakarta Selatan 12950 (62-21) 720 1221 The East Tower 37th Floor. Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No. 1, Kuningan Timur, Setiabudi, Jakarta Selatan 12950 (62-21) 521 0123 (62-21) 521 0124 21 PT Satelit Multimedia Indonesia The East Tower 37th Floor. Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No. 1, Kuningan Timur, Setiabudi, Jakarta Selatan 12950 (62-21) 521 0123 (62-21) 521 0124 22 23 Telekomunikasi Indonesia International (USA) Inc. Registered Office: 2711 Centerville Road, Suite 400 Wilmington, Delaware 19808 Telekomunikasi Selular Finance Limited (“TSFL”) c/o International Management (Mauritius) Ltd. 4th Floor, Les Cascades Bldg, Edith Cavell Street, Port-Louis. Republic of Mauritius (62-21) 521 0123 (62-21) 521 0124 (230) 212 9800 (230) 212 9833 Associated Companies No Entity Address Telephone Fax 1 2 3 4 PT Citra Sari Makmur www.csmcom.com Chase Plaza, 16th Floor Jl. Jend. Sudirman Kav. 21, Jakarta 12910 PT Pasifik Satelit Nusantara www.psn.co.id Kantor Taman Building, A9 Unit C3 - C4 Jl. Mega Kuningan Raya Lot 8/9 No. 9 Kawasan Mega Kuningan, Jakarta 12950 PT Integrasi Logistik Cipta Solusi www.ilcs.co.id Telkom North Jakarta Plaza, 4th Floor Jl. Yos Sudarso Kav. 23-23, Jakarta Utara PT Indonusa Telemedia www.telkomvision.com Plasa TelkomVision Building, 3rd Floor Jl. Prof. Dr. Supomo No. 139, Tebet, Jakarta 12810 (62-21) 520 8311 (62-21) 570 0194 (62-21) 570 4656 (62-21) 576 2292 (62-21) 576 2290 (62-21) 4393 2555 (62-21) 4393 6555 (62-21) 829 8800 (62-21) 831 7400 Joint Venture Companies No 1 2 Entity Address Telephone Fax PT Melon Indonesia www.melon.co.id Telkom DCS 1 Building, 7th Floor Jl. Sisingamangaraja Kav. 4 – 6, Kebayoran Baru, Jakarta Selatan 12110 (62-21) 724 4493 (62-21) 724 4390 Telekomunikasi Indonesia International (Malaysia) Sdn. BHD. Suite 23, A-1, 23 A Floor, Wisma UOA II, No. 21 Jalan Pinang, 50450 Kuala Lumpur, Malaysia (60) 3233 20680 252 252 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk Highlight Highlights Preface Preface Management Management Report Report Business Business Overview Overview Management’s Management’s Discussion & Analysis Discussion & Analysis Additional Information (ADR Shareholder’s) 254 Summary of Significant Differences Between Indonesian Corporate Governance Practices and the NYSE’S Corporate Governance Standards 256 Relationship with the Government and Government Agencies 258 Capital Market Trading Mechanism and Telkom ADS 256 Summary of Significant Differences Between IFAS and IFRS 260 Taxation 262 Legal Basis and Regulation 268 Competition 272 Licensing 276 Trademark, Copyrights, Industrial Designs and Patents 256 Articles of Association 262 Research and Development 278 Definitions Corporate Governance Governance Social & Social & Environmental Environmental Responsibility Responsibility Company Company Profile Profile Additional Additional Information Information (For ADR (For ADR Shareholders) Shareholders) Appendices Appendices 2013 Annual Report 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk 253 253 254 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDONESIAN CORPORATE GOVERNANCE PRACTICES AND THE NYSE’S CORPORATE GOVERNANCE STANDARDS The following is a summary of significant differences between the corporate governance practices followed by Indonesian companies and those required by NYSE listing standards for domestic US issuers. A. Overview of Indonesian Law Indonesian public companies are required to observe and comply with certain good corporate governance practices. The requirements and the standards for good corporate governance practices for public companies are embodied in the following regulations: Law No.40/2007 on Limited Liability Companies (“Indonesian Company Law”), Law No.8/1995 on Capital Markets (“Capital Markets Law”), Law No.19/2003 on State-Owned Enterprises, Regulation of the Minister of State-Owned Enterprises No.PER-09/ MBU/2012 on Amendment of Regulation of the Minister of State-Owned Enterprises No.PER-01/MBU/2011 on the Implementation of Good Corporate Governance to State-Owned Enterprises; regulation of OJK (“OJK Regulations”) and the rules issued by the IDX. In addition to the above, the articles of association of public companies incorporate provisions directing the implementation of good corporate governance practices. On November 30, 2004, the National Committee on Governance (“NCG”) was established pursuant to the Decree of the Coordinating Minister for Economic Affairs No.KEP.49/M.EKONOM/1/2004 (“KEP.49”), which was formed to revitalize the former National Committee on Good Corporate Governance established in 1999. The NCG aimed at enhancing comprehension and implementation of good governance in Indonesia and advises the Government on governance issues, both in public and corporate sectors. The NCG formulated the Code for Good Corporate Governance 2006 (“Code”) which recommended setting more stringent corporate governance standards for Indonesian companies, such as the appointment of independent audit committee and nomination and remuneration committees by the Board of Commissioners, as well as increasing the scope of disclosure obligations for Indonesian companies. Although the NCG recommended that the Code B. Composition of Independent Board of Directors and Board of Commissioners The NYSE listing standards provide that the Board of Directors of a US listed company must consist of a majority of Independent Directors and that certain committees must consist solely of Independent Directors. Unlike companies incorporated in the US, the management of an Indonesian company consists of two organs of equal stature, the Board of Directors and the Board of Commissioners. Generally, the Board of Directors is responsible for the day-to- day business activities of the company and is authorized to act for and on behalf of the company, while the Board of Commissioners has the authority and responsibility to supervise the Board of Directors and is statutorily mandated to provide advice to the Board of Directors by Indonesian Company Law. With regard to the Board of Commissioners, the Indonesia Company Law requires a public company Board of Commissioners to have at least two members. Although the Indonesian Company Law is silent as to the composition of the Board of Commissioners, Listing Regulation No.I-A in KEP.305/BEJ/07-2004 issued be adopted by the Government by the IDX (“IDX Regulation as a basis for legal reform, as of the date of this Annual Report, the Government has not enacted regulations that fully implement the provisions of the Code. I-A”) states that at least 30% of the members of the Board of Commissioners of a public company (such as our Company) must be independent. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 255 The Indonesian Company of the Exchange Act require address, among other things: Law states that the Board of foreign private issuers whose director qualification standards, Directors has the authority to shares are listed on the NYSE director responsibilities, manage the daily operation of to have an Audit Committee director access to management the company and must have comprised of Independent and independent advisers, at least two members, each of Directors. However, such director compensation, director whom must meet the minimum foreign private issuers may orientation and continuing qualification requirements be exempted from the education, management set forth in the Indonesian independence requirement if (i) succession, and an annual Company Law. In addition, the home country government performance evaluation itself. based on IDX Regulation I-A, or stock exchange requires In addition, the CEO of a US the Board of Directors of the the company to have an Audit company must certify to the listed company must consist of Committee; (ii) the Audit NYSE annually that he or she at least one unaffiliated director. Committee is separate from the is not aware of any violations C. Committees Board of Directors and includes by the company of the NYSE’s non-board members as in our corporate governance listing NYSE listing standards require case, members from the Board standards. The certification that a US listed company must of Commissioners; (iii) the must be disclosed in our have an Audit Committee, Audit Committee members are Annual Report to shareholders. a nominating/corporate not selected by management Indonesian law does not have governance committee and and no executive officers of the disclosure requirements similar a compensation committee. company is a member of the to NYSE listing standards. Each of these committees must Audit Committee; (iv) the home However, the Capital Markets consist solely of Independent country government or stock Law generally requires Directors and must have a exchange requires the Audit Indonesian public companies written charter that addresses Committee to be independent to disclose certain types of certain matters specified in the of the company’s management information to shareholders and listing standards. and (v) the Audit Committee to OJK, particularly information is responsible for appointment, relating to changes in the public The Indonesian Company Law retention and oversight the company’s shareholdings and does not require Indonesian work of the external auditor. material facts that may affect public companies to form any the decision of shareholders to of the committees described Not all members of our Audit maintain their share ownership in the NYSE listing standards. Committee are Independent in such public company. However, OJK Rule No.IX.1.5 and Directors as required by Rule the IDX Regulation I-A require 10A-3 of the Exchange Act. We E. Code of Business Conduct the Board of Commissioners rely on the general exemption of an IDX- listed company pursuant to Rule 10A-3(c)(3) and Ethics NYSE listing standards require (such as our Company) to regarding the composition each US listed company to establish an Audit Committee, of the Audit Committee. We adopt, and post on its website, which must consist of at least believe that our reliance on this a code of business conduct three members, one of whom exemption does not materially and ethics for its Directors, must be an Independent and adversely affect the ability officers and employees. There Commissioner and serve as of the Audit Committee to act is no similar requirement under chair of the Audit Committee, independently. while the other two members must be independent parties of whom at least one such party must have accounting and/or D. Disclosure Regarding Corporate Governance The NYSE listing standards Indonesian law. However, companies that are required to file or furnish reports to the SEC must disclose in their Annual Reports whether they finance expertise. require US companies to adopt, have adopted a code of ethics and post on their websites, a for their senior financial officers. The NYSE Listing Standards as set of corporate governance required by Rule 10A-3(c)(3) guidelines. The guidelines must 256 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN IFAS AND IFRS changes made before Notary (“MoF”). In turn, and under Ashoya Ratam, S.H., MKn. No. the authority of the MoF, 11 dated May 8, 2013. Notice of the Minister of State-Owned the amendment of articles was Enterprise (“MSOE”) exercises accepted by the Minister of Law the rights vested in these and Human Rights of the Republic securities as our “controlling of Indonesia through Letter shareholder.” See Note 48 to the Consolidated Financial Statements. ARTICLES OF ASSOCIATION Our Articles of Association are registered in accordance with the Limited Liability Company Law No.1/1995, and approved by Ministerial Decree No.C2-7468. HT.01.04.TH.97 of 1997. Pursuant to the issuance of the Company No.AHU-AH.01.10-22501 on June 7, 2013. RELATIONSHIP WITH THE GOVERNMENT AND GOVERNMENT AGENCIES As our majority shareholder and controlling shareholder, the Government has an interest in our performance, both in terms of the service we provide to the nation and Our relationship with the our ability to operate on a Government is multi-faceted. commercial basis. The material The Government is our majority rights and restrictions that and controlling shareholder. apply to our common stock It is also our regulator as it also apply to the Series A adopts, administers and enforces Dwiwarna share, except that relevant laws that regulate the Government may not telecommunications sector, sets transfer the Series A Dwiwarna Law No.40 of 2007 which revoked tariffs and issues licenses. It is also share, and has right of veto Limited Liability Companies one of our customers and one of with regard to: Law No.1/1995, we amended our our lenders. (i) the nomination, appointment and removal Articles of Association which was approved by the Minister of Law and Human Rights of the Republic of Indonesia pursuant to Decree of the Minister of Justice and Human Rights No.AHU.46312. AH.01.02/2008 dated July 31, 2008 and registered in State Gazette of the Republic of Indonesia No.84 dated October 17, 2008, Supplement to State Gazette No.20155. The most recently amended in Articles of Association were about the changes in capital structure by splitting the par value of the Company's shares (stock split) of the original Rp250 to Rp50 and the elimination of the Partnership and Community Development “PKBL” program from our Work Plan and Budget. The editorial As used in this section, the of our Directors, (ii) the term “Government” includes the nomination, appointment and Government of Indonesia and removal of our Commissioners, its ministries, directly-owned (iii) the issuance of new shares government departments and and (iv) any amendments to agencies, but excludes SOEs. our Articles of Association, A. The Government as Shareholder The Government is our majority and controlling shareholder and owned 53.14% of our common stock as of December 31, 2013. Its ownership of the Series A including with respect to actions to merge or dissolve our Company, increase or reduce our authorized capital, or reduce our subscribed capital. B. The Government as Regulator The Government regulates Dwiwarna share gives it special the telecommunications voting and veto rights. Under sector through the MoCI. relevant laws, the “ownership” The MoCI has the authority of our common stock and to issue regulations that the single outstanding Series implement laws, which are A Dwiwarna share is vested typically broad in scope. in the Ministry of Finance Through such decrees the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 257 MoCI defines the structure The sub-loan borrowings were of the industry, determines made through the Government tariff formulas, establishes our and are guaranteed by it. As USO, and otherwise controls of December 31, 2013, we many factors that could had a total of Rp1,915 billion influence our competitive (US$157 million) in such position, operations and outstanding two-step loans, financial position. Through including current maturities. the DGPT, the MoCI regulates We are required to pay the the allocation of frequencies Government interest and and sets numbers for fixed repay the principal, which It is our policy not to enter into any transactions with affiliates unless the terms are no less favorable to us than they would be with a telephone lines. the Government then remits to the respective lenders. As third party. We are required to obtain a of December 31, 2013, 73.4% license from the DGPT for of such sub-loan borrowings each type of service offered, were denominated in foreign including for the frequencies currencies, with the remaining we use (as allocated by the 26.6% denominated in Rupiah. MoCI). We and other operators In 2013, the annual interest are required to pay frequency rates charged 6.79% on loans usage fees. Telkomsel also repayable in Rupiah, 4.0% holds licenses issued by the on those denominated in MoCI (some of which were US Dollar and 3.1% for those previously issued by the denominated in Japanese Yen. Minister of Communications) for the provision of cellular D. The Government as Customer services, and from the Indonesian Investment Certain Government departments and agencies Coordinating Board in relation purchase services from us as to Telkomsel’s investments direct customers, the terms for the development of of which are negotiated on a cellular phone services with commercial basis. national coverage, including No services are provided for the expansion of network free or on an in-kind basis. We coverage. The Government, deal with these departments through the MoCI as regulator, and agencies as separate has the authority to issue new customers. In 2013, the amount licenses for the establishment of revenues from Government of new joint ventures and other departments and agencies new arrangements, particularly was Rp779 billion, which was in telecommunications. approximately 0.94% of our consolidated revenues and C. The Government as Lender did not constitute a material In July 1994, the Government part of our revenues. The arranged a facility under which Government departments certain foreign institutions and agencies are treated for provided us with a two-step tariff purposes with respect loan for certain expenditures to connection charges (the “sub-loan borrowings”). and monthly charges as “residential”, which tariffs are lower than the business service rates. This does not apply to the tariffs for local, long distance and IDD calls. It is our policy not to enter into any transactions with affiliates unless the terms are no less favorable to us than they would be with a third party. The SOE Ministry has advised us that it would not cause us to enter into transactions with other entities under its control unless the terms were consistent with our policy as referred to above. Pursuant to OJK regulations, because we are listed on the IDX, any transaction where there is an inherent conflict of interest (as defined below) with another IDX-listed company must be approved by majority of the holders of our common stock who do not have a conflict of interest in the proposed transaction, unless such conflict of interest existed before listing and was fully disclosed in the offering documents. 258 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis CAPITAL MARKET TRADING MECHANISM AND TELKOM ADS Our common stock is listed and traded on the IDX. Our ADSs are also listed and traded on the NYSE and the LSE as ADSs, where one ADS represents 200 shares of Common Stock. Our shares are also Publicly Offered Without Listing (“POWL”) in Japan. A. The Indonesian Stock Market Indonesia’s stock market, known as the IDX, grew out of the December 1, 2007 merger of two stock exchanges operating in two different locations in Indonesia, the Jakarta Stock Exchange in the capital and the Surabaya Stock Exchange in East Java. As at December 31, 2013, the IDX had 483 issuers for equity and 113 active brokerage houses. In 2013, IDX recorded a trading volume of 1.343 billion shares. As at December 31, 2013, the total market capitalization was valued at Rp4.219,02 trillion (US$346,67billion). cash market (except for rights issues, which can only be traded on the cash market and the negotiated market for the first session). The regular market is the mechanism for trading stock in standard lots on a continuous auction basis during exchange hours. Auctions on the IDX on regular market and cash market take place according to the price and time priorities. Price priority refers to the giving of priority to buying orders at a higher price or selling orders at a lower price. If buying or selling orders are placed at the same price, priority is given to the earlier placed buying or selling order (time priority). Trading on the negotiated market is conducted through direct negotiation between (i) IDX members, (ii) clients through one IDX member, (iii) a client and an IDX member, or (iv) an IDX member and the PT Kliring Penjaminan Efek Indonesia (“KPEI”). KPEI provides clearing and guarantee services of stock exchange transactions settlement. It also improves efficiency and certainty of transactions settlement in IDX. On November 14, 2012 IDX issued a Decree of BOD No.Kep-00399/ BEI/11-2012 regard with the Change of Trading Regulation No.IIA on Equity – Type Securities Trading that mentioned about the change of IDX’ trading hours, which effected on January 2, 2014 with trading sessions as follow: Trading Session Market Day Trading Hours Pre-opening Regular Monday - Friday 08.45.00-08.55.00 1st 2nd Regular Monday-Thursday 09.00.00-12.00.00 Cash Friday 09.00.00-11.30.00 Negotiation Regular Monday-Thursday 13.30.00-15.49.59 Friday 14.00.00-15.49.59 Negotiation Monday-Thursday 13.30.00-16.15.00 Friday 14.00.00-16.15.00 Pre-closing Regular Monday-Friday 15.50.00-16.00.00 Post Trading Regular Monday-Friday 16.05.00-16.15.00 On November 8, 2013 IDX issued a Decree of BOD No.Kep-00071/ BEI/11-2013 regard with the Change of Trading Regulation No.IIA on Equity – Type Securities Trading that mentioned about the change of Trading is divided into three lot size, tick price and maximum price movement, which effected on segments, the regular market, January 2, 2013. negotiated market and the Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 259 Lot size will change from 500 shares to 100 shares and tick price and maximum share price movement will change as follow: Previous New Group Price Tick Price Maximum Share Price Movement Group Price Tick Price Maximum Share Price Movement ≤Rp200 Rp200 – Rp500 Rp500 – Rp2.000 Rp2.000 – Rp5.000 ≥Rp5.000 Rp1 Rp5 Rp10 Rp25 Rp50 Rp10 Rp50 Rp100 Rp250 Rp500 ≤Rp500 Rp1 Rp20 Rp500 – Rp5.000 Rp5 Rp100 ≥Rp5.000 Rp25 Rp500 Transactions on the IDX regular include fines, written warnings, New York”) serves as the market must be settled no later suspension or revocation of “Depositary” for our ADSs than the third trading day after licenses. which are traded on the NYSE the transaction. Transactions and LSE. on the negotiated market are When conducting share settled on the basis of the transactions on the IDX, each Investors pay a depositary fee agreement between the selling exchange member is required directly or through a broker exchange members and the to pay a transaction cost for acting on their behalf for the buying exchange members, on transactions on the regular delivery or surrender of ADSs a transaction by transaction market and cash market of for the purpose of withdrawal. basis. Transactions on the IDX 0.03%, guarantee fund 0.01% The Depositary also collects cash market must be settled of the transaction value and fees for making distributions to on the day of the transaction VAT and other tax obligation. investors by deducting the fee and reported to the IDX. If an For the negotiated market, from the amount distributed exchange member defaults on a transaction cost is 0.03% or by selling a portion of the the settlement of a transaction, or depended on exchange distributable property to the securities can be traded by policy. A minimum monthly pay the fee. The Depositary direct negotiation on cash and transaction fee of Rp2 million is may collect its annual fee for carry terms. Each exchange applied as a contribution for the depositary services by making member is required to pay a provision of exchange facilities a deduction from the cash transaction fee as stipulated and continues in effect for distributions or by directly by the IDX. Any delay in members who are suspended billing investors or by charging payment of the transaction or Exchange Member Approval the book-entry system accounts fee is subject to a fine of 1.0% (“SPAB”) revoked. of the outstanding amount of the parties acting on their behalf. The Depositary may for each day of delay. The IDX B. Trading on the NYSE and refuse to provide fee-generating may impose sanctions on its members for any violation of LSE Bank of New York Mellon exchange rules, which may (previously “The Bank of services until its bills for such services are paid. 260 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis TAXATION The following summary contains a description of the principal Indonesian and US federal tax consequences of the purchase, ownership and disposition of ADSs or shares of common stock. This summary does not purport to be a complete description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of ADSs or shares of common stock. Investors should consult their tax advisors about the Indonesian and US Federal, state and local tax consequences to them of the purchase, ownership and disposition of ADSs or shares of common stock. A. Indonesian Taxation The following is a summary of the principal Indonesian tax consequences of the ownership and disposition of common stock or ADSs to a non-resident individual or non-resident entity that holds common stock or ADSs (a “Non-Indonesian Holder”). 1. Dividends Dividends declared by us out of retained earnings and distributed to a Non- Indonesian Holder in respect of common stock or ADSs are subject to Indonesian withholding tax, which, as of the date of this Annual Report is at the rate of 20%, on the amount of the distribution (in the case of cash dividends) or on the shareholders’ proportional share of the value of the distribution. A lower rate provided under double taxation treaties may be applicable provided the recipient is able to comply tax and the obligation to pay with the applicable strict lies with the buyer (if it is an requirements. Under the US- Indonesian taxpayer) or our Indonesia double taxation Company (if the buyer is a treaty, the withholding tax non-resident taxpayer). on dividends is generally, in the absence of a 25% voting In cases where a purchaser interest, reduced to 15%. 2. Capital Gains The sale or transfer of common stock through or Indonesian broker will be required under Indonesian tax laws to with hold tax on payment of the purchase price for common stock or ADSs the IDX is subject to a final through the IDX, theoretically, withholding tax at the rate that payment may be exempt of 0.1% of the value of the from Indonesian withholding transaction. The broker or other Indonesian income executing the transaction is tax under applicable double obligated to withhold such taxation treaties to which tax. The holding of founder Indonesia is a party (including shares or the sale or transfer the US-Indonesia double of founder shares through taxation treaty). an IDX may, under current Indonesian tax regulations, 3. Stamp Duty be subject to additional 0.5% final income tax. Stock transactions in Indonesia are subject to stamp duty. Pursuant to Government Subject to the promulgation Regulation No.24/2000 on the of implementing regulations, amendment and the amount the estimated net income of stamp duty rates Imposing received or accrued from Limits Imposed Price Nominal the sale of movable assets stamp duty, a transaction of in Indonesia, which may up to Rp1,000,000 needs a include common stock not stamp duty of Rp3,000, while listed on an IDX or ADSs, any transaction of more than by a Non-Indonesian holder Rp1,000,000 needs a stamp (with the exception of the sale of assets under Article 4 paragraph (2) of the Indonesian income tax law) may be subject to Indonesian withholding tax duty of Rp6,000. B. Considerations Regarding Certain U.S. Federal Income Tax The following is a summary at the rate of 20%. In 1999, of certain US federal income the Ministry of Finance issued a decision that tax considerations relating to the acquisition ownership and stipulates the estimated net disposition of ADSs or common income for the sale of shares stock by US Holders (as defined received by a non-resident below) that hold their ADSs or taxpayer in a non-public common stock as “capital assets” company to be 25% of the (generally, property held for sale price, resulting in an investment) under section 1221 effective withholding tax of the US Internal Revenue Code rate of 5% of the sales price. (the “Tax Code”). This summary This is a final withholding is based upon existing US federal Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 261 income tax law, which is subject that certain holding period or common stock (generally, to differing interpretations or requirements are met. Note a distribution in excess of change, possibly with retroactive that as from January 1, 2011, 125% of the average annual effect. dividends from a qualified distributions paid by us in foreign corporation are the three preceding taxable 1. Threshold Passive Foreign treated as ordinary income years). In addition, a US Investment Company (“PFIC”) with a maximum tax rate Holder will be subject to an Classification Matters of 39.6% for non-corporate interest charge on such gain A non-US corporation, such recipients of dividends or excess distribution. Finally, as our Company, will be treated as a PFIC, for US federal income tax purposes, received after the end of the 15% maximum rate on 2010. Company dividends would not apply if we become if 75% or more of its gross 3. Sale or Other Disposition of classified as a PFIC. income consists of certain ADSs or Common Stock types of “passive” income or A US holder will generally 5. Backup Withholding Tax 50% or more of its assets are recognize capital gain or and Information Reporting passive. Based on our 2013 loss upon the sale or other Requirements income and assets, we do disposition of ADSs or US backup withholding tax not believe that we should be common stock in an amount and information reporting classified as a PFIC. Because equal to the difference requirements generally PFIC status is a fact-intensive between the amount apply to certain payments determination made on an realized upon the disposition to certain non corporate annual basis, no assurance and the holder’s adjusted holders of stock. A payor can be given that we are not tax basis in such ADSs or will be required to withhold or will not become classified common stock. Any capital backup withholding tax from as a PFIC. The discussion gain or loss will be long-term any payments of dividends below under “Dividends” and if the ADSs or Common on, or the proceeds from “Sale or Other Disposition of Stock have been held for the sale or redemption of, ADSs or common stock” is more than one year and will ADSs or common stock written on the basis that we generally be US source gain within the US or by a US will not be classified as a PFIC or loss for US foreign tax payor or US middleman to a for US federal income tax credit purposes. holder, other than an exempt purposes. 4. PFIC Considerations recipient, if such holder fails to furnish its correct 2. Dividends If we were to be classified as taxpayer identification Any cash distributions paid by us out of earnings and profits, as determined a PFIC in any taxable year, a number or otherwise fails US Holder would be subject to comply with, or establish under US federal income tax intended to reduce or to special rules generally an exemption from, such backup withholding tax principles, will be subject to eliminate any benefits from requirements. The backup tax as dividend income and the deferral of US federal withholding tax rate is 25% will be includible in the gross income tax that a US Holder for years through 2013. income of a US Holder upon could derive from investing receipt. A non-corporate in a non-US company that The backup withholding tax recipient of dividend income does not distribute all of its is not an additional tax and will generally be subject earnings on a current basis. may be credited against to tax on dividend income In such event, a US Holder a US holder’s regular US from a “qualified foreign may be subject to tax at federal income tax liability corporation” at a maximum ordinary income tax rates on or, if in excess of such US federal tax rate of 15% (i) any gain recognized on liability, refunded by the rather than the marginal tax the sale of ADSs or common Internal Revenue Service rates generally applicable to stock and (ii) any “excess (“IRS”) if a timely refund ordinary income provided distribution” paid on ADSs claim is filed with the IRS. 262 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis RESEARCH AND DEVELOPMENT of Bandung and Yogyakarta also doing its function as a business namely Bandung Digital Valley incubator beside held still the creative name ("BDV") and Jogja Digital digital communiy event. We routinely make investments to improve products and services. Total expenditure reached about Rp13 billion, Rp13 billion and Rp14 billion (US$1 million), in 2011, 2012 and 2013, respectively. In 2013, our spending investments were channeled to research and development to support of the implementation of mobile broadband, cloud computing, and development of ecosystem- based solutions, such as e-tourism, mobile payment, mobile games, and smart home solution, that are designed to promote a digital lifestyle in Indonesia. Development encompasses the areas of business, product and services, as well as in telecommunication network infrastructure. In term of business, service and product, the research and development programs included mobile advertising center, Appstore, smart home (home monitoring, telemetering, wireless sensor network, smart home over power line), mobile payment, data center, e-tourism, games, intelligent car, map-based social media platform, e-learning content enrichment, Telkom game center, over the top TV, SmartTV, speedy monitoring, smart home over power line, smart device 4GLTE, business signaling, TENOSS and TCEM. In terms of telecommunication network infrastructure, we engaged in research and development programs related to NGN, IMS, Service Broker, 100G, QoS transport, Supercore, any wire GPON/10GPON, Wi-Fi, Femtocell, QoS EVDO, GPS and IPv6. We have developed two business incubator located in the city Valley ("JDV"). Each incubator is intended to help build a national LEGAL BASIS AND REGULATION digital creative industry while strengthening our business The framework for the portfolio.There were three telecommunications industry is categories of incubation carried out comprised of specific laws, government in 2013, consist of: regulations, ministerial regulations – The first is the incubation for and ministerial decrees enacted idea (innovative idea), which and issued from time to time. The is product idea/prototype/ current telecommunications policy product that is not market- was first formulated and articulated tested yet, but is considered in the Government’s “Blueprint of the to have excellent business Indonesian Government’s Policy on opportunity. Telecommunications”, contained in – Second is the product MoC Decree No.KM.72/1999 dated incubation (innovative product), September 17, 1999. which is product that has been proven preferred by users, but A. Telecommunications Law has not been tested in terms of The telecommunications sector is revenue/business. primarily governed by Law No.36 – Last one is the business incubation (innovative of 1999 (“Telecommunications Law”), which became effective business), which is product on September 8, 2000. The that has been proven preferred Telecommunications Law sets by market tested and has also guidelines for industry reforms, been proven generating good including industry liberalization, revenue. facilitation of new entrants and enhanced transparency and In conducting the incubation competition. program, we adopt the Lean Startup framework, in which the The Telecommunications Law process is divided into stages eliminated the concept of of customer validation, product “organizing entities” thereby ending validation, business model our and Indosat’s responsibility validation and market validation. for coordinating domestic and ideaincubation uses customer & international telecommunications idea validation stages. Product services, respectively. To incubation uses product validation enhance competition, the stage. While business incubation Telecommunications Law uses business & market validation. prohibits monopolistic practices and unfair competition among In 2012, BDV has successfully telecommunications operators. incubated 18 startup companies and in 2013 incubated 12 startup The Telecommunications Law companies, began with selecting was implemented through several new productand business Government Regulations, Ministerial proposals.While the JDV, since Regulations and Ministerial Decrees. inaugurated in August 2013, has The most important of such conducted a number of activities regulations include: and is warmly welcomed by the - Government Regulation creative digital community inJogja No.52/2000 regarding and greater Jogja. In 2014, JDV will Telecommunications Services. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 263 - MoCI Regulation No.1/ certain organizational and dated October 31, 2008 and PER/M.KOMINFO/01/2010 administrative reforms that amended by MoCI Regulation dated January 25, 2010 regarding Operation of included transferring licensing No.1/PER/M.KOMINFO/02/2011 and regulatory authority dated February 7, 2011 (“MoCI Telecommunications Networks. to two newly established Regulation No.36/2008”). - MoC Decree No.KM.21/2001 general directorates, the Pursuant to MoCI Regulation regarding the Provision of Telecommunications Services that was most Directorate General of Posts No.36/2008, the ITRA was and Informatics Resources assigned the authority to and Equipment (“DGRE”) and regulate the Indonesian recently amended by MoCI Directorate General of Post and telecommunication industry, Regulation No.31/PER/M. Informatics (“DGPI”) pursuant including the provision of KOMINFO/09/2008 regarding to MoCI Regulation No.17/ telecommunication networks the Third Amendment of Decree of the Minister of PER/M.KOMINFO/10/2010 and services. The ITRA which regarding the Organization is chaired by the Director Communication No.KM.21/2001 and Administration of Ministry General of Post and Informatics regarding the Provision of of Communication and Operations and comprises of Telecommunications Services. Information. Following the nine members, including six - MoC Decree No.33/2004 reforms, certain adjustments members of the public, and regarding Supervision of were made through MoCI three members selected from Healthy Competition in the Regulation No.15/PER/M. Government institutions (DGRE Provision of Fixed Network and KOMINFO/06/2011 dated and Director of DGPI and a Basic Telephony Services. June 20, 2011 regarding title government representative - MoC Decree No.KM.4/2001 adjustments in a number dated January 16, 2001 of Decrees and/or MoCI appointed by the Minister of Communication and regarding the Determination regulations that regulate Information). of Fundamental Technical Special Materials in Post Plan National 2000 for and Telecommunications C. Classification and Licensing of National Telecommunications and/or in Decrees of the Development most Director General of Posts Telecommunications Providers The Telecommunications Law recently amended by MoCI and Telecommunications, organized telecommunication Regulation No.09/PER/M. which transfer all substances services into following three KOMINFO/06/2010 dated related to the postal and categories: (i) provision June 9, 2010 regarding the sixth amendment of telecommunications sectors to of telecommunication the DGPI including licensing, networks, (ii) provision of MoC Decree No.KM.4/2001 numbering, interconnection, telecommunication services, regarding the Determination universal service obligation and (iii) provision of special of Fundamental Technical and business competition. telecommunications services. Plan National 2000 for Meanwhile, matters related National Telecommunications to radio frequency spectrum Licenses issued by MoCI are Development. and standardization of telecommunications required for each category of telecommunications B. Telecommunications Regulators equipments were transferred to services. MoCI Regulation In February 2005, the authority to the DGRE. regulate the telecommunications industry was transferred from Following the enactment the MoC to a newly-established of the Telecommunications Ministry, the MoCI. Pursuant Law, the MoC established to authorities assigned to him an independent regulatory No.1/2010 and MoC Decree No.KM.21/2001 dated May 31, 2001 regarding the Operation of Telecommunications Services, as amended by MoCI Regulation No.31/ through Telecommunication Law, body as stipulated in MoC PER/M.KOMINFO/09/2008 the Minister of Communication Decree No.KM.31/2003 dated dated September 9, 2008, are and Information sets policies, July 11, 2003 regarding the the principal implementing regulates, supervises and controls Establishment of the ITRA regulations governing licensing. telecommunications industry in which was later revoked by Indonesia. On October 28, 2010, MoCI engaged in MoC Regulation No.KM.36/ MoCI Regulation No.1/2010 PER/M.KOMINFO/10/2008 classified network operations 264 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis into fixed and mobile networks. the three-digit access number. customers in June 2004 using MoC Decree No.KM.21/2001 MoCI Decree No.6/2005 did the “007” IDD access code. categorized the provision of not provide for immediate The Indosat IDD access code services into basic telephony implementation of the three- is “001”. Our December 2005 services, value-added telephony digit system for DLD calls, interconnection agreement with services, and multimedia but as the first DLD service Indosat enables Indosat’s network services. provider, we were required to customers to access our IDD gradually open our network to services by dialing “007” and our D. Introduction of Competition the three-digit access codes network customers to access in the Indonesian Telecommunications Industry In 1995, we were granted a in all coded areas throughout Indosat’s IDD services by dialing Indonesia by April 1, 2010. We “001”. were assigned the “017” DLD monopoly to provide local access code, while Indosat G. Limited Mobility Wireless fixed line telecommunications was assigned “011”. The MoCI services until December 31, thereafter amended the Services MoC Decree No.KM.35/2004 2010, and DLD services until National Telecommunications dated March 11, 2004 regarding December 31, 2005. Indosat and Plan as provided in MoCI Decree Implementation of Fixed Wireless Satelindo (which subsequently No.43/P/M.KOMINFO/12/2007 Networks with Limited Mobility, merged with Indosat) were dated December 3, 2007, as amended by MoCI Decree granted a duopoly for (“MoCI Decree No.43/2007”), No.16/PER/M.KOMINFO/06/2011 provision of basic international which delayed the deadline for dated June 27, 2011, (“MoC Decree telecommunications services the implementation of three No.KM.35/2004”) provides that until 2004. digit access code for DLD calls only local fixed network operators throughout all the area code in holding licenses issued by the As a consequence of the Indonesia until September 27, MoC may offer limited mobility Telecommunications Law, the 2011. Government terminated our wireless (or fixed wireless) access services. In addition, MoC exclusive rights to provide Pursuant to MoCI Decree Decree No.35/2004 states that domestic fixed line telephone No.43/2007, we opened our each limited mobility wireless and DLD services and Indosat’s network to the “01X” three- access operator must provide and Satelindo’s duopoly rights digit DLD access service in basic telephone services. Under to provide basic international Balikpapan by April 3, 2008. an automated migration feature, telephone services. Instead, the Since that date, our customers customers are able to make and Government adopted a duopoly are able to make DLD calls receive calls on their fixed limited policy to create competition from Balikpapan by first dialing mobility wireless access phones between Indosat and us as Indosat’s “011”. As stipulated in using a different number with a comprehensive service and MoCI Regulation No.43/2007, different area code. network providers. we have provided a nation- wide network for three-digit H. Cellular E. DLD Services access code for fixed and fixed Cellular telephone service is To liberalize DLD services, the wireless DLD with “01X” that provided in Indonesia on the radio Government amended the can be used by Indosat or frequency spectrum of 1.8 GHz National Telecommunications other licensed operator starting (DCS technology),2.1 GHz (UMTS Technical Plan pursuant to MoCI Decree No.6/P/M. KOMINFO/5/2005 dated September 27, 2011. To date, no technology) and 900 MHz (GSM other licensed operators have and UMTS technology). The MoCI submitted a request to us to regulates the use and allocation May 17, 2005 (“MoCI Decree connect their networks and of the radio frequency spectrum No.6/2005”) to assign each enable DLD access. for mobile cellular networks. provider of DLD services a three-digit access code that F. IDD Services Telkomsel has obtained frequency allocation for cellular services would permit their customers We received our IDD license in on the 900 MHz, 1.8 GHz and to select an alternative DLD May 2004 and began offering 2.1 GHz frequency bands. The services provider by dialing IDD fixed line services to Government conducted tenders Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 265 for the allocation of the 2.1 GHz Operations provides that radio frequency spectrum, and interconnection charges operators which also amended all interconnection agreements allocated bandwidth, in 2006, between two or more network signed in December 2006. the goverment allocates through operators must be transparent, These agreements temporarily the tender process for allocation mutually agreed upon and fair. served in lieu of RIOs while the at 5 MHz, while for the allocation of additional radio spectrum On February 8, 2006, the ITRA continued to review the RIO proposals received from allocated through an evaluation MoCI issued Regulation No.8/ ourselves and other operators. mechanism was in 2009 and a PER/M.KOMINFO/02/2006 selection in 2013. The allocation on Interconnection (“MoCI On February 5, 2008, the ITRA of bandwidth in the 2.1 GHz Regulation No.8/2006”), required that we and other frequency spectrum is regulated mandated a cost-based operators begin implementing by: interconnection tariff scheme the cost-based interconnection - MoCI Decree No.19/KEP/M. for all network and services tariff regime. On April 11, 2008, KOMINFO/2/2006 dated operators replacing the pursuant to Directorate General February 14, 2006 regarding previous revenue-sharing of Post and Telecommunication the Determination of Winner scheme. Under the new scheme, (“DGPT”) Decree No.205/2008, of IMT-2000 Mobile Cellular interconnection charges are the ITRA and the MoCI Operator Selection at 2.1 GHz determined by the network approved RIO proposals from Radio Frequency Band. operator on which a call all operators to replace previous - MoCI Decree No.268/KEP/M. terminates based on a long-run interconnection agreements. KOMINFO/9/2009 regarding incremental cost formula. The RIO approved in 2008 the Determination of was effective until July 29, 2011 Additional Allocation of Radio MoCI Regulation No.8/2006 when new interconnection Frequency Bandwidth Blocks, requires operators to submit charges were implemented Tariffs, and Payment Scheme to the ITRA annual RIO as stipulated in ITRA Letter Radio Frequency Spectrum proposals containing proposed No.227/BRTI/XII/2010 dated Right of Usage Fees for IMT- interconnection tariffs for the December 31, 2010 regarding 2000 Moble Cellular Operators coming year. Operators are the Implementation of at 2.1 GHz Radio Frequency required to use the cost-based Interconnection Charges Band. methodology in preparing in 2011. This is the result of - MoCI Decree No.191 Year 2013 RIO proposals, and the ITRA interconnection charges regarding the Determination and MoCI are required to use recalculation conducted of PT Telekomunikasi Selular the same methodology in in 2010 by MoCI that was as Winner in the Selection of evaluating the RIO proposals agreed on by all operators and Users of Additional Frequency and approving interconnection outlined in a Memorandum of Bandwidth at 2.1 GHz Radio tariffs. Frequency Band for IMT-2000 Understanding. The results of this interconnection charges Moble Cellular Operators. Pursuant to MoCI Regulation reform caused a slight decrease I. Interconnection The Telecommunications Law No.8/2006 and ITRA Letter in interconnection costs. No.246/BRTI/VIII/2007 dated August 6, 2007, we submitted On December 12, 2011, the expressly prohibits monopolistic a RIO proposal to the ITRA in ITRA changed the SMS and unfair business practices October 2007, which covered interconnection fee basis from and requires network providers adjustments for operational, a “Sender Keep All” basis to to allow users to access other configuration, technical and a cost basis interconnection users or obtain services from service offerings. In December fee calculation which required other networks by paying 2007, we and all other certain amendments to interconnection fees agreed network operators signed new RIOs agreed upon in 2011. upon by each network operator. interconnection agreements MoCI Regulation No.8/2006 Government Regulation that superseded previous stipulates that the RIO of No.52/2000 dated July 11, 2000 interconnection agreements telecommunications network regarding Telecommunications between us and other network operators generating operating 266 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis revenue that is equal to or more than 25% of the combined revenues of all basis for the licensing and Furthermore, MoCI Regulation regulates the provision of No.37/2006 dated December 6, IPTV services, including the 2006 requires foreign satellite telecommunication operators rights and obligations of IPTV operators to obtain a landing that serve the same respective providers, technical standards, right license to operate in segment, must obtain ITRA’s foreign ownership requirements Indonesia which requires approval, necessitating changes and the use of domestic (i) foreign satellite operators in our and Telkomsel’s RIOs independent content providers. to coordinate with domestic which were approved on June 20, 2012. Until this report is MoCI Regulation published, no recalculation No.11/2010 recognizes of interconnection fees for 2012 had been done as IPTV as a convergence of telecommunications, satellite operators, including us, to ensure that no Indonesian satellite and terrestrial systems will be disrupted by their operation, and (ii) the country doing such should have been broadcasting, multimedia of origin of the foreign satellite preceded by an evaluation on and electronic transactions operations must also give interconnection charges in 2011. and provides that only a permission to the Indonesian consortium comprising at satellite to operate in that J. VoIP least two Indonesian entities country. In January 2007, the may be licensed as an IPTV Government implemented new provider. Each consortium M. Consumer Protection interconnection regulations must together hold licenses as Under the Telecommunications and a five-digit access code a local fixed network provider, Law, each network provider is system for VoIP services pursuant to MoCI Decree internet services provider required to protect consumer and one broadcast services rights in relation to, among No.06/P/M.KOMINFO/5/2005. provider. Such consortium may others, quality of services, Under the Decree, the prefix only provide IPTV services tariffs and compensation. for VoIP, which was originally in the area covered by all Customers injured or 01X, was changed to 010XY. three required licenses. MoCI damaged by negligent On April 27, 2011, the MoCI Regulation No.11/2010 further operations may file claims issued Regulation No.14/ requires that IPTV services against negligent providers. PER/M.KOMINFO/04/2011, be delivered through a wire Telecommunications consumer which imposed quality control network. standards in relation to VoIP services, which became effective three months We obtained our IPTV license telecommunication operators. through our subsidiary, protection regulations provide service standards for thereafter, to which we and PT Indonusa Telemedia, on N. USO other operators must adhere April 27, 2011. Our operating All telecommunications the regulation. license covers Jabodetabek, operators, whether network or Bandung, Surabaya, Bali and service providers, are bound by K. IPTV In August 19, 2009, MoCI issued Ministerial Decree No.30/PER/M. Semarang. L. Satellite a USO regulation that requires them to contribute to providing telecommunication facilities Our international satellite and infrastructure in the interest KOMINFO/8/2009 regarding business is highly regulated. of opening equal access to the undertaking of IPTV In addition to being subject telecommunications throughout services in Indonesia, in order to domestic licensing all regions in Indonesia, which to address the convergence requirements and regulation is generally done by way of of telecommunications for the use of orbital slots and financial contribution. MoCI services with broadcasting radio frequencies, our satellite Regulation No.32/PER/M. and electronic transactions. In operations also been the KOMINFO/10/2008 dated July 2010, MoCI replaced this subject of ratio communications October 1, 2008 regarding the regulation with MoCI Regulation Agency of the International USO (as amended by MoCI No.11/PER/M.KOMINFO/07/2010 Union. (“MoCI Regulation No.11/2010”) which established the legal Regulation No.03/PER/M. KOMINFO/02/2010 dated February 1, 2010) (“MoCI Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 267 Regulation No.32/2008”) provides that USO funds on the bandwidth of the radio providers that own frequency spectrum that we telecommunication towers received will be used to fund use. telephone, SMS and internet and other tower owners are obligated to allow other access in remote and other In addition to radio frequency telecommunication operators to areas of Indonesia that have spectrum right-of-use fees, utilize their telecommunication been classified as USO regions Government Regulation towers without any where it is not economical to No.7/2009 requires all discrimination, with due regards provide these services. telecommunications operators to the technical capacity of the to pay an annual license fee for respective tower. USO payment requirements telecommunication operation, are calculated as a percentage which is equal to 0.5% of Since the operations of of our and Telkomsel’s unconsolidated gross revenues, telecommunication towers unconsolidated gross revenues less uncollectable receivables involves a number of relevant less uncollectable receivables from the telecommunication Government bodies, on March from the telecommunication operation write-off and 30, 2009, a joint regulation is operation write-off and payments received for interconnection domestic domestic interconnection issued in the forms of Minister expense. of Home Affairs Regulation No.18/2009, Minister of Public parties. Pursuant to Government Pursuant to Law No.28/2009 Works Regulation No.07/PRT/ Regulation No.7/2009 dated regarding Local Taxes and M/2009, MoCI Regulation No.19/ January 16, 2009 regarding Local Fees, local governments PER.M.KOMINFO/03/2009 Tariffs for Non-Tax State are permitted to impose fees and Head of the Investment Revenue that apply to the on the sites that we use for Coordinating Board Ministry of Communication and telecommunications towers. Regulation No.3/P/2009 Information (“GR No.7/2009”), The fees may not exceed 2% regarding Guidelines for the the current USO tariff rate is of the site’s assessed tax value. Construction and Shared Use 1.25% of gross revenue. Currently, there are some 525 of Telecommunications Towers local (provincial and regency (“Joint Decree”). O. Telecommunication Regulatory level) governments through Charges On January 16, 2009, the out Indonesia that may be The Joint Decree regulates that authorized to impose these fees license for telecommunication Government issued Government to increase in the future. Regulation No.7/2009, which sets the types of non-tax state revenues that apply to the MoCI P. Telecommunications Towers On March 17, 2008, the MoCI tower construction is to be issued by regents or mayors, and for Jakarta Province, its Governor. The Joint Decree also derived from various services, issued MoCI Regulation No.02/ provides for tower construction including telecommunications. PER/M.KOMINFO/3/2008 regarding Guidelines on standards and requires that telecommunications On December 13, 2010, the Construction and Utilization towers be made generally Government issued Government of Sharing Telecommunication available for shared use by Regulation No.76/2010 amending Government Towers (“MoCI Regulation telecommunications service No.02/2008”). Under MoCI providers. The owner of a Regulation No.7/2009. Pursuant Regulation No.02/2008, to Government Regulation the construction of telecommunications tower is allowed to collect a fee, No.76/2010, we are no longer telecommunications towers which is negotiated with required to pay right-of-use requires permits from the reference to costs associated fees calculated with reference relevant governmental with investment and to the BTSs that we deploy in institution, while the local operational costs, the return our network, except for BTSs government determines the of investment and a profit. deployed in our backbone, with placement and locations at Monopolistic practices in the effect from December 15, 2010. which telecommunications ownership and management of As a result, our right-of-use towers may be constructed. In telecommunications towers is fees are now calculated based addition, telecommunications prohibited. 268 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis Ririek Adriansyah Director of Wholesale & International Service FACING BUSINESS COMPETITION Telkomsel remained the largest national licensed provider of cellular services in Indonesia, with approximately 131.5 million cellular subscribers. 42.4% celluler market share We believe that Telkomsel competes effectively in the Indonesian cellular market on the basis of price, coverage, service quality and value added services. Telkomsel is the largest consumer customer base IDD service. Competition Law The Government currently promotes liberalization, competition and transparency in the telecommunications sector. It does not prevent providers from attaining and capitalizing upon a dominant market position. COMPETITION Measures following the Telecommunications Law’s adoption in 2001 moved the Indonesian telecommunications sector from a duopoly between Indosat and us to one with multiple competing providers. See “Legal Basis and Regulation – Introduction of Competition in the Indonesian Telecommunications Industry”. Competition Law The Government currently promotes liberalization, competition and transparency in the telecommunications sector. It does not prevent providers from attaining and capitalizing upon a dominant market position. However, the Government does prohibit operators from abusing a dominant position. In March 2004, the MoC issued Decree No.33/2004, which prescribes measures to prohibit such abuse by dominant network and service providers. A provider is considered dominant based on factors such as scope of business, service coverage Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 269 area and control of a particular merger or acquisition is completed Regulation – Introduction of market. Specifically, Decree if the transaction exceeds certain Competition in the Indonesian No.33/2004 prohibits dumping, asset or sales value thresholds. Telecommunications Industry”. predatory pricing, cross-subsidies, mandatory use of a provider’s A. Fixed Line, Fixed Wireless Indosat remains our largest services (to the exclusion of competitors) and hampering mandatory interconnection and DLD Our exclusive right to competitor with respect to fixed line and DLD services and provide domestic fixed line we also compete against other (including discrimination against telecommunications services fixed line service providers specific providers). in Indonesia ended following such as PT Bakrie Telecom Competition in the telecommunications sector, like all Indonesian business the Telecommunications Law’s Tbk. (formerly Ratelindo) and implementation in 2000. PT Batam Bintan Telecom. The MoC issued licenses to However, traditional fixed line Indosat for domestic fixed line services have faced and will sectors, is also governed more services in August 2002 and continue to increasingly face generally by Law No.5/1999 for DLD telephone services competition from cellular dated March 5, 1999 regarding in May 2004. We entered services, particularly as cellular Prohibition of Monopolistic into an interconnection tariffs decrease, and from other Practice and Unfair Business agreement with Indosat dated alternate services such as fixed Competition (“Competition September 23, 2005 to allow wireless, SMS, VoIP and e-mail Law”). The Competition Law interconnection between services. bans agreements and activities our local fixed line services tending toward unfair business in Jakarta, Surabaya, Batam, Telkom Flexi, our fixed wireless competition, as well as the abuse Medan, Balikpapan, Denpasar network is the largest in of a dominant market position. and certain other areas. Indonesia with coverage of Pursuant to the Competition By 2006, Indosat was able 370 cities offering limited Law, the Commission for to provide nationwide DLD mobility and charging the Supervision of Business services through its CDMA- customers based on PSTN Competition (“KPPU”) has been based fixed wireless network, tariff that is principally lower established as Indonesia’s antitrust its fixed line network and these than GSM. For comparison, regulator with the authority to interconnection arrangements Indosat in 2004 launched its enforce the provisions of the with us. Competition Law. CDMA-based fixed wireless phone service under the The Competition Law is implemented by various In an attempt to liberalize brand name “StarOne” in DLD services, the Government Jakarta and Surabaya. Bakrie required each DLD provider Telecom offers fixed wireless regulations, including Government to implement a three-digit services in more than 30 cities Regulation No.57/2010 dated access code to be dialed by and Mobile-8 was granted July 20, 2010 regarding Mergers customers making DLD calls. a nationwide fixed wireless and Acquisitions Potentially These regulations were first access license in 2009. In Causing Monopolistic Practices implemented in Balikpapan general, the technologies or Unfair Business Practices. in 2008, with Balikpapan employed by CDMA and fixed Government Regulation residents given the option wireless access operators No.57/2010 permits voluntary to make a normal DLD call are less capital-intensive, consultation with the KPPU or to select a three-digit previously allowing these prior to a merger or acquisition, code assigned to Indosat operators to offer more resulting in the KPPU issuing a or to us. Under current competitive prices than GSM non-binding opinion. Government regulations, this system is operators. Furthermore, Regulation No.57/2010 also to be applied nationally licensing fees for radio stations requires that a mandatory report beginning September 27, of fixed wireless mobile phone be made to the KPPU after a 2011. See “Legal Basis and connections is lower than cellular. 270 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis B. Cellular We operate our cellular service business through our majority- owned subsidiary, Telkomsel. As of December 31, 2013, Indonesia’s cellular market is dominated by Telkomsel, Indosat and XL Axiata, which collectively account for 80.4% of the full-mobility cellular market. Other providers include Hutchison, Natrindo, Smart Telecom and Bakrie Telecom. There were approximately 310 million full-mobility cellular subscribers in Indonesia as of December 31, 2013, a 12.3% Indonesia and in 2012 were communications through the each awarded an additional internet using computers or 10 MHz of spectrum on the 3G smartphones. license frequency bandwidth (2.1 GHz). This additional spectrum increased their VoIP operators compete primarily on the basis of respective total allocated price and service quality. frequency spectrum to VoIP operators, including 20 MHz and 25 MHz each. us, offer budget calls and In accordance with the other products aimed at announcement of MoCI No.19/ price sensitive users such PIH/KOMINFO/2/2013 dated as prepaid calling cards. We February 25, 2013, Telkomsel currently offer our primary has been selected as one of VoIP service “Telkom Global- the companies to be granted 01017” and the lower-cost an additional 3G license with alternative “Telkom Save”. radio frequency in the 2.1 GHz Telkom Save offers discounted bandwidth. rates for certain countries to which there is heavy traffic from Indonesia while offering increase from approximately C. IDD 276.0 million as of December 31, 2012. We believe that Telkomsel competes effectively in the Indonesian cellular market on the basis of price, coverage, We compete in traditional regular VoIP tariff rates for IDD services (non-VoIP) in other countries. In addition to Indonesia primarily with other VoIP operators, we also Indosat, as well as Bakrie compete with internet-based Telecom. IDD also faces voice services likes Skype and competition with VoIP and Google Talk. other internet-based voice service quality and value added services likes Skype and E. Satellite services. As of December 31, Google Talk. 2013, Telkomsel remained the largest national licensed D. VoIP The Asia-Pacific region and especially Southeast Asia continues to need satellites for provider of cellular services in Indonesia, with approximately We formally launched our both telecommunications and VoIP services in September broadcasting infrastructure. 131.5 million cellular subscribers 2002. VoIP uses data This need is driven by the high and a market share of 42.4% of the full-mobility cellular market. The second and the third largest providers were Indosat and XL Axiata, which have a market share of 19.2% and 18.7% respectively, based on the estimated number of communications to transfer demand from services such as voice traffic over the internet, cellular backhaul, broadband which usually provides backhaul, enterprise network, substantial cost savings to OUTV (Occasional Usage subscribers. A number of TV), military and goverment other companies, including network, DTH television, flight XL Axiata, Indosat, Atlasat communication, and disaster Solusindo Pte, Ltd., recovery. subscribers as of December 31, PT Gaharu Sejahtera, PT Satria 2013. In addition to the nationwide GSM operators, a number of smaller regional GSM, analog and CDMA fixed wireless providers operate in Indonesia. Widya Prima, PT Primedia At the same time, the supply of Armoekadata Internet and available satellite transponders PT Jasnita Telekomindo also in Southeast Asia is limited. provide licensed VoIP services Almost all of the orbital slot in Indonesia. Other unlicensed positions covering Southeast operators also provide VoIP Asia are occupied. Of the services that may be accessed satellites currently under Hutchison and Natrindo also provide cellular services in through websites or through construction one is planned to software that allows voice occupy the 1180E orbital slot, Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 271 but it is estimated to enter the coverage of the Telkom-1 The current trend in the service only in 2016. and Telkom-2 satellites satellite business is the include AsiaSat-2, AsiaSat-4, development of broadband Generally, large global satellite AsiaSat-3S, Apstar-2R, satellite. As the bandwidths operators can use economies Apstar-5, Apstar-6, ThaiCom-3, in the C-Band and Ku-Band of scales to offer more Measat-2, Measat-3, Measat-3a, frequencies are fully utilized, competitive prices without PanAmSat-4 and PanAmSat-7. utilization of the Ka-Band affecting their financial Our direct competitors in Asia frequencies will become an performance. This may result in are MeasatSdn. Bhd, which option. The technology for a market premium subsidy in operates the Measat satellites, Ka-Band frequencies has been very competitive markets. APT Satellite which operates progressing rapidly in the last the Apstar satellites, and Shin decade. Broadband satellite There are 18 satellite operators Satellite PCL, which operates utilize Ka-Band frequencies with satellites covering the ThaiCom satellites. Southeast Asia: 1. SES Global (Luxembourg) The satellite industry in with a re-use configuration, resulting in capacities of up to 100 Gbps. Currently, we 2. Eutelsat Asia (France) Indonesia is one of the most are engaged in design and 3. APT Satellite (Hong Kong) competitive in Southeast Asia. demand studies for broadband 4. AsiaSat (Hong Kong) This is evident from the shift satellites. 5. JSAT (Japan) 6. MEASAT (Malaysia) in market structure since 2003 from monopoly to oligopoly. F. BTS 7. MCI – Media Citra Indostar One of the reasons for this As of December 31, 2013, (Indonesia) 8. Indosat (Indonesia) 9. VinaSat (Vietnam) shift in market structure is that we operated 75.579 BTS the domestic satellite industry located throughout Indonesia. is not strictly regulated by Through our subsidiary, 10. SingTel/Optus (Singapore) the Government of Indonesia. Mitratel, we lease out space 11. Telkom (Indonesia) 12. ChinaSat (China) Although Ministerial Regulation to other operators to place No.37/P/M.KOMINFO/12/2006 their telecommunications 13. Mabuhay (Philippines) dated December 6, 2006 equipment on these towers, 14. Thaicom (Thailand) 15. ABS (Hong Kong) issued by the MoCI was for which we receive a fee. Our intended as an entry barrier for principal competitors in this 16. Lippo Star (Indonesia) foreign satellite operators, the business are XL Axiata, Indosat, 17. Intelsat (US) 18. Telesat (Canada) currently applied “open sky” Bakrie Telecom and PT Tower policy has in fact increased Bersama Infrastructure Tbk. competition amongst domestic Our satellite operations and foreign satellite operators. G. Others primarily consist of leasing Another factor in the shift in Deregulation in the Indonesian satellite transponders market structure is the limited telecommunications sector capacity to broadcasters and capacity of domestic satellite has encouraged competition in operators of VSAT, cellular operators, which are thus the multimedia, internet, and and IDD services and ISPs, unable to benefit from the fast data communications services as well as providing earth growing market demands in businesses. The diversification station satellite up linking Indonesia. and down linking services to of businesses has gained momentum with the result that domestic and international In view of market opportunities competition is now intense, users. We face competition and limited supply, we plan to particularly in terms of price, from foreign and domestic expand our satellite business range of services offered, service providers and compete with the construction of quality and network coverage, most closely in Indonesia Telkom-3S satellite through a as well as customer service with Indosat and PSN. Other partnership on acquired orbital quality. private satellites serving the slot. The Telkom-3S satellite is broadcasting market within currently under development. 272 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis LICENSING To provide national telecommunications services, we have a number of product and service licenses that are consistent with the applicable laws, regulations or decrees. Following the issuance of MoCI Regulation No.01/PER/M. KOMINFO/01/2010 (“MoCI Decree No.01/2010”) dated January 25, 2010 concerning the Provision of Telecommunication Network, we were required to adjust our telecommunications license to provide telecommunications services. We have secured new licenses that have been adjusted as required of which are as follows: A. Fixed Network and Basic Telephony Services Based on the report submitted by us concerning the operation of fixed network and as part of the adjustment to MoCI Decree No.01/2010, we had our licenses adjusted in 2010 for the operation of local fixed network, direct long distance, international call and closed fixed network, explained as follows: - MoCI Decree No.381/KEP/M. KOMINFO/10/2010 dated October 28, 2010 on the License of Operating Local Fixed Network and Basic Telephony Services of PT Telekomunikasi Indonesia Tbk; - MoCI Decree No.382/ KEP/M.KOMINFO/10/2010 dated October 28, 2010 on the License of Operating Fixed Network of Domestic Long Distance and Basic licences from the Indonesian Telephony of Investment Coordinating PT Telekomunikasi Indonesia Board that permit Telkomsel to Tbk; develop cellular services with - MoCI Decree No.383/KEP/M. national coverage, including KOMINFO/10/2010 dated the expantion of its network October 28, 2010 on the capacity. In addition, Telkomsel License of Operating Fixed holds permits and licenses Network of International from and registrations with Call and Basic Telephony certain regional governments Services of and/or governmental agencies, PT Telekomunikasi Indonesia primarily in connection with its Tbk; and operations in such regions, the - MoCI Decree No.398/KEP/M. properties it owns and/or the KOMINFO/11/2010 dated construction and use of its BTS. November 12, 2010 on the License of Operating Closed Fixed Network of C. International Calls We commenced our PT Telekomunikasi Indonesia international call service in Tbk. 2004. Our license for operating a fixed network to provide Following the issuance of international call services was MoCI Decrees No.381, 382 and adjusted in 2010 to meet the 383, our previous licenses for requirements of MoCI Decree operating a fixed network No.01/2010 with the issuance and basic telephony services of MoCI Decree No.383/2010. previously owned by us based The license does not have a on MoC Decree No.KP.162 set expiry date, but it will be of 2004 dated May 13, 2004 evaluated in 2015. ceased to be in effect. The licenses do not have a set We have a license to operate a expiry date, but are evaluated closed fixed network based on every five years. B. Cellular MoCI Decree No.398/KEP/M. KOMINFO/11/2010, which amends the previous license, Telkomsel holds licenses to to meet the provisions in MoCI operate a nationwide mobile Decree No.01/2010. The license cellular telephone network allows us to lease the installed using 7.5 MHz of radio closed fixed network, to among frequency bandwidth in the others, telecommunication 900 MHz band, 22.5 MHz of network and service operators, radio frequency bandwidth in including providing an the 1800 MHz band, and 15 MHz international telecommunication of radio frequency bandwidth transmission facility through a in the 2100 MHz band. The SCCS directly to Indonesia for licenses do not have a set expiry overseas telecommunication date, but will be evaluated every operators. five years. Telkomsel also hold Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 273 According to MoCI Decree No.16/PER/M. KOMINFO/9/2005 dated October 6, 2005 concerning Provision of International Telecommunications Transmission Facilities through SCCS, overseas telecommunications operators wishing to provide an international telecommunications transmission facilities through the SCCS directly to Indonesia are required to set up a partnership with a fixed network of international call services or closed fixed network provider. In line with MoCI Decree No.16/2005, the international telecommunication transmission facilities provided through SCCS are served by us on the basis of landing rights attached to our license to operate fixed network of international call services. We have also secured landing rights based on the landing right Letter No.006-OS/DJPT.6/ HLS/3/2010 dated March 2, 2010 from MoCI. On March 2, 2010, the MoCI issued Decree No.75/KEP/M. KOMINFO/03/2010 granting D. VoIP our subsidiary, Telin, a license We are licensed to provide Telkomsel is also licensed to provide public VoIP services to operate a closed fixed internet telephony services for based on DGPT Decree No.226/ line network which enables public needs as stated in DGPT Telin to provide international Decree No.384/KEP/DJPT/M. infrastructure services. KOMINFO/11/2010 dated Separately, Telin secured landing November 29, 2010 on Voice rights in Indonesia from the over Internet Protocol ("VoIP") DIRJEN/2009 regarding the provision of ITKP services. This license does not have a set expiry date, but it will be evaluated every five years by DGPT to provide international services. This license does not the Government. telecommunications have a set expiry date, but it will transmission facilities through be evaluated every five years. SCCS. 274 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis E. ISP We are licensed as an ISP under DGPI Decree No.83/KEP/DJPPI/ KOMINFO/4/2011 dated April 7, 2011. This license does not have a set expiry date, but it will be evaluated every five years. Telkomsel is also licensed to provide multimedia internet access services with nation- wide coverage under DGPT Decree No.213/DIRJEN/2010. This license does not have a set expiry date, but it will be evaluated annually, with a in twelve zones, comprising 2.3 GHz radio frequency eight zones on 3.3 GHz (North are now permitted to freely Sumatra, South Sumatra, choose their technology in Central Sumatra, West providing BWA on the 2.3 GHz Kalimantan, East Kalimantan, radio frequency, subject to a West Java, JABODETABEK and requirement that they pay an Banten) and five zones on annual usage rights fee for the 2.3 GHz (Central Java, East third through the tenth year of Java, Papua, Maluku, and the the license period in which a northern part of Sulawesi). technology divergent from that specified in MoCI Regulation In August 2009, the MoCI issued No.22/2009 is used. On January Ministerial Decree No.237/ KEP/M.KOMINFO/7/2009 9, 2012, MoCI announced that it plans to make available for regarding the Appointment bidding additional 2.3 GHz radio of the Winning Bidders for frequency in the 2300-2360 comprehensive evaluation every Packet Switched-Based MHz range for BWA services five years. Local Fixed Access Network utilizing neutral technology. F. Internet Interconnection Service We hold a license to provide internet interconnection services by referring to DGPI Decree 331/KEP/M. KOMINFO/09/2013 dated on September 24, 2013 regarding license for Internet Interconnection Service (Network Access Point) for PT Telekomunikasi Indonesia Tbk. This license does not have a set expiry date, but it will be evaluated every five years. G. BWA In July 2009, we won a tender for a BWA license and the right to provide BWA services Operators Using the 2.3 GHz Radio Frequency for Wireless MoCI Regulation No.19/2011 Broadband Services. Because also stipulates domestic of inadequate implementation component obligations for by the winning bidders, the telecommunications devices MoCI later issued Regulation and equipment used in No.19/PER/M.KOMINFO/09/2011 providing BWA on the 2.3 GHz dated September 14, 2011 radio frequency. Initial domestic (“MoCI Regulation No.19/2011”), component obligations are which released operators on 30% for subscriber stations the 2.3GHz radio frequency and 40% for base stations, to from the obligation to use the be increased to 50% within five particular technology specified years. in the bid terms for the 2.3 GHz radio frequency, which were set As a result of the switch to out in MoCI Regulation No.22/ neutral technology under PER/M.KOMINF0/04/2009 MoCI Regulation No.19/2011, April 24, 2009 (“MoCI we lost vendor support for Regulation No.22/2009”). our preferred technology, Pursuant to MoCI Regulation which is based on fixed BWA No.19/2011, operators on the technology. Vendors instead Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 275 preferred to support the mobile a set expiry date but will be activities, with the launch of BWA technology selected thoroughly evaluated every five Telkomsel Tunai prepaid card. by other operators. Mobile years. BWA technology competes J. Remittance Service with Telkomsel. We therefore I. Payment Method Using Based on a license from Bank returned 4 of the 5 zones, which we had received. We retained e-Money Following the implementation Indonesia No.11/23/Bd/8, dated August 5, 2009, we may our BWA license for Maluku of Bank Indonesia’s Regulation operate as a money transfer zone so we would continue No.11/11/PBI/2009 and Circular services provider. to qualify as a BWA operator Letter of Bank Indonesia on 2.3 GHz and have the right No.11/10/DASP each dated on K. IPTV to access the BWA networks May 13, 2009 regarding how On April 27, 2011, we and maintained by other operators. to use card-based payment TelkomVision together instruments (“APMK”) and obtained a license to operate Becoming a broadband Bank Indonesia’s Regulation IPTV services through MoCI wireless access operator is in No.11/12/PBI/2009 and Circular Decree No.MCIT.160/KEP/M. line with the transformation Letter of Bank Indonesia KOMINFO/04/2011 regarding of our business to TIMES, which requires us to have infrastructure that is No.11/11/DASP each dated the Telkom and TelkomVision May 13, 2009 on e-money, IPTV Service Consortium Bank Indonesia has redefined Agreement. We now provide capable of responding to an the meaning of “principal” IPTV services in five locations: increasingly complex market and “acquirer” in operating Greater Jakarta, Bandung, and the demand for ever APMK and e-money business. Semarang, Surabaya and Bali, more convergent products In light of these regulations, under the brand “UseeTV”. and services, whether in Bank Indonesia confirmed our the consumer, enterprise or status as an issuer of e-money L. Construction Services wholesale segments. H. Data Communication System (“SISKOMDAT”) We provide SISKOMDAT based on letter of Directorate of Accounting and Payment Business License (“IUJK”) On June 6, 2012, the City System of Bank Indonesia Government of Bandung issued No.11/13/DASP dated May 25, a construction services business 2009. We operate our e-money license to us through IUJK No. services under DGPI business under the brand 1-3273-858971-2-001772 for Decree No. 169/KEP/DJPPI/ names “T-cash” and “Flexi cash”. Telkom. The IUJK is valid for KOMINFO/6/2011 dated June the execution of construction 6, 2011 regarding License for With the issuance of Bank services throughout the domain Data Communications Systems Indonesia Circular Letter No. of the Republic of Indonesia, Services Operation for 9/9/DASP dated January comprising architecture, civil, PT Telekomunikasi Indonesia 19, 2007, Telkomsel is also mechanical and electrical works. Tbk. This license does not have permitted to conduct APMK The IUJK is valid until June 5, 2015. 276 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlight Preface Management Report Business Overview Management’s Discussion & Analysis TRADEMARK, COPYRIGHTS, INDUSTRIAL DESIGNS AND PATENTS We constantly seek to develop product and service innovations in line with a dynamic business portfolio. To provide both protection for and recognition of the creativity involved, we have registered a number of intellectual property rights, including trademarks, copyrights, industrial design and patents, with the Directorate General of Intellectual Property Rights at the Ministry of Law and Human Rights of the Republic of Indonesia. The intellectual property rights we have registered include: (i) trademarks for our products and services, corporate logo and name; (ii) copyrights on our corporate name and logo, product and service logos, computer programs, research and songs; and (iii) simple and ordinary patents on technological inventions in the form of telecommunications products, systems and methods. Following is the list of brands that have been registered by us in 2013 No 1 2 3 4 5 Title Application No. Application Date Registration Date Speedytrek Xpose Ur Music J002009011733 April 8, 2009 April 19, 2013 Speedy Grovia DELIMA TELEPON RUMAH Flexi-Lebih Irit kan J002010035301 October 1, 2010 December 9, 2013 J002011004453 May 11, 2011 January 7, 2013 J002011026179 July 1, 2011 August 19, 2013 J002011026180 July 1, 2011 August 19, 2013 Following is the list of brands applied for registration in 2013. No. Title 1 2 3 4 5 6 U See Zone UTV U Zone U U meet me Indi Home Application No. J002013014812 J002013004813 J002013004814 J002013004815 J002013022833 J002013057688 Application Date April 2, 2013 April 2, 2013 April 2, 2013 April 2, 2013 May 16, 2013 December 3, 2013 Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 277 The following list the copyrights that have been registered by us in 2012 and 2013: No. Innovation Title Application No. Application Date Registration Date Innovation Number 1 2 3 4 5 6 7 8 9 “Transformer” Computer Program C00201203811 August 8, 2012 July 1, 2013 63830 “Global Billing Application” Computer Program C00201203812 August 8, 2012 July 1, 2013 63831 “Internet Bijak” Logo C00201203814 August 8, 2012 July 17, 2013 64136 “Telkom Cloud-explore the possibilities” Logo C00201203815 August 8, 2012 July 17, 2013 64137 U See TV Logo SIP Client C00201203815 August 8, 2012 October 29, 2013 65176 C00201104855 December 20, 2011 October 12, 2012 60930 Location Based Social Networking C00201104856 December 20, 2011 October 12, 2012 60931 Supply Chain Management Application C00201200612 February 8, 2012 December 10, 2012 61589 RBT Advertising C00201200613 February 8, 2012 December 10, 2012 61590 10 Web-based Remote Control Application on C00201200614 February 8, 2012 December 10, 2012 61591 Speedy Network Flexi Belajar C00201200615 February 8, 2012 December 10, 2012 61592 Customized Personal View C00201200616 February 8, 2012 December 10, 2012 61593 Telkomsel Market C00201200617 February 8, 2012 December 10, 2012 61594 11 12 13 We applied for the following copyrights in 2012 and 2013: No. Innovation Title Type of Intellectual Property Rights Application No. Application Date Registration Date 1 2 3 4 5 6 7 8 9 U See Zone U Zone U 10 UTV Telkom Telemetering Smart Home Telkom Game Center Application Computer Program C00201205695 December 11, 2012 Computer Program C00201300509 February 7, 2013 ART Promo Application Computer Program C00201300510 February 7, 2013 Telkom Store Application Computer Program C00201300511 February 7, 2013 Qonnect Application Computer Program C00201300512 February 7, 2013 Telkom SNS Hub Client Computer Program C00201300513 February 7, 2013 Logo Logo Logo Logo C00201301288 April 2, 2013 C00201301289 April 2, 2013 C00201301290 April 2, 2013 Coo201301291 April 2, 2013 11 12 Firmware Telkom Gateway Computer Program C00201301292 April 2, 2013 Indi Home Logo C00201305330 December 3, 2013 No registration of patent is filed and registered in 2013 - - - - - - - - - - - 278 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis DEFINITIONS 3G The generic term for third generation mobile telecommunications technology. 3G offers high speed connections to cellular phones and other mobile devices, enabling video conference and other applications requiring broadband connectivity to the internet. 3.5G A grouping of disparate mobile telephony and data technologies designed to provide better performance than 3G systems, as an interim step towards deployment of full 4G capability. Adjusted EBITDA Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization. Adjusted EBITDA and other related ratios in this Annual Report serve as additional indicators on our performance and liquidity, which is a non GAAP financial measure. ADS American Depositary Share (also known as an American Depositary Receipt, or an “ADR”), a certificate traded on a US securities market (such as New York Stock Exchange) representing a number of foreign shares. Each of our ADS instruments, a payment instrument in the form of credit cards, BSS Base Station Subsystem, the Automated Teller Machine (“ATM”) section of a cellular telephone and/or debit cards. network responsible for handling ARPU Average Revenue per User, traffic and signaling between a mobile phone and the network switching subsystem. A BSS is a measure used primarily composed of two parts: the BTS by telecommunications and and the BSC. networking companies which states how much money we make from the average user. It is defined BTS Base Transceiver Station, as the total revenue from specified equipment that transmits and services divided by the number of receives radio telephony signals to consumers for those services. and from other telecommunication systems. Backbone The main telecommunications network consisting of transmission BWA Broadband Wireless Access, a and switching facilities connecting technology that provides high several network access nodes. The speed wireless internet access or transmission links between nodes computer networking access over a and switching facilities include wide area. microwave, submarine cable, satellite, optical fiber and other transmission technology. Bandwidth The capacity of a communication link. Bapepam-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan, or the Indonesian Capital Market and Financial Institution Surpervisory CDMA Code Division Multiple Access, a transmission technology where each transmission is sent over multiple frequencies and a unique code is assigned to each data or voice transmission, allowing multiple users to share the same frequency spectrum. CPE Customer Premises Equipment, Agency, the predecessor to the any handset, receiver, set-top box represents 200 of our Series B OJK. shares. or other equipment used by the consumer of wireless, fixed line or ADSL Asymmetric Digital Subscriber Line, a type of digital subscriber line technology, a data communications technology that enables faster data transmission over copper telephone lines than a conventional voice band modem can provide. APMK Alat Pembayaran Menggunakan Kartu or card-based payment Broadband A signaling method that includes or broadband services, which is the property of the network operator handles a relatively wide range (or and located on the customer band) of frequencies. premises. BSC Base Station Controller, an DCS Digital Communication System, a equipment responsible for radio mobile cellular system using GSM resource allocation to mobile technology operating in the 1800 station, frequency administration MHz frequency band. and handover between BTSs controlled by the BSC. Defined Benefit Pension Plan A type of pension plan in which Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 279 an employer promises a specified copper feeder distribution and which operates over two separate monthly benefit on retirement subscriber lines. that is predetermined by a formula based on the employee’s earnings history, tenure of service DTH Direct-to-Home satellite sets of wires, usually twisted pair cable. E1 link data rate is 2,048 Mbps (full duplex), which is divided into 32 timeslots. and age, rather than depending broadcasting, the distribution on investment returns. It is of television signals from high- considered ‘defined’ in the sense powered geostationary satellites Earth Station The antenna and associated that the formula for computing the to small dish antennas and satellite equipment used to receive or employer’s contribution is known in receivers in homes across the transmit telecommunication signals advance. country. via satellite. Defined Contribution Pension Plan A type of retirement plan in which Dual Band The capability of a mobile cellular the amount of the employer’s network and mobile cellular EDGE Enhanced Data rates for GSM annual contribution is specified. handsets to operate across two Evolution, a digital mobile phone Individual accounts are set up frequency bands, for example GSM technology that allows improved for participants and benefits are 900 and GSM 1800. data transmission rates as a based on the amounts credited to these accounts (through employer contributions and, if applicable, e-Business Electronic Business solutions, GSM. backward-compatible extension of employee contributions) plus any including electronic payment investment earnings on the money services, internet data centers and in the account. Only employer content and application solutions. contributions to the account are Refer to “New Economy Business guaranteed, not the future benefits. (“NEB”) and Strategic Business Edutainment Education and Entertainment. EVDO Evolution Data Optimize, a In defined contribution plans, future Opportunities Portfolio” under standard high speed 3G wireless benefits fluctuate on the basis of Business Overview. broadband for CDMA. investment earnings. Dial-Up Access to the internet using fixed e-Commerce Electronic Commerce, the buying Fixed Line Fixed wireline and fixed wireless. and selling of products or services telephone lines or mobile phone. over electronic systems such as the internet and other computer DLD Domestic Long Distance, a long networks. distance call service designed for customers who live in different e-Money Electronic Money, money or areas but still within one country. script that is only exchanged These areas normally have different electronically. area codes. Down link Radio signal frequency emitted by e-Payment Also known as electronic funds Fixed Wireless The local wireless transmission link using a cellular, microwave, or radio technology to connect customers at a fixed location to the local telephone exchange. Fixed Wireline A fixed wire or cable path linking a subscriber at a fixed location to a local exchange, usually with an transfer, the electronic exchange individual phone number. the satellite to earth station. or transfer of money from one DSL Digital Subscriber Line, account to another, either within a single financial institution or FTTx Fiber to the “x”, a generic term across multiple institutions, through for any broadband network a technology that allows computer-based systems. architecture that uses optical fiber combinations of services including voice, data and one way full motion video to be delivered over existing E1 Link The backbone transmission unit to replace all or part of the usual metal local loop used for last mile telecommunication. The generic 280 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis term originated as a generalization network and only utilizes the of several configurations of fiber network when there is data to be Intelligent Network A service-independent deployment such as fiber to the sent. home, fiber to the node or fiber to the building. GSM Global System for Mobile telecommunications network where the logic functions are taken out of the switch and placed in computer nodes distributed throughout the Gateway A peripheral that bridges a packet Telecommunication, a European network. This provides the means standard for digital cellular to develop and control services based network (IP) and a circuit telephone. based network (PSTN). Gb Gigabyte, a unit of information Homepass A connection with access to fixed line voice, IPTV and broadband used, for example, to quantify services. computer memory or storage capacity. HSPA+ Evolved High Speed Packet Access Gbps Gigabyte per second, the average is defined in the Third Generation Partnership Project Release 7. It number of bits, characters, or introduces a simpler IP-centric more efficiently allowing new or advanced telephony services to be introduced quickly. Interconnection The physical linking of a carrier’s network with equipment or facilities not belonging to that network. IP Internet Protocol, the method or blocks per unit time passing architecture for the mobile network protocol by which data is sent from between equipment in a data bypassing most of the legacy one computer to another on the transmission system. This is equipment. HSPA+ boosts peak internet. typically measured in multiples of data rates to 42 Mbit/s on the the unit bit per second or byte per downlink and 22 Mbit/s on the second. uplink. GHz Gigahertz. The hertz (symbol Hz), IDD International Direct Dialing, a the international standard unit of service that allows a subscriber to frequency defined as the number make an international call without of cycles per second of a periodic the assistance or intervention of IP Core A block of logic data that is used in making a field programmable gate array or application-specific integrated circuit for a product. IP DSLAM Internet Protocol-Digital Subscriber phenomenon. an operator from any telephone Line Access Multiplexer, a network terminal. GMS General Meeting of Shareholders, which may be an Annual General IME Information, Media and Meeting of Shareholders (“AGMS”) Edutainment. or an Extraordinary General Meeting of Shareholders (“EGMS”). IMT-2000 International Mobile device located near the customer’s location that allows telephone lines to make faster connections to the internet by connecting multiple customer Digital Subscriber Lines (DSLs) to a high-speed internet backbone line using multiplexing techniques. GPON Gigabyte-Passive Optical Network, Telecommunications-2000, a body of specifications provided by the the most widely deployed type of International Telecommunication IP VPN A data communication service passive optical network system Union. Application services include using IP Multi Protocol Label that bring optical fiber cabling and wide area wireless voice telephone, Switching (“MPLS”) and based on signals all or most of the way to mobile internet access, video calls any to any connection. This service end users. and mobile TV, all in a mobile is connected to the data security environment. GPRS General Packet Radio Service, a Installed Lines Complete lines fully built-out to the data packet switching technology distribution point and ready to be that allows information to be sent connected to subscribers. and received across a mobile systems, L2TP and IPSec. The speed depends on the customer’s needs and ranges from 64 Kbps to 2 Mbps. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 281 IPTV Internet Protocol Television, a Mbps Megabyte per second, a measure of NGN Next Generation Network, a general system through which television speed for digital signal transmission term that refers to a packet-based services are delivered using the expressed in millions of bits per network able to provide services, Internet Protocol suite over a second. packet-switched network such as the internet, instead of being delivered through traditional Metro Ethernet Bridge or relationship between including telecommunication services, and able to make use of multiple broadband, quality of service enabled transport terrestrial, satellite signal, and cable locations that are apart technologies and in which service- television formats. geographically, this network related functions are independent connects LAN customers at several from underlying transport related ISDN Integrated Services Digital different locations. Network, a network that provides end-to-end digital connectivity and MHz Megahertz, a unit of measure of technologies. A NGN is intended to be able to, with one network, transport various services (voice, data, and various media such as allows simultaneous transmission of frequency equal to one million video) by encapsulating these into voice, data and video and provides cycles per second. high speed internet connectivity. ISP Internet Services Provider, an Mobile Broadband The marketing term for wireless internet access through a portable packets, similar to how such packet are transmitted on the internet. NGNs are commonly built around the Internet Protocol. organization that provides access modem, mobile phone, USB to the internet. Wireless Modem or other mobile Node B A BTS for a 3G W-CDMA/UMTS devices. network. Kbps Kilobyte per second, a measure of speed for digital signal transmission MoCI The Ministry of Communication OBCE Operational, Business and expressed in thousands of bits per and Information, to which Customer support system and second. regulatory responsibility over Enterprise relations management, telecommunications was which is part of our strategic Lambda Lambda indicates the wavelength transferred from the Ministry initiatives. of Communication (“MoC”) in of any wave, especially in physics, February 2005. electronics engineering and mathematics. MSAN Multi Service Access Networks, OJK Otoritas Jasa Keuangan, or the Indonesian Financial Services Authority, the successor of Leased Line A dedicated telecommunications represent the third generation of Bapepam-LK, is an independent optical access network technology institution with authority to transmissions line linking one fixed and are single platforms capable regulate and supervise financial point to another, rented from an of supporting traditional, widely services activities in the banking operator for exclusive uses. deployed, access technologies and sector, capital market sector as services as well as emerging ones, well as non-bank financial industry Local Exchange Capacity The aggregate number of lines at while simultaneously providing sector. a gateway to a NGN core. MSAN a local exchange connected and will enable us to provide triple available for connection to outside play services that distribute high OLO Other Licensed Operators, i.e. plant. speed internet access, voice operators other than our Company. LTE Long Term Evolution technology, a standard for high-speed wireless packet services and IPTV services simultaneously through the same infrastructure. data communication for mobile phones and data terminals. Network Access Point A public network exchange facility Optical Fiber Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted where ISPs connected with one through thin filaments of glass. another in peering arrangements. 282 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Outside Plant The equipment and facilities used PSTN Public Switched Telephone into a fixed wireless telephone that uniquely identifies a CDMA network to connect subscriber premises to Network, a telephone network subscription and that contains the local exchange. operated and maintained by us and subscriber-related data such as the KSO Units for us and on our phone numbers, service details and behalf. memory for storing messages. Pay TV Pay Television, premium television, or premium channels, subscription- based television services, usually Pulse The unit in the calculation of provided by both analog and telephone charge. digital cable and satellite, but also increasingly via digital terrestrial and internet television. Radio Frequency Spectrum The part of the electromagnetic spectrum corresponding to Satellite Transponder Radio relay equipment embedded in a satellite that receives signals from earth and amplifies and transmits the signal back to the earth. PDN Packet Data Network, a digital radio frequencies, i.e. frequencies lower than around 300 GHz (or, SCCS Submarine Communications Cable communications network which equivalently, wavelengths longer System, a cable laid on the sea bed breaks a group data to be than about 1 mm). transmitted into segments called packets, which are then routed independently. PKLN Tim Pinjaman Komersial Luar RIO Reference Interconnection Offer, a regulatory term covering all facilities, including interconnection between land-based stations to carry telecommunication signals across stretches of ocean. SDP Service Delivery Platform, a set Negeri, or Foreign Commercial administrative issues offered by service delivery architecture (such Loan Coordinating Team, an inter- one telecommunications operator as service creation, session control agency team of the Government to other telecommunications and protocols) for a type of service. tariffs, technical facilities and of components that provide a charged with, among others, operator for interconnection considering requests of Indonesian access. State-Owned Enterprises such as us for consent to obtain foreign commercial loans. POWL Public Offering Without Listing. SIM card Subscriber Identity Module, a RMJ Regional Metro Junction, an inter- “smart” card designed to be inserted into cellular phone city cable network installation that uniquely identifies a GSM service in one regional (region/ network subscription and contains province). subscriber-related data such as phone numbers, service details and memory for storing messages. Premium SMS Premium Short Message Service, a Roaming A general term referring to the text messaging service component extension of connectivity service in of phone, web, or mobile a location that is different from the SME Small and Medium Enterprise. communication systems, using home location where the service standardized communications was registered. SMS Short Messaging Service, a protocols that allow the exchange of short text messages between fixed line or mobile phone devices. RUIM card Removable User Identity Module, a technology allowing the exchange of text messages between mobile smart card designed to be inserted phones and between fixed wireless phones. Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 283 SOE State-Owned Enterprise, a TITO Trade-In, Trade-Off, a conversion some combination of encryption, digital certificates, strong user Government-owned corporation, scheme to replace copper authentication and access control state-owned company, state- with optical cable. Refer to to secure the traffic they carry. owned entity, state enterprise, “Development and Modernization These provide connectivity to publicly owned corporation, of Broadband Access through many machines behind a gateway Government business enterprise, the TITO Scheme” under Network or firewall. or parastatal, a legal entity created Development. by a Government to undertake commercial activities on behalf of an owner Government. Trunk Exchange A switch that has the function of VSAT Very Small Aperture Terminal, a relatively small antenna, typically connecting one telephony switch 1.5 to 3.0 meters in diameter, placed Softswitch A central device in a telephone to another telephony switch, which in the user’s premises and used can either be a local or a trunk for two-way communications by network that connects calls from switch. satellite. one phone line to another, entirely by means of software running on a computer system. This work was UMTS Universal Mobile Telephone System, WiMAX Worldwide Interoperability formerly carried out by hardware, one of the 3G mobile systems for Microwave Access, a with physical switchboards to route being developed within the ITU’s telecommunications technology the calls. IMT-2000 framework. that provides wireless transmission STM-1 Synchronous Transport Module USO Universal Service Obligation, of data using a variety of transmission modes, from point- to-point links to portable internet level-1, the SDH ITU-T fiber optic the service obligation imposed access. network transmission standard with by the Government on all a bit rate of 155.52 Mbps. The other telecommunications services standards are STM-4, STM-16 and providers for the purpose of Wireless Access Network Any type of computer network STM-64. providing public services in that is not connected by cables Switch A mechanical, electrical or electronic device that opens or VoIP Voice over Internet Protocol, a Indonesia. of any kind. It is a method by which homes, telecommunications networks and enterprise (business) installations avoid the costly closes circuits, completes or breaks means of sending voice information process of introducing cables an electrical path, or selects paths using the IP. or circuits, used to route traffic in a telecommunications network. Terra Router Terra Router or terabit router on VPN Virtual Private Network, a secure private network connection, built on top of publicly-accessible into a building, or as a connection between various equipment locations. Wireless Broadband Technology that provides high the theory allows the network infrastructure, such as the speed wireless internet access or capacity on a scale of terabits (1 internet or the public telephone computer networking access over a terabit = 1 million gigabits). network. VPNs typically employ wide area. TIMES Telecommunication, Information, Media, Edutainment and Service. 284 2013 Annual Report PT Telekomunikasi Indonesia, Tbk Highlights Preface Management Report Business Overview Management’s Discussion & Analysis Cross Reference to Bapepam-LK Regulation No.X.K.6 Pursuant to Bapepam-LK Regulation No.X.K.6, we are required to present our Annual Report in accordance with the format and content stipulated in the regulation. This table provides a cross-reference between this Annual Report and Bapepam-LK Regulation No.X.K.6 to demonstrate our compliance with this requirement. Criteria Page Section in Annual Report 1. Summary of Important Financial Data a) Summary of important financial data for the 14-15 Financial Highligths last three years b) Information of share issued during each quarterly period in the last two years 2. Board of Commissioners’ Report 3. Board of Directors’ Report 4. Company Profile 18-21 Common Stock and Bond Highlights 28-33 34-39 Report From The President Commissioner Report From The President Director a) Name, address, telephone, fax, email, website 249-251 Addresses and/branch or representative offices; b) Company’s brief history c) Company's line of business including product and services 2-3, 224- 241 225, 46-53 Line of Business, Business Portfolio -Strength Born of A Long History -A Brief History Of Telkom d) Organization structure in the form of a chart e) Company’s vision and mission f) Board of Commissioner’s profile g) Board of Director’s profile h) Number of employees and description of their competency development i) Description regarding shareholders and percentage of ownership 228-229 12 238-239 240-241 88-89, 92-93 242-243 Company’s Organizational Structure With Our Vision, Mission and Values Profile of the Board of Commissioners Profile of the Board of Directors Human Capital Shareholder Composition j) Chart/diagram of the major and controlling 243 Shareholder Composition shareholders k) Information of subsidiaries, associated 230-237 Subsidiaries and Associated Companies companies and joint ventures l) Share listing chronology m) Listing chronology of other securities and securities rating 244-246 246 Chronology of Stock Issued Chronology of Bonds n) Name and address of rating agency o) Information of capital market institutions and 248 247-248 Capital Market Supporting Professionals Capital Market Supporting Professionals professionals p) Awards and certification received by the 24-27 Awards and Certifications company 5. Management’s Analysis and Discussion a) Review of operations per operational segment 102-106 107-120 b) Comparative analysis of financial performance Operational Review By Segment Financial Overview in the last two years 122 c) Company’s solvency 122 d) Company’s receivable collectability e) Capital structure and capital structure policy 122-123 f) Material commitments for capital expenditure 124-125 g) Material information and facts subsequent to 133 the date of the accountant’s report Solvency Receivable Collectibility Capital Structure Material Commitment for Capital Investment Subsequent Events after the Reporting Date Corporate Governance Social & Environmental Responsibility Company Profile Additional Information (For ADR Shareholders) Appendices 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 285 Criteria h) Company’s prospects i) Comparison between targets/projections at beginning of fiscal years and actual results j) Targets/projections to be achieved for one year k) Description of the marketing of the company’s products and services l) Description of the dividend policy, date and total dividend per share and total dividend per year declared and paid for the last two years m) Use of proceeds from the public offerings: n) Material information regarding investment, expansion, divestment, merger/acquisition, debt/capital restructuring, affiliated transaction and transaction involving conflict of interest Page 45 34-39 Section in Annual Report Business Outlook (Trend Information) Report From The President Director 39 Report From The President Director 54-56 Marketing and Distribution 246-247 Dividend Policy N/A 44-45, 123, 131, 132-133 N/A Corporate Strategy, Capital Expenditures, Related Party Transactions, Material Information and Facts o) Changes in laws and regulations p) Changes in accounting policies 125 125 Changes in Laws and Regulation Changes in Accounting Policies 6. Corporate Governance a) Board of Commissioners b) Board of Directors c) Audit committee d) Other committees under the supervision of the Board of Commissioners and/or Directors e) Corporate secretary f) Internal audit unit g) Internal control system h) Risk management system i) Material litigation faced by the company 145-149 149-157 158-163 164- 165,166-171, 172-175 175-177 178-180 180-181 182-183 183-185 j) Administrative sanctions k) Code of conduct and corporate culture l) Employees/managements share ownership 185 186-189 245 Board of Commissioners Board of Directors Audit committee Nomination and Remuneration Committee, Planning and Risk Evaluation and Monitoring Committee, Committee Under BoD Corporate Secretary/Investor Relation (“IR”) Internal Audit Unit Internal Control System Risk Management Legal Proceeding and Lawsuits Involving The Company Administrative Sanctions Code of Ethics and Corporate Culture Employee Stock Ownership Program program m) Whistleblowing system 7. Company’s corporate social responsibility, on environment, employment, health and work safety, social and community development as well as product responsibility 189-191 198-221 Whistleblowing Systems Social and Environmental Responsibility 8. Audited Financial Statements 9. Signature of the Board of Commissioners and Directors Statement of the Member of Board of Commissioners and Directors Regarding Responsibility for Annual Reporting 2013 Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk We hereby state that all information has been fully disclosed in Annual Report 2013 Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk and we are solely responsible for the accuracy of the content. This statement is considered to be true and correct. Jakarta, March 10, 2014 Board of Commissioners Hadiyanto Commissioner Jusman Syafii Djamal President Commissioner Parikesit Suprapto Commissioner Johnny Swandi Sjam Independent Commissioner Gatot Trihargo Commissioner Virano Gazi Nasution Independent Commissioner Board of Directors Arief Yahya President Director Honesti Basyir Director of Finance Priyantono Rudito Director of Human Capital Management Sukardi Silalahi Director of Consumer Service Rizkan Chandra Director of Network IT & Solution Muhammad Awaluddin Director of Enterprise & Business Service Ririek Adriansyah Director of Wholesale & International Service Indra Utoyo Director of Innovation & Strategic Portfolio These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 AND FOR THE YEAR THEN ENDED WITH INDEPENDENT AUDITORS’ REPORT TABLE OF CONTENTS Page Independent Auditors’ Report Consolidated Statement of Financial Position ................................................................................ 1-3 Consolidated Statement of Comprehensive Income ...................................................................... 4 Consolidated Statement of Changes in Equity ............................................................................... 5-6 Consolidated Statement of Cash Flows.......................................................................................... 7 Notes to the Consolidated Financial Statements............................................................................ 8-124 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) As of December 31, 2013 (Figures in tables are expressed in billions of rupiah, unless otherwise stated) Notes 2013 2012 LIABILITIES AND EQUITIES CURRENT LIABILITIES Trade payables Related parties Third parties Other payables Taxes payable Accrued expenses Unearned income Advances from customers and suppliers Short-term bank loans Current maturities of long-term liabilities Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities - net Other liabilities Long service award provisions Post-retirement health care benefit costs provisions Retirement benefits obligation and other post- retirement benefits Long-term liabilities - net of current maturities Obligations under finance leases Two-step loans Bonds and notes Bank loans Total Non-current Liabilities TOTAL LIABILITIES 2o,2r,2u, 14,44 2c,37 2u,44 2t,31 2c,2r,2u,15, 27,34,37,44 2r,16 2c,37 2c,2p,2u, 17,37,44 2c,2m,2p,2u, 18,37,44 2t,31 2r 2s,35 2s,36 2s,34 2u,18,44 2m,11 2c,2p,19,37 2c,2p,20,37 2c,2p,21,37 826 10,774 388 1,698 5,264 3,490 472 432 5,093 28,437 3,004 472 336 752 2,795 4,321 1,702 3,073 5,635 22,090 50,527 432 6,848 176 1,844 6,163 2,729 257 37 5,621 24,107 3,059 334 347 679 2,248 1,814 1,791 3,229 6,783 20,284 44,391 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 2 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) As of December 31, 2013 (Figures in tables are expressed in billions of rupiah, unless otherwise stated) EQUITY Capital stock - Rp50 par value per Series A Dwiwarna share and Series B share Authorized - 1 Series A Dwiwarna share and 399,999,999,999 Series B shares Issued and fully paid - 1 Series A Dwiwarna share and 100,799,996,399 Series B shares Additional paid-in capital Treasury stock Difference due restructuring and other transactions of entities under common control Effect of change in equity of associated companies Unrealized holding gain on available-for-sale securities Translation adjustment Difference due to acquisition of non-controlling interests in subsidiaries Other reserves Retained earnings Appropriated Unappropriated Net Equity Attributable to Owners of the parent company Non-controlling Interests TOTAL EQUITY Notes 2013 2012 1c,23 2d,2v,24 2v,25 5,040 2,323 (5,805) 5,040 1,073 (8,067) 2d,24 2f 2u 2f 1d,2d 1d 33 2b,22 - 386 38 391 (508) 49 15,337 43,291 60,542 16,882 77,424 478 386 42 271 (508) 49 15,337 37,440 51,541 15,437 66,978 TOTAL LIABILITIES AND EQUITY 127,951 111,369 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 3 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended December 31, 2013 (Figures in tables are expressed in billions of rupiah, unless otherwise stated) Notes 2013 2012 2c,2r,26,37 82,967 77,143 REVENUES Operations, maintenance and telecommunication service expenses Depreciation and amortization Personnel expenses Interconnection expenses General and administrative expenses Marketing expenses Loss on foreign exchange - net Other income Other expenses OPERATING PROFIT Finance income Finance costs Share of loss of associated companies PROFIT BEFORE INCOME TAX INCOME TAX (EXPENSE) BENEFIT Current Deferred PROFIT FOR THE YEAR 2c,2r,28,37 2k,2l,2m,2r, 11,12,13 2c,2r,2s,15,27, 34,35,36,37 2c,2r,30,37 2c,2g,2h,2r,2t, 6,7,29,37 2r 2q 2r,3,11c 2r,11c 2c,37 2c,2r,37 2f,10 2t,31 (19,332) (16,803) (15,780) (14,456) (9,733) (4,927) (4,155) (3,044) (249) 2,579 (480) 27,846 836 (1,504) (29) (9,786) (4,667) (3,036) (3,094) (189) 2,559 (1,973) 25,698 596 (2,055) (11) 27,149 24,228 (6,995) 136 (6,859) 20,290 120 (8) 112 (6,628) 762 (5,866) 18,362 31 (5) 26 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation Change in fair value of available-for-sale financial assets 1d,2b,2f 2u Other Comprehensive Income - net TOTAL COMPREHENSIVE INCOME FOR THE YEAR 20,402 18,388 Profit for the year attributable to: Owners of the parent company Non-controlling interests Total comprehensive income for the year attributable to: Owners of the parent company Non-controlling interests BASIC AND DILUTED EARNINGS PER SHARE (in full amount) Net income per share Net income per ADS (200 Series B shares per ADS) 2b,22 2b,22 2x,32 14,205 6,085 20,290 14,317 6,085 20,402 12,850 5,512 18,362 12,876 5,512 18,388 147.42 29,483.60 133.84 26,767.60 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 4 l a t o T y t i u q e g n i l l o r t n o c s t s e r e t n i - n o N t e N d e t a i r p o r p p a n U d e t a i r p o r p p A s e v r e s e r s e i r a i d i s b u s i s g n n r a e d e n i a t e R r e h t O e c n e r e f f i D o t e u d f o n o i t i s i u q c a - n o n g n i l l o r t n o c n i t s e r e t n i n o i t a l s n a r T t n e m t s u d a j n o ) s s o l ( n i a g - e l b a l i a v a e l a s - r o f s e i t i r u c e s d e z i l a e r n U i g n d o h l f o t c e f f E n i e g n a h c f o y t i u q e d e t a i c o s s a s e i n a p m o c e c n e r e f f i D o t e u d g n i r u t c u r t s e r r e h t o d n a s n o i t c a s n a r t f o r e d n u s e i t i t n e n o m m o c l o r t n o c y r u s a e r T k c o t s l a n o i t i d d A n i - d a p i l a t i p a c l a t i p a C k c o t s s e t o N s n o i t p i r c s e D 8 7 9 , 6 6 7 3 4 , 5 1 1 4 5 , 1 5 0 4 4 , 7 3 7 3 3 , 5 1 9 4 ) 8 0 5 ( 1 7 2 2 4 6 8 3 8 7 4 ) 7 6 0 , 8 ( 3 7 0 1 , 0 4 0 5 , 2 1 0 2 , 1 3 r e b m e c e D , e c n a l a B o t n o i t a e r l n i t n e m t s u d A j f o n o i t a t n e m e p m l i I I I S E R A D S B U S S T I D N A k b T A S E N O D N I I I I S A K N U M O K E L E T T P y n a p m o c t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 3 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o F i ) d e t a t s e s w r e h t o s s e l n u , h a i p u r f o s n o i l l i b n i d e s s e r p x e e r a s e l b a t n i s e r u g F ( i ) O R E S R E P ( N A O R E S R E P N A A H A S U R E P . e g a u g n a l i n a s e n o d n I n i d e u s s i y l l i a n g i r o e r a s t n e m e t a t s l i a c n a n i f t d e a d i l o s n o c e s e h T ) K A S P ( s d r a d n a t S g n i t n u o c c A l i a c n a n F i f o t n e m e t a t S 5 5 4 5 5 4 - - - - ) 4 4 0 , 3 1 ( ) 0 9 6 , 4 ( ) 4 5 3 , 8 ( ) 4 5 3 , 8 ( 4 4 3 0 , 3 - - 4 4 3 0 , 3 - - 2 0 4 , 0 2 5 8 0 , 6 7 1 3 , 4 1 5 0 2 , 4 1 - - - - - - - - - - - 8 7 9 , 6 6 7 3 4 , 5 1 1 4 5 , 1 5 0 4 4 , 7 3 7 3 3 , 5 1 - - 9 4 - - - - - - - - - - - 4 2 4 , 7 7 2 8 8 , 6 1 2 4 5 , 0 6 1 9 2 , 3 4 7 3 3 , 5 1 9 4 ) 8 0 5 ( - - ) 8 0 5 ( 1 7 2 - - - - - 0 2 1 1 9 3 l . e o h w a s a n e k a t s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h t 5 f o t r a p l a r g e t n i n a m r o f s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t o t s e t o n i g n y n a p m o c c a e h T - 2 4 - - - - 4 ) 8 ( 8 3 - 6 8 3 - - - - - - 6 8 3 ) 8 7 4 ( - 8 7 4 - 4 2 , d 2 ) 2 1 0 2 i d e s v e R ( 8 3 . o N - - - - - - - - - - - - - - - - - - 2 6 2 , 2 2 7 7 - - - - - - ) 7 6 0 , 8 ( 1 5 5 1 , 0 4 0 5 , d 2 i s s e n s u b a f o n o i t i s u q c A i f o s e r a h s w e n f o e c n a u s s I - 3 1 0 2 , 1 y r a u n a J , e c n a l a B t n e m t s u d a j r e t f a , 3 w 2 , d 1 , 3 3 w 2 , d 1 5 2 , v 2 k c o t s y r u s a e r t f o e a S l P O S E d n a i s e i r a d s b u s i s d n e d v d i i h s a C , f 2 , b 2 , d 1 0 1 , u 2 , q 2 e m o c n i i e v s n e h e r p m o C r a e y e h t r o f ) s s o l ( u 2 s e i t i r u c e s n i t n e m t s e v n i n o i n a G ) 5 0 8 , 5 ( 3 2 3 2 , 0 4 0 5 , 3 1 0 2 , 1 3 r e b m e c e D , e c n a l a B 2 3 2 3 - ) 3 3 ( ) 0 1 ( ) 3 2 ( 8 8 9 3 9 4 - - - ) 4 3 7 , 0 1 ( ) 7 0 6 , 3 ( ) 7 2 1 , 7 ( ) 7 2 1 , 7 ( ) 4 4 7 , 1 ( - ) 4 4 7 , 1 ( - 8 8 3 , 8 1 2 1 5 , 5 6 7 8 , 2 1 0 5 8 , 2 1 - - - - - - 1 8 9 , 0 6 1 7 4 , 3 1 0 1 5 , 7 4 7 1 7 , 1 3 7 3 3 , 5 1 - - - 9 4 - - - - ) 5 8 4 ( ) 3 2 ( - - - - 8 7 9 , 6 6 7 3 4 , 5 1 1 4 5 , 1 5 0 4 4 , 7 3 7 3 3 , 5 1 9 4 ) 8 0 5 ( l a t o T y t i u q e g n i l l o r t n o c s t s e r e t n i - n o N t e N d e t a i r p o r p p a n U d e t a i r p o r p p A s e v r e s e r s e i r a i d i s b u s i s g n n r a e d e n i a t e R r e h t O f o n o i t i s i u q c a o t e u d e c n e r e f f i D - n o n g n i l l o r t n o c n i t s e r e t n i n o i t a l s n a r T t n e m t s u d a j n o ) s s o l ( n i a g - e l b a l i a v a e l a s - r o f s e i t i r u c e s d e z i l a e r n U i g n d o h l f o t c e f f E n i e g n a h c f o y t i u q e d e t a i c o s s a s e i n a p m o c e c n e r e f f i D o t e u d g n i r u t c u r t s e r r e h t o d n a s n o i t c a s n a r t f o r e d n u s e i t i t n e n o m m o c l o r t n o c y r u s a e r T k c o t s l a n o i t i d d A n i - d a p i l a t i p a c l a t i p a C k c o t s s e t o N s n o i t p i r c s e D 0 4 2 7 4 6 8 3 8 7 4 ) 3 2 3 , 6 ( 3 7 0 1 , 0 4 0 5 , 1 1 0 2 , 1 3 r e b m e c e D , e c n a l a B - - - - - 1 3 1 7 2 - - - - - ) 5 ( 2 4 - - - - - - - - - - - - - - - - - ) 4 4 7 , 1 ( - - - - - - - - - - - - d 1 3 , d 2 , d 1 d 1 , 3 3 w 2 5 2 , v 2 , f 2 , b 2 , d 1 0 1 , u 2 , q 2 i i y r a d s b u s a f o t n e m h s i l b a t s E g n i l l o r t n o c - n o n f o n o i t i s u q c A i i s e i r a d s b u s n i i t s e r e t n i f o s e r a h s w e n f o e c n a u s s I i i y r a d s b u s a d e r i u q c a k c o t s y r u s a e r T t s o c t a - e m o c n i i e v s n e h e r p m o C r a e y e h t r o f ) s s o l ( s d n e d v d i i h s a C 6 8 3 8 7 4 ) 7 6 0 , 8 ( 3 7 0 1 , 0 4 0 5 , 2 1 0 2 , 1 3 r e b m e c e D , e c n a l a B I I I S E R A D S B U S S T I D N A k b T A S E N O D N I I I I S A K N U M O K E L E T T P y n a p m o c t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 3 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o F i ) d e t a t s e s w r e h t o s s e l n u , h a i p u r f o s n o i l l i b n i d e s s e r p x e e r a s e l b a t n i s e r u g F ( i ) O R E S R E P ( N A O R E S R E P N A A H A S U R E P . e g a u g n a l i n a s e n o d n I n i d e u s s i y l l i a n g i r o e r a s t n e m e t a t s l i a c n a n i f t d e a d i l o s n o c e s e h T l . e o h w a s a n e k a t s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h t 6 f o t r a p l a r g e t n i n a m r o f s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t o t s e t o n i g n y n a p m o c c a e h T These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended December 31, 2013 (Figures in tables are expressed in billions of rupiah, unless otherwise stated) Notes 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from: Customers Other operators Total cash receipts from revenues Interest income received Advance receipts from (refund to) customers Cash receipts others - net Cash payments for expenses Cash payments to employees Payments for income taxes Payments for interest costs 77,013 4,521 81,534 832 186 216 (27,440) (9,883) (7,395) (1,476) 71,910 3,993 75,903 585 (37) - (33,651) (8,162) (5,586) (1,111) Net cash provided by operating activities 36,574 27,941 CASH FLOWS FROM INVESTING ACTIVITIES Divestment of investment in subsidiary Proceeds from sale of property and equipment Divestment of long-term investment Proceeds from insurance claims Proceeds from sale of available-for-sale financial assets Acquisition of property and equipment Placement in time deposits Increase in advances and other non-current assets Increase in advances for purchases of property and equipment Acquisition of intangible assets Acquisition of business, net of acquired cash Acquisition of long-term investments Acquisition of non-controlling interests in subsidiaries Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank loans Proceeds from sale of (payments for) treasury stock Proceeds from short-term bank loans Proceeds from promissory notes Capital contribution of non-controlling interests in subsidiaries Cash dividends paid to the Company’s stockholders Repayments of two-step loans and bank loans Cash dividends paid to non-controlling interests of subsidiaries Payments of obligations under finance leases Repayments of promissory notes Repayments of short-term bank loans Repayments of medium-term notes Proceeds from medium-term notes Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ENDING BALANCE OF DISPOSED SUBSIDIARY CASH AND CASH EQUIVALENTS AT END OF YEAR 3 11 10 11 11 5 12 12 13 1d,3 10 21 25 17 20 1d 33 19,21 11 20 17 20 20 4 4 926 466 153 60 49 (19,644) (2,288) (791) (775) (637) (201) (20) - - 360 - 1,875 53 (8,221) (4,008) (134) (487) (437) (230) (49) (33) (22,702) (11,311) 2,665 2,368 813 60 50 (8,354) (4,803) (4,690) (550) (471) (407) (8) - 3,936 (1,744) 590 351 120 (7,127) (4,259) (3,607) (418) (403) (654) (109) 10 (13,327) (13,314) 545 3,316 1,039 13,118 (6) 168 9,634 - 14,696 13,118 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 7 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL a. Establishment and general information Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (the “Company”) was originally part of “Post en Telegraafdienst”, which was established and operated commercially in 1884 under the framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies and was published in State Gazette No. 52 dated April 3, 1884. In 1991, the status of the Company was changed into a state-owned limited liability corporation (“Persero”) based on Government Regulation No. 25/1991. The ultimate parent of the Company is the Government of the Republic of Indonesia (the “Government”) (Notes 1c and 23). The Company was established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H. Its deed of establishment was approved by the Ministry of Justice of the Republic of Indonesia in its Decision Letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991 and was published in State Gazette No. 5 dated January 17, 1992, Supplement No. 210. The Articles of Association has been amended several times, the latest amendment of which was about, among others, the change of capital structure through the Company’s 5-for-1 stock split whereby each share with par value of Rp250 would be split into Rp50 per share, and the Partnership and Community Development Programme (PKBL) was excluded from the Work Plan and Company Budgets, based on notarial deed No. 11 dated May 8, 2013 of Ashoya Ratam, S.H., MKn. The latest amendment was accepted and approved by the Ministry of Law and Human Rights of the Republic of Indonesia (“MoLHR”) in its Letter No. AHU-AH.01.10-22500 dated June 7, 2013. In accordance with Article 3 of the Company’s Articles of Association, the scope of its activities is to provide telecommunication network and services and informatics, and to optimize the Company’s resources in accordance with prevailing regulations. To achieve this objective, the Company is involved in the following activities: a. Main business: i. Planning, building, providing, developing, operating, marketing or selling, leasing and maintaining telecommunications and information networks in accordance with prevailing regulations. ii. Planning, developing, providing, marketing or selling and improving telecommunications and information services in accordance with prevailing regulations. b. Supporting business: i. Providing payment transactions and money transferring services through telecommunications and information networks. ii. Performing activities and other undertakings in connection with the optimization of the Company's resources, which, among others, include the utilization of the Company's property and equipment and moving assets, information systems, education and training, and repairs and maintenance facilities. The Company’s head office is located at Jalan Japati No. 1, Bandung, West Java. The Company was granted several the Republic of Indonesia which are valid for an unlimited period of time as long as the Company complies with prevailing laws and telecommunications regulations and fulfills the obligation stated in those licenses. For every license, an evaluation is performed annually and an overall evaluation is performed every 5 (five) years. telecommunications licenses by the government of 8 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) a. Establishment and general information (continued) The Company is obliged to submit reports of services annually to the Indonesian Directorate General of Post and Informatics (“DGPI”), which replaced the previous Indonesian Directorate General of Post and Telecommunications (“DGPT”). The reports comprise information such as network development progress, service quality standard achievement, total customers, license telephone services for public payment and universal service contribution, while for internet information required such as operational performance, purpose (“ITKP”), customer segmentation, traffic, and gross revenue. there is additional Details of these licenses are as follows: License License No. Type of services License to operate local, fixed line and basic telephone services network License to operate fixed domestic long distance and basic telephone services network License to operate fixed international and basic telephone services network License to operate fixed closed network License to operate internet telephone services for public purpose License to operate as internet service provider License to operate data communication system services License to operate packet switched based local fixed line network License to operate network access point 381/KEP/ M.KOMINFO/ 10/2010 382/KEP/ M.KOMINFO/ 10/2010 Local fixed line and basic telephone services network Fixed domestic long distance and basic telephone services network Grant date/latest renewal date October 28, 2010 October 28, 2010 383/KEP/ M.KOMINFO/ 10/2010 Fixed international and basic telephone services network October 28, 2010 398/KEP/ M.KOMINFO/ 11/2010 384/KEP/DJPT/ M.KOMINFO/ 11/2010 83/KEP/DJPPI/ KOMINFO/ 4/2011 169/KEP/DJPPI/ KOMINFO/ 6/2011 331/KEP/ M.KOMINFO/ 07/2011 331/KEP/ M.KOMINFO/ 09/2013 Fixed closed network November 12, 2010 ITKP November 29, 2010 Internet service provider April 7, 2011 Data communication system services June 6, 2011 Packet switched based local fixed line network Network Access Point (“NAP”) July 27, 2011 September 24, 2013 9 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) b. Company’s Board of Commissioners, Board of Directors, Audit Committee, Corporate Secretary and employees 1. Boards of Commissioners and Directors Based on resolutions made at the Annual General Meeting (“AGM”) of Stockholders of the Company held on May 11, 2012 as covered by notarial deed No. 14 of Ashoya Ratam, S.H., MKn. and the AGM of Stockholders of the Company held on May 8, 2013 as covered by notarial deed No. 11 of Ashoya Ratam, S.H., MKn., the composition of the Company’s Boards of Commissioners and Directors as of December 31, 2013 and 2012, respectively, was as follows: President Commissioner Commissioner Commissioner Commissioner Independent Commissioner Independent Commissioner President Director Director of Finance Director of Innovation and Strategic Portfolio Director of Enterprise and Business Service Director of Wholesale and International Services Director of Human Capital Management Director of Network, Information Technology and Solution Director of Consumer 2013* 2012 Jusman Syafii Djamal Parikesit Suprapto Hadiyanto Gatot Trihargo** Virano Gazi Nasution Johnny Swandi Sjam Arief Yahya Honesti Basyir Jusman Syafii Djamal Parikesit Suprapto Hadiyanto - Virano Gazi Nasution Johnny Swandi Sjam Arief Yahya Honesti Basyir Indra Utoyo Indra Utoyo Muhamad Awaluddin Muhamad Awaluddin Ririek Adriansyah Ririek Adriansyah Priyantono Rudito Priyantono Rudito Rizkan Chandra Rizkan Chandra Services Sukardi Silalahi Sukardi Silalahi * The change of Director’s title is based on Director’s Regulation No.202.11/r.00/HK.200/COP-B0400000/2013 dated June 25, 2013 and Director’s Decree No. SK.2287/PS320/HCC-10/2013 dated June 28, 2013. ** Appointed in the General Meeting of Stockholders held on April 19, 2013 2. Audit Committee and Corporate Secretary The composition of the Company’s Audit Committee and the Corporate Secretary as of December 31, 2013 and 2012, were as follows: Chair Secretary Member Member Member Member Corporate Secretary 2013 2012 Johnny Swandi Sjam Agus Yulianto Parikesit Suprapto - Sahat Pardede Virano Gazi Nasution Honesti Basyir Johnny Swandi Sjam Salam Parikesit Suprapto Agus Yulianto Sahat Pardede Virano Gazi Nasution Agus Murdiyatno 10 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) b. Company’s Board of Commissioners, Board of Directors, Audit Committee, Corporate Secretary and employees (continued) 3. Employees As of December 31, 2013 and 2012, the Company and subsidiaries had 25,011 employees and 25,683 employees (unaudited), respectively. c. Public offering of securities of the Company the Republic of The Company’s shares prior to its Initial Public Offering (“IPO”) totalled 8,400,000,000, consisting of 8,399,999,999 Series B shares and 1 Series A Dwiwarna share, and were 100%-owned by the Government of Indonesia (the “Government”). On November 14, 1995, 933,333,000 new Series B shares and 233,334,000 Series B shares owned by the Government were offered to the public through an IPO and listed on the Indonesia Stock Exchange (“IDX”) the Jakarta Stock Exchange and the Surabaya Stock Exchange) and (previously 700,000,000 Series B shares owned by the Government were offered to the public and listed on the New York Stock Exchange (“NYSE”) and the London Stock Exchange (“LSE”), in the form of American Depositary Shares (“ADS”). There were 35,000,000 ADS and each ADS represented 20 Series B shares at that time. In December 1996, the Government had a block sale of its 388,000,000 Series B shares, and in 1997, distributed 2,670,300 Series B shares as incentive to the Company’s stockholders who did not sell their shares within one year from the date of the IPO. In May 1999, the Government further sold 898,000,000 Series B shares. To comply with Law No. 1/1995 on Limited Liability Companies, at the the Annual General Meeting (“AGM”) of Stockholders of the Company on April 16, 1999, the Company’s stockholders resolved to increase the Company’s issued share capital by the distribution of 746,666,640 bonus shares through the capitalization of certain additional paid-in capital, which were made to the Company’s stockholders in August 1999. On August 16, 2007, Law No. 1/1995 on Limited Liability Companies was amended by the issuance of Law No. 40/2007 on Limited Liability Companies which became effective on the same date. Law No. 40/2007 has no effect on the public offering of shares of the Company. The Company has complied with Law No. 40/2007. In December 2001, the Government had another block sale of 1,200,000,000 shares or 11.9% of the total outstanding Series B shares. In July 2002, the Government further sold a block of 312,000,000 shares or 3.1% of the total outstanding Series B shares. At the AGM of Stockholders of the Company held on July 30, 2004, the minutes of which are covered by notarial deed No. 26 of A. Partomuan Pohan, S.H., LLM., the Company’s stockholders approved the Company’s 2-for-1 stock split for Series A Dwiwarna and Series B share. The Series A Dwiwarna share with par value of Rp500 per share was split into 1 Series A Dwiwarna share with par value of Rp250 per share and 1 Series B share with par value of Rp250 per share. The stock split resulted in an increase of the Company’s authorized capital to stock 1 Series A Dwiwarna share and 79,999,999,999 Series B shares, and the issued capital stock from 1 Series A Dwiwarna share and 10,079,999,639 Series B shares to 1 Series A Dwiwarna share and 20,159,999,279 Series B shares. After the stock split, each ADS represented 40 Series B shares. from 1 Series A Dwiwarna share and 39,999,999,999 Series B shares 11 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) c. Public offering of securities of the Company (continued) During the Extraordinary General Meeting (“EGM”) held on December 21, 2005 and the AGM held on June 29, 2007, June 20, 2008, and May 19, 2011, the Company’s stockholders approved phase I, II, III and IV plan, respectively, of the Company’s program to repurchase its issued Series B shares (Note 25). During the period December 21, 2005 to June 20, 2007, the Company had bought back 211,290,500 shares from the public (stock repurchase program phase I). On July 30, 2013, the Company has sold all such shares (Note 25). in the AGM held on April 19, 2013 as covered by notarial deed No. 38 of On April 19, 2013, Ashoya Ratam, S.H., MKn., dated April 19, 2013 the stockholders approved the changes to the Company’s plan on the treasury stock acquired under phase III (Notes 23 and 25). At the AGM held on April 19, 2013, the minutes of which are covered by notarial deed No. 38 of Ashoya Ratam, S.H, MKn, dated April 19, 2013 the Company’s stockholders approved the Company’s 5-for-1 stock split for Series A Dwiwarna and Series B shares. Series A Dwiwarna share with par value of Rp250 per share was split into 1 Series A Dwiwarna share with par value of Rp50 per share and 4 Series B shares with par value Rp50 per share. The stock split resulted the Company’s authorized capital stock from 1 Series A Dwiwarna and in an increase of 79,999,999,999 Series B shares to 1 Series A Dwiwarna and 399,999,999,999 Series B shares, and the issued capital stock from 1 Series A Dwiwarna and 20,159,999,279 Series B shares to 1 Series A Dwiwarna and 100,799,996,399 Series B shares. After the stock split, each ADS represented 200 Series B shares (Notes 23 and 25). As of December 31, 2013, all of the Company’s Series B shares are listed on the IDX and 50,155,649 ADS shares are listed on the NYSE and LSE (Note 23). As of December 31, 2013, the Company’s outstanding rupiah bonds represents the second Rupiah bonds issued on June 25, 2010 with a nominal amount of Rp1,005 billion for a five-year period and Rp1,995 billion for a ten-year period for Series A and Series B, respectively, are listed on the IDX (Note 20a). d. Subsidiaries As of December 31, 2013 and 2012, the Company has consolidated the following directly or indirectly owned subsidiaries (Notes 2b and 2d): (i) Direct subsidiaries: Subsidiary/place of incorporation Nature of business/ date of incorporation or acquisition by the Company Date of start of commercial operations Percentage of ownership interest Total assets before elimination 2013 2012 2013 2012 PT Telekomunikasi Telecommunication 1995 65 65 73,336 63,576 Selular (“Telkomsel”) Jakarta, Indonesia PT Dayamitra Telekomunikasi (“Dayamitra”), Jakarta, Indonesia provides telecommunication facilities and mobile cellular services using Global Systems for Mobile Communication (“GSM”) technology/ May 26, 1995 Telecommunication/ May 17, 2001 1995 100 100 7,363 4,931 12 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (i) Direct subsidiaries: (continued) Subsidiary/place of incorporation Nature of business/ date of incorporation or acquisition by the Company Date of start of commercial operations Percentage of ownership interest Total assets before elimination 2013 2012 2013 2012 PT Multimedia Nusantara (“Metra”), Jakarta, Indonesia Multimedia and line telecommunication services/ May 9, 2003 PT Telekomunikasi Indonesia International (“TII”), Jakarta, Indonesia Telecommunication/ July 31, 2003 PT Pramindo Ikat Nusantara (“Pramindo”), Jakarta, Indonesia Telecommunication construction and services/ August 15, 2002 1998 100 100 5,297 3,395 1995 100 100 3,804 2,440 1995 100 100 1,365 1,202 PT Graha Sarana Duta Leasing of offices 1982 99.99 99.99 1,574 622 (“GSD”), Jakarta, Indonesia and providing building management and maintenance services, civil consultant and developer/ April 25, 2001 PT Indonusa Telemedia (“Indonusa”), Jakarta, Indonesia* Pay television and content services/ May 7, 1997 1997 20 (including 0.46% ownership through Metra) 100 (including 0.46% ownership through Metra) - 771 PT Telkom Akses Construction 2013 100 100 946 - (“Telkom Akses”), Jakarta, Indonesia service and trade in the field of telecommunication/ November 26, 2012 PT Patra Telekomunikasi Telecomunication 1996 100 Indonesia (“Patrakom”) Jakarta, Indonesia** provides fixed line communication system/ September 28, 1995 PT Napsindo Primatel Internasional (“Napsindo”), Jakarta, Indonesia Telecommunication - provides Network Access Point (NAP), Voice Over Data (VOD) and other related services/ December 29, 1998 1999; ceased operations on January 13, 2006 60 40 60 255 218 5 5 On October 8, 2013, the Company disposed 80% of its interest in PT Indonusa (Notes 3 and 9). * ** On September, 25 and November, 29, 2013, the Company acquired additional interest of 40% and 20%, respectively, of Patrakom (Note 3). 13 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (ii) Indirect subsidiaries: Subsidiary/place of incorporation Nature of business/ date of incorporation or acquisition by the Company Date of start of commercial operations Percentage of ownership interest Total assets before elimination 2013 2012 2013 2012 PT Sigma Cipta Caraka Information technology 1988 100 100 1,890 1,014 (“Sigma”), Tangerang, Indonesia PT Infomedia Nusantara (“Infomedia”), Jakarta, Indonesia Telekomunikasi Indonesia International (“TL”) S.A., Timor Leste Telekomunikasi Indonesia International Pte. Ltd., Singapore service - system implementation and integration service, outsourcing and software license maintenance/ May 1,1987 Data and information service - provides telecommunication information services and other information services in the form of print and electronic media and call center services/ September 22,1999 Telecommunication/ September 11, 2012 Telecommunication/ December 6, 2007 1984 100 100 1,223 985 2012 100 100 803 75 2008 100 100 785 519 PT Metra Digital Media Telecommunication 2013 100 (“MDM”), Jakarta, Indonesia information services/ January 8, 2013 - 55 60 692 - 493 150 203 112 55 60 100 100 75 60 100 51 75 60 100 51 90 127 86 40 32 51 95 95 33 7 PT Telkom Landmark Tower (“TLT”), Jakarta, Indonesia PT Finnet Indonesia (“Finnet”), Jakarta, Indonesia Telekomunikasi Indonesia International Ltd., Hong Kong Service for property development and management/ February 1, 2012 Banking data and communication/ October 31, 2005 Telecommunication/ December 8, 2010 2012 2006 2010 PT Administrasi Medika Health insurance 2010 (“Ad Medika”), Jakarta, Indonesia administration services/ February 25, 2010 PT Metra Plasa (“Metra Plasa”), Jakarta, Indonesia Website services/ April 9, 2012 PT Metra-Net (“Metra-Net”), Multimedia portal Jakarta, Indonesia service/ April 17, 2009 PT Graha Yasa Selaras (“GYS”) Jakarta, Indonesia Tourism service/ April 27, 2012 2012 2009 2013 14 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (ii) Indirect subsidiaries: (continued) Subsidiary/place of incorporation Nature of business/ date of incorporation or acquisition by the Company Date of start of commercial operations Percentage of ownership interest Total assets before elimination 2013 2012 2013 2012 - - - - 65 100 PT Pojok Celebes Mandiri (“Pointer”) Jakarta, Indonesia Tour agent/bureau services/ August 30, 2013 Telekomunikasi Indonesia Internasional Pty Ltd. Australia Telecomunication/ January 9, 2013 2008 51 2013 100 PT Satelit Multimedia Indonesia (“SMI”) Jakarta, Indonesia PT Metra Media (“MM”) Jakarta, Indonesia Telkomsel Finance B.V., (“TFBV”), Amsterdam, The Netherlands* Aria West International Finance B.V. (“AWI BV”), The Netherlands** Telekomunikasi Selular Finance Limited (“TSFL”), Mauritius*** PT Metra TV (“Metra TV”) Telekomunikasi Indonesia International (USA) Inc. USA Commerce and 2013 99.99 providing network services, telecommunication satellite, and multimedia services/ March 25, 2013 Trade service, construction 2013 99.83 leveransir/supplier, services, etc./ January 8, 2013 Finance - established 2005 in 2005 for the purpose of borrowing, lending and raising funds including issuance of bonds, promissory notes or debts/ February 7, 2005 Established to engage in rendering services in the field of trade and finance services/ June 3, 1996 1996; ceased operations on July 31, 2003 - - Finance - established 2002 65 65 to raise funds for the development of Telkomsel’s business through the issuance of debenture stock, bonds, mortgages or any other securities/ April 22, 2002 Pay TV services/ January 8, 2013 Telecommunication/ December 11,2012 2013 2013 99.83 - - 100 14 7 6 0 - - - - - - - - - 8 0 0 - - * Based on Decision Letter No. 959/2013 dated November 1, 2013 from Amsterdam Court, TFBV was liquidated effective from August 22, 2013. ** On December 2, 2013, AWI was liquidated. *** As of December 31, 2013, TSFL was under liquidation process. * 15 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (a) Metra On April 2, 2012, based on notarial deed No. 03 dated April 2, 2012 of Utiek R. Abdurachman, S.H., MLI., MKn., Metra established PT Metra Plasa (“Metra Plasa”) with authorized capital of Rp50 million and issued and fully paid capital of Rp12.5 million. On July 20, 2012, based on the Circular Resolution of Stockholders of Metra Plasa, as covered by notarial deed No. 1 dated October 1, 2012 of Utiek R. Abdurachman, S.H., MLI., MKn., Metra Plasa’s stockholders agreed on the following: i. ii. iii. to increase Metra Plasa’s authorized capital from Rp50 million to Rp60 billion consisting of 6,000,000 shares with nominal value of Rp10,000 (full amount) per share; to increase its issued and fully paid capital from Rp12.5 million owned 100% by Metra to Rp15.25 billion by issuing 1,523,750 additional shares with nominal value of Rp10,000 (full amount) per share; from the issued new shares, 913,750 shares with total nominal value of Rp9 billion were subscribed by Metra while 610,000 shares with total nominal value of Rp6 billion were subscribed by eBay International AG at a premium totaling Rp78 billion. Metra’s ownership was diluted to 60% with the remaining 40% owned by eBay International AG. On September 21, 2012, based on notarial deed No. 11 dated September 21, 2012 of N.M. Dipo Nusantara Pua Upa, S.H., MKn., which was approved by the MoLHR in its Letter No. AHU-50211.AH.01.01/2012 dated September 26, 2012, Metra established a company with Pelindo II, a related party of the Company, under the name PT Integrasi Logistik Cipta Solusi (“ILCS”) with Metra obtaining 49% ownership. ILCS is engaged in providing E-trade logistic services and other related services. On January 8, 2013, based on notarial deed No. 02 dated January 8, 2013 of Utiek R. Abdurachman, S.H., MLI., MKn., which was approved by the MoLHR through its Letter No. AHU-03276.AH.01.01/2013 dated January 29, 2013, Metra established a subsidiary, PT Metra Media (“MM”), and obtained 99.83% ownership. MM is engaged in providing trade, construction, advertising and other services. On January 8, 2013, based on notarial deed No. 03 dated January 8, 2013 of Utiek R. Abdurachman, SH., MLI., MKn., which was approved by the MoLHR through its Letter No. AHU-03261.AH.01.01/2013 dated January 29, 2013, Metra established a subsidiary, PT Metra TV (“Metra TV”), and obtained 99.83% ownership. Metra TV is engaged in providing subscription-broadcasting services. On January 22, 2013, based on notarial deed No. 28 dated January 22, 2013 of N.M. Dipo Nusantara Pua Upa, S.H., MKn., which was approved by the MoLHR through its Letter No. AHU-03084.AH.01.01/2013 dated January 28, 2013; Metra established a subsidiary, PT Metra Digital Media (“MDM”), and obtained 99.83% ownership. MDM is engaged in providing telecommunication information and other services. 16 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (a) Metra (continued) On March 25, 2013, based on notarial deed No. 38 dated March 25, 2013 of N.M. Dipo Nusantara Pua Upa, S.H., MKn., which was approved by the MoLHR in its Letter No. AHU-20566.AH.01.01/2013 dated April 17, 2013, Metra established PT Satelit Multimedia is engaged in commerce and Indonesia (“SMI”) and obtained 99.99% ownership. SMI providing network services, telecommunication, satellite, and multimedia devices. On August 16, 2013, based on notarial deed No. 5 dated August 16, 2013 of N.M. Dipo Nusantara Pua Upa, S.H., MKn. which was approved by the MoLHR in its Letter No. AHU-0081886.AH.01.09/2013 dated August 30, 2013, Metra changed the ownership of PT Pojok Celebes Mandiri (“Pointer”) after the signing of Sales and Purchase of Shares Agreement dated June 12, 2013 regarding the purchase of Pointer’s shares of 2,550 shares equivalent to Rp255 million or 51% ownership. (b) TII Based on the Circular Resolution of Stockholders of TII dated September 11, 2012, as covered by notarial deed No. 04 dated October 4, 2012 of Siti Safarijah, S.H., TII’s stockholders agreed to establish a subsidiary in Timor Leste under the name Telekomunikasi Indonesia International (“TL”) S.A. to engage in providing telecommunication services. On January 9, 2013, based on the Circular Resolution of the Stockholders of TII dated January 9, 2013, as covered by notarial deed No. 04 dated February 6, 2013 of Siti Safarijah, S.H., TII’s stockholders agreed to establish a subsidiary, Telekomunikasi Indonesia Internasional Australia Pty. Ltd. (“Telkom Australia”). Telkom Australia is engaged in providing telecommunication services and IT-based services. Indonesia International (Hong Kong) Ltd. On May 13, 2013, TII established a subsidiary in Macau under the name Telkom Macau Ltd, (“Telkom Macau”). Telkom Macau is engaged in providing telecommunication services. through Telekomunikasi Indonesia International (Hong Kong) Ltd. On June 3, 2013, TII established a subsidiary in Taiwan under the name Telkom Macau Ltd, (“Telkom Taiwan”). Telkom Taiwan is engaged in providing telecommunication services. through Telekomunikasi On December 11, 2013, TII established a subsidiary in the United States of America, Telekomunikasi Indonesia International (USA), Inc. Ltd. (“Telkom USA”). Telkom USA will be engaged in providing telecommunication services. For the year ended December 31, 2013, Telkom USA had no financial and operational activities yet. (c) GSD Based on notarial deed No.71 dated December 27, 2011 of Kartono, S.H. which was approved by the MoLHR through its Decision Letter No. AHU-05281.AH.01.01/2012 dated February 1, 2012, GSD established a subsidiary under the name PT Telkom Landmark Tower the Company, with GSD (“TLT”), with Yayasan Kesehatan (“Yakes”), a related party of obtaining 55% ownership. TLT is engaged in property development and management. Based on notarial deed No.48 dated February 7, 2012 of Sri Ahyani, S.H. which was approved by the MoLHR in its Letter No. AHU-22272.AH.01.01/2012 dated April 27, 2012, GSD established a subsidiary under the name PT Graha Yasa Selaras (“GYS”), with Yakes, a related party of the Company, with GSD obtaining 51% ownership. GYS is engaged in the tourism business. 17 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (d) Telkom Akses On November 26, 2012, based on notarial deed No. 20 dated November 26, 2012 of Siti Safarijah, S.H. which was approved by the MoLHR in its Letter No. AHU- 60691.AH.01.01/2012 dated November 28, 2012, the Company established a wholly owned subsidiary, PT Telkom Akses (“Telkom Akses”). Telkom Akses is engaged in providing construction service and trade in the field of telecommunication. (e) Sigma On June 29, 2012, based on notarial deed No. 3 dated August 13, 2012 of Utiek R. Abdurachman, S.H., MLI, MKn., Sigma entered into a Sales Purchase Agreement to purchase 150,000 shares of PT Sigma Solusi Integrasi (“SSI”) or the equivalent of 30% of SSI’s total ownership, with a transaction value of Rp26 billion from Marina Budiman, a non-controlling interest. On July 19, 2012, Sigma settled the transaction.The difference between the acquisition cost and the carrying amount of the interest acquired amounting to Rp22 billion is recorded as part of “Difference due to acquisition of non-controlling interests in subsidiaries” which is presented under the equity section of the consolidated statement of financial position. On August 15, 2012, based on notarial deed dated August 15, 2012 of Ny. Bomantari Julianto, S.H., Sigma entered into a Conditional Sales Purchase Agreement with PT Bina Data Mandiri (“BDM”) to purchase a Data Center Business, with a transaction value of Rp230 billion, from BDM. Based on the closing agreement dated November 30, 2012, the identifiable assets arising from the acquisition comprised of land, buildings, machine and equipment with total fair value amounting to Rp150 billion and intangible assets which included customer contracts and backlog with fair value amounting to Rp3 billion. The acquisition resulted in a goodwill amounting to Rp77 billion. On September 17, 2012, based on notarial deed No. 10 dated September 17, 2012 of Utiek R. Abdurachman, SH., MLI., MKn., Sigma’s stockholders agreed to liquidated its subsidiary, PT Sigma Karya Sempurna (“SKS”), effective from September 17, 2012. The liquidation constituted a process of internal restructuring of Sigma Group’s business. As of the issuance date of the consolidated financial statements, the liquidation process has been carried out to the extent of sales of assets and liabilities settlement. On January 17, 2013, Sigma signed a shares sale and transfer and loan assignment agreement with Landes kredit bank Baden-Wuttemberg-Forderbank (“L-Bank”), and Step Stuttgarter Engineering Park Gmbh. (“STEP”) as stockholders of PT German Center Indonesia (“GCI”). Based on the agreement, Sigma agreed to buy all the shares of GCI owned loan at a purchase price of by L-Bank and STEP and take over L-Bank’s stockholders’ US$17.8 million (equivalent to Rp170 billion). The closing of this transaction was held on April 30, 2013 (Note 3a). 18 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (f) Infomedia On October 24, 2012 based on notarial deed No. 15 dated October 24, 2012 of Zulkifli Harahap, S.H., which was approved by the MoLHR through its Decision Letter No. AHU- Infomedia established a wholly owned 55715.AH.01.01/2012 dated October 30, 2012, subsidiary under the name PT Infomedia Solusi Humanika (“ISH”). ISH is engaged in the services for distribution and supply of labor. On December 17, 2012, based on notarial deed No. 231 dated December 17, 2012 of M. Kholid Artha, SH., Infomedia purchased 1,778 and 1,777 shares of Balebat, a subsidiary of Infomedia, or the equivalent of 15.73% and 15.73%, respectively, of Balebat’s total ownership, with a transaction value of Rp4.4 billion and Rp4.4 billion, respectively, from Zikra Lukman and Siti Chadijah, respectively, who are the non-controlling interests. The difference between the purchase price and the carrying amount of the interests acquired amounting to Rp1 billion is recorded as part of “Difference due to acquisition of non-controlling interests in subsidiaries” which is presented under the equity section of financial position. the consolidated statements of Based on notarial deed No. 04 dated March 7, 2013 of Sjaaf De Carya Siregar, S.H., Infomedia’s stockholders agreed to distribute dividend which was returned as the increment of issued and fully paid capital amounting to Rp44 billion. Based on notarial deed No. 18 dated July 24, 2013 of Zulkifli Harahap, S.H., Infomedia’s stockholders approved an increase in its paid-in capital by 88,529,790 shares, amounting to Rp44 billion. On November 20, 2013, Infomedia had an agreement on business transfer of its Telephone Directory Management business to MD Media. (g) Dayamitra On April 5, 2013, based on notarial deed No.002 dated April 5, 2013 of Andi Fatma Hasiah, S.H.,M.Kn., Dayamitra’s stockholders agreed to distribute dividend which was returned as increment of issued and fully paid capital amounting to Rp31 billion. e. Authorization for the issuance of the consolidated financial statements The consolidated financial statements were prepared and approved to be issued by the Board of Directors on February 28, 2014. 19 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company and subsidiaries have been prepared in accordance with Financial Accounting Standards (“Standar Akuntansi Keuangan” or “SAK”) including Indonesian Financial Accounting Standards (“Pernyataan Standar Akuntansi Keuangan” or “PSAK”) and Interpretation of Financial Accounting Standards (“Interpretasi Standar Akuntansi Keuangan” or “ISAK”) in Indonesia published by Financial Accounting Standard Board of Indonesian Institute of Accountants and Regulation No. VIII.G.7 of the Capital Market and Financial Institution Supervisory Agency (“Bapepam-LK”) regarding the Presentation and Disclosures of Financial Statements of Issuers or Public Companies, enclosed in the decision letter KEP- 347/BL/2012. a. Basis of preparation of financial statements The consolidated financial statements, except for the consolidated statements of cash flows, are prepared on the accrual basis. The measurement basis used is historical cost, except for certain accounts, which are measured using the basis mentioned in the relevant notes herein. The consolidated statements of cash flows are prepared using the direct method and present the changes in cash and cash equivalents from operating, investing and financing activities. Figures in the consolidated financial statements are presented and rounded to billions of Indonesian rupiah (“Rp”), unless otherwise stated. Changes to the statements of financial accounting standards (PSAKs) and interpretations financial accounting standards (“Interpretasi Standar Akuntansi of statements of Keuangan” or “ISAKs”) On January 1, 2013, the Company and subsidiaries adopted new and revised PSAKs, which were effective in 2013. Changes to the Company and subsidiaries’ accounting policies have been made as required in accordance with the transitional provisions in the respective standards and interpretations. The adoption of these new/revised standards and interpretations had no material effect to the consolidated financial statements: • • PSAK 38 (Revised 2012), “Common Control Business Combination” PSAK 60 (Revised 2010), “Financial Instruments: Disclosures” Several PSAKs and ISAKs have been issued by the Indonesian Financial Accounting Standards Board (DSAK) that are considered relevant to the financial reporting of the Company and its financial statements covering the periods beginning on or subsidiaries but are effective only for after either January 1, 2014 or January 1, 2015 Effective beginning on or after January 1, 2014 • • ISAK 27, “Transfer of Assets from Customers”, adopted from International Financial Reporting Interpretations Committee (“IFRIC”) 18 ISAK 28, “Extinguishing Financial Liabilities with Equity Instruments”, adopted from IFRIC 19 Effective beginning on or after January 1, 2015 • • • • • • • • “Presentation of Financial Statements”, adopted from International PSAK 1 (2013), Accounting Standards (IAS) 1 PSAK 4 (2013), “Separate Financial Statements”, adopted from IAS 4 PSAK 15 (2013), “Investments in Associates and Joint Ventures”, adopted from IAS 28 PSAK 24 (2013), “Employee Benefits”, adopted from IAS 19 PSAK 65, Reporting Standards (IFRS) 10 PSAK 66, “Joint Arrangements”, adopted from IFRS 11 PSAK 67, “Disclosure of Interest in Other Entities”, adopted from IFRS 12 PSAK 68, “Fair Value Measurement”, adopted from IFRS 13 “Consolidated Financial Statements”, adopted from International Financial The Company is currently evaluating and has not yet determined the effects of these accounting standards and intrepretations on the consolidated financial statements. 20 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b. Principles of consolidation The consolidated financial statements include the assets and liabilities of the Company and subsidiaries in which the Company, directly or indirectly has ownership of more than half of the voting power and has the ability to govern the financial and operating policies of the entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control, or the Company has the ability to control the entity, even though the ownership is less than or equal to half of the voting power. Subsidiaries are consolidated from the date on which effective control is obtained and are no longer consolidated from the date control ceases. the profit and loss and net assets of the Non-controlling interest represents the portion of subsidiaries not attributable, directly or indirectly, to the Company. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests proportionally in accordance with their ownership in the subsidiaries. Non-controlling interests are presented under the equity section of the consolidated statement of financial position, separately from the owners of In the consolidated statement of compherensive income, total profit or loss and total comprehensive income that can be attributed to the owners of the Company and to the non-controlling interests are presented separately, and not presented as income or expense. the Company’s equity. Intercompany balances and transactions have been eliminated in the consolidated financial statements. c. Transactions with related parties The Company and subsidiaries have transactions with related parties. The definition of related parties used is in accordance with the Bapepam-LK’s Regulation No. VIII.G.7 regarding the Presentations and Disclosures of Financial Statements of Issuers or Public companies, enclosed in the decision letter No. KEP-347/BL/2012.The party which is considered as a related party is a person or entity that is related to the entity that is preparing its financial statements. Under the Regulation of Bapepam-LK No.VIII.G.7 regarding the Presentations and Disclosures of Financial Statements of Issuers or Public companies, enclosed in the decision letter No.KEP- 347/BL/2012, a government-related entity is an entity that jointly controlled or significantly influenced by a government. Government in this context is the Minister of Finance or the Local Government, as the shareholder of the entity. Formerly, the Company and subsidiaries in its disclosure applied the definition of related party used based on PSAK 7 “Related Party”. is controlled, Key management personnel are identified as the persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Company and subsidiaries. The related-party status extends to the key management of the subsidiaries to the extent they direct the operations of subsidiaries with minimal involvement from the Company’s management. d. Business combinations Business combination is accounted for using the acquisition method. The consideration transferred is measured at fair value, which is the aggregate of the fair value of the assets transferred, liabilities incurred or assumed and the equity instruments issued in exchange for the acquiree. Acquisition-related costs are expensed as incurred. The acquiree’s control of identifiable assets and liabilities are recognized at their fair values at the acquisition date. Goodwill arising on acquisition is recognized as an asset and measured at cost representing the excess of the aggregate of the consideration transferred and the amount of any non-controlling interests in the acquiree’s net identifiable assets acquired and liabilities assumed. For each business combination, non-controlling interest is measured at fair value or at the proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. 21 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Business combinations (continued) The excess of the fair value of identifiable assets acquired and the liabilities assumed at the date of acquisition over the aggregate fair value of consideration transferred and non-controlling interest in the acquiree at the acquisition date is a bargain purchase and recognized as gain in profit or loss at the acquisition date. Such gain is attributed to the acquirer. When the determination of consideration from a business combination includes contingent consideration, it is measured at its fair value on acquisition date. Contingent consideration is classified either as equity or a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss when adjustments are recorded outside the measurement period. Changes in the fair value of the contingent consideration that qualify as measurement-period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill. Measurement-period information obtained during the adjustments are adjustments that arise from additional measurement period, which cannot exceed one year from the acquisition date, about facts and circumstances that existed at the acquisition date. liability. Amounts classified as a financial In case of loss of control over a subsidiary, the Company: • derecognizes the assets (including goodwill) and liabilities of the subsidiary at the carrying amounts when its loses of control; derecognizes the carrying amounts of any non-controling interests of its former subsidiary on the date when it loses control; recognizes the fair value of the consideration received (if any) from the transaction, events, or condition that caused the loss of control; recognizes the fair value of any investment retained in the subsidiary at fair value on the date of loss of control; recognizes any surplus or deficit in profit or loss that is attributable to the Company. • • • • In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss. Based on PSAK 38 (Revised 2012), “Common Control Business Combination”, the transfer of assets, liabilities, shares or other ownership instruments among the companies under common control would not result in a gain or loss. Since the restructuring transaction between entities under common control does not result in a change of the economic substance of the ownership of assets, liabilities, shares or other instruments of ownership, which are exchanged, assets or liabilities transferred are recorded at book value using the pooling-of-interests method. In applying the pooling-of-interests method, the components of the financial statements for the period during which the restructuring occurred must be presented in such a manner as if the restructuring has occurred since the beginning of the earliest period presented. The excess of consideration paid or received over the carrying value of interest acquired, net of income tax, is directly recognized to equity and presented as “Additional Paid-in Capital” under the equity section of the consolidated statement of financial position. At the initial application of PSAK 38 (Revised 2012), all balances of the Difference In Value of Restructuring Transactions of Entities under Common Control was reclassified to “Additional Paid- in Capital” in the consolidated statement of financial position. 22 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e. Cash and cash equivalents Cash and cash equivalents comprises cash on hand and in banks and all unrestricted time deposits with an original maturity of three months or less at the time of placement. Time deposits with maturities of more than three months but not more than one year are presented as other current financial assets. f. Investments in associated companies Investments in companies where the Company and subsidiaries have 20% to 50% of the voting rights, and through which the Company and subsidiaries exert significant influence, but not control, over the financial and operating policies are accounted for using the equity method. Under this method, the Company and subsidiaries recognize their proportionate share in the income or loss of the associated companies from the date that significant influence commences until the date that significant influence ceases. When the Company and subsidiaries’ share of loss exceeds the carrying amount of the investments in associated companies, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Company and subsidiaries have incurred legal or constructive obligations or made payments on behalf of the associated companies. Investment in a joint venture is accounted for using the equity method whereby the participation in a joint venture is initially recorded at cost and subsequently adjusted for changes that occur after the acquisition in the share of the venturer of the joint venture’s net assets. The Company and subsidiaries determine at each reporting date whether there is any objective evidence that the investments in the associated companies are impaired. If there is, the Company and subsidiaries calculate and recognize the amount of impairment as the difference between the recoverable amount of the investments in associated companies and their carrying value. These assets are included in long-term investment in the consolidated statement of financial position. The functional currency of PT Pasifik Satelit Nusantara (“PSN”) and PT Citra Sari Makmur (“CSM”) is the United States dollar (“U.S. dollars”) and the functional currency of Scicom (MSC) Berhad (“Scicom”) and Telin Malaysia is the Malaysian ringgit (“MYR”). For the purpose of reporting these investments using the equity method, the assets and liabilities of these companies as of the statement of financial position date are translated into Indonesian rupiah using the rate of exchange prevailing at that date, while revenues and expenses are translated into Indonesian rupiah at the average rates of exchange for the year. The resulting translation adjustments are reported as part of translation adjustment in the equity section of the consolidated statement of financial position. g. Trade and other receivables Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost, less provision for impairment. This provision for impairment is made based on management’s evaluation of the collectibility of outstanding amounts. Receivables are written off in the year during which they are determined to be uncollectible. h. Inventories Inventories consist of components, which are subsequently expensed or transferred to property and equipment upon use. Components represent telephone terminals, cables, and other spare parts. Inventories also include Subscriber Identification Module (“SIM”) cards, Removable User Identity Module (“RUIM”) cards, handsets, set top box, wireless broadband modems, and blank prepaid vouchers, which are expensed upon sale. 23 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) h. Inventories (continued) The costs of inventories comprise of the purchase price, import duties, other taxes, transport, handling, and other costs directly attributable to their acquisition. Inventories are recognized at the lower of cost and net realizable value. Net realizable value is the estimate of selling price less the costs to sell. Cost is determined using the weighted average method for components, SIM cards, RUIM cards, handsets, set top box, wireless broadband modem, and blank prepaid voucher. The amounts of any write-down of inventories below cost to net realizable value and all losses of inventories are recognized as expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of general and administrative expenses in the year in which the reversal occurs. Provision for obsolescence is primarily based on the estimated forecast of future usage of these items. i. Prepaid expenses Prepaid expenses are amortized over their future beneficial periods using the straight-line method. j. Assets held for sale Assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. Assets that meet the criteria to be classified as held for sale are reclassified from property and equipment and depreciation on such assets is ceased. k. Intangible assets Intangible assets consist of goodwill arising from business acquisitions, license and software. Intangible assets are recognized if it is probable that the expected future economic benefits that are attributable to each asset will flow to the Company or subsidiaries, and the cost of the asset can be reliably measured. if any. Intangible assets are stated at cost Intangible assets are amortized over their useful lives. The Company and subsidiaries estimate the recoverable value of their intangible assets. When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount. less accumulated amortization and impairment, Intangible assets are amortized using the straight-line method, based on the estimated useful lives of the assets as follows: Software License Other intangible assets Years 3-20 3-20 1-30 Intangible assets are derecognized when no further economic benefits are expected, either from further use or from disposal. The difference between the carrying amount and the net proceeds received from disposal is recognized in the consolidated statement of comprehensive income. 24 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) l. Property and equipment - direct acquisitions Property and equipment directly acquired are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property and equipment includes: (a) purchase price, (b) any costs directly attributable to bringing the asset to its location and condition and (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Property and equipment, except land rights, are depreciated using the straight-line method based on the estimated useful lives of the assets as follows: Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Asset Customer Premise Equipment (“CPE”) Other equipment Years 15-40 2-15 3-15 5-15 3-25 3-20 5-25 3-20 3-20 5 2-5 4-8 10 2-5 The depreciation method, useful life and residual value of an asset are reviewed at least at each financial year-end and adjusted, if appropriate. The residual value of an asset is the estimated amount that the Company and subsidiaries would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The Company and subsidiaries periodically evaluate their property and equipment for impairment, whenever events and circumstances indicate that the carrying amount of the assets may not be recoverable. When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount, which is determined based on the higher of its fair value less cost to sell or value-in-use. Property and equipment acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets are measured at fair value unless (i) the exchange transaction lacks commercial substance; or (ii) the fair value of neither the asset received nor the asset given up is reliably measurable. Major spare parts and standby equipment that are expected to be used for more than 12 months are recorded as part of property and equipment. When assets are retired or otherwise disposed of, their cost and the related accumulated depreciation are derecognized from the consolidated statements of financial position, and the resulting gains or losses on the disposal or sale of the property and equipment are recognized in the consolidated statement of comprehensive income. 25 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) l. Property and equipment - direct acquisitions (continued) Certain computer hardware can not be used without the availability of certain computer software. In such circumstance, the computer software is recorded as part of the computer hardware. If the computer software is independent from its computer hardware, it is recorded as part of intangible assets. The cost of maintenance and repairs is charged to the consolidated statements of comprehensive income as incurred. Significant renewals and betterments are capitalized. Property under construction is stated at cost until construction is completed, at which time it is reclassified to the specific property and equipment account to which it relates. During the construction period until the property is ready for its intended use or sale, borrowing costs, which include interest expense and foreign currency exchange differences incurred on loans obtained to finance the construction of the asset, as long as it meets the definition of a qualifying asset, are capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalization of borrowing cost ceases when the construction is completed and the asset is ready for its intended use. Equipment depreciated over its estimated useful life using the straight-line method. temporarily unused is reclassified to equipment not used in operations and m. Leases In determining whether an arrangement is, or contains a lease, the Company and subsidiaries perform an evaluation over the substance of the arrangement. A lease is classified as a finance lease or operating lease based on the substance, not the form, of the contract. Finance lease is recognized if the lease transfers substantially all the risks and rewards incidental to the ownership of the leased asset. Assets and liabilities under a finance lease are recognized in the consolidated statement of financial position at amounts equal to the fair value of the leased assets or, if lower, the present value of the minimum lease payments. Any initial direct costs of the Company and subsidiaries are added to the amount recognized as assets. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the year in which they are incurred. lives as Leased assets are depreciated using the same method and based on the useful estimated for directly acquired property and equipment. However, there is no reasonable certainty that the Company and subsidiaries will obtain ownership by the end of the lease term, the leased assets are fully depreciated over the shorter of the lease term and their economic useful lives. if Lease arrangements that do not meet the above criteria are accounted for as operating leases for which payments are charged as an expense on the straight-line basis over the lease period. n. Deferred charges - land rights The Company and subsidiaries have implemented ISAK 25, “Land Rights”, which was effective starting on January 1, 2012. Based on ISAK 25, costs incurred to process the initial legal land rights are recognized as part of the property and equipment and are not amortized. Costs incurred to process the extension or renewal of legal land rights are deferred and amortized over the shorter of the term of the land rights or the economic life of the land. 26 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) o. Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business, if this period is longer). If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. p. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on obtaining loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facilities will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facilities will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facilities to which it relates. q. Foreign currency translations The functional currency and the recording currency of the Company and subsidiaries are both the Indonesian rupiah, except for the functional currency of Telekomunikasi Indonesia International Pte. Ltd., Hong Kong, Telekomunikasi Indonesia International Pte., Singapore, and Indonesia International S.A., Timor Leste whose accounting records are Telekomunikasi maintained in U.S. dollars. Transactions in foreign currencies are translated into Indonesian rupiah at the rates of exchange prevailing at transaction date. At the consolidated statement of financial position date, monetary assets and liabilities denominated in foreign currencies are translated into Indonesian rupiah based on the buy and sell the consolidated statement of financial position date, as follows: rates quoted by Reuters prevailing at 2013 2012 Buy Sell Buy Sell United States dollar (“US$”) 1 Euro 1 Yen 1 12,160 16,744 115.67 12,180 16,774 115.87 9,630 12,721 111.65 9,645 12,743 111.84 The resulting foreign exchange gains or losses, realized and unrealized, are credited or charged to the consolidated statement of comprehensive income of the current year, except for foreign exchange differences incurred on borrowings during the construction of qualifying assets which are capitalized to the extent that the borrowings can be attributed to the construction of those qualifying assets (Note 2l). 27 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r. Revenue and expense recognition i. Fixed line telephone revenues Revenues from fixed line installations, including incremental costs, are deferred and recognized as revenue and costs over the expected term of the customer relationships. Based on reviews of historical the Company determined the expected term of the customer relationships in 2013 and 2012 to be 18 years and 10 years, respectively. Revenues from usage charges are recognized as customers incur the charges. Monthly subscription charges are recognized as revenues when incurred by subscribers. information and customer trends, ii. Cellular and fixed wireless telephone revenues Revenues from postpaid service, which consist of usage and monthly charges, are recognized as follows: • Airtime and charges for value added services are recognized based on usage by subscribers. • Monthly subscription charges are recognized as revenues when incurred by subscribers. Revenues from prepaid card subscribers, which consist of the sale of starter packs (also known as SIM cards in the case of cellular and RUIM in the case of fixed wireless telephone and start-up load vouchers) and pulse reload vouchers, are recognized as follows: • • Sales of SIM and RUIM cards are recognized as revenue upon delivery of the starter packs to distributors, dealers or directly to customers. Sales of pulse reload vouchers (either bundled in starter packs or sold as separate items) are recognized initially as unearned income and recognized proportionately as usage revenue based on duration and total of successful calls made and the value added services used by the subscribers or the expiration of the unused stored value of the voucher. • Unutilized promotional credits are netted against unearned income. iii. Interconnection revenues The revenues from network interconnection with other domestic and international telecommunications carriers are recognized monthly on the basis of the actual recorded traffic for the month. Interconnection revenues consist of revenues derived from other operators’ subscriber calls to the Company and subsidiaries’ subscribers (incoming) and calls between subscribers of other operators through the Company and subsidiaries’ network (transit). iv. Data, internet and information technology service revenues Revenues from data communication and internet are recognized based on service activity and performance which are measured by the duration of internet usage or based on the fixed amount of charges depending on the arrangements with customers. Revenues from sales, installation and implementation of computer software and hardware, computer data network installation service and installation are recognized when the goods are delivered to customers or the installation takes place. Revenue from computer software development service is recognized using the percentage-of- completion method. 28 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r. Revenue and expense recognition (continued) v. Revenues from network Revenues from network consist of revenues from leased lines and satellite transponder leases which are recognized over the period in which the services are rendered. vi. Other telecommunications service revenues Revenues from other telecommunications services consist of Revenue-Sharing Arrangements (“RSA”) and sales of other telecommunication services or goods. leases where the property and The RSA are recorded in a manner similar to capital equipment and obligation under RSA are reflected in the consolidated statement of financial position. All revenues generated from the RSA are recorded as a component of revenues, while a portion of the investors’ share of the revenues from the RSA is recorded as finance costs with the balance treated as a reduction of the obligation under RSA. Universal Service Obligation (“USO”) compensation from construction activities to design, build and finance assets for the grantor is recognized on the stage of completion basis. Revenues from operating and maintenance activities in respect of the assets under the concession are recognized when the services are rendered. In concession contract under USO, the Company and subsidiaries have contractual rights to receive considerations from the grantor. The Company and subsidiaries recognize a financial asset in their consolidated statement of financial position, in consideration for the services they provide (designing, building, operation or maintenance of assets under concession). Such financial assets are recognized in the consolidated statement of financial position as Accounts Receivable, for the amount of fair value of the infrastructure on initial recognition and subsequently at amortized cost. The receivable is settled by means of the grantor’s payments received. The financial income calculated on the basis of the effective interest rate is recognized as finance income. Revenues from sales of other telecommunication services or goods are recognized upon completion of services and or delivery of goods to customers. vii. Multiple-element arrangements Where two or more revenue-generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of accounting is accounted for separately. The total revenue is allocated to each separately identifiable component based on the relative fair value of each component and the appropriate revenue recognition criteria are applied to each component as described above. viii. Agency relationship Revenues from an agency relationship are recorded based on the gross amount billed to the customers when the Company and subsidiaries act as principal in the sale of goods and services. Revenues are recorded based on the net amount retained (the amount paid by the the Company and customer less amount paid to the suppliers) because in substance, subsidiaries act as agents and earned commission from the suppliers of the goods and services sold. 29 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r. Revenue and expense recognition (continued) ix. Customer loyalty programme The Company and subsidiaries operate a loyalty point programme, which allows customers to accumulate points for every certain multiple of the usage of telecommunication services. The points can then be redeemed in the future for free or discounted products, provided other qualifying conditions are achieved. Consideration received is allocated between the telecommunication services and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined based on historical information about redemption rate of award points, Fair value of the points issued is deferred and recognized as revenue when the points are redeemed or expired. x. Service concession arrangements The Company and subsidiaries have implemented ISAK 16,” Service Concession Arrangements”, which is effective starting on January 1, 2012. Based on ISAK 16, revenues relating to construction or upgrade services under a service concession arrangement are recognized based on the stage of completion of the work performed. Operation or service revenue is recognized in the period in which the service is provided. When more than one service is provided in the service concession arrangements, the consideration received is allocated by reference to the relative value of the services. Further, the developed infrastructure assets under these arrangements are not recognized as property and equipment of the operator, because the contractual arrangements do not convey the right to control the use of the public services infrastructure assets to the operator. xi. Expenses Expenses are recognized as they are incurred. s. Employee benefits i. Short-term employee benefits All short-term employee benefits which consist of salaries and related benefits, vacation pay, incentives and other short-term benefits are recognized as expense on undiscounted basis when employees have rendered service to the Company and subsidiaries. ii. Pension and post-retirement health care benefit plans the present value of estimated future benefits that The net obligations in respect of the defined pension benefit and post-retirement health care benefit plans are calculated at the employees have earned in return for their service in the current and prior periods, less the fair value of plan assets and as adjusted for unrecognized actuarial gains or losses and unrecognized past service cost. The calculation is performed by an independent actuary using the defined benefit obligation is the projected unit credit method. The present value of rates of determined by discounting the estimated future cash outflows using interest government bonds that are denominated in the currencies in which the benefits will be paid and that have terms to maturity approximating the terms of the related retirement benefit obligation. Government bonds are used as there is no deep market for high quality corporate bonds. 30 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) s. Employee benefits (continued) ii. Pension and post-retirement health care benefit plans (continued) Plan assets are assets that are held by the pension and post-retirement health care benefit plans. These assets are measured at fair value at the end of the reporting period, which is based on the securities’ quoted market price information. The amount of prepaid pension costs that can be recognized is limited to the total of any unrecognized past service costs, losses and the present value of economic benefits available in the unrecognized actuarial form of refunds from the plan or reductions in future contributions to the plan. Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions, when exceeding the greater of 10% of the present value of defined benefit obligation or 10% of the fair value of plan assets, are charged or credited to the consolidated statements of comprehensive income over the average remaining service lives of the relevant employees. Prior service cost is recognized immediately if vested or amortized over the vesting period. For defined contribution plans, the regular contributions constitute net periodic costs for the period in which they are due and as such are included in staff costs when they become payable. iii. Long Service Awards (“LSA”) and Long Service Leave (“LSL”) Employees of Telkomsel are entitled to receive certain cash awards or certain numbers of days leave benefits based on length of service requirements. LSA are either paid at the time the time of the employees reach certain anniversary dates during employment, or at termination. LSL is either a certain number of days leave benefit or cash, subject to approval by management, provided to employees who have met the requisite number of years of service and with a certain minimum age. Actuarial gains or losses arising from experience and changes in actuarial assumptions are charged immediately to the consolidated statements of comprehensive income. The obligation with respect to LSA and LSL is calculated by an independent actuary using the projected unit credit method. iv. Early retirement benefits Early retirement benefits are accrued at the time the Company makes a commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary redundancy. A commitment to a termination arises when, and only when a detailed formal plan for the early retirement cannot be withdrawn. v. Pre-retirement benefits Employees of the Company are entitled to a benefit during a pre-retirement period in which they are inactive for 6 months prior to their normal retirement age of 56 years. During the pre- retirement period, the employees still receive benefits provided to active employees, which leave, bonus and other include, but are not limited to regular salary, health care, annual benefits. Benefits provided to employees who enter pre-retirement period are calculated by an independent actuary using the projected unit credit method. vi. Other post-retirement benefits Employees are entitled to home leave passage benefits and final housing facility benefits to their retirement age of 56 years. Those benefits are calculated by an independent actuary using the projected unit credit method. 31 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) s. Employee benefits (continued) vii. Share-based payments The Company operates an equity-settled, share-based compensation plan. The fair value of the employees’ services rendered which compensated with the Company’s shares is recognized as an expense in the consolidated statement of comprehensive income and credited to additional paid-in capital at the grant date. Gains or losses on curtailment are recognized when there is a commitment to make a material reduction in the number of employees covered by a plan or when there is an amendment of defined benefit plan terms such that a material element of future services to be provided by current employees will no longer qualify for benefits, or will qualify only for reduced benefits. Gains or losses on settlement are recognized when there is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan. t. Income tax Current and deferred income taxes are recognized as income or an expense and included in the consolidated statement of comprehensive income, except to the extent that the tax arises from a transaction or event which is recognized directly in equity, in which case, the tax is recognized directly in equity. Current tax assets and liabilities are measured at the amounts expected to be recovered or paid using the tax rates and tax laws that have been enacted at each reporting date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Where appropriate, management establishes provisions based on the amounts expected to be paid to the tax authorities. The Company and subsidiaries recognize deferred tax assets and liabilities for temporary differences between the financial and tax bases of assets and liabilities at each reporting date. The Company and subsidiaries also recognize deferred tax assets resulting from the recognition of future tax benefits, such as the benefit of tax losses carried forward to the extent their future realization is probable. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates and tax laws at each reporting date which are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, such as tax rates and tax laws which have been enacted or substantially enacted at each reporting date. The carrying amount of deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax assets and liabilities are offset in the consolidated statement of financial position, except if these are for different legal entities, in the same manner the current tax assets and liabilities are presented. Amendment to tax obligation is recorded when an assessment letter (“Surat Ketetapan Pajak” or “SKP”) is received or if appealed against, when the results of the appeal are determined. The additional taxes and penalty imposed through an SKP are recognized as income or expense in the current year profit or loss, unless objection/appeal is taken. The additional taxes and penalty imposed through the SKP are deferred as long as they meet the asset recognition criteria. 32 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments The Company and subsidiaries classify financial instruments into financial assets and financial liabilities. Financial assets and liabilities are recognized initially at fair value including transaction costs. These are subsequently measured either at fair value or amortized cost using the effective interest rate method in accordance with their classification. i. Financial assets The Company and subsidiaries classify their financial assets as (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) held-to-maturity financial assets or (iv) available-for-sale financial assets. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of financial assets at initial recognition. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company and subsidiaries commit to purchase or sell the assets. The Company’s financial assets include cash and cash equivalents, other current financial assets, trade receivables and other receivables, long-term investments, advances and other non-current financial assets. a. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets classified as held for trading. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing it in the near term and for which there is evidence of a recent actual pattern of short-term profit taking. Gains or losses arising from changes in fair value of the trading securities are presented as other (expenses)/income in consolidated statement of comprehensive income in the period in which they arise. Financial asset measured at fair value through profit loss consists of derivative asset-put option which is recognized as part of other current financial assets. b. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables consist of, among other things, cash and cash equivalents, trade receivables, other receivables, other current financial assets and other non-current financial assets. These are initially recognized at fair value including transaction costs and subsequently measured at amortized cost, using the effective interest method. c. Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity, other than: a) b) c) those that the Company upon initial recognition designates as assets at fair value through profit or loss; those that the Company designates as available for sale; and those that meet the definition of loans and receivables. No financial assets were classified as held-to-maturity financial assets as of December 31, 2013 and 2012. 33 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) i. Financial assets (continued) d. Available-for-sale financial assets Available-for-sale investments are non-derivative financial assets that are intended to be held for indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets consist of bonds and mutual funds which are recorded as other current financial assets. Available-for-sale securities are stated at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from income of the current period and are reported as a separate component in the equity section of the consolidated statements of financial position until realized. Realized gains or losses from the sale of available-for-sale securities are recognized in the consolidated statements of comprehensive income, and are determined on the specific identification basis. A decline in the fair value of any available-for-sale securities below cost that is deemed to be other than temporary is charged to the consolidated statement of comprehensive income. ii. Financial liabilities The Company and subsidiaries classify their financial liabilities as (i) financial liabilities at fair value through profit or loss or (ii) financial liabilities measured at amortized cost. The Company and subsidiaries’ financial liabilities include trade payables and other payables, loans and other borrowings which consist of short-term bank loans, accrued expenses, obligations under capital lease, two step loans, bonds and notes, and bank loans. a. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial liabilities classified as held for trading. A financial is incurred principally for the purpose of selling or repurchasing them in the near term and for which there is evidence of a recent actual pattern of short-term profit taking. liability is classified as held for trading if it No financial liabilities were categorized as held for trading as of December 31, 2013 and 2012. b. Financial liabilities measured at amortized cost Financial liabilities that are not classified as liabilities at fair value through profit or loss fall into this category and are measured at amortized cost. Financial liabilities measured at amortized cost are trade payables, other payables, accrued expenses, loans, bonds and notes. iii. Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated the financial position when there is a legally enforceable right statement of recognized amounts and there is an intention to settle on a net basis, or realize the assets and settle the liabilities simultaneously. to offset 34 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) iv. Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or liability settled, in an arms’ length transaction. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market is substantially the same, a discounted cash flow analysis or other valuation models. reference to the current fair value of another transactions, instrument that An analysis of fair values of financial measured are provided in Note 44. v. Impairment of financial assets instruments and further details as to how they are The Company and subsidiaries assess the impairment of financial assets if there is objective evidence that a loss event has a negative impact on the estimated future cash flows of the financial asset. Impairment is recognized when the loss event can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognized. Impairment loss on financial assets carried at cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is recognized in profit or loss as an impairment loss. The amount of the cumulative loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized. vi. Derecognition of financial instrument The Company and subsidiaries derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire, or when the Company and subsidiaries transfer substantially all the risks and rewards of ownership of the financial asset. The Company and subsidiaries derecognize a financial liability when the obligation specified in the contract is discharged or cancelled or expired. v. Treasury stock Reacquired Company shares of stock are accounted for at their reacquisition cost and classified as “Treasury Stock” and presented as a deduction to equity. The cost of treasury stock sold/transferred is accounted for using the weighted average method. The portion of treasury stock transferred for employees ownership program is accounted for at its fair value. The difference between the cost and the proceeds from the sale/transfer value of treasury stock is credited to “Additional Paid-in Capital”. 35 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) w. Dividends Dividend distribution to the Company’s stockholders is recognized as a liability in the Company’s consolidated financial statements in the year in which the dividend is approved by the Company’s stockholders. The Company recognizes interim dividend as a liability based on the Board of Directors’ decision with the approval from the Board of Commissioners. x. Basic earnings per share and earnings per ADS Basic earnings per share is computed by dividing profit for the year attributable to owners of the parent company by the weighted average number of shares outstanding during the year. Income per ADS is computed by multiplying basic earnings per share by 200, the number of shares represented by each ADS. The Company does not have potentially dilutive financial investments. y. Segment information The Company and subsidiaries' segment information is presented based upon identified operating segments. An operating segment is a component of an entity: a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); b) whose operating results are regularly reviewed by the Company and subsidiaries' chief operating decision maker i.e., Directors, to make decisions about resources to be allocated to the segment and assess its performance, and c) for which discrete financial information is available. z. Provision Provision is recognized when the Company and subsidiaries have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the obligation. aa. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company and subsidiaries make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. i. Retirement benefits The present value of the retirement benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations. The Company and subsidiaries determine the appropriate discount rate at the end of each reporting period. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the obligations. In determining the appropriate discount rate, the Company and subsidiaries consider the interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related retirement benefit obligations. 36 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) aa. Critical Accounting Estimates and Judgements (continued) i. Retirement benefits (continued) If there is an improvement in the ratings of such government bonds or a decrease in interest rates as a result of improving economic conditions, there could be a material impact on the discount rate used in determining the post-employment benefits obligations. Other key assumptions for retirement benefit obligations are based in part on current market conditions. Additional information is disclosed in Notes 34, 35 and 36. ii. Estimating useful lives of property and equipment and intangible assets The Company and subsidiaries estimate the useful lives of their property and equipment and intangible assets based on expected asset utilization, considering strategic business plans, expected future technological developments and market behavior.The estimates of useful lives of property and equipment are based on the Company and subsidiaries’ collective assessment of industry practice, internal technical evaluation and experience with similar assets. The Company and subsidiaries review estimates of useful lives at least each financial year end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. The amounts and timing of recorded expenses for any year will be affected by changes in these factors and circumstances. A change in the estimated useful lives of the property and equipment is a change in accounting estimates and is applied prospectively in profit or loss in the period of the change and future periods. Details of the nature and carrying amount of property and equipment are disclosed in Note 11 and intangible assets in Note 13. iii. Provision for impairment of receivables The Company and subsidiaries assess whether there is objective evidence that trade receivables have been impaired at the end of each reporting period. Provision for impairment of receivables is calculated based on a review of the current status of existing receivables and historical collection experience. Such provision is adjusted periodically to reflect the actual and anticipated experience. Details of the nature and carrying amount of provision for impairment of receivables are disclosed in Note 6. iv. Income taxes Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company and subsidiaries recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such determination is made. Details of the nature and carrying amount of income tax are disclosed in Note 31. v. Impairment of non-financial assets The Company and subsidiaries annually assess whether goodwill is impaired. Other non- financial assets are reviewed for impairment whenever events or changes in circumstances the asset exceeds its recoverable amount. The indicate that recoverable amount of an asset or a cash-generating unit (“CGU”) is determined based on the higher of its fair value less costs to sell and its value in use, calculated on the basis of management’s assumptions and estimations. the carrying amount of 37 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) aa. Critical Accounting Estimates and Judgements (continued) v. Impairment of non-financial assets (continued) In determining value in use, the Company and subsidiaries apply management judgement in establishing forecasts of future operating performance, as well as the selection of growth rates and discount rates. These judgements are applied based on our understanding of historical information and expectations of future performance. Changing the key assumptions, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the value in use calculations. For the years ended December 31, 2013 and 2012, the Company recognized Rp596 billion and Rp247 billion, respectively, of impairment loss on property and equipment pertaining to the fixed wireless services. A 1% increase in the discount rate used would result in an increase in impairment loss of approximately Rp703 billion and Rp458 billion in 2013 and 2012, respectively. However, the recoverable amount of the fixed wireless CGU is most sensitive to whether management will be able to implement its plans, including the cost it generates positive cash flows and returns to profitability as efficiency plan, such that projected. if If management’s initiatives are not performing as expected in the next financial year, analysis will be required to assess whether there will be further impairment next year (Note 11b). the fixed wireless CGU continues to decline or the performance of vi. Fair value of put option and investment in PT Indonusa Telemedia In determining the fair value, the Company uses management’s judgment to determine future projected operational performance, growth rate and discount rate. These considerations are applied on the basis of management’s understanding of historical information and expectation of future operational performance. Detail of the nature and recorded amount of Put Option and investment in Indonusa is disclosed in Notes 3,5 and 10. 3. BUSINESS COMBINATIONS a. Acquisitions Acquisition of PT German Center Indonesia On January 17, 2013, Sigma signed a sales and purchase of shares agreement and transfer of debt with Landeskreditbank Baden-Wurttemberg-Forderbank (“L-Bank”) and Step Stuttgarter Engineering Park Gmbh (“STEP”) as the shareholders of PT German Centre Indonesia (“GCI”). Based on the agreement, on April 30, 2013, Sigma has bought shares owned by L-Bank and STEP in GCI. Through the acquisition, Sigma enlarged its data center capacity that can be offered its customers. Acquisition of Patrakom On September 25, 2013, based on notarial deed No. 22 of Ashoya Ratam, S.H. ,M.Kn, the Company entered into a Sales and Purchase Agreement (SPA) with PT ELNUSA Tbk for the Company’s acquisition of the 40% ownership in PT Patra Telekomunikasi Indonesia (“Patrakom”) for Rp45.6 billion. This SPA results in the Company’s ownership in Patrakom to increase from 40% to 80% (Note 10). Subsequently, on November 29, 2013, based on notarial deed No. 54 of Ashoya Ratam, S.H., M.Kn., dated November 29, 2013 the Company has signed a SPA with PT Tanjung Mustika Tbk for the Company’s acquisition of the remaining of 20% ownership in Patrakom for Rp24.8 billion. 38 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 3. BUSINESS COMBINATIONS (continued) a. Acquisitions (continued) Acquisition of Patrakom (continued) Patrakom is a satellite-based closed fixed telecommunications network operator and as provider of communications solutions and network with a permit as Operator of Micro Earth Stations Communications Systems (“SKSBM”) in partnership with manufacturers of telecommunications equipment to serve various companies.Through the acquisition of Patrakom, the Company can integrate Patrakom’s business activities in accordance with the Company’s business development plan. The fair values of the assets acquired and liability transferred at the acquisition dates are as follows: GCI Patrakom Total Cash and equivalents Other current assets Property and equipment (Note 11) Current liabilities Non-current liabilities Fair value of the identifiable net assets acquired Bargain purchase Fair value of previously held equity interests Fair value of the consideration transferred 3 18 225 (15) (16) 215 (42) - 173 39 122 171 (171) (45) 116 - (46) 70 42 140 396 (186) (61) 331 (42) (46) 243 fair value of The excess of consideration transferred, amounting Rp42 billion, was recorded as other consolidated statement of comprehensive income of acquisition amounting to Rp4.3 billion was incurred in the current period. the income in the the current year. Cost related to the the identifiable net assets acquired over the fair value of Since the acquisition dates, GCI and Patrakom has generated operating revenue amounting to Rp23 billion. The business combination transactions mentioned above complied to the related Bapepam-LK Regulations. b. Disposal of Indonusa On October 8, 2013, the Company sold 80% of its ownership in Indonusa to PT Trans Cospora and PT Trans Media Corpora for Rp926 billion. Further, on the same date, the Company, Metra and PT Trans Corpora signed a Shareholders Agreement that establishes mutual relationship among the shareholders of Indonusa, including the grant of the right to the Company and Metra to sell their 20% remaining ownership in Indonusa to PT Trans Corpora at any time in 24 months after the second year of the closing transaction at a certain price (Put Option). The Company had received the full payment for the sale transaction. 39 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 3. BUSINESS COMBINATION (continued) b. Disposal of Indonusa (continued) The Company recognized the gain on sale of Indonusa shares in the consolidated statement of comprehensive income of the current year as follows: Fair value of considerations received: Cash Put Option Fair value of interest retained in Indonusa (Note 10) Carrying amount of assets and liabilities of Indonusa Gain on sale of shares 4. CASH AND CASH EQUIVALENTS Cash on hand Cash in banks Related parties Rupiah PT Bank Mandiri (Persero) Tbk (“Bank Mandiri”) PT Bank Negara Indonesia (Persero) Tbk (“BNI”) PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”) PT Bank Tabungan Negara (Persero) Tbk (“BTN”) Others Foreign currencies Bank Mandiri BNI BRI Others Sub-total Third parties Rupiah Deutsche Bank AG (“DB”) Others (each below Rp50 billion) Foreign currencies Standard Chartered Bank (“SCB”) Others (each below Rp50 billion) Sub-total Total cash in banks 40 Amount 926 289 182 (14) 1,383 2013 2012 7 7 804 409 70 50 6 913 284 87 13 1 1,339 1,298 458 224 75 0 757 222 20 2 0 244 2,096 1,542 62 163 225 313 102 415 640 62 162 224 112 65 177 401 2,736 1,943 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 4. CASH AND CASH EQUIVALENTS (continued) Time deposits Related parties Rupiah BRI BNI Bank Mandiri BTN PT Bank Syariah Mandiri (”BSM”) Others (each below Rp20 billion) Foreign currencies BRI BNI Bank Mandiri Sub-total Third parties Rupiah PT Bank Central Asia Tbk (“BCA”) PT Bank Mega Tbk (“Bank Mega”) PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk (“BJB”) PT Bank Muamalat Indonesia Tbk PT Bank Yudha Bhakti PT Bank Tabungan Pensiunan Nasional Tbk PT Bank Internasional Indonesia Tbk (“BII”) PT Bank CIMB Niaga Tbk (“Bank CIMB Niaga”) PT Bank Ekonomi Raharja Tbk (“Bank Ekonomi”) PT Bank Panin Tbk PT Bank Bukopin Tbk (“Bank Bukopin”) PT Bank OCBC NISP Tbk (“OCBC NISP”) Citibank N.A. (“Citibank”) PT Bank Danamon Indonesia Tbk (“Bank Danamon”) PT Bank UOB Indonesia (“Bank UOB”) Others (each below Rp50 billion) Foreign currencies OCBC NISP SCB Sub-total Total time deposits Grand Total 41 2013 2012 2,445 1,975 1,271 375 50 - 6,116 3,260 264 - 3,524 9,640 599 275 245 150 145 136 126 83 73 70 65 - - - - 102 2,069 244 - 244 2,313 11,953 14,696 2,883 1,511 312 401 23 20 5,150 1,966 112 222 2,300 7,450 - 335 170 153 - 167 120 225 - 100 160 400 400 61 60 46 2,397 517 804 1,321 3,718 11,168 13,118 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 4. CASH AND CASH EQUIVALENTS (continued) Interest rates per annum on time deposits are as follows: Rupiah Foreign currencies 2013 2012 1.00% - 11.50% 0.03% - 3.00% 2.25% - 8.50% 0.05% - 3.50% The related parties in which the Company and subsidiaries place their funds are state-owned banks. The Company and subsidiaries placed a majority of their cash and cash equivalents in these banks because they have the most extensive branch networks in Indonesia and are considered to be financially sound banks, as they are owned by the State. Refer to Note 37 for details of related party transactions. 5. OTHER CURRENT FINANCIAL ASSETS 2013 2012 Time deposits Related parties BRI Others Sub-total Third parties SCB CIMB Niaga OCBC NISP Others Sub-total Total time deposits Available-for-sale financial assets Related parties Government State-owned enterprises PT Bahana Securities (“Bahana”) Sub-total Third parties Total available-for-sale financial assets Derivative asset - Put Option Others Total 1,000 19 1,019 1,859 1,800 1,600 10 5,269 6,288 133 74 - 207 65 272 297 15 1,650 - 1,650 1,350 - 1,000 - 2,350 4,000 123 67 48 238 72 310 - 28 6,872 4,338 As of December 31, 2013 and 2012, time deposits denominated in foreign currency amounted to Rp59 billion and Rp0, respectively. The time deposits have maturities of more than three months but not more than one year, with interest rates as follows: Rupiah Foreign currency Refer to Note 37 for details of related party transactions. 42 2013 1.60% - 10.50% 1.00% - 1.10% 2012 6.25% - 6.75% - These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 6. TRADE RECEIVABLES Trade receivables arise from services provided to both retail and non-retail customers, with details as follows: a. By debtor (i) Related parties State-owned enterprises Indonusa PT Indosat Tbk (“Indosat”) CSM Patrakom* Others Total Provision for impairment of receivables Net (ii) Third parties Individual and business subscribers Overseas international carriers Total Provision for impairment of receivables Net 2013 2012 877 180 48 45 - 241 1,391 (491) 900 549 - 55 51 56 62 773 (72) 701 2013 2012 7,010 497 7,507 (2,381) 5,126 6,177 320 6,497 (1,975) 4,522 Trade receivables from certain parties are presented net of the Company and subsidiaries’ liabilities to such parties due to the existence of a legal right of set-off in accordance with the agreements with those parties. b. By age (i) Related parties Up to 6 months 7 to 12 months More than 12 months Total Provision for impairment of receivables Net *In 2013, Patrakom was fully consolidated (Note 3). 43 2013 2012 836 223 332 1,391 (491) 900 442 248 83 773 (72) 701 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 6. TRADE RECEIVABLES (continued) b. By age (continued) (ii) Third parties Up to 3 months More than 3 months Total Provision for impairment of receivables Net (iii) Aging of total trade receivables 2013 2012 4,526 2,981 7,507 (2,381) 5,126 3,969 2,528 6,497 (1,975) 4,522 Not past due Past due up to 3 months Past due more than 3 to 6 months Past due more than 6 months Total 2013 2012 Provision for impairment of receivables Gross Gross Provision for impairment of receivables 3,618 1,525 703 3,052 8,898 10 401 321 2,140 2,872 3,174 1,250 455 2,391 7,270 140 157 193 1,557 2,047 The Company and subsidiaries have made provision for impairment of trade receivables based on the collective assessment of historical impairment rates and individual assessment of their customers’ credit history. The Company and subsidiaries do not apply a distinction between related party and third party receivables in assessing amounts past due. As of December 31, 2013 and 2012, the carrying amount of trade receivables of the Company and subsidiaries considered past due but not impaired amounted to Rp2,418 billion and Rp2,189 billion, respectively. Management has concluded that receivables past due but not impaired, along with trade receivables that are neither past due nor impaired, are due from customers with good credit history and are expected to be recoverable. c. By currency (i) Related parties Rupiah U.S. dollar Total Provision for impairment of receivables Net 2013 2012 1,361 30 1,391 (491) 900 686 87 773 (72) 701 44 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 6. TRADE RECEIVABLES (continued) c. By currency (continued) (ii) Third parties Rupiah U.S. dollar Euro Hong Kong dollar Total Provision for impairment of receivables Net d. Movements in the provision for impairment of receivables Beginning balance Provision recognized during the year (Note 29) Receivables written-off Acquisition Disposal (Note 3) Reclassification Ending balance 2013 2012 6,699 806 1 1 7,507 (2,381) 5,126 5,770 722 3 2 6,497 (1,975) 4,522 2013 2012 2,047 1,589 (622) 1 (158) 15 2,872 1,732 848 (533) - - - 2,047 The receivables written off are related-party and third-party trade receivables. Management believes that the provision for impairment of trade receivables is adequate to cover losses on uncollectible trade receivables. Certain trade receivables of the subsidiaries amounting to Rp1,700 billion have been pledged as collateral under lending agreements (Notes 17 and 21). Refer to Note 37 for details of related party transactions. 7. INVENTORIES Components SIM cards, RUIM cards, set top box, and blank prepaid vouchers Others Total Provision for obsolescence Components SIM cards, RUIM cards, set top box, and blank prepaid vouchers Modules Total Net 45 2013 2012 272 102 157 531 (21) (1) - (22) 509 183 134 410 727 (51) (1) (96) (148) 579 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 7. INVENTORIES (continued) Movements in the provision for obsolescence are as follows: Beginning balance Divestment Provision (reversal) recognized during the year Reclassification Inventories written-off Ending balance 2013 2012 148 (1) (29) (96) - 22 106 - 67 - (25) 148 The inventories recognized as expense and included in operations, maintenance, and telecommunication service expenses (Note 28) for the years ended December 31, 2013 and 2012 amounted to Rp752 billion and Rp633 billion, respectively. Management believes that the provision is adequate to cover losses from declines in inventory value due to obsolescence. Certain inventories of the Company’s subsidiaries amounting to Rp53 billion have been pledged as collateral under lending agreements (Notes 17 and 21). As of December 31, 2013 and 2012, modules and components held by the Company and subsidiaries have been insured against theft, and other specific risks with book value amounting to Rp280 billion and Rp272 billion, respectively. Modules are recorded as part of property and equipment. Total sum insured as of December 31, 2013 and 2012 amounted to Rp261 billion and Rp275 billion, respectively. fire, Management believes that the insurance coverage is adequate to cover potential losses of certain inventories which happens to the Company and subsidiaries. 8. ADVANCES AND PREPAID EXPENSES Frequency license (Notes 41c.i and 41c.ii) Prepaid rental Advances Salaries Deferred expense Insurance Others (each below Rp50 billion) Total Refer to Note 37 for details of related party transactions. 2013 2012 2,330 744 297 209 124 84 149 3,937 2,563 666 120 165 45 18 144 3,721 46 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 9. ASSET HELD FOR SALE This account represents the carrying amount of Telkomsel’s equipment to be exchanged with equipment of Nokia Siemens Network Oy (“NSN Oy”) and PT Huawei Tech Investment (“PT Huawei”). The equipment will be used as part of the settlement for the exchanges of equipment from these companies. In 2013, Telkomsel’s equipment with net carrying amount of Rp105 billion is reclassified to asset held for sale (Note 11c.vi). Asset held for sale is presented under personal segment (Note 38). 10. LONG-TERM INVESTMENTS Percentage of ownership Beginning balance Addition (Deduction) Long-term 2013 Share of net (loss) profit of associated company Dividend Translation adjustment Ending balance investments in associated companies: Indonusaa PT Melon Indonesia (“Melon”)b ILCSc Telin Malaysiad CSMe PSNf Patrakomg Scicomh Sub-total Other long-term investments Total long-term investments Long-term investments in associated companies: Indonusaa Melonb ILCSc Telin Malaysiad CSMe PSNf Total 20.00 51.00 49.00 49.00 25.00 22.38 40.00 29.71 - 42 48 - 20 - 46 98 254 21 275 182 - - 20 - - (46) (88) 68 - 68 7 (3) (11) (6) (20) - 2 2 (29) - (29 ) - - - - - - (2) (3) (5) - (5 ) - - - 4 - - - (9) (5) - (5) Assets Liabilities Revenue Loss 2013 655 90 88 37 1,273 817 2,960 669 22 13 1 1,387 2,148 4,240 363 73 4 0 306 462 1,208 189 39 37 18 - - - - 283 21 304 (124) (6) (22) (11) (181) (55) (399) 47 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 10. LONG-TERM INVESTMENTS (continued) Percentage of ownership Beginning balance Additions 2012 Share of net (loss) profit of associated company Dividend Translation adjustment Ending balance Long-term investments in associated companies: Scicomh ILCSc Patrakomg PT Melon Indonesia (“Melon”)b CSMe PSNf Sub-total Other long-term investments Total long-term investments 29.71 49.00 40.00 51.00 25.00 22.38 101 - 43 44 26 - 214 21 235 - 49 - - - - 49 - 49 (2) (1) 5 (2) (11) - (11) - (11) (8) - (2) - - - (10) - (10) 2012 7 - - - 5 - 12 - 12 98 48 46 42 20 - 254 21 275 Long-term investments in associated companies: Scicomh ILCSc Patrakomg Melonb CSMe PSNf Total Assets Liabilities Revenue Profit (loss) 223 104 218 89 1,168 590 2,392 17 7 102 7 905 1,512 2,550 399 1 226 10 403 292 1,331 40 (3) 12 (4) (44) 1 2 a Indonusa had been the Company’s subsidiary until 2013 when the Company disposed 80% of its interest in Indonusa (Notes 1d and 3). b Melon is engaged in providing Digital Content Exchange Hub services (“DCEH”). As a result of the existence of substantive participating rights held by the other venturer over the significant financial and operating policies of Melon, Metra does not have control over Melon. ILCS is engaged in providing E-trade logistic services and other related services. c d Telin Malaysia is engaged in telecommunication services in Malaysia. e CSM is engaged in providing Very Small Aperture Terminal (“VSAT”), network application services and consulting services on telecommunications technology and related facilities. f PSN is engaged in providing satellite transponder leasing and satellite-based communication services in the Asia-Pacific Region. The Company’s share in losses of PSN has exceeded the carrying amount of its investment since 2001; accordingly, the investment value has been reduced to Rp nil. The unrecognized share of losses of PSN for the years ended December 31, 2013 and 2012 are Rp298 billion and Rp206 billion, respectively. g Patrakom has been engaged in providing satellite communication system services, related services and facilities to companies in the petroleum industry. Starting in 2013, Patrakom has been consolidated (Notes 1d and 3). h Scicom is engaged in providing call center services in Malaysia. On September 19, 2013, the Company sold its investment in Scicom (MSC) Berhad-Malaysia (Scicom), with the proceeds of disposal and the carrying amount of the investment on the date of disposal amounting to Rp153 billion and Rp88 billion, respectively, resulting in a gain of Rp65 billion. 48 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT January 1, 2013 Business acquisition Divestment Additions Deductions Translations 2013 Reclassifications/ December 31, At cost: Directly acquired assets Land rights Buildings Leasehold improvements Switching equipment Telegraph, telex and data 977 3,787 783 23,750 communication equipment 19 Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Property under construction Assets under finance lease Transmission installation and equipment Data processing equipment Office equipment Vehicles CPE assets RSA assets 85,289 7,267 27,658 10,434 8,196 280 680 71 111 1,312 2,873 339 15 - 22 459 110 120 - 0 - - 158 - 3 - - 5 0 - - - - - - - - - - - - - - (110) (601) (0) (1) - (11) (1) (2) - (30) - - - - - 13 98 24 428 - 1,777 56 2,084 253 968 230 138 279 0 15,349 3,170 5 - 26 - - - (1) (27) (2,896) - (2) 220 32 (2,577) (13) (1,311) 10,098 (2) (117) (71) (62) - (1) (1) - - (330) (221) (8) (0) - - 87 (37) 1,136 129 (10) (41) (16) (5) (14,690) - - - - - - 1,098 4,224 812 18,705 6 95,853 7,456 28,987 11,755 9,230 500 770 332 104 1,971 5,683 123 7 26 22 459 Total 174,322 396 (756) 24,898 (5,048) (5,689) 188,123 January 1, 2013 Business acquisition Divestment Additions Impairment Deductions Translations 2013 Reclassifications/ December 31, Accumulated depreciation and impairment losses: Directly acquired assets Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Assets under finance lease Transmission installation and equipment Data processing equipment Office equipment Vehicles CPE asets RSA assets Total Net Book Value 1,739 609 17,105 16 41,210 4,684 17,291 5,982 6,355 259 548 61 102 782 261 7 - 11 253 97,275 77,047 - - - - - - - - - - - - - - - - - - - - - - - - - (142) (181) (0) (1) - (6) (1) (1) (3) - - - - - 163 67 1,982 0 7,609 663 1,022 1,171 738 18 72 25 4 896 37 1 1 2 41 - - - - 321 226 49 - - - - - - - - - - - - (0) (27) (2,718) (62) - (3,466) - (13) (1,205) (1,269) (2) (106) (67) (49) - (1) (1) - (330) (215) (6) (0) - - (239) (317) (292) (221) (10) (49) (16) (5) 0 - - - - - 1,840 649 12,903 3 46,666 5,190 17,758 6,794 6,822 267 564 68 100 1,345 83 2 1 13 294 (335) 14,512 596 (4,727) (5,959) 101,362 86,761 49 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT (continued) At cost: Directly acquired assets Land rights Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Property under construction Assets under finance lease Transmission installation and equipment Data processing equipment Office equipment Vehicles CPE assets RSA assets January 1, 2012 Additions Deductions Translations 2012 Reclassifications/ December 31, 842 3,417 650 25,470 20 78,584 7,069 26,392 9,339 8,082 472 727 84 111 1,203 305 344 27 48 22 479 135 98 6 91 - 746 35 1,965 194 323 - 60 6 1 11,024 2,582 6 - - - - - (0) (3) (1,438) - (0) 272 130 (373) (1) (1,680) 7,639 - (244) (83) (210) - (47) (4) - (43) (10) (0) - (48) - - 163 (455) 984 1 (192) (60) (15) (1) (10,872) (4) (11) (12) - - (20) 977 3,787 783 23,750 19 85,289 7,267 27,658 10,434 8,196 280 680 71 111 1,312 2,873 339 15 - 22 459 Total 163,687 17,272 (3,810) (2,827) 174,322 Accumulated depreciation and impairment losses: Directly acquired assets Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Assets under finance lease Transmission installation and equipment Data processing equipment Office equipment Vehicles CPE assets RSA assets Total Net Book Value January 1, 2012 Additions Impairment Deductions Translations 2012 Reclassifications/ December 31, 1,671 502 17,412 17 35,169 4,135 16,952 4,916 6,189 353 523 74 98 270 217 9 47 9 227 88,790 74,897 130 63 2,065 0 6,894 517 1,057 1,221 1,001 5 61 6 5 514 51 4 1 2 36 - - - - 153 94 - - - - - - - - - - - - - (0) (3) (1,112) (62) 47 (1,260) - (988) - (238) (59) (165) - (14) (4) - (2) - - (48) - - (1) (18) (62) (480) (96) (670) (99) (22) (15) (1) - (7) (6) - - (10) 13,633 247 (2,633) (2,762) 1,739 609 17,105 16 41,210 4,684 17,291 5,982 6,355 259 548 61 102 782 261 7 - 11 253 97,275 77,047 50 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT (continued) a. Gain on disposal or sale of property and equipment Proceeds from sale of property and equipment Net book value Gain on disposal or sale of property and equipment b. Assets impairment 2013 2012 466 (53) 413 360 (282) 78 (i) As of December 31, 2013 and 2012, the CGUs that independently generate cash inflows were fixed wireline, fixed wireless, cellular and others. As of December 31, 2013 and 2012, there were indications of impairment in the fixed wireless CGU (presented as part of personal segment), which were mainly due to increased competition in the fixed wireless market that resulted in lower average tariffs, declining active customers and declining Average Revenue Per User (“ARPU”). The Company assessed the recoverable value of the assets in the CGU and determined that assets for the fixed wireless CGU were impaired by Rp596 billion and Rp247 billion as at December 31, 2013 and 2012, respectively, which are recognized in the consolidated statement of comprehensive income under “Depreciation and amortization”. The recoverable amount has been determined based on value-in-use (VIU) calculations. These calculations used pre-tax cash flow projections approved by management covering a five-year period and with cash flows beyond the five-year period extrapolated using a perpetuity growth rate. The cash flow projections reflect management’s expectations of revenue, Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) growth and operating cash flows on the basis that the fixed wireless CGU generates positive net cash flows starting from 2014. Management’s cash flow projection also incorporates management’s reasonable expectations for developments in macro economic conditions and market expectations for the Indonesian telecommunications industry. As of December 31, 2013 and 2012, management applied a pre-tax discount rate of 13.5% and 12.3%, respectively, derived from the Company’s post-tax weighted average cost of capital and benchmarked to externally available data. As of December 31, 2013 and 2012, the perpetuity growth rate used of 0% and 0.5%, respectively, assumes that subscriber numbers and average revenue per user may continue to decrease after five years. the performance of the fixed wireless CGU continues to decline or if management’s If initiatives are not performing as expected in the next financial year, analysis will be required to assess whether there will be further impairment next year. (ii) Management believes that there is no indication of impairment in the value of other CGUs as of December 31, 2013 and 2012. c. Others (i) Interest capitalized to property under construction amounted to Rp100 billion and Rp44 billion for respectively. The the years ended December 31, 2013 and 2012, capitalization rate used to determine the amount of borrowing costs eligible for capitalization ranges from 9.75% to 13.07% and from 7.72% to 9.75% for the years ended December 31, 2013 and 2012, respectively. (ii) No foreign exchange loss was capitalized as part of property under construction for the years ended December 31, 2013 and 2012. 51 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (iii) On August 7, 2012, Telkom-3 Satellite with a total value of Rp1,606 billion was built and launched, but failed to reach its orbit. The carrying value of the satellite was charged to other expenses in the 2012 consolidated statement of comprehensive income. Telkom-3 Satellite was insured with insurance coverage that was adequate to cover losses from the insured risks such as the event experienced by the Company. Insurance claim was made and the amount of insurance compensation amounting to Rp1,772 billion was agreed and approved by the insurer and recorded as part of other income in the 2012 consolidated statement of comprehensive income. In November 2012, the Company received the proceeds from the insurance claim. (iv) In 2012, Telkomsel decided to replace certain equipment units with net carrying amount of Rp1,037 billion, as part of a modernization program. Accordingly, Telkomsel changed the estimated useful the effect of additional depreciation expense amounted to Rp131 billion. lives of such equipment. In 2013, The impact of the change in the estimated useful lives of the equipment for the year ended December 31, 2014 is to decrease the profit before income tax by Rp84 billion. (v) In 2012, the useful lives of Telkomsel’s towers were changed from 10 years to 20 years to reflect their current economic lives. The impact is a reduction of depreciation expense by Rp606 billion recognized in the 2013 consolidated statement of comprehensive income. The impact of the change in the estimated useful lives of the towers in future periods is to increase the profit before income tax as follows: Years 2014 2015 2016 2017 (vi) Exchange of property and equipment Amount 565 469 301 92 • In 2011, the Company and PT Industri Telekomunikasi Indonesia (“INTI”) signed Purchase Orders of Procurement and Installation Agreement for the Modernization of the Copper Cable Network through Optimization of Asset Copper Cable Network with Trade In/Trade Off with total procurement value amounting to Rp1,499 billion up to December 31, 2013. In 2013 and 2012, the Company derecognized the copper cable network asset with net carrying value of Rp1.6 billion and Rp6.2 billion, respectively, and recorded the fiber optic from the exchange transaction of Rp203 billion and Rp430 billion, network asset respectively. • In 2013, certain equipment units of Telkomsel with net carrying amount of Rp268 billion were exchanged with equipment from NSN Oy and PT Huawei. As of December 31, 2013, Telkomsel’s equipment with net carrying amount of Rp105 billion are going to be therefore, Telkomsel’s from NSN Oy and PT Huawei; exchanged with equipment equipment units were reclassified as assets held for sale (Note 9). 52 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (vi) Exchange of property and equipment (continued) In 2012, certain equipment units of Telkomsel with net carrying amount of Rp1,686 billion were exchanged with equipment from NSN Oy and PT Huawei, where Rp791 billion relates to asset held for sale that was recognized in 2011. The cost of the acquired equipment is measured at the aggregate of the carrying amount of the equipment given up and the amount of cash paid. (vii) The Company and subsidiaries own several pieces of land rights located throughout Indonesia with Building Use Rights (“Hak Guna Bangunan” or “HGB”) for a period of 2 - 45 years which will expire between 2014 and 2052. Management believes that there will be no issue in obtaining the extension of the land rights when they expire. (viii) As of December 31, 2013, the Company and subsidiaries’ property and equipment except land rights, with net carrying amount of Rp72,000 billion were insured against fire, theft, earthquake and other specified risks, with a maximum loss claim of Rp4,449 billion, US$52.51 million, EURO0.63 million, SGD16.55 million and HKD8.44 million, and on a first loss basis of Rp6,815 billion including business recovery of Rp324 billion with the Automatic Reinstatement of Loss Clause. In addition, Telkom-1 and Telkom-2 were insured separately for US$3.41 million and US$28.55 million, respectively. Management believes that the insurance coverage is adequate to cover potential losses from the insured risks. (ix) As of December 31, 2013, the percentage of completion of property under construction was around 32.69% of the total contract value, with estimated dates of completion between January 2014 and December 2015. The balance of property under construction mainly consists of buildings, transmission installation and equipment, cable network and power supply. Management believes that the construction in progress. there is no impediment to the completion of (x) All assets owned by the Company have been pledged as collateral for bonds (Note 20a). Certain property and equipment of the Company’s subsidiaries with gross carrying value amounting to Rp6,214 billion have been pledged as collateral under lending agreements (Notes 17 and 21). (xi) In 2012, the Company and Telkomsel derecognized certain assets under USO arrangements (Note 41c.v), with cost and net carrying amount of Rp259 billion and Rp137 billion, respectively. The net carrying amount of the assets was charged to the 2012 consolidated statement of comprehensive income. (xii) As of December 31, 2013, the cost of fully depreciated property and equipment of the Company and subsidiaries that are still used in operations amounted to Rp40,791 billion. The Company and subsidiaries are currently performing modernization of network assets to replace the fully depreciated property and equipment. (xiii) As of December 31, 2013, the total fair values of land rights and buildings of the Company and subsidiaries, which are determined based on the sale value of the tax object (“Nilai Jual Objek Pajak” or the related land rights and buildings, amounted to Rp15,307 billion. “NJOP”) of 53 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 11. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (xiv) The Company and Telkomsel entered into several agreements with PT Profesional Telekomunikasi Indonesia, PT Tower Bersama Infrastructure Tbk, PT Solusindo Kreasi Pratama, PT Prima Media Selaras, PT Naragita Dinamika Komunika and other tower providers to lease spaces in telecommunication towers (slot) and sites of the towers for a period of 10 years. The Company and Telkomsel may extend the lease period based on the agreement by both parties. In addition, the Company and subsidiaries also have lease commitments for property and equipment under RSA, transmission installation and equipment, data processing equipment, office equipment, vehicles and CPE assets with the option to purchase certain leased assets at the end of the lease terms. Future minimum lease payments for assets under finance lease are as follows: Year 2013 2012 2013 2014 2015 2016 2017 2018 Thereafter Total minimum lease payments Interest Net present value of minimum lease payments Current maturities (Note 18a) Long-term portion (Note 18b) - 1,070 885 847 813 754 2,535 6,904 (1,935) 4,969 (648) 4,321 12. ADVANCES AND OTHER NON-CURRENT ASSETS Advances and other non-current assets as of December 31, 2013 and 2012 consist of: 2013 2012 Advances for purchase of property and equipment Prepaid rental - net of current portion (Note 8) Frequency license - net of current portion (Note 8) Long-term trade receivables - net of current portion (Note 6) Deferred charges Claim for tax refund - net of current portion (Note 31) Security deposits Restricted cash Assets not used in operations - net Others Total 1,550 1,403 619 558 529 499 73 54 0 9 5,294 652 548 398 354 334 279 607 3,172 (848) 2,324 (510) 1,814 775 1,367 279 294 471 - 103 217 0 4 3,510 Prepaid rental covers rent of leased line and telecommunication equipment and land and building under lease agreements of the Company and subsidiaries with rental periods ranging from 1 to 33 years. Long-term trade receivables are measured at amortized cost using the effective interest rate method payable in installments over 4 years, and arose from providing telecommunication access and services in rural areas (USO) (Note 41c.v). 54 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 12. ADVANCES AND OTHER NON-CURRENT ASSETS (continued) As of December 31, 2013 and 2012, deferred charges represent deferred Revenue-Sharing Arrangement (“RSA”) charges and deferred Indefeasible Right of Use (“IRU”) Agreement charges. Total amortization of deferred charges for the years ended December 31, 2013 and 2012 amounted to Rp91 billion and Rp87 billion, respectively. As of December 31, 2013 and 2012, restricted cash represents time deposits with original maturities of more than one year and cash pledged as collateral for bank guarantees for the USO contract (Note 41c.v) and other contracts. As of December 31, 2013 and 2012, temporarily idle property and equipment amounted to Rp0 billion and Rp0.4 billion, respectively. the carrying amount of the Company and subsidiaries’ Refer to Note 37 for details of related party transactions. 13. INTANGIBLE ASSETS (i) The changes in the carrying amount of goodwill, software, license and other intangible assets for the years ended December 31, 2013 and 2012 are as follows: Gross carrying amount: Balance, December 31, 2012 Additions Deductions Reclassifications/ translations Balance, December 31, 2013 Accumulated amortization: Balance, December 31, 2012 Amortization expense during the year Deductions Reclassifications/ translations Balance, December 31, 2013 Net Book Value Weighted-average amortization period Goodwill Software License Other intangible assets Total 269 1 - - 270 2,909 521 (8) 10 3,432 (29) (1,825) - - - (29) 241 (458) 8 (3) (2,278) 1,154 66 1 - - 67 (31) (6) - - (37) 30 400 114 (112) (1) 401 (316) (114) 112 - (318) 83 3,644 637 (120) 9 4,170 (2,201) (578) 120 (3) (2,662) 1,508 7.51 years 11.30 years 3.63 years Goodwill Software License Other intangible assets Total Gross carrying amount: Balance, December 31, 2011 Additions Acquisition of BDM’s data center (Note 1d) Deductions Reclassifications Balance, December 31, 2012 192 0 77 - - 269 2,536 431 - (58) - 2,909 815 - - - (749) 66 233 6 3 - 158 400 3,776 437 80 (58) (591) 3,644 55 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 13. INTANGIBLE ASSETS (continued) Goodwill Software License Other intangible assets Total Accumulated amortization: Balance, December 31, 2011 Amortization expense during the year Deductions Reclassifications Balance, December 31, 2012 Net Book Value Weighted-average amortization period (29) (1,459) - - - (29) 240 (424) 58 - (1,825) 1,084 (339) (6) - 314 (31) 35 (160) (36) - (120) (316) 84 (1,987) (466) 58 194 (2,201) 1,443 6.86 years 10.43 years 11.11 years (ii) Goodwill resulted from sales-purchase transaction of Data Center Business between Sigma and BDM in 2012 (Note 1d), acquisitions of Ad Medika in 2010 and Sigma in 2008. (iii) The estimated annual amortization expense of intangible assets from December 31, 2013 is approximately Rp475 billion. The remaining amortization periods of intangible assets, excluding land rights, range from 1 to 20 years. (iv) The aggregate amounts of goodwill allocated to each CGU are as follows: Sigma Ad Medika Total 2013 2012 88 82 170 88 82 170 Metra performed its annual impairment tests on those CGUs based on fair value less cost to sell using discounted cash flow projections. The impairment tests used management-approved cash flow projections covering a five-year period. Key assumptions used in the impairment tests are as follows: 2013 2012 Sigma Ad Medika Sigma Ad Medika Discount rate Perpetuity growth rate 11.0% 4.5% 14.0% 4.5% 11.8% 4.5% 11.5% 4.5% As of December 31, 2013 and 2012, no impairment charge was required for goodwill on acquisition of subsidiaries, with any reasonably possible changes to the key assumptions applied not likely to cause the carrying amounts of the CGUs to exceed their recoverable amounts. (v) As of December 31, 2013, the cost of fully amortized intangible assets that are still used in operations amounted to Rp1,321 billion. 14. TRADE PAYABLES Related parties Purchase of equipment, materials and services Payables to other telecommunications providers Sub-total 2013 2012 805 21 826 412 20 432 56 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 14. TRADE PAYABLES (continued) Third parties Purchase of equipment, materials and services Radio frequency usage charges, concession fees and Universal Service Obligation charges Payables to other telecommunications providers Sub-total Total Trade payables by currency are as follows: Rupiah U.S. dollar Others Total Refer to Note 37 for details of related party transactions. 15. ACCRUED EXPENSES 2013 2012 9,758 960 56 10,774 11,600 2013 2012 8,174 3,373 53 11,600 2013 2012 Operations, maintenance and telecommunications services Salaries and benefits General, administrative and marketing expenses Interest and bank charges Early retirement program Total 2,504 1,453 1,126 181 - 5,264 6.023 621 204 6.848 7,280 4,146 3,111 23 7,280 2,917 1,491 882 174 699 6,163 Accruals for early retirement program arose from the Decision No. PR.206.01/r.02/PD000/COP- B0010000/2012 dated November 1, 2012 of the Human Capital and General Affairs Director on early retirement program and communicated to the employees on the same date. The Company estimated the accrual on the basis of the number of eligible employees that met the criteria stipulated in the Company’s regulation related to this program. Accrued early retirement benefits as of December 31, 2012 amounting to Rp699 billion were charged to the 2012 consolidated statement of comprehensive income (Note 27). In 2013, early retirement program has been completed and the related costs have been fully paid to the eligible employees. Refer to Note 37 for details of related party transactions. 16. UNEARNED INCOME Prepaid pulse reload vouchers Other telecommunications services Others Total 2013 2012 3,117 46 327 3,490 2,352 132 245 2,729 57 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 17. SHORT-TERM BANK LOANS Lenders Bank CIMB Niaga Bank UOB Bank Danamon BRI Others Total 2013 Outstanding 2012 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp Rp US$ - - - - - - 155 130 80 50 17 - 432 - - - - - 0.42 20 - - - 13 4 37 Refer to Note 37 for details of related party transactions. Other significant information relating to short-term bank loans as at December 31, 2013 is as follows: Total facility (in Borrower Currency billions) Maturity date Interest payment period Interest rate per annum Security Bank CIMB Niaga April 25, 2005 a Balebat Rp 12 October 18, 2014 Monthly 11.00% April 29, 2008 a Balebat Rp 10 October 18, 2014 Monthly 11.00% March 21, 2013 Infomedia March 25, 2013 Infomedia March 27, 2013 Infomedia April 28, 2013 GSD Rp Rp Rp Rp 38 38 24 85 October 18, 2014 Monthly 10.25% October 18, 2014 Monthly 10.25% October 18, 2014 Monthly 10.25% August 18, 2014 Monthly 9.75% September 30, 2013 GSD Rp 50 August 18, 2014 Monthly 9.75% BRI March 14, 2013 Infomedia Rp Bank Danamon August 23, 2013 Infomedia Rp 50 80 March 14, 2014 Monthly 10.00% August 23, 2014 Monthly 10.50% Bank UOB November 22, 2013 Infomedia Rp 200 November 22, 2014 Monthly 10.60% Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Trade receivables (Note 6) Trade receivables (Note 6) Trade receivables (Note 6) Property and equipment (Note 11) Property and equipment (Note 11) Trade receivables (Note 6) Trade receivables (Note 6) Trade receivables (Note 6) The credit facilities obtained by the Company’s subsidiaries are used for working capital purposes. a based on the latest amendment on October 10, 2012 58 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 18. CURRENT MATURITIES OF LONG-TERM LIABILITIES a. Current maturities Notes 2013 2012 Bank loans Obligations under finance leases Bonds and notes Two-step loans Total 21 11 20 19 Refer to Note 37 for details of related party transactions. b. Long-term portion Scheduled principal payments as of December 31, 2013 are as follows: 4,475 510 440 196 5,621 3,956 648 276 213 5,093 Year Notes Total 2015 2016 2017 2018 Thereafter Bank loans Bonds and notes Two-step loans Obligations under finance leases 21 20 19 11 5,635 3,073 1,702 4,321 2,854 1,045 215 525 1,040 33 218 535 853 - 220 552 487 - 196 545 401 1,995 853 2,164 Total 14,731 4,639 1,826 1,625 1,228 5,413 19. TWO-STEP LOANS Two-step loans are unsecured loans obtained by the Government which are then re-loaned to the Company. The loans entered into up to July 1994 were recorded and payable in rupiah based on the exchange rate at the date of drawdown. Loans entered into after July 1994 are payable in their original currencies and any resulting foreign exchange gain or loss is borne by the Company. 2013 Outstanding 2012 Outstanding Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Lenders Overseas banks Total Current maturities (Note 18a) Long-term portion (Note 18b) Currency Yen US$ Rp 8,447 35 - 979 429 507 1,915 (213) 1,702 9,215 40 - Lenders Overseas banks Currency Payment schedule Interest payment period Interest rate per annum US$ Rp Yen Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually 59 1,031 382 574 1,987 (196) 1,791 4.00% 6.79% 3.10% These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 19. TWO-STEP LOANS (continued) The loans are intended for the development of telecommunications infrastructure and supporting telecommunication equipment. The loans are payable in semi-annual installments and are due on various dates through 2024. Since 2008, the Company has used all facilities under the two-step loans program and the drawdown period for the two-step loans has expired. The Company is required to maintain financial ratios as follows: a. Projected net revenue to projected debt service ratio should exceed 1.2:1 for the two-step loans b. originating from the Asian Development Bank (“ADB”). Internal financing (earnings before depreciation and finance costs) should exceed 20% compared to annual average capital expenditures for loans originating from the ADB. As of December 31, 2013, the Company complied with the above-mentioned ratios. Refer to Note 37 for details of related party transactions. 20. BONDS AND NOTES Bonds and notes Currency 2013 Outstanding 2012 Outstanding Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Bonds Series A Series B Promissory Notes PT Huawei PT ZTE Indonesia (“ZTE”) Medium Term Notes (“MTN”) PT Finnet Indonesia (“Finnet”) Total Current maturities (Note 18a) Long-term portion (Note 18b) a. Bonds Rp Rp US$ US$ Rp - - 18 11 - 1,005 1,995 213 136 - 3,349 (276) 3,073 - - 46 22 - 1,005 1,995 445 216 8 3,669 (440) 3,229 Bonds Principal Issuer Listed on Issuance date Maturity date Interest payment period Interest rate per annum Series A Series B Total 1,005 The Company 1,995 The Company IDX IDX June 25, 2010 June 25, 2010 July 6, 2015 July 6, 2020 Quarterly Quarterly 9.60% 10.20% 3,000 60 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 20. BONDS AND NOTES (continued) a. Bonds (continued) The bonds are secured by all of the Company’s assets, movable or non-movable, either existing or in the future (Note 11c.x). The underwriters of the bonds are Bahana, PT Danareksa Sekuritas and PT Mandiri Sekuritas and the trustee is PT CIMB Niaga Tbk. The Company received the proceeds from the issuance of bonds on July 6, 2010. The funds received from the public offering of bonds net of issuance costs, are to be used for increasing capital expenditure which consisted of: wave broadband (bandwidth, softswitching, datacom, information technology and others), infrastructure (backbone, metro network, regional internet protocol, and satellite system) and optimizing legacy and supporting metro junction, facilities (fixed wireline and wireless). As of December 31, 2013, the rating of the bonds issued by PT Pemeringkat Efek Indonesia (Pefindo) is idAAA (stable outlook). Based on the indenture trusts agreement, the Company is required to comply with all covenants or restrictions, including maintaining financial ratios as follows: 1. Debt to equity ratio should not exceed 2:1. 2. EBITDA to finance costs ratio should not be less than 5:1. 3. Debt service coverage is 125%. As of December 31, 2013, the Company has complied with the above mentioned ratios. b. Promissory Notes Supplier Currency Principal Issuance date Payment schedule PT Huawei PT ZTE Indonesia (“ZTE”) US$ US$ 0.3 0.1 June 19, 2009 August 20, 2009 Semi-annually (January 11, 2014 - June 23, 2016) Semi-annually (February 11, 2014 - June 15, 2016) Interest payment period Interest rate per annum Semi-annually 6 month LIBOR+2.5% Semi-annually 6 month LIBOR+1.5% 6 month LIBOR+2.5% Based on Agreement of Frame Supply and Deferred Payment Arrangement between the Company and ZTE and PT Huawei, the promissory notes issued by the Company to ZTE and PT Huawei are vendor financing facilities with no collateral covering 85% of Hand-over Report (“Berita Acara Serah Terima”) projects with ZTE and PT Huawei. 61 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 21. BANK LOANS Lenders Currency Rp Rp Rp Rp Rp US$ Rp US$ Rp US$ Rp US$ Rp BRI Syndication of banks BNI BCA Bank Mandiri ABN Amro Bank N.V. Stockholm (“AAB Stockholm”) and Standard Chartered Bank Bank CIMB Niaga Japan Bank for International Cooperation (“JBIC”) Bank Bukopin Bank Ekonomi Others (each below Rp10 billion) Total Unamortized debt issuance cost Current maturities (Note 18a) Long-term portion (Note 18b) 2013 Outstanding 2012 Outstanding Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent - - - - - 55 - 18 - 1 - - - 3,035 2,426 1,305 858 722 673 365 219 31 12 - - 1 9,647 (56) 9,591 (3,956) 5,635 - - - - - 68 - 30 - - - 0 - 4,011 1,950 1,201 1,564 1,417 659 174 289 - - 41 3 - 11,309 (51) 11,258 (4,475) 6,783 Refer to Note 37 for details of related party transactions. Other significant information relating to bank loans as of December 31, 2013 is as follows: Total facility (in Borrower Currency billions) Current period payment Payment schedule Interest payment period Interest rate per annum Security Syndication of banks July 29, 2008a (BNI, BRI and BJB) June 16, 2009a (BNI and BRI) December 19, 2012 (BNI, BRI and Bank Mandiri) k The Company Rp 2,400 600 Semi-annually (2010-2013) Quarterly 3 months JIBOR+1.20% The Company Dayamitra Rp Rp 2,700 2,500 675 - Semi-annually (2011-2014) Semi annually (2014-2020) Quarterly Quarterly 3 months JIBOR+2.45% 3 months JIBOR+3.00% BCA July 9, 2009b&c and July 5, 2010b&c Telkomsel Rp 4,000 666 Semi-annually (2009-2016) Quarterly December 16, 2010a TII Rp 200 40 Semi-annually (2011-2015) Quarterly Bank Mandiri July 9, 2009b&c and July 5, 2010b&c Telkomsel Rp 5,000 695 Semi-annually (2009-2016) Quarterly 3 months JIBOR+1.00% 3 months JIBOR+1.25% 3 months JIBOR+1.00% BRI October 13, 2010a The Company July 20, 2011a Dayamitra Rp Rp 3,000 1,000 1,000 160 Semi-annually (2013-2015) Semi-annually (2011-2017) Quarterly Quarterly 3 months JIBOR+1.25% 3 months JIBOR+1.40% 62 None None Property and equipment (Note 11) and trade receivables (Note 6) None None None None Property and equipment (Note 11) These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 21. BANK LOANS (continued) Total facility (in Borrower Currency billions) Current period payment Payment schedule Interest payment period Interest rate per annum Security BRI (continued) April 26, 2013 GSD Rp 141 October 30, 2013 GSD Rp 70 October 30, 2013 GSD Rp 34 - - - Monthly (2014-2018) Monthly 10.00% Monthly (2014-2021) Monthly 10.00% Monthly (2014-2021) Monthly 10.00% ABN Amro Bank N.V. Stockholm Branch (“AAB Stockholm”) and Standard Chartered Bank December 30, 2009b&d Telkomsel US$ 0.3 0 Semi-annually Semi-annually BNI October 13, 2010a The Company December 23, 2011 a PIN Rp Rp 1,000 500 (2011-2016) 286 43 Semi-annually (2013-2015) Semi-annually (2013-2016) Quarterly Quarterly 6 months LIBOR+0.82% 3 months JIBOR+1.25% 3 months JIBOR+1.50% November 28, 2012a Metra Rp 44 4 Annually (2013-2015) Monthly 10.25% March 13, 2013a&h Sigma Rp 300 35 Monthly (2013-2015) Monthly 1 month JIBOR+3.35% March 26, 2013a Metra Rp 60 15 Quarterly (2013-2016) Quarterly 10.25% May 2, 2013a Sigma Rp 312 - Monthly (2015-2021) Monthly 1 month JIBOR+3.35% Property and equipment (Note 11) and lease agreement Property and equipment (Note 11) and trade receivables, (Note 6) and lease agreement Property and equipment (Note 11) and trade receivables, (Note 6) and lease agreement None None Inventories (Note 7) and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) Property and equpment (Note 11) and trade receivables (Note 6) Property and equpment (Note 11) and trade receivables (Note 6) Property and equpment (Note 11) and trade receivables (Note 6) 63 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 21. BANK LOANS (continued) Total facility (in Borrower Currency billions) Current period payment Payment schedule Interest payment period Interest rate per annum Security BNI (continued) November 25, 2013a Japan Bank for International Cooperation (“JBIC”) Metra Rp 90 - Quarterly (2013-2016) Monthly 10.25% Property and equpment (Note 11) and trade receivables (Note 6) March 26, 2010a&e The Company US$ 0.06 0 Semi-annually Semi-annually (2010-2015) March 28, 2013a&j The Company US$ 0.03 - Semi-annually Semi-annually 4.56% and 6 months LIBOR+0.70% 2.18% and 6 months LIBOR+1.20% None None Bank CIMB Niaga March 21, 2007f GSD Rp 21 4 July 28, 2009g Balebat Rp 2 0.6 Quarterly (2007-2015) Monthly (2010-2015) Monthly 9.75% Monthly 11.00% May 24, 2010 g Balebat Rp 1 0.4 Monthly (2010-2015) Monthly 11.00% March 31, 2011 GSD Rp 24 March 31, 2011 GSD Rp 13 March 31, 2011 GSD Rp 12 September 9, 2011 GSD Rp 41 September 9, 2011 GSD Rp 11 3 2 2 4 3 Monthly (2011-2020) Monthly 9.75% Monthly (2011-2019) Monthly 9.75% Monthly (2011-2016) Monthly 9.75% Monthly (2011-2021) Monthly 9.75% Monthly (2011-2015) Monthly 9.75% 64 Property and equipment (Note 11) Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11) and lease agreement Property and equipment (Note 11) and lease agreement Property and equipment (Note 11) and lease agreement Property and equipment (Note 11) and lease agreement Property and equipment (Note 11) and lease agreement These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 21. BANK LOANS (continued) Total facility (in Borrower Currency billions) Current period payment Payment schedule Interest payment period Interest rate per annum Bank CIMB Niaga (continued) August 2, 2012g Balebat Rp 4 1 Monthly (2012-2015) Monthly 11.00% September 20, 2012a TLT Rp 1,150 September 20, 2012a TLT Rp 118 - - Monthly (2015-2030) Monthly Monthly (2015-2030) Monthly 3 Month JIBOR +3.45% 9.00% October 10, 2012g Balebat Rp 1 0.5 Monthly (2012-2015) Monthly 11.00% August 26, 2013 Balebat Rp 3.5 0.2 Monthly (2013-2018) Monthly 11.00% Bank Ekonomi September 10, 2008a&h Sigma Rp 33 15 Monthly (2009-2015) Monthly 9.00% August 7, 2009a&h Sigma Rp 35 August 7, 2009a&h Sigma Rp 20 3 7 February 23, 2011a&h Sigma Rp 30 16 Monthly for some installments (2009-2013) Monthly for some installments (2009-2014) Monthly (2011-2015) Monthly 9.00% Monthly 9.00% Monthly 9.00% Security Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11) Property and equipment (Note 11) Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11), inventories (Note 7), and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) 65 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 21. BANK LOANS (continued) Total facility (in Borrower Currency billions) Current period payment Payment schedule Interest payment period Interest rate per annum Bank Ekonomi (continued) February 23, 2011a&h Sigma US$ 0.002 0.0003 Monthly (2011-2015) Monthly 6.00% Bank Bukopin August 4, 2011 i Patrakom Rp 9 2 Monthly (2012-2015) Monthly 11.00% June 28, 2013 Patrakom Rp 35 1.5 December 18, 2012 Patrakom US$ 0.013 0.0003 Monthly (2013-2016) Monthly (2013-2016) Monthly 11.00% Monthly 6.50% Security Property and equipment (Note 11) and trade receivables (Note 6) Property and equipment (Note 11) and trade receivables (Note 6) Property and equipment (Note 11) Property and equipment (Note 11) The credit facilities obtained by the Company and subsidiaries are used for working capital purposes. a As stated in the agreements, the Company and subsidiaries are required to comply with all covenants or restrictions such as on dividend distribution, obtaining new loans, including maintaining financial ratios. As of December 31, 2013, the Company and subsidiaries have complied with the ratios. b Telkomsel has no collateral for its bank loans, or other credit facilities. The terms of the various agreements with Telkomsel’s lenders and financiers require compliance with a number of pledges and negative pledges as well as financial and other covenants, which include, among other things, certain restrictions on the amount of dividends and other profit distributions which could adversely affect Telkomsel’s capacity to comply with its obligation under the facility. The terms of the relevant agreements also contain default and cross default clauses. As of December 31, 2013, Telkomsel has complied with the above covenants. In January 2012, the availability periods of the facilities from BCA and Bank Mandiri expired. c d Pursuant to the agreements with PT Ericsson Indonesia (“Ericsson Indonesia”) and Ericsson AB (Note 41a.ii), Telkomsel entered into an EKN-Backed Facility Agreement (“facility”) with ABN Amro Bank N.V. Stockholm branch (as “the original lender”) and Standard Chartered Bank (as “the original lender” , “the arranger”, “the facility agent” and “the EKN agent”), and ABN Amro Bank N.V., Hong Kong (as “the arranger”) for the purchase of Ericsson telecommunication equipment and services. The facilities consist of facility 1, 2 and 3 amounting to US$117 million, US$106 million, and US$95 million, respectively. The availability period of facility 1, 2 and 3 expired in July 2010, March 2011 and November 2011, respectively. In October 2011, EKN agreed to reduce the premium on the unused facility by US$3 million through a cash refund. In connection with the agreement with NSW-Fujitsu Consortium, the Company entered into a loan agreement with JBIC, the international arm of Japan Finance Corporation, for the purchase of NSW-Fujitsu Consortium telecommunication equipment and services. The facilities consist of facility A and B amounting to US$36 million and US$24 million, respectively. e f Based on the latest amendment on March 31, 2011 g Based on the latest amendment in 2013 h i j In March 2013, the bank loan was fully repaid by Sigma through refinancing with BNI In August 2013, the bank loan was rescheduled up to February 2015 In connection with the agreement with NEC Corporation Consortium and TE SubCom, the Company entered into a loan agreement with JBIC, for the procurement of goods and services from NEC Corporation Consortium and TE SubCom for the Southeast Asia Japan Cable System project. The facilities consist of facility A and facility B amounting to US$18.8 million and US$12.5 million, respectively 66 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 22. NON-CONTROLLING INTERESTS Non-controlling interests in net assets of subsidiaries: Telkomsel Metra GSD Patrakom Napsindo Total Non-controlling interests in total comprehensive income (loss) of subsidiaries: Telkomsel Metra Patrakom GSD Napsindo Total 23. CAPITAL STOCK 2013 2012 16,735 87 58 2 - 16,882 15,340 66 31 - - 15,437 2013 2012 5,499 14 - (1) - 5.512 6,071 20 0 (6) - 6,085 2013 Description Series A Dwiwarna share Government Series B shares Government The Bank of New York Mellon Corporation* Directors (Note 1b): Indra Utoyo Honesti Basyir Priyantono Rudito Sukardi Silalahi Public (individually less than 5%) Total Treasury stock (Note 25) Total Number of shares Percentage of ownership Total paid-up capital 1 51,602,353,559 10,031,129,780 27,540 540 540 540 35,467,341,100 97,100,853,600 3,699,142,800 100,799,996,400 - 53.14 10.33 - - - - 36.53 100.00 - 100.00 0 2,580 502 0 0 0 0 1,773 4,855 185 5,040 *The Bank of New York Mellon Corporation serves as the Depositary of registered ADS holders for the Company’s ADSs. 67 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 23. CAPITAL STOCK (continued) Description Series A Dwiwarna share Government Series B shares Government The Bank of New York Mellon Corporation* Directors (Note 1b): Indra Utoyo Honesti Basyir Priyantono Rudito Sukardi Silalahi Public (individually less than 5%) Total Treasury stock (Note 25) Total 2012 Number of shares** Percentage of ownership Total paid-up capital 1 - 0 51,602,353,559 10,988,441,080 27,540 540 540 540 33,154,520,300 95,745,344,100 5,054,652,300 100,799,996,400 53.90 11.48 - - - - 34.62 100.00 - 100.00 2,580 549 0 0 0 0 1,658 4,787 253 5,040 * The Bank of New York Mellon Corporation serves as the Depositary of registered ADS holders for the Company’s ADSs. ** After stock split (Note 1c) The Company issued only 1 Series A Dwiwarna share which is held by the Government and cannot be transferred to any party, and has a veto in the General Meeting of Stockholders of the Company with respect to election and removal from the Boards of Commissioners and Directors, issuance of new shares, and amendments of the Company’s Articles of Association. 24. ADDITIONAL PAID-IN CAPITAL Proceeds from sale of 933,333,000 shares in excess of par value through IPO in 1995 Excess of value over cost of selling 211,290,500 shares treasury stock phase I (Note 25) Difference in value arising from restructuring transactions and other transactions between entities under common control (Note 2d) Excess of value over cost of treasury stock transferred to employee stock ownership program (Note 25) Capitalization into 746,666,640 Series B shares in 1999 Net 2013 2012 1,446 544 478 228 (373) 2,323 1,446 - - - (373) 1,073 68 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 24. ADDITIONAL PAID-IN CAPITAL (continued) Difference in value arising from restructuring transactions and other transactions of entities under common control amounting Rp478 billion arose from the early termination of the Company’s exclusive rights to provide local and inter-local fixed line telecommunication services, for which the Company is required by the Government to use the funds received from this compensation for the development of telecommunication infrastructure. As of December 31, 2013 and 2012, the accumulated development of the related infrastructure amounted to Rp537 billion. 25. TREASURY STOCK Phase Basis Period I II III - IV EGM AGM AGM BAPEPAM - LK AGM December 21, 2005 - June 20, 2007 June 29, 2007 - December, 28, 2008 June 20, 2008 - December 20, 2009 October 13, 2008 - January 12, 2009 May 19, 2011 - November 20, 2012 Maximum Purchase Number of Shares 1,007,999,964 215,000,000 339,443,313 4,031,999,856 645,161,290 Amount Rp5,250 Rp2,000 Rp3,000 Rp3,000 Rp5,000 Movements in treasury stock as a result of the repurchase of shares are as follows: 2013 Number of shares 5,054,652,300 - % Rp Number of shares* 5.01 - 8,067 3,868,299,800 - 1,186,352,500 (299,057,000) (0.29) (433) 2012 % 3.84 1.17 - - Rp 6,323 1,744 - - - - (1,056,452,500) 3,699,142,800 (1.05) 3.67 (1,829) 5,805 5,054,652,300 5.01 8,067 Beginning balance Number of shares acquired Transfer to employees ownership programme Proceeds from sale of treasury stock Ending balance *After stock split (Note 1c) Pursuant to the AGM of Stockholders of the Company held on June 11, 2010, the stockholders approved the changes to the Company’s plan for the treasury stock as a result of the Share Buyback I, II and III, as follows: (i) sold, through or outside stock exchange; (ii) cancellation by deduct its equity; (iii) implementation of equity stock conversion and (iv) funding. Based on the Annual General Meeting of the Company on April 19, 2013, the Company's stockholders approved the change to the plan for the treasury stock phase III, which was decided to be used for the implementation of the Employee Stock Ownership Program (“ESOP”) for the year 2013. On May 31, 2013, the Company offered all its subsidiaries (collectively referred to as the “participants”), the right to purchase a fixed number of its shares at a certain price. The shares have become an entitlement of the employees on the transaction dates and are no longer conditional on the satisfaction of any vesting conditions. Shares which are held by employees through the ESOP have a lock-up period that varies from 0 up to 12 months, depending on the position of the employee. its eligible employees and those of In the lock-up period, participants may not transfer shares or have shares transactions either through or outside the stock exchange. 69 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 25. TREASURY STOCK (continued) Price per share offered was Rp10,714 and each participant received allowance (discount) of Rp5,575 per share. At the closing of this program, the Company had transferred a part of the treasury stock phase III to employees totaling 59,811,400 shares (equivalent to 299,057,000 shares after the stock split) with fair value amounting to Rp661 billion. The excess in value of treasury stock recovered over acquisition cost of the stock amounting to Rp228 billion was recorded as additional paid-in capital (Note 24). The difference between the fair value of treasury stock and amount paid by the participants amounting to Rp353 billion is recorded in the consolidated statement of comprehensive income (Note 27). On July 30, 2013, the Company resold 211,290,500 shares (equal to 1,056,452,500 shares after the stock split) for the repurchase of shares of treasury stock phase I with fair value amounting to Rp2,409 billion. The excess in value of the treasury stock sold over their acquisition cost amounting to Rp544 billion was recorded as additional paid-in capital (net of related costs to sell the shares) (Note 24). 26. REVENUES Telephone Revenues Cellular Usage charges Monthly subscription charges Features Fixed lines Usage charges Monthly subscription charges Call center Installation charges Others Total Telephone Revenues Interconnection Revenues Domestic interconnection and transit International interconnection Total Interconnection Revenues Data, Internet, and Information Technology Service Revenues Internet, data communication and information technology services Short Messaging Services (“SMS”) Voice over Internet Protocol (“VoIP”) E-business 2013 2012 30,722 730 686 32,138 6,453 2,682 324 12 230 9,701 41,839 2,971 1,872 4,843 18,373 13,134 119 83 29,477 696 558 30,731 7,323 2,805 228 112 194 10,662 41,393 2,618 1,655 4,273 14,857 12,631 81 55 Total Data, Internet, and Information Technology Service Revenues 31,709 27,624 70 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 26. REVENUES (continued) Network Revenues Leased lines Satellite transponder lease Total Network Revenues Other Telecommunications Service Revenues Customer Premise Equipment (“CPE”) and terminal Leases USO compensation Directory assistance Pay TV Others Total Other Telecommunications Service Revenues 2013 2012 861 392 1,253 1,197 661 508 308 274 375 3,323 824 384 1,208 1,046 401 253 295 405 245 2,645 TOTAL REVENUES 82,967 77,143 The details of net revenues received by the Company and subsidiaries from agency relationships for the year ended December 31, 2013 and 2012 are as follows: Gross revenues Compensation to value added service providers Net revenues Refer to Note 37 for details of related party transactions. 27. PERSONNEL EXPENSES Salaries and related benefits Vacation pay, incentives and other benefits Employees’ income tax Net periodic pension costs (Note 34) Net periodic post-retirement health care benefit costs (Note 36) Housing Insurance Other employee benefit Other post-retirement benefit costs (Note 34) LSA expense (Note 35) Early retirement program (Note 15) Others Total Refer to Note 37 for details of related party transactions. 71 2013 2012 18,663 (290) 18,373 15,059 (202) 14,857 2013 2012 3,553 3,252 1,160 873 374 220 92 71 66 19 - 53 9,733 3,257 3,400 1,022 789 90 200 83 38 65 121 699 22 9,786 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 28. OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICE EXPENSES 2013 2012 Operations and maintenance Radio frequency usage charges (Notes 41c.i and 41c.ii) Concession fees and Universal Service Obligation charges Electricity, gas and water Cost of phone, set top box, SIM and RUIM cards Cost of IT services Leased lines and CPE Vehicles rental and supporting facilities Insurance Project Management Travelling expenses Others Total Refer to Note 37 for details of related party transactions. 10,667 3,098 1,595 1,063 752 677 440 439 374 138 53 36 19,332 9,012 3,002 1,452 879 687 222 407 293 671 102 57 19 16,803 29. GENERAL AND ADMINISTRATIVE EXPENSES 2013 2012 Provision for impairment of receivables (Notes 6d) General expenses Training, education and recruitment Travelling Collection expenses Professional fees Meetings Security and screening Social contribution Stationery and printing Others Total Refer to Note 37 for details of related party transactions. 30. INTERCONNECTION EXPENSES Domestic interconnection and transit International interconnection Total Refer to Note 37 for details of related party transactions. 72 1,589 675 412 341 340 272 138 93 85 73 137 4,155 2013 2012 3,720 1,207 4,927 915 527 259 259 341 187 105 62 129 55 197 3,036 3,464 1,203 4,667 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION a. Claims for tax refund The Company Value added tax (“VAT”) Subsidiaries Value added tax (“VAT”) Corporate income tax Income tax Article 23 - Withholding tax on service delivery Import duties Total claims for tax refund Short-term portion Long-term portion b. Prepaid taxes Subsidiaries Corporate income tax VAT Income tax Article 23 - Withholding tax on service delivery c. Taxes payable The Company Income taxes Article 4 (2) - Final tax Article 21 - Individual income tax Article 22 - Withholding tax on goods delivery and imports Article 23 - Withholding tax on service delivery Article 25 - Installment of corporate income tax Article 26 - Withholding tax on non-resident income Article 29 - Corporate income tax VAT 2013 2012 142 306 38 13 10 509 (10) 499 2013 2012 58 445 22 525 2013 2012 11 34 5 12 53 1 165 441 722 - 399 18 9 10 436 (436) - 34 336 2 372 6 21 - 10 30 3 198 374 642 73 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) c. Taxes payable (continued) Subsidiaries Income taxes Article 4 (2) - Final tax Article 21 - Individual income tax Article 23 - Withholding tax on service delivery Article 25 - Installment of corporate income tax Article 26 - Withholding tax on non-resident income Article 29 - Corporate income tax VAT 2013 2012 48 82 34 440 16 284 72 976 1,698 d. The components of income tax expense (benefit) are as follows: 2013 2012 Current The Company Subsidiaries Deferred The Company Subsidiaries 909 6,086 6,995 (149) 13 (136) 6,859 37 60 32 378 18 674 3 1,202 1,844 878 5,750 6,628 (501) (261) (762) 5,866 The reconciliation between the income tax expense calculated by applying the applicable tax rate of 20% to the profit before income tax less income subject to final tax, and the net income tax expense as shown in the consolidated statement of comprehensive income is as follows: Profit before income tax Less income subject to final tax Tax calculated at the Company’s applicable statutory tax rate of 20% Difference in applicable statutory tax rate for subsidiaries Non-deductible expenses Final income tax expenses Others Net income tax expense 74 2013 2012 27,149 (1,780) 25,369 5,074 1,213 460 93 19 6,859 24,228 (913) 23,315 4,663 1,050 381 52 (280) 5,866 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) d. The components of income tax expense (benefit) are as follows: (continued) The reconciliation between the profit before income tax and the estimated taxable income of the Company for the years ended December 31, 2013 and 2012 is as follows: 2013 2012 Profit before income tax Add back consolidation eliminations Consolidated profit before income tax and eliminations Less profit before income tax of the subsidiaries Profit before income tax attributable to the Company Less income subject to final tax Temporary differences: Provision for impairment and trade receivables written-off Provision for impairment of assets Net periodic pension and other post-retirement benefits costs Finance lease Deferred installation fee Provision for personnel expenses Valuation of fair value of long-term investment Depreciation and gain on sale of property and equipment Payment of provision for early retirement program Other provisions Net temporary differences Permanent differences: Net periodic post-retirement health care benefit costs Employee benefits Donations Equity in net income of associates and subsidiaries Gain on sale of long term investment Others Net permanent differences Taxable income of the Company Current corporate income tax expense Final income tax expense Total current income tax expense of the Company Current income tax expense of the subsidiaries Total current income tax expense 75 27,149 11,992 39,141 (24,143) 14,998 (433) 14,565 854 596 414 366 83 (13) (352) (403) (699) 33 879 374 247 193 (11,979) (499) 460 (11,204) 4,240 848 61 909 6,086 6,995 24,228 10,536 34,764 (21,616) 13,148 (344) 12,804 43 246 291 (196) (72) 537 - (424) 699 (19) 1,105 90 218 215 (10,583) - 360 (9,700) 4,209 842 36 878 5,750 6,628 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) d. The components of income tax expense (benefit) are as follows: (continued) Tax Law No. 36/2008 which futher regulated in Government Regulation No. 77/2013 stipulates a reduction of 5% from the top rate applicable to qualifying listed companies, for those whose stocks are traded in the IDX which meet the prescribed criteria that the public owns 40% or more of the total fully paid and traded shares, and such shares are owned by at least 300 parties, with each party owning less than 5% of the total paid-up shares. These requirements must be met by a company for a period of 183 days in one tax year. The Company has met all of the required criteria; therefore, for purposes of calculating income tax expense and liabilities for the financial reporting periods of December 31, 2013 and 2012, the Company has reduced the applicable tax rate by 5%. The Company applied a tax rate of 20% for the fiscal years 2013 and 2012. The subsidiaries applied a tax rate of 25% for the fiscal years 2013 and 2012. The Company will submit the above corporate income tax computation in its income tax return (“Surat Pemberitahuan Tahunan” or “Annual SPT”) for the fiscal year 2013 that will be reported to the tax office based on prevailing regulations. The amount of corporate income tax for the year ended December 31, 2012 agreed with what was reported in the Annual SPT. e. Tax assessment (i) The Company The Directorate General of Tax (“DGT”) assessed the Company for Value Added Tax, withholding income taxes and corporate income tax for fiscal year 2011. Tax assessment for the fiscal year 2008 has been completed with the issuance of Tax Assessment Letter (SKP) No. SPHP-2/WPJ.19/KP.03/2014 regarding notice of workup with no correction for Income Tax Article 21/22/23/26 and 4 (2). the Company received SKPKBs No. 00056/207/07/093/13 to In November 2013, No. 00065/207/07/093/13 dated November 15, 2013, for the underpayment of Value Added Tax (VAT) for the fiscal year January - September and November 2007 of Rp142 billion. On January 2014, the Company filed an objection to the Tax Authorities regarding the underpayment of VAT. As of the issuance date of the consolidated financial statements, the Tax Authorities have not yet issued their decision on the objection. (ii) Telkomsel On February 25, 2009, the Tax Authorities filed a judicial review request to the Indonesian Supreme Court (“SC”) for the Tax Court’s acceptance of Telkomsel’s appeal on 2002 withholding tax amounting to Rp 115 billion. On April 3, 2009, Telkomsel filed a contra-appeal to the SC. In November 2012 Telkomsel received a favorable verdict from the SC which accepted Telkomsel’s contra-appeal. On April 21, 2010, the Tax Authorities filed a judicial review request to the SC for the Tax Court’s acceptance of Telkomsel’s request to cancel the Tax Collection Letter (STP) for the underpayment of December 2008 Income Tax Article 25 amounting to Rp429 billion (including a penalty of Rp8 billion). In May 2010, Telkomsel field a contra-appeal to the SC. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still in process. 76 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) e. Tax assessment (continued) On August 10, 2010, the Tax Authorities filed a judicial review request to the SC for the Tax Court’s acceptance of Telkomsel’s appeal on 2004 and 2005 VAT totaling Rp215 billion. In September 2010, Telkomsel filed a contra-appeal to the SC. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still in process. In May and June 2012, Telkomsel received the refund of penalty of 2010 Income Tax Article 25 underpayment amounting to Rp15.7 billion based on the Tax Court’s verdict. On July 17, 2012, the Tax Authorities filed a judicial review request to the SC on the Tax Court’s verdict. On September 14, 2012, Telkomsel filed a contra-appeal to the SC. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still in process. In August 2012, the Tax Authorities accepted Telkomsel’s objection and refunded the whole claim for 2008 underpayment of VAT amounting to Rp232 billion (including penalty of Rp81.9 billion). On March 12, 2012, Telkomsel received assessment letters as a result of a tax audit for the fiscal year 2010 by the Tax Authorities. Based on the letters, Telkomsel overpaid corporate income tax and underpaid VAT amounting to Rp597.4 billion and Rp302.7 billion (including penalty of Rp73.3 billion), respectively. Telkomsel accepted the assessment on the overpayment of corporate income tax and Rp12.1 billion of the underpayment of the VAT (including penalty of Rp6.3 billion). The accepted portion was charged to the 2012 consolidated statement of comprehensive income. On April 5, 2012, Telkomsel received a refund for the overpayment of corporate income tax for fiscal year 2010 amounting to Rp294.7 billion, net of underpayment of VAT. On May 24, 2012, Telkomsel filed an objection to the Tax Authorities for the underpayment of VAT of Rp290.6 billion (including penalty of Rp67 billion) and recorded it as a claim for tax refund. On May 1, 2013, the Tax Authorities rejected Telkomsel’s objection. Subsequently, on July 29, 2013, Telkomsel filed an appeal to the Tax Court. As of these consolidated financial statements, the appeal is still in process. the date of approval and authorization for the issuance of In December 2013, the Tax Court accepted Telkomsel’s appeal on 2006 VAT and withholding taxes totaling Rp116 billion. The amount which was previously presented as part of claims for tax refund is reclassified to advances and other non-current assets. f. Deferred tax assets and liabilities The details of the Company and subsidiaries' deferred tax assets and liabilities are as follows: (Charged) credited to the consolidated statements of comprehensive income December 31, 2012 Acquisition/ divestment of subsidiaries December 31, 2013 The Company Deferred tax assets: Provision for impairment of receivables Net periodic pension and other post-retirement benefits costs Employee benefit provisions Deferred connection fee Accrued expenses and provision for inventory obsolescence Provision for early retirement expense Total deferred tax assets 276 129 173 54 22 140 794 77 170 84 (30) 16 5 (140) 105 - - - - - - - 446 213 143 70 27 - 899 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) f. Deferred tax assets and liabilities (continued) (Charged) credited to the consolidated statements of comprehensive income December 31, 2012 Acquisition/ divestment of subsidiaries December 31, 2013 Deferred tax liabilities: Finance leases Land rights, intangible assets, and others Valuation of long-term investment Difference between accounting and tax bases of property and equipment Total deferred tax liabilities Deferred tax liabilities of the Company - net Telkomsel Deferred tax assets: Employee benefit provisions Provision for impairment of receivables Recognition of interest under USO arrangements Total deferred tax assets Deferred tax liabilities: Intangible assets Finance leases Difference between accounting and tax bases of property and equipment Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of other subsidiaries - net Deferred tax liabilities - net Deferred tax assets - net (64) (14) 0 (1,581) (1,659) (865) 206 118 6 330 (44) (22) (2,363) (2,429) (2,099) (95) (3,059) 89 73 3 (70) 38 44 149 48 4 (6) 46 (18) (99) 95 (22) 24 (109) 64 71 - - - - - - - - - - - - - - - (9) (9) (78) 9 (11) (70) (1,543) (1,615) (716) 254 122 0 376 (62) (121) (2,268) (2,451) (2,075) (213) (3,004) 82 (Charged) credited to the consolidated statements of comprehensive income December 31, 2011 Realized to equity December 31, 2012 (58) 91 140 43 (31) (8) 177 - - - - - - - 276 173 140 129 54 22 794 The Company Deferred tax assets: Provision for impairment of receivables Employee benefit provisions Provision for early retirement expense Net periodic pension and other post-retirement benefit costs Deferred connection fee Accrued expenses and provision for inventory obsolescence Total deferred tax assets 334 82 - 86 85 30 617 78 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) f. Deferred tax assets and liabilities (continued) (Charged) credited to the consolidated statements of comprehensive income December 31, 2011 Realized to equity December 31, 2012 Deferred tax liabilities: Land rights, intangible assets, and others Finance leases Difference between accounting and tax bases of property and equipment Total deferred tax liabilities Deferred tax liabilities of the Company - net Telkomsel Deferred tax assets: Employee benefit provisions Provision for impairment of receivables Recognition of interest under USO arrangements Total deferred tax assets Deferred tax liabilities: Finance leases Intangible assets Difference between accounting and tax bases of property and equipment Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of other subsidiaries - net Deferred tax liabilities - net Deferred tax assets - net (21) (33) (1,929) (1,983) (1,366) 151 64 - 215 - (49) (2,529) (2,578) (2,363) (65) (3,794) 67 7 (31) 348 324 501 56 53 6 115 (22) 5 166 149 264 (30) 735 27 - - - - - - - - - - - - - - - - (5) (14) (64) (1,581) (1,659) (865) 207 117 6 330 (22) (44) (2,363) (2,429) (2,099) (95) (3,059) 89 As of December 31, 2013 and 2012, the aggregate amounts of temporary differences associated with investments in subsidiaries and associated companies, for which deferred tax liabilities have not been recognized were Rp24,252 billion and Rp20,317 billion, respectively. Realization of the deferred tax assets is dependent upon the Company and subsidiary’s capability in generating future profitable operations. Although realization is not assured, the Company and subsidiaries believe that it is probable that these deferred tax assets will be realized through reduction of future taxable income when temporary differences reverse. The amount of deferred tax assets is considered realizable; however, it could be reduced if actual future taxable income is lower than estimates. g. Administration Since 2008 to 2012, the Company has been consecutively entitled to income tax rate reduction of 5% for meeting the requirements in accordance with the Government Regulation No. 81/2007 in conjunction with the Ministry of Finance Regulation No. 238/PMK.03/2008. On the basis of historical data, for the year 2013, the Company calculates the deferred tax using the tax rate of 20%. The taxation laws of Indonesia require that the Company and subsidiaries submit individual tax returns on the basis of self-assessment. Under prevailing regulations, the DGT may assess or amend taxes within a certain period. For fiscal years 2007 and earlier, this period is within ten years of the time the tax became due, but not later than 2013, while for fiscal years 2008 and onwards, the period is within five years of the time the tax became due. 79 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 31. TAXATION (continued) g. Administration (continued) The Minister of Finance of the Republic of Indonesia has issued Regulation No.85/PMK.03/2012 dated June 6, 2012 concerning the appointment of State-Owned Enterprises ("SOEs") to withhold, deposit and report VAT and Sales Tax on Luxury Goods ("PPnBM") according to the procedures outlined in the Regulation which is effective from July 1, 2012. The Minister of Finance of the Republic Indonesia also has issued Regulation No.224/PMK.011/2012 dated December 26, 2012 concerning the appointment of SOEs to withhold income tax article 22 which is effective from February 23, 2013. The Company has withheld, deposited, and reported the VAT and PPnBM or VAT and also income tax article 22 in accordance with the Regulation. No tax audit has been conducted for fiscal years 2003, 2005, 2006, 2007, 2009, and 2010 on the Company. Tax audits have been completed for all other fiscal years, except for fiscal year 2011. The Company received a certificate of tax audit exemption from the DGT for fiscal years 2007, 2008, 2009 and 2010, 2012 which is valid unless the Company files for corporate income tax overpayment, in which case a tax audit will be performed. 32. BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share is computed by dividing profit for the year attributable to owners of the parent company amounting to Rp14,205 billion and Rp12,850 billion by the weighted average number of shares outstanding during the period totaling 96,358,660,797 and 96,011,315,505 (after stock split) for the years ended December 31, 2013 and 2012, respectively. Basic earnings per share amounted to Rp147.42 and Rp133.84 (in full amount) for the years ended December 31, 2013 and 2012, respectively. The calculation of basic earning per share in 2012 has been retrospectively adjusted in connection with the Company’s stock split (Note 1c). No diluted earnings per share is computed because the Company does not have potentially dilutive financial investments for the years ended December 31, 2013 and 2012. 33. CASH DIVIDENDS AND GENERAL RESERVE In the AGM of Stockholders of the Company as stated in notarial deed No. 14 dated May 11, 2012 of Ashoya Ratam,S.H.,MKn., the Company’s stockholders agreed on the distribution of cash dividend and special cash dividend for 2011 amounting to Rp6,031 billion and Rp1,096 billion, respectively. On the Company paid the cash dividend and special cash dividend totalling June 22, 2012, Rp7,127 billion. In the AGM of Stockholders of the Company as stated in notarial deed No. 38 dated April 19, 2013 of Ashoya Ratam,S.H.,MKn., the Company’s stockholders agreed on the distribution of cash dividend and special cash dividend for 2012 amounting to Rp7,068 billion and Rp1,285 billion, respectively. On June 18, 2013, the Company paid the cash dividend and special cash dividend totalling Rp8,354 billion. 80 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 33. CASH DIVIDENDS AND GENERAL RESERVE (continued) Appropriation of Retained Earnings Under the Limited Liability Company Law, the Company is required to establish a statutory reserve amounting to at least 20% of its issued and paid-up capital. The balance of the appropriated retained earnings of the Company as of December 31, 2013 and 2012 amounted to Rp15,337 billion. 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS 2013 2012 Prepaid pension benefit costs The Company Infomedia Prepaid pension benefit costs Pension benefit costs provision and other post-employment benefit Pension The Company Telkomsel Pension benefit costs provisions Other post-retirement benefits Obligation under the Labor Law Pension benefit costs provision and other post-employment benefits Net periodic pension costs The Company Telkomsel Infomedia Net periodic pension costs (Note 27) Other post-retirement benefit costs (Note 27) Employee benefit costs under the Labor Law a. Prepaid pension benefit costs 927 - 927 1,644 613 2,257 349 189 2,795 678 194 1 873 66 17 1,031 1 1,032 1,373 419 1,792 310 146 2,248 592 197 0 789 65 38 The Company sponsors a defined benefit pension plan to employees with permanent status prior to July 1, 2002. The pension benefits are paid based on the participating employees’ latest basic salary at retirement and the number of years of their service. The plan is managed by Telkom Pension Fund (“Dana Pensiun Telkom” or “Dapen”). The participating employees contribute 18% (before March 2003: 8.4%) of their basic salaries to the pension fund. The Company’s contributions to the pension fund for the years ended December 31, 2013 and 2012 amounted to Rp182 billion and Rp186 billion, respectively. The following table presents the change in projected pension benefits obligation, change in pension plan assets, the pension plan and net amount recognized in the Company’s consolidated statement of financial position as of December 31, 2013 and 2012, for its defined benefit pension plan: funded status of 81 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) a. Prepaid pension benefit costs (continued) 2013 2012 Change in projected pension benefits obligation Projected pension benefits obligation at beginning of year Service costs Interest costs Pension plan participants' contributions Actuarial (gains) losses Expected pension benefits paid Projected pension benefits obligation at end of year Change in pension plan assets Fair value of pension plan assets at beginning of year Expected return on pension plan assets Employer’s contributions Pension plan participants' contributions Actuarial (losses) gains Expected pension benefits paid Fair value of pension plan assets at end of year Funded status Unrecognized prior service costs Unrecognized net actuarial (gains) losses Prepaid pension benefit costs 19,249 450 1,183 44 (5,387) (656) 14,883 18,222 1,485 182 44 (2,474) (656) 16,803 1,920 78 (1,071) 927 16,188 372 1,151 44 2,123 (629) 19,249 16,597 1,517 186 44 507 (629) 18,222 (1,027) 217 1,841 1,031 The expected return is determined based on market expectation for returns over the entire life of the obligation by considering the portfolio mix of the plan assets. The actual return on plan assets was (Rp989) billion and Rp2,024 billion for the years ended December 31, 2013 and 2012 respectively. Based on the Company’s regulation issued on January 14, 2014 regarding Dapen’s Funding Policy, the Company will not give contribution to Dapen when Dapen’s Funding Sufficiency Ratio (FSR) is above 105%. Therefore, the Company expects no contribution to defined benefit pension plan in 2014. The movements of the prepaid pension benefit costs during the years ended December 31, 2013 and 2012 are as follows: Prepaid pension benefit costs at beginning of year Net periodic pension costs less amounts charged to subsidiaries Amounts charged to subsidiaries under contractual agreement Employer’s contributions Prepaid pension benefit costs at end of year 2013 2012 (1,031) 265 21 (182) (927) (990) 133 12 (186) (1,031) 82 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) a. Prepaid pension benefit costs (continued) As of December 31, 2013 and 2012, pension plan assets mainly consisted of : Government bonds Indonesian equity securities Corporate bonds Others Total 2013 2012 40.30% 21.97% 21.19% 16.54% 37.96% 21.82% 16.91% 23.31% 100.00% 100.00% Pension plan assets also include Series B shares issued by the Company with fair values totaling Rp336 billion and Rp223 billion, representing 2.00% and 1.23% of total plan assets as of December 31, 2013 and 2012, respectively, and bonds issued by the Company with fair values totaling Rp151 billion and Rp159 billion representing 0.90% and 0.87% of total plan assets as of December 31, 2013 and 2012, respectively. The actuarial valuation for the defined benefit pension plan and the other post-retirement benefits (Notes 34b and 34c) was performed based on the measurement date as of December 31, 2013 and 2012, with reports dated February 28, 2014 and February 28, 2013, respectively, by PT Towers Watson Purbajaga (“TWP”), an independent actuary in association with Towers Watson (“TW”) (formerly Watson Wyatt Worldwide). The principal actuarial assumptions used by the independent actuary as of December 31, 2013 and 2012 are as follows: Discount rate Expected long-term return on pension plan assets Rate of compensation increases The components of net periodic pension costs are as follows: Service costs Interest costs Expected return on pension plan assets Amortization of prior service costs Net periodic pension costs Amount charged to subsidiaries under contractual agreements Net periodic pension costs less amounts charged to subsidiaries (Note 27) 2013 2012 9.00% 9.75% 8.00% 6.25% 8.25% 8.00% 2013 2012 450 1,183 (1,485) 139 287 (21) 266 372 1,151 (1,517) 139 145 (12) 133 83 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) a. Prepaid pension benefit costs (continued) Historical information: 2013 2012 2011 2010 2009 Present value of funded defined (14,883) (19,249) (16,188) (11,924) (10,131) benefit obligation Fair value of plan assets 16,803 18,222 16,597 15,098 12,300 Surplus (deficit) in the plan 1,920 (1,027) 409 3,174 2,169 Experience adjustments arising on plan liabilities Experience adjustments arising on (20) (1) (156) (314) (318) plan assets 2,474 (507) (410) (1,604) (2,028) b. Pension benefit costs provisions (i) The Company The Company sponsors unfunded defined benefit pension plans and a defined contribution pension plan for its employees. The defined contribution pension plan is provided to employees hired with permanent status on or after July 1, 2002. The plan is managed by Financial Institutions Pension Fund (“Dana Pensiun Lembaga Keuangan” or “DPLK”). The Company’s contribution to DPLK is determined salaries and amounted to based on a certain percentage of Rp6 billion and Rp5 billion for the years ended December 31, 2013 and 2012, respectively. the participants’ Since 2007, the Company has provided pension benefit based on uniformulation for both participants prior to and from April 20, 1992 effective for employees retiring beginning February 1, 2009. The change in benefit had increased the Company’s obligations by Rp699 billion, which is amortized over 9.9 years until 2016. In 2010, the Company replaced the uniformulation with Manfaat Pensiun Sekaligus (“MPS”). MPS is given to those employees reaching retirement age, upon death or upon being disabled starting from February 1, 2009. The change in benefit had increased the Company’s obligations by Rp435 billion, which is amortized over 8.63 years until 2018. 84 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) b. Pension benefit cost provisions (continued) (i) The Company (continued) The Company also provides benefits to employees during a pre-retirement period in which they are inactive for 6 months prior to their normal retirement age of 56 years, known as pre- retirement benefits (“Masa Persiapan Pensiun” or “MPP”). During the pre-retirement period, the employees still receive benefits provided to active employees, which include, but are not limited to, regular salary, health care, annual leave, bonus and other benefits. Since 2012, the Company has issued a new requirement for MPP effective for employees retiring beginning April 1, 2012, whereby the employee is required to file a request for MPP and if the employee does not file the request, he or she is required to work until the retirement date. The following table presents the change in projected benefits obligation of MPS and MPP for the years ended December 31, 2013 and 2012: 2013 2012 Change in projected benefits obligation Unfunded projected benefits obligation at beginning of year Service costs Interest costs Actuarial gains Benefits paid by employer Unfunded projected benefits obligation at end of year Unrecognized prior service costs Unrecognized net actuarial losses Pension benefit costs provisions at end of year 2,436 97 150 (342) (141) 2,200 (506) (50) 1,644 2,440 104 173 (128) (153) 2,436 (639) (424) 1,373 Movements of the pension benefit costs provisions during the years ended December 31, 2013 and 2012: Pension benefit costs provisions at beginning of year Net periodic pension costs Employer’s contributions Pension benefit costs provisions at end of year 2013 2012 1,373 412 (141) 1,644 1,067 459 (153) 1,373 85 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) b. Pension benefit costs provisions (continued) (i) The Company (continued) The principal actuarial assumptions used by the independent actuary based on the measurement date as of December 31, 2013 and 2012 are as follow: Discount rate Rate of compensation The components of total periodic pension costs are as follows: Service costs Interest costs Amortization of prior service costs Recognized actuarial losses Total periodic pension costs (Note 27) Historical information: 2013 2012 9.00% 8.00% 6.25% 8.00% 2013 2012 97 150 132 33 412 104 173 133 49 459 2013 2012 2011 2010 2009 Present value of funded defined benefit obligation (2,200) (2,436) (2,440) (2,096) (1,622) Deficit in the plan (2,200) (2,436) (2,440) (2,096) (1,622) Experience adjustments arising on plan liabilities 3 72 (30) 23 309 (ii) Telkomsel Telkomsel provides a defined benefit pension plan to its employees. Under this plan, employees are entitled to pension benefits based on their latest basic salary or take-home pay and the number of years of their service. PT Asuransi Jiwasraya (“Jiwasraya”), a state-owned life insurance company, manages the plan under an annuity insurance contract. Until 2004, the employees contributed 5% of their monthly salaries to the plan and Telkomsel contributed any remaining amount required to fund the plan. Starting 2005, the entire contributions are fully made by Telkomsel. Telkomsel’s contributions to Jiwasraya amounted to Rp nil and Rp45 billion for the years ended December 31, 2013 and 2012, respectively. 86 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) b. Pension benefit costs provisions (continued) (ii) Telkomsel (continued) The following table presents the change in projected pension benefits obligation, change in pension plan assets, funded status of the pension plan and net amount recognized in the Company’s consolidated statement of financial position for its defined benefit pension plan: 2013 2012 Change in projected pension benefits obligation Projected pension benefits obligation at beginning of year Service cost Interest cost Actuarial gains (losses) Expected pension benefits paid Projected pension benefits obligation at end of year Changes in pension plan asset Fair value of pension plan assets at beginning of year Expected return on pension plan assets Employer’s contributions Actuarial gains (losses) Expected pension benefits paid Fair value of pension plan assets at end of year Funded status Unrecognized items in the consolidated statement of financial position: Prior service costs Net actuarial gain (losses) Pension benefit costs provisions 1,472 130 88 (789) (2) 899 666 40 - (265) (2) 439 (460) 0 (153) (613) The components of the net periodic pension costs are as follows: Service costs Interest costs Expected return on pension plan assets Amortization of past service costs Recognized actuarial losses Net periodic pension costs (Note 27) 2013 2012 130 88 (40) 1 15 194 1,238 119 83 36 (4) 1,472 458 31 42 139 (4) 666 (806) 0 387 (419) 119 83 (31) 1 25 197 87 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) b. Pension benefit costs provisions (continued) (ii) Telkomsel (continued) The net periodic pension costs for the pension plan was calculated based on actuary measurement date as of December 31, 2013 and 2012, with reports dated February 20, 2014 and February 12, 2013, respectively, by TWP, an independent actuary in association with TW. The principal actuarial assumptions used by the independent actuary based on the measurement date as of December 31, 2013 and 2012, are as follows: Discount rate Expected long-term return on plan assets Rate of compensation increases Historical information 2013 2012 9.00% 9.00% 6.50% 6.00% 6.00% 6.50% Present value of funded defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustments arising on plan liabilities Experience adjustments arising 2013 2012 2011 2010 2009 (899) 439 (460) (1,472) 666 (1,237) 458 (806) (779) (663) 246 (417) (399) 154 (245) 43 71 (44) 9 (17) on plan assets 265 (139) (192) (49) 25 c. Other post-retirement benefits The Company provides other post-retirement benefits in the form of cash paid to employees on their retirement or termination. These benefits consist of last housing allowance (“Biaya Fasilitas Perumahan Terakhir” or “BFPT”) and home passage leave (“Biaya Perjalanan Pensiun dan Purnabhakti” or “BPP”). Movements of December 31, 2013 and 2012: the other post-retirement benefit costs provisions for the years ended Other post-retirement benefit costs provisions at beginning of year Other post-retirement benefit costs Other post-retirement benefits paid by the Company Net other post-retirement benefit costs provisions at end of year 88 2013 2012 310 66 (27) 349 273 65 (28) 310 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 34. RETIREMENT BENEFIT AND OTHER POST RETIREMENT BENEFIT OBLIGATIONS (continued) c. Other post-retirement benefits (continued) The principal actuarial assumptions used by the independent actuary as of December 31, 2013 and 2012 are as follows: Discount rate Rate of compensation 2013 2012 9.00% 8.00% 6.25% 8.00% Components of December 31, 2013 and 2012: the total periodic other post-retirement benefit costs for the years ended Service costs Interest costs Amortization of past service costs Recognized actuarial losses Other post-retirement benefit costs (Note 27) Historical information: 2013 2012 11 30 7 18 66 10 32 7 16 65 Present value of funded defined benefit obligation Deficit in the plan Experience adjustments arising on plan liabilities d. Obligation under the Labor Law 2013 2012 2011 2010 2009 (450) (450) (508) (508) (462) (462) (409) (409) (336) (336) (7) 5 (13) 11 (1) Under Law No. 13 Year 2003, the Company and subsidiaries are required to provide minimum pension benefit, if not covered yet by the sponsored pension plans, to their employees upon retirement age. The total related obligation recognized as of December 31, 2013 and 2012 amounted to Rp189 billion and Rp146 billion, respectively. The related employee benefit costs charged to expense amounted to Rp17 billion and Rp38 billion for the years ended December 31, 2013 and 2012, respectively. 35. LONG SERVICE AWARDS (“LSA”) Telkomsel provides certain cash awards or certain number of days leave benefits to its employees based on the employees’ length of service requirements, including LSA and LSL. LSA are either paid at the time the employees reach certain years during employment, or at the time of termination. LSL are either certain number of days leave benefit or cash, subject to approval by management, provided to employees who meet the requisite number of years of service and with a certain minimum age. The obligation with respect to these awards was determined based on an actuarial valuation using the Projected Unit Credit method, and amounted to Rp336 billion and Rp347 billion as of December 31, 2013 and 2012, respectively. The related benefit costs charged to expense amounted to Rp19 billion and Rp121 billion for the years ended December 31, 2013 and 2012, respectively (Note 27). 89 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 36. POST-RETIREMENT HEALTH CARE BENEFITS The Company provides a post-retirement health care plan to all of its employees hired before November 1, 1995 who have worked for the Company for 20 years or more when they retire, and to their eligible dependents. The requirement to work for 20 years does not apply to employees who retired prior to June 3, 1995. The employees hired by the Company starting from November 1, 1995 are no longer entitled to this plan. The plan is managed by Yakes. The defined contribution post-retirement health care plan is provided to employees hired with permanent status on or after November 1, 1995 or employees with terms of service less than 20 years at the time of retirement. The Company’s contribution amounted to Rp17 billion and Rp18 billion for the years ended December 31, 2013 and 2012, respectively. The following table presents the change in the projected post-retirement health care benefits obligation, change in post-retirement health care benefits plan assets, funded status of the post- retirements health care benefits plan and net amount recognized in the Company’s consolidated statement of financial position as of December 31, 2013 and 2012: 2013 2012 Change in projected post-retirement health care benefits obligation Projected post-retirement health care benefits obligation at beginning of year Service costs Interest costs Actuarial (gains) losses Expected post-retirement health care benefits paid Projected post-retirement health care benefits obligation at end of year Change in post-retirement health care benefits plan assets Fair value of plan assets at beginning of year Expected return on plan assets Employer’s contributions Actuarial (losses) gains Expected post-retirement health care paid Fair value of plan assets at end of year Funded status Unrecognized net actuarial losses Post-retirement health care benefit costs provisions 13,162 70 813 (3,099) (293) 10,547 56 755 2,074 (270) 10,653 13,162 9,913 744 302 (1,005) (293) 9,661 (992) 240 (752) 8,986 720 300 177 (270) 9,913 (3,249) 2,570 (679) 90 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 36. POST-RETIREMENT HEALTH CARE BENEFITS (continued) As of December 31, 2013 and 2012, plan assets mainly consisted of: Mutual funds Equity securities Time deposits Others Total assets 2013 2012 81.80% 13.14% 3.68% 1.38% 81.00% 7.61% 10.72% 0.67% 100.00% 100.00% Yakes plan assets also include Series B shares issued by the Company with fair values totaling Rp120 billion and Rp35 billion representing 1.25% and 0.35% of total plan assets as of December 31, 2013 and 2012, respectively. The expected return is determined based on market expectation for returns over the entire life of the obligation by considering the portfolio mix of the plan assets. The actual return on plan assets was (Rp261 billion) and Rp896 billion for the years ended December 31, 2013 and 2012, respectively. The Company expects to contribute Rp226 billion to its post-retirement health care plan during 2014. The components of net periodic post-retirement health care benefit costs are as follows: Service costs Interest costs Expected return on plan assets Recognized actuarial losses Net periodic post-retirement benefit costs Amounts charged to subsidiaries under contractual agreements Net periodic post-retirement health care benefit costs less amounts charged to subsidiaries (Note 27) 2013 2012 70 813 (744) 236 375 (1) 374 56 755 (720) - 91 (1) 90 The movements of the projected post-retirement health care benefit costs provisions for the years ended December 31, 2013 and 2012, are as follows: Projected post-retirement health care benefit costs provisions at beginning of year Net periodic post-retirement health care benefits costs less amounts charged to subsidiaries (Note 27) Amounts charged to subsidiaries under contractual agreements Employer’s contributions Projected post-retirement health care benefit costs provisions at end of year 2013 2012 679 374 1 (302) 752 888 90 1 (300) 679 91 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 36. POST-RETIREMENT HEALTH CARE BENEFITS (continued) The actuarial valuation for the post-retirement health care benefits was performed based on the measurement date as of December 31, 2013 and 2012, with reports dated February 28, 2014 and February 28, 2013, respectively, by TWP, an independent actuary in association with TW. The principal actuarial assumptions used by the independent actuary as of December 31, 2013 and 2012 are as follows: Discount rate Expected long-term return on plan assets Health care costs trend rate assumed for next year 2013 2012 9.00% 9.50% 7.00% 6.25% 7.50% 7.00% 1% change in assumed future health care costs trend rates would have the following effects: 1% point increase 1% point decrease Service costs and interest costs Accumulated post-retirement health care benefits obligation 289 1,720 (227) (1,413) Historical information: Present value of funded defined benefit obligation Fair value of plan assets 2013 2012 2011 2010 2009 (10,653) 9,661 (13,162) 9,913 (10,547) 8,986 (8,741) 8,005 (7,166) 6,022 Deficit in the plan (992) (3,249) (1,561) (736) (1,144) Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets (56) 74 (64) (231) (722) 1,005 (177) (222) (691) (756) 37. RELATED PARTY TRANSACTIONS In the normal course of its business, the Company and subsidiaries entered into transactions with related parties. It is the Company's policy that the pricing of these transactions be the same as those of arm’s length transactions. a. Nature of relationships and accounts/transactions with related parties Details of the nature of relationships and transactions/accounts with significant related parties are as follows: Related parties The Government Ministry of Finance State-owned enterprises Nature of relationships with related parties Majority stockholder Entity under common control Indosat Entity under common control 92 Nature of transactions/accounts Finance costs and investment in financial instruments Operation expenses, purchase of property and equipment, construction and installation services, insurance expense, finance income, finance costs, investment in financial instruments Interconnection revenues, interconnection expenses, telecommunications facilities usage, operating and maintenance cost, leased lines revenue, satellite transponders usage revenues, usage of data communication network system expenses and lease revenues These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) a. Nature of relationships and accounts/transactions with related parties (continued) Details of the nature of relationships and transactions/accounts with significant related parties are as follows: Related parties Nature of relationships with related parties PT Aplikanusa Lintasarta Entity under common control (“Lintasarta”) Indosat Mega Media CSM Entity under common control Associated company Patrakom* Associated company PSN Associated company Indonusa** Associated company PT Industri Telekomunikasi Indonesia (“INTI”) Entity under common control Nature of transactions/accounts Network revenues, usage of data communication network system expenses and leased lines expenses Network revenues Satellite transponders usage revenues, leased lines revenues, transmission lease expenses Satellite transponders usage revenues, leased lines revenues, transmission lease expenses Satellite transponders usage revenues, leased lines revenues, transmission lease expenses, interconnection revenues and interconnection expense Leased line revenues, telecommunication services revenue, data telecommunication expense Purchase of property and equipment PT Asuransi Jasa Indonesia Entity under common control Insurance of property and equipment (“Jasindo”) PT Jaminan Sosial Tenaga Kerja Entity under common control Insurance for employees (“Jamsostek”) PT Perusahaan Listrik Negara Entity under common control Electricity expenses (Persero) (“PLN”) PT Pos Indonesia State-owned banks BNI Bank Mandiri BRI BTN BSM PT Bank BRI Syariah (“BRI Syariah”) Bahana Entity under common control Entity under common control Entity under common control Entity under common control Entity under common control Entity under common control Entity under common control Entity under common control Entity under common control Koperasi Pegawai Telkom Entity under common control (“Kopegtel”) PT Sandhy Putra Makmur Entity under common control (“SPM”) Koperasi Pegawai Telkomsel Entity under common control (“Kisel”) PT Graha Informatika Nusantara (“Gratika”) Directors and commissioners Yakes Entity under common control Key management personnel Entity under significant influence * Patrakom became a subsidiary on September 25, 2013 (Note 3). ** On October 8, 2013, the Company sold its 80% ownership in Indonusa (Notes 3 and 10). 93 Cost of SIM cards Finance income and finance costs Finance income and finance costs Finance income and finance costs Finance income and finance costs Finance income and finance costs Finance costs Finance costs Available-for-sale financial assets, bonds and notes Purchase of property and equipment, construction and installation services, leases of buildings, leases of vehicles, purchases of materials and construction services, utilities maintenance and cleaning services and RSA revenues Leases of buildings, leases of vehicles, purchase of materials and construction services, utilities maintenance and cleaning services Leases of vehicles, printing and distribution of customer bills, collection fee, and other services fee, distribution of SIM cards and pulse reload vouchers Leased lines revenues, purchase of property and equipment, installation expense, and maintenance expense Honorarium and facilities Medical expenses These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties The following are significant transactions with related parties: REVENUES Entity under common control Kisel Indosat Gratika Lintasarta Sub-total Associated companies Indonusa** CSM Patrakom* Sub-total Others (each below Rp30 billion) Total EXPENSES Entity under common control Indosat Kisel Kopegtel PLN Jasindo SPM PT Pos Indonesia Jamsostek Sub-total Entity under significant influence Yakes Associated companies PSN CSM Patrakom* Sub-total Others (each below Rp30 billion) Total 2013 2012 Amount % of total revenues Amount % of total revenues 2,751 1,053 342 64 4,210 45 31 - 76 99 4,385 3.32 1.27 0.41 0.08 5.08 0.05 0.04 - 0.09 0.12 5.29 2,351 1,033 3 85 3,472 - 47 80 127 27 3,626 3.05 1.34 0.00 0.11 4.50 - 0.06 0.10 0.16 0.04 4.70 2013 2012 Amount % of total expenses Amount % of total expenses 1,008 743 692 651 333 118 64 39 3,648 159 187 63 - 250 80 4,137 1.77 1.30 1.21 1.14 0.58 0.21 0.11 0.07 6.39 0.28 0.33 0.11 - 0.44 0.14 7.25 1,004 825 817 660 370 25 51 36 3,788 150 165 100 73 338 34 4,310 1.94 1.59 1.58 1.27 0.71 0.05 0.10 0.07 7.31 0.29 0.32 0.19 0,14 0.65 0.07 8.32 * Patrakom became a subsidiary on September 25, 2013 (Note 3). ** On October 8, 2013, the Company sold its 80% ownership in Indonusa (Notes 3 and 10). 94 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties (continued) 2013 2012 Amount finance income Amount % of total % of total finance income FINANCE INCOME Entity under common control State-owned banks 530 62.87 366 61.41 FINANCE COSTS Majority stockholder The Government Entity under common control State-owned banks Total PURCHASE OF PROPERTY AND EQUIPMENT (Note 11) Entity under common control Kopegtel State-owned enterprises Sub-total Others (each below Rp30 billion) Total 2013 2012 Amount % of total finance costs Amount % of total finance costs 84 518 602 5.59 34.44 40.03 82 424 506 3.99 20.63 24.62 2013 2012 Amount % of total fixed assets purchased Amount % of total fixed assets purchased 223 126 349 59 408 1.03 0.58 1.61 0.27 1.88 237 98 335 47 382 1.60 0.66 2.26 0.32 2.58 Presented below are balances of accounts with related parties: 2013 2012 Amount % of total assets Amount % of total assets a. Cash and cash equivalents (Note 4) b. Other current financial assets (Note 5) c. Trade receivables - net (Note 6) d. Advances and prepaid expenses (Note 8) Others e. Advances and other non-current assets (Note 12) Entity under common control BNI Others Total 11,736 1,226 900 82 52 3 55 95 9.17 0.95 0.70 0.06 0.04 0.00 0.04 8,992 1,888 701 18 - 14 14 8.07 1.69 0.63 0.02 - 0.01 0.01 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties (continued) f. Trade payables (Note 14) Entity under common control INTI Kopegtel Indosat State-owned enterprises Sub-total Entity under significant influence Yakes Others Total g. Accrued expenses (Note 15) Majority stockholder The Government Entity under common control State-owned banks Total h. Advances from customers and suppliers Majority stockholder The Government i. Short-term bank loans (Note 17) Entity under common control BRI BSM BRI Syariah Total j. Two-step loans (Note 19) Majority stockholder The Government k. Bonds and notes (Note 20) Entity under common control Bahana l. Long-term bank loans (Note 21) Entity under common control BRI BNI Bank Mandiri Total 2013 2012 Amount % of total liabilities Amount % of total liabilities 115 82 17 1 215 43 568 826 17 53 70 19 50 14 3 67 0.23 0.16 0.03 0.00 0.42 0.09 1.12 1.63 0.04 0.10 0.14 0.04 0.09 0.03 0.01 0.13 197 115 31 3 346 39 47 432 17 72 89 64 - 5 - 5 0.44 0.26 0.07 0.01 0.78 0.09 0.11 0.98 0.04 0.16 0.20 0.14 - 0.01 - 0.01 1,915 3.79 1,987 4.48 - - 8 0.02 4,043 2,351 1,069 7,643 8.00 4.65 2.12 14.77 4,630 2,349 1,417 8,396 10.43 5.29 3.19 18.91 96 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) c. Significant agreements with related parties i. The Government The Company obtained two-step loans from the Government (Note 19). ii. Indosat The Company has an agreement with Indosat telecommunications services to the public. for the provision of international The Company has also entered into an interconnection agreement between the Company’s fixed line network (Public Switched Telephone Network or “PSTN”) and Indosat’s GSM mobile cellular telecommunications network in connection with the implementation of the Indosat Multimedia Mobile services and the settlement of the related interconnection rights and obligations. The Company also has an agreement with Indosat for the interconnection of Indosat's GSM mobile cellular telecommunications network with the Company's PSTN, enabling each party’s customers to make domestic calls between Indosat’s GSM mobile network and the Company’s fixed line network and allowing Indosat’s mobile customers to access the Company’s IDD service by dialing “007”. The Company has been handling customer billings and collections for Indosat. Indosat is gradually taking over the activities and performing its own direct billing and collection. The Company receives compensation from Indosat computed at 1% of the collections made by the Company beginning January 1, 1995, plus the billing process expenses which are fixed at a certain amount per record. On December 11, 2008, the Company and Indosat agreed to implement IDD service charge tariff which already takes into account the compensation for billing and collection. The agreement is valid and effective starting on January to December 2012, and can be applied until a new agreement becomes available. On December 28, 2006, the Company and Indosat signed amendments to the interconnection agreements for the fixed line networks (local, SLJJ and international) and mobile network for the cost-based tariff obligations under the MoCI Regulations No. 8 the implementation of Year 2006 (Note 40). These amendments took effect on January 1, 2007. Telkomsel also entered into an agreement with Indosat telecommunications services to its GSM mobile cellular customers. for the provision of international The Company provides leased lines to Indosat and subsidiaries, namely PT Indosat Mega Media and Lintasarta. The leased lines can be used by these companies for telephone, telegraph, data, telex, facsimile or other telecommunication services. iii. Others The Company has entered into agreements with associated companies, namely CSM, PSN and Gratika for the utilization of the Company's satellite transponders or frequency channels and leased lines. Telkomsel has an agreement with PSN for the lease of PSN’s transmission link. Based on the agreement, which was made on March 14, 2001, the minimum lease period is 2 years since the operation of the transmission link and is extendable subject to agreement by both parties. As of the issuance date of the consolidated financial statements, the extension is still in process. 97 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 37. RELATED PARTY TRANSACTIONS (continued) c. Significant agreements with related parties (continued) iii. Others (continued) Koperasi Pegawai Telkomsel (“Kisel”) is a cooperative that was established by Telkomsel’s employees to engage in car rental services, printing and distribution of customer bills, collection and other services principally for the benefit of Telkomsel. Telkomsel also has dealership agreements with Kisel for distribution of SIM cards and pulse reload vouchers. d. Key management personnel remuneration Key management personnel consists of Company and its subsidiaries. the Boards of Commissioners and Directors of the The Company and subsidiaries provide honorarium and facilities to support the operational duties of the Board of Commissioners and short-term employment benefits in the form of salaries and facilities to support the operational duties of the Board of Directors. The total of such benefits is as follows: 2013 2012 Amount % of total expenses Amount % of total expenses Board of Directors Board of Commissioners 354 106 0.62% 0.19% 252 61 0.49% 0.12% 38. SEGMENT INFORMATION Management manages the Company's business portfolios using the customer-centric approach, as part of the Company’s strategy to provide one-stop solution to customers. The Company and subsidiaries have four main operating segments, namely personal, home, corporate and others. The personal segment provides mobile cellular and fixed wireless telecommunications services to individual customers. The home segment provides fixed wireline telecommunications services, pay TV, data and internet services to home customers. The corporate segment provides telecommunications services, including interconnection, leased lines, satellite, VSAT, contact center, broadband access, information technology services, data and internet services to companies and institutions. Operating segments that are not monitored separately by the Chief Operation Decision Maker are presented as "Others", which provides building management services. Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, operating segments. the financing activities and income taxes are not separately monitored and are not allocated to 98 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 38. SEGMENT INFORMATION (continued) Segment accounted at market prices. revenues and expenses include transactions between operating segments and are Corporate Home Personal Others Total before elimination Elimination Total consolidated 2013 Segment results Revenues External revenues Inter-segment revenues Total segment revenues Expenses External expenses Inter-segment expenses 17,041 8,549 25,590 6,669 2,794 9,463 59,028 2,358 61,386 229 909 1,138 82,967 14,610 97,577 (15,211 ) (5,164 ) (5,939) (2,946) (32,991) (6,472) (980) (28) (55,121) (14,610) Total segment expenses (20,375 ) (8,885) (39,463) (1,008) (69,731) Segment results 5,215 578 21,923 130 27,846 Other information Segment assets Asset held-for-sale Long-term investments Total consolidated assets Capital expenditures Depreciation and amortization Impairment of assets Provision for impairment of receivables 39,718 - 182 (6,237) (2,423 ) - (994 ) 18,992 - 101 75,604 105 21 (2,340) (15,662) (1,487) (11,234) - (390) (596) (202) 135,885 105 304 (24,898) (15,184) (596) (1,589) 1,571 - - (659) (40) - (3) 2012 - (14,610) (14,610) - 14,610 14,610 - (8,343) - - - - - - 82,967 - 82,967 (55,121) - (55,121) 27,846 127,542 105 304 127,951 (24,898) (15,184) (596) (1,589) Corporate Home Personal Others Total before elimination Elimination Total consolidated Segment results Revenues External revenues Inter-segment revenues Total segment revenues Expenses External expenses Inter-segment expenses 15,579 6,468 22,047 7,360 2,223 9,583 54,087 2,188 56,275 (13,961 ) (4,015 ) (5,646) (2,293) (31,169) (5,203) Total segment expenses (17,976 ) (7,939) (36,372) Segment results 4,071 1,644 19,903 117 648 765 (669) (16) (685) 80 77,143 11,527 88,670 (51,445) (11,527) (62,972) 25,698 - (11,527) (11,527) - 11,527 11,527 - 30,458 254 17,780 - 67,216 21 611 - 116,065 275 (4,971) - Other information Segment assets Long-term investments Total consolidated assets Capital expenditures Depreciation and amortization Impairment of assets Provision for impairment of receivables and inventory obsolescence (92 ) (505) (318) (4,375) (2,079 ) - (2,083) (10,664) (1,168) (10,940) - (247) (150) (22) - - (17,272) (14,209) (247) (915) - - - - 77,143 - 77,143 (51,445) - (51,445) 25,698 111,094 275 111,369 (17,272) (14,209) (247) (915) The Company predominantly generates revenue and profit within Indonesia. Revenue with respect to international interconnections and assets held by geographical location are disclosed in Note 26 and Note 1, respectively. 99 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 39. REVENUE-SHARING ARRANGEMENTS (“RSA”) The Company has entered into separate agreements with several investors under RSA to develop fixed lines, public card-phone booths, data and internet network, and related supporting telecommunications facilities. As of December 31, 2013, the Company has 4 RSA’s with 4 investors. The RSA’s are located in East Java, Makassar, Pare-pare, Manado, Denpasar, Mataram and Kupang, with concession periods ranging from 129 to 148 months. Under the RSA, the investors finance the costs incurred in developing the telecommunications facilities and the Company manages and operates the telecommunications facilities upon the completion of the construction. Repairs and maintenance costs during RSA period are borne jointly by the Company and investors. The investors legally retain the rights to the property and equipment constructed by them during the RSA periods. At the end of the RSA period, the investors transfer the ownership of the telecommunications facilities to the Company at a nominal price. Generally, the revenues earned in the form of line installation charges, outgoing telephone pulses and monthly subscription charges are shared between the Company and investors based on certain agreed amount and/or ratio. 40. TELECOMMUNICATIONS SERVICE TARIFFS Under Law No. 36 Year 1999 and Government Regulation No. 52 Year 2000, tariffs for operating telecommunications network and/or services are determined by providers based on the tariff type, structure and with respect to the price cap formula set by the Government. a. Fixed line telephone tariffs The Government has issued a new adjustment tariff formula which is stipulated in the Decree No. 15/PER/M.KOMINFO/4/2008 dated April 30, 2008 of the Ministry of Communication and Information (“MoCI”) concerning “Procedure for Tariff Determination for Basic Telephony Services Connected through Fixed Line Network”. tariff structure for basic telephony services connected through fixed line Activation fee Under the Decree, network consists of the following: • • Monthly subscription charges • Usage charges • Additional facilities fee. b. Mobile cellular telephone tariffs the MoCI On April 7, 2008, issued Decree No. 09/PER/M.KOMINFO/04/2008 regarding “Mechanism to Determine Tariff of Telecommunication Services Connected through Mobile Cellular Network” which provides guidelines to determine cellular tariffs with a formula consisting of network element cost and retail services activity cost. This Decree replaced the previous Decree No. 12/PER/M.KOMINFO/02/2006. 100 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 40. TELECOMMUNICATIONS SERVICE TARIFFS (continued) b. Mobile cellular telephone tariffs (continued) Basic telephony services tariff Under MoCI Decree No. 09/PER/M.KOMINFO/04/2008 dated April 7, 2008, the cellular tariffs of operating telecommunication services connected through mobile cellular network consist of the following: • • Roaming tariff, and/or • Multimedia services tariff, with the following traffic structure: • • Monthly subscription charges • Usage charges • Additional facilities fee. Activation fee c. Interconnection tariffs The Indonesian Telecommunication Regulatory Body (“ITRB”), in its letter No. 227/BRTI/XII/2010 dated December 31, 2010, decided to implement new interconnection tariffs effective from January 1, 2011 for cellular mobile network, satellite mobile network and fixed local network, and effective from July 1, 2011 for fixed wireless local network with a limited mobility. Based on Decree No. 201/KEP/DJPPI/KOMINFO/7/2011 dated July 29, 2011 of the Director General of Post and Informatics, ITRB approved the Company’s revision of Reference Interconnection Offer (“RIO”) regarding the interconnection tariff. ITRB, in its letter No. 262/BRTI/XII/2011 dated December 12, 2011, decided to change the basis for interconnection SMS tariff to cost basis with a maximum tariff of Rp23 per SMS effective from June 1, 2012, for all telecommunication provider operators. d. Network lease tariffs Through MoCI Decree No. 03/PER/M.KOMINFO/1/2007 dated January 26, 2007 concerning “Network Lease”, the Government regulated the form, type, tariff structure, and tariff formula for services of network lease. Pursuant to the MoCI Decree, the Director General of Post and Telecommunication issued its Letter No. 115 Year 2008 dated March 24, 2008 which stated “The Agreement on Network Lease Service Type Document, Network Lease Service Tariff, Available Capacity of Network Lease Service, Quality of Network Lease Service, and Provision Procedure of Network Lease Service in 2008 Owned by Dominant Network Lease Service Provider”, in conformity with the Company’s proposal. e. Tariff for other services The tariffs for satellite lease, telephony services, and other multimedia are determined by the service provider by taking into account the expenditures and market price. The Government only determines the tariff formula for basic telephony services. There is no stipulation for the tariff of other services. 101 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS a. Capital expenditures As of December 31, 2013, capital expenditures committed under the contractual arrangements, principally relating to procurement and installation of switching equipment, transmission equipment and cable network are as follows: Currencies Rupiah U.S. dollar JPY Euro SGD Total Amounts in foreign currencies (in millions) Equivalent in rupiah - 660 58 0.3 0.2 10,404 8,043 7 5 2 18,461 The above balance includes the following significant agreements: (i) The Company Contracting parties The Company and Sansaine Huawei Consortium Initial date of agreement August 3, 2009 The Company and PT ZTE Indonesia September 4, 2009 The Company and PT ZTE Indonesia October 6, 2010 The Company and PT Industri Telekomunikasi Indonesia December 30, 2010 The Company and PT Lintas Teknologi Indonesia June 8, 2011 The Company and G-Pas Consortium June 14, 2011 The Company and Mandiri Maju Consortium June 14, 2011 The Company and PT QDC Technologies June 14, 2011 The Company and TEKKEN-DMT Consortium June 14, 2011 The Company and DJAFa Consortium June 14, 2011 The Company and PT Telekomindo Primakarya June 14, 2011 The Company and PT Nasio Karya Pratama June 14, 2011 The Company and Jembo Kabel-Tridayasa Consortium The Company and Pancamas Consortium June 14, 2011 June 14, 2011 Significant provisions of the agreement Procurement and installation agreement for softswitch and modernization of MSAN Divre I, Divre II, Divre III and Divre IV Procurement and installation agreement for modernization of MSAN softswitch Divre VI and Divre VII Procurement and installation agreement for Gigabit Capable Passive Optical Network (G-PON) Procurement and installation agreement for copper wire access modernization through Trade In/Trade Off method Procurement and installation agreement for DWDM Alcatel Lucent (ALU) Procurement and installation agreement for Outside Plant Fiber Optic (OSP-FO) Access and RMJ GPAS Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ 102 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) (i) The Company (continued) Contracting parties Initial date of agreement The Company and PT Ardhinusa Mitratel June 14, 2011 The Company and PT Karya Mitra Nugraha June 14, 2011 The Company and PT Merbau Prima Sakti June 14, 2011 The Company and PT Huawei Tech Investment October 11, 2011 The Company and PT Bina Nusantara Perkasa December 9, 2011 The Company and PT Multipolar Technology December 29, 2011 The Company and PT Huawei Tech Investment January 5, 2012 The Company and PT Ericsson Indonesia - PT Infracell Nusatama The Company and PT Len Industri (Persero) February 8, 2012 March 29, 2012 The Company and PT Sisindokom Lintasbuana July 4, 2012 The Company and PT Ketrosden Triasmitra - PT Nautic Maritime Salvage Consortium August 30, 2012 The Company and Furukawa and Partners Consortium November 14, 2012 The Company and INTI-Huawei Consortium November 14, 2012 The Company and JF DJAFA Consortium November 14, 2012 The Company and PT Mastersystem Infotama December 5, 2012 The Company and Binainfo Lokatara Consortium December 7, 2012 The Company and PT Huawei Tech Investment December 20, 2012 The Company and PT Infra Karya Pratama December 28, 2012 The Company and ASN - PT Lintas Consortium May 6, 2013 The Company and PT Sisindokom Lintasbuana May 8, 2013 The Company and NEC Corp - PT NEC Indonesia Consortium May 28, 2013 Significant provisions of the agreement Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for OSP-FO Access and RMJ Procurement and installation agreement for IMS (IP-Multimedia System) Procurement and installation agreement for “Sistem Komunikasi Kabel Laut” (“SKKL”) Sumatera-Bangka (SBCS) and SKKL Tarakan-Tanjung Selor (TSCS) Procurement and installation agreement for Telkom Cache System Procurement and installation agreement for ISP WDM SBCS JASUKA Procurement and installation agreement for IMS Procurement and installation agreement for copper wire access modernization through Trade In/Trade Off method Procurement and installation agreement for managed WIFI for Program of Indonesia WIFI Package-1 Procurement and installation agreement for SKKL Luwuk-Tutuyan Cable System (LTCS) Procurement and installation of Outside Plant Fiber To The Home (OSP FTTH) DIVA Regional V and VII Procurement and installation of OSP FTTH DIVA Regional III, IV and VI Procurement and installation agreement of OSP FTTH DIVA Regional II Procurement and installation agreement for IP Backbone (IPBB) System Procurement and installation agreement for Wireless Access Gateway (WAG), Policy and Charging Enforcement Function (PCEF) and Policy and Chargingrule Function (PCRF) Platform Ericsson Procurement and installation agreement for WAG, PCEF and PCRF Huawei Procurement and installation agreement for managed WIFI for Program of Indonesia WIFI Package-2 Procurement and installation agreement of Sulawesi Maluku Papua Cable System (SMPCS) project Procurement and installation agreement for expansion of PE-VPN CISCO Procurement and installation of SMPCS package-2 103 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) (i) The Company (continued) Contracting parties Initial date of agreement The Company and PT Huawei Tech Investment June 3, 2013 The Company and PT Datacomm Diangraha June 26, 2013 The Company and PT NEC Indonesia July 8, 2013 The Company and PT Lintas Teknologi Indonesia July 22, 2013 The Company and NEC Corporation October 2, 2013 The Company and PT ZTE Indonesia October 2, 2013 The Company and PT Wahana Ciptasinatria November 7, 2013 The Company and PT Cisco Technologies Indonesia The Company and PT Huawei Tech Investment November 14, 2013 December 6, 2013 The Company and PT Huawei Tech Investment December 6, 2013 The Company and PT ASB-PT ALU Indonesia-PT GBN - PT Lintas Consortium December 6, 2013 (ii) Telkomsel Contracting parties Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy and Nokia Siemens Network GmbH & Co. KG Telkomsel, PT Ericsson Indonesia and PT Nokia Siemens Networks Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy, Huawei International Pte. Ltd., PT Huawei and PT ZTE Indonesia Telkomsel, PT Packet Systems Indonesia and PT Huawei Initial date of agreement April 17, 2008 April 17, 2008 March and June 2009 February 3, 2010 Significant provisions of the agreement Procurement and installation agreement for expansion of Metro Ethernet Platform Huawei Procurement and installation agreement for expansion of Maintenance Support (MS) Service for Metro Ethernet Platform ALU Procurement and installation agreement for expansion of PE-Speedy and redirector Procurement and installation agreement for expansion of DWDN platform ALU Procurement and installation agreement for expansion of Ring Capacity of Surabaya-Ujung Pandang-Banjarmasin Backbone Procurement and installation agreement of OLT and ONT Procurement and installation agreement for Policy Control Equipment and Enforcement Function (PCEF) The partnership for procurement and installation agreement of WIFI CISCO Procurement and installation agreement for IP Radio Equipment for Backhaul Node-B Telkomsel Package-2 Platform Huawei Procurement and installation agreement for 10 Gigabyte of Capable Passive Optical Network (XGPON) Platform Huawei Procurement and installation agreement for XGPON Platform ALU Significant provisions of the agreement The combined 2G and 3G CS Core Network Rollout Agreements Technical Service Agreement (TSA) for combined 2G and 3G CS Core Network 2G BSS and 3G UTRAN Rollout agreement for the provision of 2G GSM BSS and 3G UMTS Radio Access Network Maintenance and procurement of equipment and related service agreement for Next Generation Convergence IP RAN Rollout and Technical Support 104 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) (ii) Telkomsel (continued) Contracting parties Telkomsel, PT Datacraft Indonesia and PT Huawei Initial date of agreement February 3, 2010 Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions February 8, 2010 Telkomsel and PT Application Solutions February 8, 2010 Telkomsel, PT Nokia Siemens Networks and NSN Oy Telkomsel and PT Nokia Siemens Networks Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions January 27, 2011 January 27, 2011 July 5, 2011 Telkomsel and PT Ericsson Indonesia December 21, 2011 Telkomsel, Apple South Asia Pte. Ltd. and PT Mitra Telekomunikasi Selular (“MTS”) Telkomsel and Huawei International Pte. Ltd. and PT Huawei Telkomsel and PT Ericsson Indonesia July 16, 2012 July 17, 2012 March 25, 2013 Telkomsel and Wipro Limited, Wipro Singapore Pte. Ltd. and PT WT Indonesia Telkomsel and PT Ericsson Indonesia April 23, 2013 October 22, 2013 (iii) GSD Contracting parties TLT and PT Adhi Karya Initial date of agreement November 6, 2012 TLT and PT Indalex February 11, 2013 GSD and PT Pembangunan Perumahan (Persero) TLT and PT Jaya Kencana March 5, 2013 May 14, 2013 Significant provisions of the agreement Maintenance and procurement of equipment and related service agreement for Next Generation Convergence Core Transport Rollout and Technical Support Online Charging System (“OCS”) and Service Control Points (“SCP”) System Solution Development Agreement Technical Support Agreement to provide technical support services for the OCS and SCP Soft HLR Rollout Agreement Soft HLR Technical Support Agreement Development and Rollout agreement for Customer Relationship Management and Contact Center solutions Development and Rollout Operating Support System (“OSS”) agreement Purchasing of iPhone products and provision of cellular network service CS Core System Rollout and CS Core System Technical Support agreement Technical Support Agreement (TSA) for the procurement of Gateway GPRS Support Node (“GGSN”) Service Complex agreement Development and procurement of OSDSS Solution agreement Procurement of GGSN Service Complex Rollout agreement Significant provisions of the agreement Service arrangement structure and main contractor architecture for Telkom Tower Building development project Procurement agreement for the Façade construction phase I unitized system Tower I and Tower II of Telkom Landmark Tower Building Development of Telkomsel’s building agreement Procurement and installation agreement for electrical construction of Telkom Landmark Tower Building 105 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) (iv) DMT Contracting parties DMT and PT M Jusuf & Sons (v) TII Initial date of agreement December 20, 2012 Significant provisions of the agreement Telecommunication tower development agreement Contracting parties TL and Digicel (TL) LDA (Digicel) TL, Ericsson AB and PT Ericsson Indonesia Initial date of agreement August 28, 2012 November 2, 2012 TL, Ericsson AB and PT Ericsson Indonesia February 1, 2013 TL and PT Cascadiant Indonesia December 31, 2012 December 31, 2012 November 20, 2013 Significant provisions of the agreement Trading tower location agreement Operational Supporting System (OSS), Base Sub Station (BSS) and Value Added System (VAS) System Rollout and Radio Access Network (RAN) and Core System Rollout agreement Management service agreement for end- to-end mobile network Installation and maintenance service agreement Purchase of equipment phase I agreement Purchase of equipment phase II agreement b. Borrowings and other credit facilities (i) As of December 31, 2013, the Company has bank guarantee facilities for tender bond, performance bond, maintenance bond, deposit guarantee and advance payment bond for various projects of the Company, as follows: Lenders BRI BNI Bank Mandiri Total Total facility 350 250 150 750 Maturity Currency March 14, 2014 March 31, 2014 December 23, 2014 Rp US$ Rp US$ Rp Facility utilized Original currency (in millions) Rupiah equivalent - 0 - 0 - 209 1 100 2 45 357 (ii) Telkomsel has a US$3 million bond and bank guarantee and standby letter of credit facilities with SCB, Jakarta. The facilities expire on July 31, 2014. Under these facilities, as of December 31, 2013, Telkomsel has issued a bank guarantee of Rp20 billion (equivalent to US$1.7 million) for a 3G performance bond (Note 41c.i). The bank guarantee is valid until March 24, 2014. Telkomsel has a Rp200 billion bank guarantee facilitiy with BRI. The facility will expire on September 25, 2014. Under the facility, as of December 31, 2013, Telkomsel has issued a bank guarantee of Rp20 billion (equivalent to USD1.6 million) as a 3G performance bond (Note 41c.i) valid until May 31, 2014 and Rp111 billion (equivalent to USD9.1 million) as payment commitment guarantee for annual right of usage fee valid until March 31, 2014. Telkomsel also has a Rp100 billion bank guarantee with BNI. The bank guarantee is valid until December 11, 2014. Telkomsel was this facility to replace the time deposit used guaranty for the USO program amounting to Rp92,653 billion. (iii) TII has a US$15 million bank guarantee from Bank Mandiri. The facility expires on December 19, 2014. Under this facility, as of December 31, 2013, TII has issued a bank to US$0,76 million) for mobile spectrum license guarantee of Rp9 billion (equivalent performance bond in Timor Leste. 106 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (i) 3G license reference With 07/PER/M.KOMINFO/2/2006, No. 268/KEP/M.KOMINFO/9/2009 and No. 191 year 2013 of the MoCI (Note 2i), Telkomsel is required, among other things, to: Decision Letters No. the to 1. Pay an annual BHP fee which is calculated based on a certain formula over the license term (10 years) as set forth in the Decision Letters. The BHP is payable upon receipt of the notification letter (“Surat Pemberitahuan Pembayaran”) from the DGPI. The BHP fee is payable annually up to the expiry date of the license. 2. Provide roaming access for the existing other 3G operators. 3. Contribute to USO development. 4. Construct a 3G network which covers at least 14 provinces by the sixth year of holding the 3G license. 5. Issue a performance bond each year amounting to Rp20 billion or 5% of the annual fee to be paid for the subsequent year, whichever is higher. (ii) Radio Frequency Usage Based on the Decree No. 76 dated December 15, 2010 of the Government of the Republic of Indonesia, which amended Decree No. 7 dated January 16, 2009, the annual frequency usage fees for bandwidths of 800 Megahertz (“MHz”), 900 MHz and 1800 MHz are determined using a formula set forth in the Decree. The Decree is applicable for 5 years unless further amended. As an implementation of the above Decree, the Company and Telkomsel paid the first year and second year annual frequency usage fees in 2010 and 2011, respectively. Based on Decision Letters No. 495 dated August 29, 2012 and No. 491 dated August 29, 2012, the MoCI determined that the third year (Y3), 2012, annual frequency usage fees of the Company and Telkomsel were Rp174 billion and Rp1,718 billion, respectively. The fees were paid in December 2012. Based on Decision Letters No. 881 dated September 10, 2013 and No. 884 dated September 10, 2013, the MoCI determined that the fourth year (Y4), 2013, annual frequency the Company and Telkomsel were Rp213 billion and Rp1,649 billion, usage fees of respectively. The fees were paid in December 2013 (Note 2i). (iii) Apple, Inc On January 9 and July 16, 2009, Telkomsel entered into agreements with Apple, Inc for the purchase of iPhone products, marketing it to customers using third parties (PT Trikomsel OKE and PT Mitra Telekomunikasi Selular) and providing cellular network services over a 3-year term. Subsequently, on July 16, 2012, Telkomsel replaced the agreements with a new agreement. Cumulative minimum iPhone units to be purchased up to June 2015 are at least 500,000 units. 107 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (iv) Future Minimum Lease Payments of Operating Lease The Company and subsidiaries entered into non-cancelable lease agreements with both third and related parties. The lease agreements cover leased lines, telecommunication equipment and land and building with terms ranging from 1 to 10 years and with expiry dates between 2014 and 2023. Future minimum lease payments under the operating lease agreements as of December 31, 2013 are as follows: As lessee As lessor (v) USO Total 14,037 4,571 Less than 1 year 1-5 years More than 5 years 1,845 1,025 6,365 2,596 5,827 950 The MoCI issued Regulation No. 15/PER/M.KOMINFO/9/2005 dated September 30, 2005, which sets forth the basic policies underlying the USO program and requires telecommunications operators in Indonesia to contribute 0.75% of their gross revenues (with due consideration for bad debts and interconnection charges) for USO development. Based the contribution was on the Government’s Decree No. 7/2009 dated January 16, 2009, changed to 1.25% of gross revenues, net of bad debts and/or interconnection charges and/or connection Decree No. 05/PER/M.KOMINFO/2/2007 was replaced by Decree No. 45 year 2012 of the MoCi which was effective from January 22, 2013. The Decree stipulates, among other things, the exclusion of certain revenues that are not considered as part of gross revenues as a basis to calculate the USO charged, and changed the payment period which was previously on a quarterly basis to become quarterly or semi-annually. Subsequently, December charges. 2012, in Based on MoCI Decree No. 32/PER/M.KOMINFO/10/2008 dated October 10, 2008 which replaced MoCI Decree No. 11/PER/M.KOMINFO/04/2007 dated April 13, 2007 and MoCI Decree No. 38/PER/M.KOMINFO/9/2007 dated September 20, 2007, it is stipulated that, in providing telecommunication access and services in rural areas among others, by determined (USO Program), Balai Telekomunikasi dan Informatika Pedesaan (“BTIP”) which was established based on MoCI Decree No. 35/PER/M.KOMINFO/11/2006 dated November 30, 2006. Subsequently, based on Decree No. 18/PER/M.KOMINFO/11/2010 dated November 19, 2010 of MoCI, BTIP was changed to Balai Penyedia dan Pengelola Pembiayaan Telekomunikasi dan Informatika (“BPPPTI”). selection provider process through the is a 108 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (v) USO (continued) a. Company On March 12, 2010, the Company was selected in a tender by the Government through BTIP to provide internet access service centers for USO sub-districts for a total amount of Rp322 billion, covering Nanggroe Aceh Darussalam, Sumatera Utara, Sulawesi Utara, Gorontalo, Sulawesi Tengah, Sulawesi Barat, Sulawesi Selatan and Sulawesi Tenggara. On December 23, 2010, the Company was selected in a tender by the Government through BTIP to provide mobile internet access service centers for USO sub-districts for a total amount of Rp528 billion, covering Jambi, Riau, Kepulauan Riau, Sulawesi Utara, Sulawesi Tengah, Gorontalo, Sulawesi Barat, Sulawesi Tenggara, Kalimantan Tengah, Sulawesi Selatan, Papua and Irian Jaya Barat. b. Telkomsel On January 16 and 23, 2009, Telkomsel was selected in a tender by the Government through BTIP to provide telecommunication access and services in rural areas (USO Program) for a total amount of Rp1.66 trillion, covering all Indonesian territories except Sulawesi, Maluku and Papua. Telkomsel will obtain local fixed-line licenses and the right to use radio frequency in the 2390 MHz - 2400 MHz bandwith. the agreements with BTIP were amended, which Subsequently, amendments cover, among other things, changing the price to Rp1.76 trillion and changing the term of payment from quarterly to monthly or quarterly. in 2010 and 2011, In January 2010, the MoCI granted Telkomsel operating licenses to provide local fixed- line services under the USO program. On December 27, 2011, Telkomsel (on behalf of Konsorsium Telkomsel, a consortium which was established with Dayamitra on December 9, 2011) was selected by BPPPTI as a provider of the USO Program in the border areas for all packages (package 1 to package 13) with a total price of Rp830 billion. On such date, Telkomsel was also selected by BPPPTI as a provider of the USO Program (upgrading) of “Desa Pinter” or “Desa Punya Internet” for 1, 2 and 3 packages with a total price of Rp261 billion. 109 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 41. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (v) USO (continued) For the years ended December 31, 2013 and 2012, the Company and Telkomsel recognized the following amounts: Revenues Construction Operation of telecommunication service centre Profits Construction Operation of telecommunication service centre 2013 2012 67 508 11 150 245 353 6 83 As of December 31, 2013, the Company’s and Telkomsel’s trade receivables from the USO programs which are measured at amortized cost using the effective interest rate method amount to Rp654 billion (Notes 6 and 12). 42. CONTINGENCIES In the ordinary course of business, the Company and subsidiaries have been named as defendants in various legal actions in relation with land disputes, monopolistic practice and unfair business competition and SMS cartel practices. Based on management's estimate of the probable outcomes of these matters, the Company and subsidiaries have recognized provision for losses amounting to Rp49 billion as of December 31, 2013. a. The Company, Telkomsel and seven other local operators are being investigated by The Commission for the Supervision of Business Competition (“Komisi Pengawasan Persaingan Usaha” or “KPPU”) for allegations of SMS cartel practices. As a result of the investigations on June 17, 2008, KPPU found that the Company, Telkomsel and certain other local operators had violated Law No. 5 year 1999 article 5 and charged the Company and Telkomsel penalty in the amounts of Rp18 billion and Rp25 billion, respectively. Management believes that there are no such cartel practices that led to a breach of prevailing regulations. Accordingly, the Company and Telkomsel filed an appeal with the Bandung District Court and South Jakarta District Court on July 14, 2008 and July 11, 2008, respectively. 110 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 42. CONTINGENCIES (continued) Due to the filing of case by operators in various courts, the KPPU subsequently requested the Supreme Court (SC) to consolidate the cases into the Central Jakarta District Court. Based on the SC’s decision letter dated April 12, 2011, the SC appointed the Central Jakarta District Court to investigate and resolve the case. As of the issuance date of notification on the case from the court. the consolidated financial statements, there has not been any b. The Company is a defendant in a case filed in Makassar District Court by Andi Jindar Pakki and his affiliates over a land property on Jl. A.P. Pettarani. On May 8, 2013, the court pronounced its verdict and ordered the Company to pay fair compensation or to vacate and surrender the disputed land to the plaintiffs. On May 20, 2013 the Company filed an appeal to the Makassar High Court, objecting to the District Court’s ruling. In December 2013, the Makassar High Court pronounced its verdict that is favorable to the plaintiffs and the Company filed an appeal to the Supreme Court. As of the issuance date of the consolidated financial statements, no decision has been reached on the appeal. 43. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are as follows: Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Advances and other non-current assets Total assets Liabilities Trade payables Related parties Third parties Other payables Accrued expenses Short-term bank loan Advances from customers and suppliers Current maturities of long-term liabilities Promissory notes Long-term liabilities - net of current maturities Total liabilities Liabilities - net Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Advances and other non-current assets Total assets U.S. dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) 2013 394.30 10.78 2.44 66.27 0.68 5.76 480.23 (1.40) (275.35) (7.62) (51.41) - (1.60) (34.85) (28.67) (78.82) (479.72) 1.23 - - - - - 1.23 - - - (18.63) - - (767.90) - (7,678.98) (8,465.51) 0.51 (8,464.28 ) 2012 11.42 - - 0.17 0.13 - 11.72 - (4.33) (0.09) (0.01) - (0.01) - - - (4.44) 7.28 4,940 131 30 808 10 70 5,989 (17) (3,409) (94) (629) - (20) (514) (349) (1,850) (6,882) (893) U.S. dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) 412.69 7.17 9.03 74.89 1.20 9.89 514.87 1.33 - - - - - 1.33 6.38 - - 0.44 0.06 - 6.88 4,042 69 87 727 12 95 5,032 * Assets and liabilities denominated in other foreign currencies are presented as U.S. dollar equivalents using the buy and sell rates quoted by Reuters prevailing at the end of the reporting period. 111 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 43. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued) Liabilities Trade payables Related parties Third parties Other payables Accrued expenses Short-term bank loans Advances from customers and suppliers Current maturities of long-term liabilities Promissory notes Long-term liabilities - net of current maturities Total liabilities Liabilities - net 2012 U.S. dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) (1.49) (320.34) (0.92) (75.07) (0.42) (0.80) (30.75) (68.62) (112.84) (611.25) - - - (32.87) - - (767.90) - (8,446.87) (9,247.64) (96.38) (9,246.31 ) - (2.41) (0.13) (3.00) - (0.20) - - - (5.74) 1.14 (14) (3,120) (10) (759) (4) (10) (383) (661) (2,035) (6,996) (1,964) * Assets and liabilities denominated in other foreign currencies are presented as U.S. dollar equivalents using the buy and sell rates quoted by Reuters prevailing at the end of the reporting period. The Company and subsidiaries’ activities expose them to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates, and interest rates. If the Company and subsidiaries report monetary assets and liabilities in foreign currencies as of December 31, 2013 using the exchange rates on February 28, 2014, the unrealized foreign exchange gain will increase by Rp13 billion. 44. FINANCIAL RISK MANAGEMENT 1. Financial risk management the Company and subsidiaries’ The Company and subsidiaries activities expose them to a variety of financial risks such as market risks (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. Overall, financial risk management program is intended to minimize losses on the financial assets and financial liabilities arising from fluctuation of foreign currency exchange rates and the fluctuation of interest rates. Management has a written policy for foreign currency risk management mainly on time deposit placements and hedging to cover foreign currency risk exposures for periods ranging from 3 up to 12 months. Financial risk management is carried out by the Corporate Finance unit under policies approved by the Board of Directors. The Corporate Finance unit identifies, evaluates and hedges financial risks. a. Foreign exchange risk The Company and subsidiaries are exposed to foreign exchange risk on sales, purchases and borrowings that are denominated in foreign currencies. The foreign currency denominated transactions are primarily in U.S. dollar and Japanese yen. The Company and subsidiaries’ exposures to other foreign exchange rates are not material. Increasing risks of foreign currency exchange rates on the obligations of the Company and subsidiaries are expected to be offset by the effects of the exchange rates on time deposits and receivables in foreign currencies that are equal to at least 25% of the outstanding current liabilities. 112 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 1. Financial risk management (continued) a. Foreign exchange risk (continued) The following table presents the Company and subsidiaries’ financial assets and financial liabilities exposure to foreign currency risk: 2013 2012 U.S. dollar (in billions) Japanese yen (in billions) U.S. dollar (in billions) Japanese yen (in billions) 0.48 (0.48) 0.00 0.00 (8.47) (8.47) 0.51 (0.61) (0.10) 0.00 (9.25) (9.25) Financial assets Financial liabilities Net exposure Sensitivity analysis A strengthening of the U.S. dollar and Japanese yen, as indicated below, against the rupiah at December 31, 2013 would have decreased equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Company and subsidiaries considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in particular interest rates, remain constant. December 31, 2013 U.S. dollar (1% strengthening) Japanese yen (5% strengthening) Equity/profit (loss) 0 (48) A weakening of the U.S. dollar and Japanese yen against the rupiah at December 31, 2013 would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. b. Market price risk The Company and subsidiaries are exposed to changes in debt and equity market prices related to available-for-sale investments carried at fair value. Gains and losses arising from changes in the fair value of available-for-sale investments are recognized in equity. The performance of the Company and subsidiaries’ available-for-sale investments is monitored periodically, together with a regular assessment of their relevance to the Company and subsidiaries’ long-term strategic plans. As of December 31, 2013, management considered the price risk for the Company’s available-for-sale investments to be immaterial in terms of the possible impact on profit or loss and total equity from a reasonably possible change in fair value. c. Interest rate risk Interest rate fluctuation is monitored to minimize any negative impact to financial position. Borrowings at variable interest rates expose the Company and subsidiaries to interest rate risk (Notes 17, 18, 19, 20 and 21). To measure market risk pertaining to fluctuations in interest rates, the Company and subsidiaries primarily use interest margin and maturity profile of the financial assets and liabilities based on changing schedule of the interest rate. 113 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 1. Financial risk management (continued) c. Interest rate risk (continued) At reporting date, the interest rate profile of the Company and subsidiaries’ interest-bearing borrowings was as follows: Fixed rate borrowings Variable rate borrowings Sensitivity analysis for variable rate borrowings 2013 2012 (9,591) (10,665) (7,025) (12,250) At December 31, 2013, a decrease (increase) by 25 basis points in interest rates of variable rate borrowings would have increased (decreased) equity and profit or loss by Rp27 billion, respectively. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. d. Credit risk The following table presents the maximum exposure to credit risk of subsidiaries’ financial assets: the Company and 2013 2012 Cash and cash equivalents Other current financial assets Trade and other receivables, net Long-term investments Advances and other non-current assets Total 14,696 6,872 6,421 21 685 28,695 13,118 4,338 5,409 21 614 23,500 The Company and subsidiaries are exposed to credit risk primarily from trade receivables and other receivables. The credit risk is managed by continuous monitoring of outstanding balances and collection. Trade and other receivables do not have any major concentration risk whereas no customers. receivables balance exceeds 2% of trade receivables at December 31, 2013. Management is confident in its ability to continue to control and sustain minimal exposure to credit risk given that the Company and subsidiaries have provided sufficient provision for impairment of receivables to cover incurred loss arising from uncollectible receivables based on existing historical data on credit losses. e. Liquidity risk Liquidity risk arises in situations where the Company and subsidiaries have difficulties in fulfilling financial liabilities when they become due. Prudent liquidity risk management implies maintaining sufficient cash in order to meet the Company and subsidiaries’ financial obligations. The Company and subsidiaries continuously perform an analysis to monitor financial position ratios, such as liquidity ratios, and debt equity ratios, against debt covenant requirements. 114 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 1. Financial risk management (continued) e. Liquidity risk (continued) The following is the maturity profile of the Company and subsidiaries’ financial liabilities: December 31, 2013 Trade and other payables Accrued expenses Loans and other borrowings Bank loans Obligations under finance leases Two-step loans Bonds and notes Total December 31, 2012 Trade and other payables Accrued expenses Loans and other borrowings Bank loans Obligations under finance leases Two-step loans Bonds and notes Carrying amount Contractual cash flows 2014 2015 2016 2017 2018 and thereafter 11,988 5,264 (11,988) (5,264) (11,988) (5,264) - - - - - - - - 10,023 (11,618) (5,028) (3,264) (1,248) (980) (1,098) 4,969 1,915 3,349 (6,904) (2,308) (4,817) (1,070) (292) (582) 37,508 (42,899) (24,224) (885) (285) (1,311) (5,745) (847) (278) (215) (813) (271) (203) (2,588) (2,267) (3,289) (1,182) (2,506) (8,075) Carrying amount Contractual cash flows 2013 2014 2015 2016 2017 and thereafter 7,456 6,163 (7,456) (6,163) (7,456) (6,163) - - - - 11,295 (12,585) (5,118) (3,869) (2,518) 2,324 1,987 3,669 (3,172) (2,462) (5,462) (652) (283) (757) (548) (277) (505) (398) (270) (1,287) - - (602) (354) (263) (203) - - (478) (1,220) (1,369) (2,710) Total 32,894 (37,300) (20,429) (5,199) (4,473) (1,422) (5,777) The difference between the carrying amount and the contractual cash flows is interest value. 2. Fair value of financial assets and financial liabilities a. Fair value measurement Fair value is the amount for which an asset could be exchanged, or liability settled, between in an arm’s length transaction. The Company and subsidiaries determined the fair value measurement purposes of each class of financial assets and financial methods and assumptions: for disclosure liabilities based on the following (i) The fair values of short-term financial assets and financial liabilities with maturities of one trade receivables, other receivables, other year or less (cash and cash equivalents, current assets, trade payables, other payables, dividend payable, accrued expenses, advances from customers and suppliers and short-term bank loans) are considered to approximate their carrying amounts as the impact of discounting is not significant . 115 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 2. Fair value of financial assets and financial liabilities (continued) a. Fair value measurement (continued) (ii) Available-for-sale financial assets primarily consist of shares, mutual funds and Corporate and Government bonds. Shares and mutual funds actively traded in an established market are stated at fair value using quoted market price or, if unquoted, determined using a valuation technique. Corporate and Government bonds are stated at fair value by reference to prices of similar securities at the reporting date. (iii) The fair values of long-term financial liabilities are estimated by discounting the future contractual cash flows of each liability at rates offered to the Company and subsidiaries for similar the Company and subsidiaries, except for bonds which are based on market prices. liabilities of comparable maturities by the bankers of The fair value estimates are inherently judgmental and involve various limitations, including: a. Fair values presented do not take into consideration the effect of future currency fluctuations. b. Estimated fair values are not necessarily indicative of the amounts that the Company and subsidiaries would record upon disposal/termination of the financial assets and liabilities. b. Classification and fair value The following table presents the carrying value and estimated fair values of the Company and subsidiaries' financial assets and liabilities based on their classifications: Cash and cash equivalents Other current financial assets Trade and other receivables, net Long-term investments Advances and other non-current assets Total financial assets Trade and other payables Accrued expenses Loans and other borrowings Short-term bank loans Obligations under finance leases Two-step loans Bonds and notes Long-term bank loans Total financial liabilities December 31, 2013 Trading Loans and receivables Available for sale Other financial liabilities Total carrying amount Fair value - - - - - - - - - - - - - - 14,696 6,600 6,421 - 685 28,402 - - - - - - - - - 272 - 21 - 293 - - - - - - - - - - - - - - 14,696 6,872 6,421 21 685 28,695 (11,988) (5,264) (11,988) (5,264) (432) (4,969) (1,915) (3,349) (9,591) (432) (4,969) (1,915) (3,349) (9,591) 14,696 6,872 6,421 21 685 28,695 (11,988) (5,264) (432) (4,969) (1,921) (3,490) (9,474) (37,508) (37,508) (37,538) 116 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 2. Fair value of financial assets and financial liabilities (continued) b. Classification and fair value (continued) December 31, 2012 Trading Loans and receivables Available for sale Other financial liabilities Total carrying amount Fair value - - - - - - - - - - - - - - 13,118 4,028 5,409 - 614 23,169 - - - - - - - - - 310 - 21 - 331 - - - - - - - - - - - - - - (7,456) (6,163) (37) (2,324) (1,987) (3,669) (11,258) 13,118 4,338 5,409 21 614 23,500 (7,456) (6,163) (37) (2,324) (1,987) (3,669) (11,258) 13,118 4,338 5,409 21 614 23,500 (7,456) (6,163) (37) (2,324) (2,075) (4,022) (11,346) (32,894) (32,894) (33,423) Cash and cash equivalents Other current financial assets Trade and other receivables, net Long-term investments Advances and other non-current assets Total financial assets Trade and other payables Accrued expenses Loans and other borrowings Short-term bank loans Obligations under finance leases Two-step loans Bonds and notes Long-term bank loans Total financial liabilities c. Fair value hierarchy The table below presents the recorded amount of financial assets measured at fair value and limited mutual funds participation unit for debt-based securities where the Net Asset Value (“NAV”) per share of the investments information is not published as explained below: December 31, 2013 Fair value measurement at reporting date using Quoted prices in active markets for identical assets or liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Balance 272 297 569 48 - 48 224 - 224 0 297 297 Financial assets Available-for-sale securities Fair value to profit or loss securities (Note 3) Total December 31, 2012 Fair value measurement at reporting date using Quoted prices in active markets for identical assets or liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Financial assets Balance Available-for-sale securities 310 52 210 48 117 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 44. FINANCIAL RISK MANAGEMENT (continued) 2. Fair value of financial assets and financial liabilities (continued) c. Fair value hierarchy (continued) Available-for-sale financial assets primarily consist of shares, mutual funds and Corporate and Government bonds. Corporate and Government bonds are stated at fair value by reference to the reporting date. As they are not actively traded in an prices of similar securities at established market, these securities are classified as level 2. Shares and mutual funds actively traded in an established market are stated at fair value using quoted market price and classified within level 1. The valuation of the mutual funds invested in Corporate and Government bonds requires significant management judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. As these investments are subject to restrictions on redemption (such as transfer restrictions and initial lock-up periods) and observable activity for the investments is limited, these investments are therefore classified within level 3 of the fair value hierarchy. Management considers among other assumptions, the valuation and quoted price of the arrangement of the mutual funds. Reconciliations of the beginning and ending balance for investment measured at fair value using significant unobservable inputs (level 3) as of December 31, 2013 and 2012 are as follows: Balance at January 1 Purchase Put Option Included in consolidated statement of comprehensive income Realized loss - recognized in profit or loss Unrealized loss - recognized in other comprehensive income Redemption Balance at December 31 2013 2012 48 - 289 - 8 (48) 297 64 8 - (1) (2) (21) 48 45. CAPITAL MANAGEMENT The capital structure of the Company and subsidiaries is as follows: Short-term debts Long-term debts Total debts Equity attributable to owners Total 2013 2012 Amount Portion Amount Portion 0.53% 24.54% 25.07% 74.93% 100.00% 37 19,238 19,275 51,541 70,816 0.05% 27.17% 27.22% 72.78% 100.00% 432 19,824 20,256 60,542 80,798 118 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 45. CAPITAL MANAGEMENT (continued) The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for stockholders and benefits to other stakeholders and to maintain an optimum capital structure to minimize the cost of capital. Periodically, the Company conducts debt valuation to assess possibilities of refinancing existing debts with new ones which have more efficient cost that will lead to more optimized cost-of-debt. In case of idle cash with limited investment opportunities, the Company will consider buying back its shares of stock or paying dividend to its stockholders. In addition to complying with loan covenants, the Company also maintains its capital structure at the level it believes will not risk its credit rating and is comparable with its competitors. Debt to equity ratio (comparing net interest-bearing debt to total equity) is a ratio which is monitored by management to evaluate the Company’s capital structure and review the effectiveness of the Company’s debts. The Company monitors its debt levels to ensure the debt to equity ratio complies with or is below the ratio set out in its contractual borrowings and that such ratios are comparable or better than those of regional area entities in the telecommunications industry. The Company’s debt to equity ratio as of December 31, 2013 and 2012 is as follows: Total interest-bearing debts Less cash and cash equivalents Net debts Total equity attributable to owners Net debt to equity ratio 2013 2012 20,256 (14,696) 5,560 60,542 19,275 (13,118) 6,157 51,541 9.18% 11.95% As stated in Notes 19, 20 and 21, the Company is required to maintain a certain debt to equity ratio and debt service coverage ratio by the lenders. During the years ended December 31, 2013 and 2012, the Company has complied with the externally imposed capital requirements. 46. SUPPLEMENTAL CASH FLOWS INFORMATION The non-cash investing activities for the years ended December 31, 2013 and 2012 are as follows: Acquisition of property and equipment credited to: Trade payables Obligations under finance leases Non-monetary exchange Acquisition of data center business 2013 2012 6,412 3,201 268 - 4,627 2,588 1,686 150 119 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 47. SUBSEQUENT EVENTS a. On January 10, 2014, Sigma entered into short-term and long-term working capital credit facility agreements involving Rp25 billion and Rp322 billion, respectively, for the development of data center located in Sentul. b. On January 15, 2014, PT Graha Telkom sigma (GTS) and PT Granary Reka Cipta signed an agreement for the development of utilization, and the development and processing of assets that belong to GTS located in Baturiti, Tabanan Bali. The cooperation is carried out under a revenue- sharing agreement for 10 years. c. On January 20, 2014, the Company filed an objection to the Tax Underpayment Assessment for VAT for the year 2007 that was received by the Company in November 2013 (Note 31). d. On January 22, 2014, Telkomsel received a formal verdict from the Tax Court concerning Telkomsel’s claim for tax refund for import duties. Based on its verdict, the Tax Court accepted a portion of Telkomsel’s appeal. As of the issuance date of the consolidated financial statements, Telkomsel plans to refund the accepted portion of the claim amounting to Rp8.5 billion (Note 31). e. On January 23, 2014, the Company established subsidiary named PT Infrastruktur Telekomunikasi Indonesia (Telkom Infratel) that had been legalized based on the Ministry of Law and Human Rights (MoLHR) Decision Letter No. AHU-03196.AH.01.01. Year 2014. f. On January 29, 2014, the MoCI issued Decision Letter No. 42 Year 2014, granting Telkomsel the license to provide: a. Mobile telecommunication services with radio frequency bandwidth in the 900 MHz and 1800 MHz bands; b. Mobile telecommunication services IMT-2000 with radio frequency bandwidth in the 2.1 GHz bands (3G); and c. Basic telecommunication services. The license replaced Decision letter No. 101/KEP/M.KOMINFO/10/2006 dated October 11, 2006. g. On January letter ITRB No. 118/KOMINFO/DJPPI/PI.02.04/01/2014, decided to implement the new interconnection tariffs effective from February 2014 until December 2016, subject to evaluation on an annual basis. Telkomsel, 2014, 30, the its of in h. On February 20, 2014, Infomedia made a drawdown from the credit facility from Bank UOB amounting to Rp70 billion. 120 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 48. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) The following tables set forth a reconciliation of the consolidated statement of financial position as of December 31, 2013 and consolidated statements of comprehensive income for the year ended December 31, 2013, in each case between PSAK and IFRS. PSAK RECONCILIATION IFRS CONSOLIDATED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2013 ASSETS CURRENT ASSETS Cash and cash equivalents Other current financial assets Trade receivables - net of provision for impairment of receivables Related parties Third parties Other receivables - net of provision for impairment of receivables Inventories - net of provision for obsolescence Advances and prepaid expenses Claims for tax refund Prepaid taxes Asset available for sale Total Current Assets NON-CURRENT ASSETS Long-term investments Property and equipment - net of accumulated depreciation Prepaid pension benefit costs Advances and other non-current assets Intangible assets - net of accumulated amortization Deferred tax assets - net Total Non-current Assets TOTAL ASSETS LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables Related parties Third parties Other payables Taxes payables Accrued expenses Unearned income Advances from customers and suppliers Short-term bank loans Current maturities of long-term liabilities Total Current Liabilities 14,696 6,872 900 5,126 395 509 3,937 10 525 105 33,075 304 86,761 927 5,294 1,508 82 94,876 127,951 826 10,774 388 1,698 5,264 3,490 472 432 5,093 28,437 121 - - 778 (778) - - - - - - - - (162) 22 - - (15) (155) (155) 962 (962) - - - - - - - - 14,696 6,872 1,678 4,348 395 509 3,937 10 525 105 33,075 304 86,599 949 5,294 1,508 67 94,721 127,796 1,788 9,812 388 1,698 5,264 3,490 472 432 5,093 28,437 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 48. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) (continued) PSAK RECONCILIATION IFRS NON-CURRENT LIABILITIES Deferred tax liabilities - net Other liabilities Long service award provisions Post-retirement health care benefit provisions Retirement benefits obligation and other post-retirement benefits Long-term liabilities - net of current maturities Obligations under finance leases Two-step loans Bonds and notes Bank loans Total Non-current Liabilities TOTAL LIABILITIES EQUITY Capital stock Additional paid-in capital Treasury stock Effect of change in equity of associated companies Unrealized holding gain on available-for-sale securities Translation adjustment Difference due to acquisition of non-controlling interests in subsidiaries Other reserves Retained earnings Net equity attributable to owners of the parent company Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 3,004 472 336 752 2,795 4,321 1,702 3,073 5,635 22,090 50,527 5,040 2,323 (5,805) 386 38 391 (508) 49 58,628 60,542 16,882 77,424 127,951 (96) - - 241 470 - - - - 615 615 - (478) - (386) (38) (391) 508 149 (153) (789) 19 (770) (155) 2,908 472 336 993 3,265 4,321 1,702 3,073 5,635 22,705 51,142 5,040 1,845 (5,805) - - - - 198 58,475 59,753 16,901 76,654 127,796 122 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 48. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) (continued) PSAK RECONCILIATION IFRS REVENUES Operations, maintenance and telecommunication service expenses Depreciation and amortization Personnel expenses Interconnection expenses Marketing expenses General and administrative expenses Loss on foreign exchange - net Other income Other expenses OPERATING PROFIT Finance income Finance costs Share of loss of associated companies PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation Change in fair value of available-for-sale financial assets Defined benefit plan actuarial gain Net Other Comprehensive Income TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year attributable to: Owners of the parent company Non-controlling interests Total comprehensive income for the year attributable to: Owners of the parent company Non-controlling interests BASIC AND DILUTED EARNINGS PER SHARE (in full amount) Net income per share Net income per ADS (200 Series B shares per ADS) 82,967 (19,332) (15,780) (9,733) (4,927) (3,044) (4,155) (249) 2,579 (480) 27,846 836 (1,504) (29) 27,149 (6,859) 20,290 120 (8) - 112 20,402 14,205 6,085 20,290 14,317 6,085 20,402 - - (25) (96) - - - - 2 - (119) - - - (119) (41) (160) - - 4,999 4,999 4,839 (159) (1) (160) 4,697 142 4,839 82,967 (19,332) (15,805) (9,829) (4,927) (3,044) (4,155) (249) 2,581 (480) 27,727 836 (1,504) (29) 27,030 (6,900) 20,130 120 (8) 4,999 5,111 25,241 14,046 6,084 20,130 19,014 6,227 25,241 147.42 29,483.60 0.35 145.77 (330.02) 29,153.58 123 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 and for the Year Then Ended (Figures in tables are expressed in billions of rupiah, unless otherwise stated) 48. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARDS) (continued) a. Employee benefits Under PSAK, the actuarial gains or losses are recognized as income or expense when the net cumulative unrecognized actuarial gains or losses at the end of the previous reporting period exceed 10% of the present value of the defined benefit obligation. These gains or losses are recognized on a straight-line basis over the expected average remaining service years of the employees. The change in the defined benefit obligation due to plan changes affecting vested benefits is recognized immediately in profit or loss, while the effect of plan changes affecting unvested benefits is amortized over future periods to the date the amended benefits vest. Interest income on plan assets is determined based on their long-term rate of expected return. PSAK does not specify which administration costs to include as part of the return on plan assets. Under IFRS, remeasurements consist of actuarial gains or losses, including the difference between the actual return on plan assets (net of taxes and administration costs) with return implied by the discount rate, and changes in the asset ceiling are recognized directly to other comprehensive income. The entire change in the defined benefit obligation due to plan changes is to be recognized immediately through profit or loss. Net interest on the net de ned bene t liability or asset comprises interest cost on the de ned bene t obligation and interest income on plan assets that are measured using the discount rate at the beginning of the year. Only administration costs directly related to the management of plan assets are included as part of the return on plan assets. b. Land rights Under PSAK, land rights are recorded as part of property and equipment and are not amortized, unless there is indication that the extension or renewal of land rights is not expected to be or will not be received. Costs incurred to process the extension or renewal of land legal rights are recognized as intangible assets and amortized over the shorter of the term of the land rights or the economic life of the land. Under IFRS, land rights are accounted for as finance lease and presented as part of property and equipment. Land rights are amortized over the lease term. c. Related party transactions Under Bapepam - LK Regulation No. VIII.G.7 regarding the Presentation and Disclosures of Financial Statements of Issuers or Public Companies, a government-related entity is an entity that is controlled, jointly controlled or significantly influenced by a government. Government in this context is the Ministry of Finance or the Local Government, as the shareholder of the entity. jointly controlled or Under IFRS, a government-related entity is an entity that significantly influenced by a government. Government in this context refers to the Government of Indonesia, government agencies and similar bodies whether local, national or international. is controlled, 124 2013 Annual Report PT Telekomunikasi Indonesia, Tbk 2013 Annual Report PT Telekomunikasi Indonesia, Tbk PT Telekomunikasi Indonesia, Tbk. Investor Relations Grha Merah Putih 5th floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia T +62 21 521 5109 F +62 21 522 0500 email : investor@telkom.co.id IDX : TLKM NYSE : TLK LSE : TKID www.telkom.co.id Creating Global Talents and Opportunities 2 0 1 3 A n n u a l R e p o r t P T T e l e k o m u n i k a s i I n d o n e s i a , T b k C r e a t i n g G l o b a l T a l e n t s a n d O p p o r t u n i t i e s • Telkom’s Solid Profitability Increasing in Net Income Rp 14.2 trillion 10.5% Increasing number of cellular subscribers 131.5 million • Increasing number of customers above Industry 5.1% Increasing number of broadband subscribers 27.8 million Increasing number of Fixedline subscribers 9.3 million 45.4% 4.5% 25.9% • Network Strengthening Number of BTS 75,579 BTS 

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