Telkom Indonesia Annual Report 2014

Plain-text annual report

2014 Annual Report SUSTAINABLE COMPETITIVE GROWTH Through Digital Business SUSTAINABLE COMPETITIVE GROWTH THROUGH DIGITAL BUSINESS Investing in the digital business is a necessity for us to improve our competitiveness while maintaining sustainable growth in the future. In 2014, one of our main programs was to continue developing infrastructure to support growth of the digital business. We have continued to develop our optical fiber-based access network, which at the end of 2014 had 13.2 million homes passed. Subsequently, weplan to deploy optical fiber connections to homes and buildings to revive ourfixed line business. In the cellular business unit, during 2014 we have built 15,556 new BTS, 75% of which are 3G/4G BTS. At the end of 2014, we had 85,420 BTSs, of which 45% were 3G/4GBTSs. Our BTS infrastructure demonstrates our superiority in terms of coverage and capacity and also reflects our commitment to provide the best digital experience. Telkomsel is the first commercial operator in Indonesia to provide 4G services to further enhance the digital experience of our customers. In addition, we have also installed 170,000 Wi-Fi access points to help off-load our mobile customer data traffic. Our fixed line broadband services and Telkomsel's cellular services are supported by a superior backbone network. At the end of 2014, we have built 76,700 kilometers of fiber-optic backbone network. We are continuing to build our backbone network so as to eventually reach all parts of the archipelago. We have also built a 54,800 m2 data center to support cloud computing services (cloud services). We seek to provide a comprehensive range of services to meet customer needs by developing digital services, through various content and applications that can support their digital lifestyle. These are important parts of our efforts to generate demand for increasingly more data traffic, accompanied by various programs to accelerate the use of smart devices. Our efforts in building broadband infrastructure, coupled with various supporting strategies, have shown positive results of high growth in revenue from the digital business, with its contribution to total revenue also increasing significantly. Digital business will be the Company’s driver of future growth. We are on the right track towards becoming a digital company and simultaneously helping to realize the digital society. ANNUAL REPORT THEME CONTINUITY We are consistently on our strategic measure to build a sustainable competitive growth. This is reflected on our Annual Reports theme continuity: P T T E L E K O M U N K A S I I I N D O N E S A I , T b k . Y o u r F u t u r e S t a r t s T o d a y A n n u a l R e p o r t 2 0 1 0 Annual Report 2010 PT TELEKOMUNIKASI INDONESIA, Tbk. Investor Relations Grha Citra Caraka 5th Floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710 Tel. : (62-21) 521 5109 Fax. : (62-21) 522 0500 e-mail : investor@telkom.co.id IDX : TLKM NYSE : TLK LSE : TKIA www.telkom.co.id PT TELEKOMUNIKASI INDONESIA, Tbk. Annual Report 2010 Moving Forward Beyond Telecommunications 2012 Annual Report PT Telekomunikasi Indonesia, Tbk Bringing Indonesia to the Digital Society Your Future Starts Today 2011 Annual Report PT TELEKOMUNIKASI INDONESIA, Tbk. Melangkah Melampaui Batas Telekomunikasi 2010: 2011 2012 Your Future Starts Today Moving Forward Beyond Telecommunications Bringing Indonesia to the Digital Society With focus on TIME (telecommunication, information, media & edutainment) services, we are committed to ensuring that every customer can enjoy the lifestyle of the future, starting today. The advances in broadband technology- based further narrow the distance between users. We take this opportunity to strengthen the infrastructure of broadband-based to support innovation of services and products leading to Information, Media, and Edutainment (“IME"). We pioneered the digital society in Indonesia with a focus on service implementation of Telecommunications, Information, Media, Edutainment and Services ("TIMES"), including the development of Indonesia Digital Network. 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 2 0 1 3 A n n u a l R e p o r t 2013 Annual Report PT Telekomunikasi Indonesia, Tbk l P T T e e k o m u n k a s i i I n d o n e s a i , T b k C r e a t i n g G o b a l l l T a e n t s a n d O p p o r t u n i t i e s 2014 Annual Report • 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% Creating Global Talents and Opportunities • Network Strengthening Number of BTS 75,579 BTS 25.9% SUSTAINABLE COMPETITIVE GROWTH Through Digital Business 2013 Creating Global Talents and Opportunities International expansion has become a necessity for us to be able to maintain a high and sustainable growth rate. This strategic initiative has led us achieve double-digit growth and solidify us as dominant TIMES service provider Company in Indonesia and taken into account in the regional area. 2014 Sustainable Competitive Growth Through Digital Business We are responding to global market challenges by transforming ourselves into a digital business so that we remain able to grow competitively and sustainably. Toward "The King of Digital" 3 TELKOM'S MAIN PROGRAMS Dealing with the dynamic and fast-changing challenges of the telecommunication, information technology and media industries, we are focusing our business strategy on 3 main programs that we call Telkom’s Masterpieces in 2014. 1. Telkomsel Double Digit Revenue Growth With our leading-edge infrastructure, both in coverage and capacity, as well as analytical capabilities, we can position ourselves as the cellular operator with a double-digit revenue growth. To ensure the achievement of double-digit revenue growth, we are currently prioritizing the deployment of our fiber network over Telkomsel's BTS in order to consistently improve our data service quality. 2. Indonesia Digital Network (IDN) 2015 IDN 2015 is our vision of a true end-to-end broadband infrastructure development from the end user terminal, access network, transport network to the services. IDN 2015 was developed to enable equal access, and to improve the quality, and increase the capacity, of broadband infrastructure in all parts of Indonesia. 3. International Expansion International expansion is one of the steps to realize our objective "To Become a leading TIMES player in the region". We are developing and expanding our business outside of Indonesia to broaden and diversify our market. By expanding internationally, we are also preparing our human resources to be ready in facing the ASEAN Economic Community which will begin by the end of 2015. 1 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Telkomsel Double Digit Revenue Growth 2 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTelkomsel is the main backbone to our revenue, contributing up to 60% of our consolidated revenues. To maintain its position as the main contributor, Telkomsel is committed to continuing developing its infrastructure, particularly broadband infrastructure, with the aim of improving its service quality and coverage. Telkomsel is also adopting state-of-the-art technology to improve customers’ experience. We have therefore supported Telkomsel in developing its business by allocating the largest portion of our capital expenditure to strengthen its business to maintainan above industry average growth. Triple double-digit growth - 10.4% in Revenues - 10.0% in EBITDA - 11.9% in Net Income The first mobile operator to commercially market the 4G LTE in Indonesia 15,500 new BTS (75% 3G BTS) Total BTS reached 85,420 units 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 3 2014 Annual Report PT Telkom Indonesia Tbk (Persero)IDN Indonesia Digital Network 2020 Telkom Master Plan to Realize Broadband Network Digital Ecosystem Smart City (county town) Accelerating digital creative community Nationwide ecosystem-based apps (e-health, e-tourism, etc) 100% broadband in sub-district Mobile signal 100% in village 100.000km Fiber Optic 30 million household fixed broadband 200 mobile broadband cities Build Ecosystem Service Deploy Infrastructure Backbone Access 4 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe Indonesia Digital Network program consists of access network infrastructures (Id-Access), a network backbone (Id-Ring), and an integrated NGN for multi- service and multi-screen (Id-Convergence) as the foundation for realizing the digital society. We are committed to supporting the development of the digital society by providing broadband infrastructure thoroughly and integrally. Internet Cloud Telkom Cloud IP & Optical Transport Fixed Broadband WiFi Mobile Broadband Convergence Digital Innovation Nationwide Broadband Backbone True Broadband Access 5 2014 Annual Report PT Telkom Indonesia Tbk (Persero)International Expansion Perancis Italia Mesir 10 Yaman Djibouti 06 05 02 09 08 Sri Lanka 01 Batam SEA-ME-WE 5 (South East Asia-Middle East-Western Europe 5) SEA-US (South East Asia-United States) Guam Filipina Manado 03 IGG (Indonesia Global Gateway) 04 01 02 03 Telekomunikasi Indonesia International Pte. Ltd. (“Telin Singapore”) Singapore Telekomunikasi Indonesia International (Hong Kong) Limited. (“Telin Hong Kong”) Hong Kong Telekomunikasi Indonesia International (TL) S.A. (“Telin Timor Leste”) Dili – Timor Leste 6 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThrough our subsidiary, PT Telekomunikasi Indonesia International (Telin), we have strengthened our presence in the region with a profitable business model and well-managed risks. We operate Mobile Virtual Network Operator (MVNO) schemes in 4 countries, namely Malaysia, Hong Kong, Macau, and Saudi Arabia. We also operate a Mobile Network Operator (MNO) in Timor Leste, provide Business Process Outsourcing (BPO) services in Australia and New Zealand, and have other telecommunications-related businesses in Taiwan, Myanmar and the United States. The international markets offer significant business opportunities. In addition, to develop Indonesia into a “hub” for data communication traffic in the region, we are developing the Indonesia Global Gateway (IGG) to connect Indonesia to Middle East and West Europe via the SEA-ME-WES submarine cable communications system, and to connect Indonesia to the United States via the SEA-US submarine cable communications system. Los Angeles 07 Hawaii 04 Telekomunikasi Indonesia International Pty Ltd.,Australia (“Telkom Australia”) Melbourne – Australia 05 Telkom Macau Limited Macau 06 Telkom Taiwan Limited Taipe City – Taiwan 07 Telekomunikasi Indonesia International (USA) Inc. Los Angeles – Amerika Serikat 08 Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd. Kuala Lumpur – Malaysia 09 Telin's Branch in Myanmar Yangon – Myanmar 10 Launching SIM Card co-branding “simPATI Saudi” Riyadh - Arab Saudi 7 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TAble of conTenTs 01 00 PREFACE 00 TELKOM'S AR THEME 01 TELKOM’S THREE MAIN PROGRAMS 09 ANNUAL REPORT HIGHLIGHTS 10 ANNUAL REPORT SUMMARY 02 13 FINANCIAL AND PERFORMANCE HIGHLIGHTS 14 Financial Highlights 16 Business and Operational Highlights 18 Stock Highlights 20 Bond Highlights 21 Dividend Highlights 03 23 MANAGEMENT REPORT 24 Report of the Board of Commissioners 30 Report of the President Director 39 GENERAL INFORMATION OF TELKOM INDONESIA 40 Telkom Indonesia Highlights 58 Products and Services 42 Telkom Indonesia Profile 60 Trademarks, Copyrights, Industrial 44 Telkom Indonesia Milestones 46 Awards and Certifications 50 Significant Events 2014 Designs and Patents 62 Management of Telkom Indonesia 76 Telkom Business Group 54 Corporate Identity of Telkom Indonesia 84 Stock Overview 55 Vision and Mission 56 Culture Values 58 Articles of Association 91 Capital Market Supporting Professional 92 Capital Market Trading Mechanism and Telkom ADS 94 Addresses of Telkom Indonesia 99 MANAGEMENT DISCUSSION AND ANALYSIS OF TELKOM INDONESIA PERFORMANCE 101 Economic and Industry Overview 106 Business Overview 119 Financial Overview 150 Operational Overview 158 Functional Overview 04 05 8 2014 Annual Report PT Telkom Indonesia Tbk (Persero)06 175 CORPORATE GOVERNANCE 177 Concept and Foundation 177 Corporate Governance Awards 178 Rating and Assessment Of Corporate Governance 178 Road Map and Strengthening of Corporate Governance 180 Corporate Governance Framework 181 Corporate Governance Structure 237 Risk Management 260 Legal Matters 262 Acces and Transparation Information 268 Relationship with Stakeholders 269 Business Ethics and Corporate Culture 271 Whistleblowing System 273 Corporate Governance Socialization 275 Consistency in Implementing GCG 280 Summary of Significant Differences Between Indonesian Corporate Governance Practices and The NYSE’s Corporate Governance Standards 07 283 SOCIAL AND ENVIRONMENTAL 288 Corporate Social Responsibility Awards 2014 284 Telkom Commitment to Social Responsibility RESPONSIBILITY 289 Achievement of Performance Based on ISO 26000 CSR 290 CSR Activities and Programs 08 309 APPENDICES 310 Definitions 316 Cross Reference to Bapepam-LK Regulation No.X.K.6 ANNUAL REPORT TELKOM HIGHLIGHTS PT Telkom Indonesia Tbk (Persero), or referred to as "Telkom", "Company", This Annual Report contains statements that are forward looking, or "we", presents the Annual Report for the year ended on December including expectations and projections about the operating performance 31, 2014, prepared in accordance with the Decree of the Financial Services and business prospects in the future. Statements such as these generally Authority ("OJK"), replacement of Bapepam-LK number X.K.6 and X.K.7. uses words such as "believe", "expect", "anticipate", "estimate", "projecting" Certain sections of this Annual Report also contains information published or other similar words. In addition, all statements that are not historical in the Form 20-F according to the regulation of the Securities and facts, in this Annual Report can be categorized as forward-looking Exchange Commission ("SEC") the United States. However, no part of statements. Although we believe that the expectations in the statement this document are combined to refer to the Form 20-F. The information containing the forward looking is quite reasonable, We can not guarantee and data presented in this Annual Report is sourced on the Company's that these expectations will prove correct. Statements containing forward consolidated financial data and its subsidiaries. looking contains risks and uncertainties, including the effect of changes The term "Indonesia" in this Annual Report 2014 refers to the Republic section "Risk Management" and other sections of this Annual Report of Indonesia while the "Government" means the Government of Indonesia, disclosed the important factors that could cause actual results that in the economic, political and social environment in Indonesia. In the and the "United States" or "US" means the United States. The mentioning differ materially from our expectations. of the currency unit of "Rupiah" or "Rp" refers to the lawful currency of Indonesia, while "US Dollar" or "US$" are to the lawful currency of the For more information about Telkom’s Annual Report, you can contact United States. Certain figures (including percentages) have been rounded. our Investor Relations at Graha Merah Putih 5th Floor, Jl. Jend. Gatot Unless otherwise stated, all financial information is presented in Rupiah Subroto Kav. 52 Jakarta 12710, Indonesia. Tel: +62-21-5215 109, Fax: +62- in accordance with Indonesia Financial Accounting Standards ("IFAS"). 21-5220 500 or e-mail: investor@telkom.co.id. You can also download this document online through our website at http://www.telkom.co.id 9 2014 Annual Report PT Telkom Indonesia Tbk (Persero)AnnUAl RePoRT sUMMARY Telkom's Achievement in 2014 In 2014, we were able to record an excellent performance, achieving growth above the industry average. This achievement is a result of our investment in developing broadband infrastructure and a manifestation of our commitment to become a leading player in the digital business. In 2014, the contribution of our digital business revenue increased significantly to 32.5% compared to 28.2% in the previous year. 10 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESRevenues Rp89.7 trillion 8.1% Asset Rp140.9 trillion 10.1% Mobile Data Users Numbers of cellular BTS 67.9 million 12.1% 85,420 BTS 22.3% 11 2014 Annual Report PT Telkom Indonesia Tbk (Persero)02 FINANCIAL AND PERFORMANCE HIGHLIGHT 14 Financial Highlights 16 Business and Operational Highlights 18 Stock Highlights 20 Bond Highlights 21 Dividend Highlights fInAncIAl HIGHlIGHT 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: • Owners of the parent company • Non-controlling interest Years ended December 31, 2014 2013 2012 2011 2010 89,696 82,967 77,143 71,253 68,629 61,393 57,700 54,005 49,960 46,240 46,508 43,626 40,154 36,821 37,549 29,377 27,846 25,698 21,958 22,937 21,446 20,290 18,362 15,470 15,870 14,638 14,205 12,850 10,965 11,537 6,808 6,085 5,512 4,505 4,333 Total comprehensive income for the year 21,471 20,402 18,388 15,481 15,904 Total comprehensive income attributable to: • Owners of the parent company • Non-controlling interest 14,663 14,317 12,876 10,976 11,571 6,808 6,085 5,512 4,505 4,333 Net income per share 149.8 147.4 133.8 111.9 117.3 Net income per ADS (1 ADS : 200 common stock) 29,966.7 29,483.6 26,767.6 22,386.8 23,461.6 Consolidated Statements of Financial Position (in billions of Rupiah) Assets Liabilities Years ended December 31, 2014 2013 2012 2011 2010 140,895 127,951 111,369 103,054 100,501 54,770 50,527 44,391 42,073 44,086 Equity attributable to owners of the parent company 67,807 60,542 51,541 47,510 44,419 Net working capital (Current Asset - Current Liabilities) 1,976 4,638 3,866 (931) (1,745) Investment in associate entities 1,767 304 275 235 254 Capital Expenditures (in billions of Rupiah) Telkom Telkomsel Others Subsidiaries Total Years Ended December 31, 2014 2013 2012 2011 2010 8,099 5,313 4,040 4,202 3,623 13,002 15,662 10,656 8,472 8,197 3,560 3,923 2,576 1,929 831 24,661 24,898 17,272 14,603 12,651 Consolidated Financial and Operational Ratios Years ended December 31, Return on Asset (ROA) (%) 1 Return on Equity (ROE) (%) 2 Operating Profit Margin (%) 3 Current Ratio (%) 4 Total Liabilities to Equity (%) 5 Total Liabilities to Total Assets (%) 6 2014 2013 2012 2011 2010 10.4 21.6 32.8 106.2 80.8 38.9 11.1 23.5 33.6 116.3 83.5 39.5 11.5 24.9 33.3 116.0 86.1 39.9 10.6 23.1 30.8 95.8 88.6 40.8 11.5 26.0 33.4 91.5 99.3 43.9 (1) ROA is calculated as profit for the year attributable to owner 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 owner 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 assets divided by current liabilities at year end December 31. (5) Liabilities to Equity Ratio is calculated as total liabilities divided by total equity attributable to owners of the parent company at year end December 31. (6) Liabilities to total assets ratio is calculated as total liabilities divided by total assets at year end December 31. 14 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Total Revenues Adjusted EBITDA (in billions of Rupiah) (in billions of Rupiah) Adjusted EBITDA: including gain (loss) an foreign exchange - net and other income (expenses) - net Net Income Net Income per share (in billions of Rupiah) (in Rupiah) tessA ytiuqE )haipuR fo snoillib ni( )haipuR fo snoillib ni( 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 15 bUsIness AnD oPeRATIonAl HIGHlIGHT 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 Employees Unit Years ended December 31, 2014 2013 2012 (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers 3,400 31,216 5,835 40,451 2,851 137,734 140,585 9,698 4,404 14,102 3,013 17,271 7,556 27,840 2,489 129,023 131,513 9,351 6,766 16,117 2,341 11,039 5,764 19,144 2,149 122,997 125,146 8,946 17,870 26,816 (000) Mbps (000) MHz 930,327 381,440 281,063 3,560 3,007 2,650 unit 85,420 75,579 60,011 location location unit people 572 409 268 572 408 268 572 410 - 25,284 25,011 25,683 * Related to ReFlexi Program, hence since 2014 base stations that we disclose was a cellular BTS 16 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESBroadband Subscribers Cellular Subscribers (in thousands) (in thousands) Fixed Wireline Subscribers Satellite Transponder Subscribers (in thousands) (in thousands) Employees (in unit) (people) 17 2014 Annual Report PT Telkom Indonesia Tbk (Persero)sTocK HIGHlIGHT The following figures are the report of the highest, lowest, and closing of stock price, trading volume, outstanding shares and market capitalization of common stock listed on the Indonesia Stock Exchange ("IDX") for the periods indicated: Calendar Year Price per Share of Common Stock High Low Closing (in Rupiah) Volume (shares) Outstanding Shares Market Capitalization (Rp billion) 2010 2011 2012 2013 2014 2015 First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter September October November December January February 1,590 28,539,250,000 98,347,123,900 1,410 22,207,895,000 96,931,696,600 1,810 23,002,802,500 95,745,344,100 2,150 27,839,305,000 97,100,853,600 2,200 5,993,025,000 95,745,344,100 160,272 142,128 182,448 216,720 221,760 2,250 8,265,647,500 96,044,401,100 226,800 1,390 1,320 1,330 1,760 1,760 1,900 1,950 1,980 2,060 2,060 1,960 1,610 1,990 2,580 2,230 2,580 2,450 2,375 3,010 2,420 2,700 3,010 2,930 3,010 2,930 2,830 2,890 2,100 7,206,438,500 97,100,853,600 2,150 6,374,194,000 97,100,853,600 2,865 24,035,761,600 98,175,853,600 2,215 6,647,275,800 97,100,853,600 2,150 2,465 6,736,807,600 98,175,853,600 2,465 2,590 2,675 2,680 2,590 2,725 2,915 5,313,076,900 98,175,853,600 2,865 5,338,601,300 98,175,853,600 2,915 1,769,250,600 98,175,853,600 2,750 2,482,524,900 98,175,853,600 2,825 2,865 1,559,250,500 98,175,853,600 1,296,825,900 98,175,853,600 211,680 216,720 288,792 223,272 248,472 293,832 288,792 293,832 277,200 284,760 288,792 285,264 295,848 2,930 2,780 2,830 1,403,802,200 98,175,853,600 3,020 2,800 2,935 1,785,881,500 98,175,853,600 (1) We conducted a 1:2 ratio 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. On December 30, 2014, the last trading day in the IDX in 2014, the closing price for our common stock was Rp2,865 per share. 18 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES In the table below, we present the ADS price (high, low, and closing) and ADS trading volume on the New York Stock Exchange ("NYSE") and the London Stock Exchange ("LSE") for the indicated periods. In the LSE, Telkom ADS is traded over the counter (OTC), meaning that the transaction occurs "off exchange". After a transaction taken place then the transaction it is reported to the LSE. Calendar Year High Low Closing Price per ADS (NYSE) (in US Dollars) Volume in ADS (shares) Price per ADS (LSE) High Low Closing (in US Dollars) Volume in ADS (shares) 2010 2011 2012 2013 43.80 30.33 35.65 69,803,576 42.00 30.76 34.91 19,673 36.96 30.29 30.74 69,279,100 35.89 21.02 30.50 1,406,292 41.14 29.26 36.95 88,190,589 40.12 30.24 36.50 746,278 50.61 33.75 35.85 67,061,105 50.59 33.44 35.33 6,579,103 First Quarter 45.32 36.17 45.08 13,876,752 45.83 37.06 45.28 12,819 Second Quarter 50.61 38.75 42.74 15,688,290 50.59 39.31 45.34 6,465,258 Third Quarter 47.20 34.54 36.31 18,713,653 47.44 35.62 36.27 Fourth Quarter 41.69 33.75 35.85 18,782,410 41.69 33.44 35.33 2014 48.75 33.91 45.23 52,250,948 43.75 38.42 - First Quarter 40.59 33.91 39.37 16,346,799 39.55 38.42 39.55 Second Quarter 44.45 39.00 41.66 16,409,533 43.75 39.95 43.00 79,240 21,786 12,008 986 11,022 Third Quarter 48.75 41.69 48.10 9,670,921 Fourth Quarter 48.43 42.29 45.23 9,823,695 September October November December 2015 January February 48.75 44.85 48.10 2,722,429 48.43 44.26 45.35 4,383,362 46.39 34.70 36.54 5,866,608 46.89 42.29 45.23 3,254,644 47.07 43.84 44.10 3,796,653 45.42 44.82 44.91 128,606 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The last trading day in the NYSE in 2014 was on December 31, and the closing price for one Telkom ADS was US$45.23. Effective from June 5, 2014, due to the low level of our ADSs traded, we delisted our ADSs listing from London Stock Exchange. The closing price of Telkom ADS last transaction on the LSE for our ADS on June 4, 2014 was US$43.00. 19 2014 Annual Report PT Telkom Indonesia Tbk (Persero)bonDs HIGHlIGHT The following table was bond summary: Bond Out standing (Rp million) Issuance Date Maturity Date Term (Year) Interest Rate Underwriter Trustee Rating 1,005,000 June 25, 2010 July 6, 2015 5 9.6% 1,995,000 June 25, 2010 July 6, 2020 10 10.2% PT Bahana Securities; PT Danareksa Sekuritas; PT Mandiri Sekuritas PT Bahana Securities; PT Danareksa Sekuritas; PT Mandiri Sekuritas PT CIMB Niaga Tbk idAAA PT CIMB Niaga Tbk idAAA Telkom's Bond II 2010 Serie A Telkom's Bond II 2010 Serie B 20 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESDIVIDenD HIGHlIGHT The Annual General Meeting of Shareholders (“AGMS”) has the authority to determine the amount of dividends we pay. Our dividend payout ratio for 2014 will be decided at the AGMS scheduled for 2015. Dividend Year Date of AGMS Payout Ratio (%)1 Amount of Dividends (Rp million) Dividend per Share after stock split (Rp) Table Chronology of Cash Dividend 2009 June 11,2010 2010 2011 2012 2013 May 19, 2011 May 11,2012 April 19, 2013 April 4, 2014 50 55 65 65 70 5,666,070 6,345,3502 7,127,3333 8,352,5974 57.61 64.52 74.21 87.24 9,943,2945 102.40 (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 2010 and January 2011 amounting to Rp276,072 million and Rp250,085 million respectively. (3) Consists of cash dividend amounting to Rp6,030,820 million and special cash dividend amounting Rp1,096,513 million. (4) Consists of cash dividend amounting to Rp7,067,582 million and special cash dividend amounting Rp1,285,015 million. (5) Consists of cash dividend amounting to Rp7,812,588 million and special cash dividend amounting Rp2,130,705 million. Telkomsel Dividend Pursuant to AGMS on April 1, 2014, Telkomsel approved the payment of a cash dividend of Rp15,612 billion, which represented 90% of Telkomsel’s net profit in 2014, Rp4,917 billion of this dividend was distributed to Singapore Telecom Mobile Pte Ltd (“SingTel Mobile”). In 2012, 2013, and 2014 cash dividends were paid to SingTel Mobile, a non-controlling shareholder of Telkomsel, amounting to Rp3,231.2 billion Rp4,675 billion and Rp4,917 billion. 21 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 03 MANAGEMENT REPORT 24 Report of the Board of Commissioners 30 Report of the President Director Hendri Saparini The President Commissioner 24 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESRePoRT of THe boARD of coMMIssIoneRs To Realize the Expectation as the Leading Digital Company Throughout 2014, the Company continued its excellent performance, growing at a rate above the industry average. In light of its performance achievement, we believe the Company is on track to realize its hopes of becoming a 'Digital Company'. In line with our vision, Telkom is making the most of all its potential to strengthen its presence in the region. Esteemed Shareholders and Stakeholders, The world economic situation in general in 2014 saw a weakness, especially in Europe and some of the key Asian countries such as Japan and China, despite a significant economic recovery in the United States of America. The Indonesian economy was still growing quite well thanks to the relatively stable domestic consumption as a result of activities relating to the democratic general election in 2014 . Meanwhile, the Indonesian telecommunications industry in 2014 was marked by a consolidation which resulted in a reduced number of players in the industry. We hope this is a part of the government's efforts to build a healthier telecom industry in the future. Views on Business Prospects Apart from a number of challenges, such as competition in the mobile and fixed broadband industry, we assess that the Company has good prospects. The telecommunications industry in Indonesia still offers great opportunities to grow. Currently the greatest opportunity arises from the fact that the mobile broadband penetration and consumption are still relatively low. The Company also has assets in the fixed line business, which if managed with the right strategy will bring substantial growth potential. Other opportunities arise from the possibility of international expansion that has significant potential to be explored and developed. The BOC has assessed the adequacy of the Board of Directors in mapping various scopes that affect the Company’s growth expectations. The Board also considers that the Board of Directors has set targets based on the results of analysis of various aspects, including the internal and external conditions of the Company. View on the Company's Performance in 2014 The Company recorded a very good performance in 2014 with revenue growth surpassing the industry average. The Company's performance was especially supported by our subsidiary PT Telekomunikasi Selular (Telkomsel), a mobile cellular operator, which continued excellent performance with Revenues, EBITDA and Net Income growing by double digits. Other businesses in the areas of fixed line, telecommunications infrastructure and other business units also grew quite well. The BOC believes that this performance achievement shows that the Company has the right strategies and also has had the ability to execute these strategies well. The Company’s three main programs, namely Strengthening Telkomsel in order to continue recording performance higher than the industry’s performance, building and utilizing the Indonesia Digital Network o realize the digital society, and expanding its presence in the regional and international markets. In the future, the Company will continue using this strategy to create a better performance. 25 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Left to Right : Virano Gazi Nasution Independent Commissioner, Johnny Swandi Sjam Independent Commissioner, Dolfie Othniel Fredric Palit Commissioner, Hendri Saparini President Commissioner, Parikesit Suprapto Independent Commissioner, Hadiyanto Comissioner, Imam Apriyanto Putro Comissioner Corporate Governance and Oversight by the Board of Commissioners The Company continues upholding the application and enforcement of good corporate governance in accordance with best practices, which provides a solid foundation for the Company to continue growing sustainably in the future. So far, the Company has practiced good corporate governance, as reflected in a number of prestigious awards in the field of corporate governance application in 2014, including the award of Indonesia Sustainability Reporting Awards (ISRA), CGPI and five other awards in Finance Asia Best Managed Company in 2014. In the future, the Company will continue strengthening its good governance practices in conformity with the best standards to ensure that the Company is well managed and accountable. View on Performance of Committees under the BOC In carrying out its oversight function, the Board is assisted by committees under its aegis, namely the Audit Committee, Risk Monitoring Committee as well as Remuneration and Nomination Committee, which have worked very well and provide optimal support to the Board of Commissioners so that the board can perform its tasks and functions to oversee the management of Telkom Indonesia in 2014. Some of the key areas of oversight tasks are implementation of the corporate action, organizational transformation, modernization of the network, international business development, and working performance of the subsidiary. The Board of Commissioners also provides advice to the Board of Directors to ensure that the business strategy and good corporate governance have been executed correctly. Supervision and advice of the Board of Commissioners are delivered either through the Audit Committee, Risk Monitoring Committee, or the Nomination and Remuneration Committee. 26 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe Company continues upholding the application and enforcement of good corporate governance in accordance with best practices, which provides a solid foundation for the Company to continue growing sustainably in the future Changes in Composition of the Board of Commissioners In 2014 there was a change in the composition of the Board of Commissioners. The General Meeting of Shareholders (AGM) on April 4, 2014 approved the resignation of Mr. Gatot Trihargo and appointed Mr. Imam Apriyanto Putro as a Commissioner. Pursuant to the AGM on April 4, 2014, the Board of Commissioners comprised the following members: Jusman Syafii Djamal Parikesit Suprapto Hadiyanto Imam Apriyanto Putro Johnny Swandi Sjam Virano Gazi Nasution : President Commissioner : Commissioner : Commissioner : Commissioner : Independent Commissioner : Independent Commissioner The composition of the Board of Commissioners was further changed based on the results of the Extraordinary General Meeting held on December 19, 2014, which approved the resignation of Jusman Syafii Djamal and appointed Mrs. Hendri Saparini as a Commissioner of the Company. The EGM also approved the appointment of Mr. Dolfie Othniel Fredric Palit as a Commissioner, increasing the number of members of the Board of Commissioners from six to seven people, as follows: : President Commissioner Hendri Saparini Dolfie Othniel Fredric Palit : Commissioner : Commissioner Imam Apriyanto Putro : Commissioner Hadiyanto : Independent Commissioner Parikesit Suprapto : Independent Commissioner Johnny Swandi Sjam : Independent Commissioner Virano Gazi Nasution Target in the Future The BOC assessed that the Company's business portfolios, consisting of Telecommunication, Information, Media Edutainment, and Services (TIMES), should be strengthened by creating synergies among the subsidiaries, considering that the industry will be more competitive in the future. The mobile business, as a major contributor to the Company, must be strengthened to protect against the changes in the legacy business segments, and the Company should also aggressively grow its digital business segment. The development of Indonesian Digital Network should bring business and economic benefits for the Company and Indonesian society in general. In addition, the Company has to be well-prepared to be able to expand internationally, so that the Company can represent Indonesia in Asia. 27 2014 Annual Report PT Telkom Indonesia Tbk (Persero)The mobile business, as a major contributor to the Company, must be strengthened to protect against the changes in the legacy business segments Appreciation to Stakeholders On this auspicious occasion, the Board expressed thanks and appreciation to Mr. Gatot Trihargo and Mr. Jusman Syafii Djamal who have carried out their duties as members of the Board of Commissioners. Their role and contributions have helped delivered outstanding performance in 2014. The Board also thanks and gives greatest appreciation to the Board of Directors, who have worked hard to record a very good performance. In particular, the Board congratulates Mr. Arief Yahya, Director of the Company until the 2014 EGMS, on his appointment as the Minister of Tourism. The BOC regards his appointment as a minister as the trust of the nation toward the Company's performance. Thanks and deepest appreciation also go to all management and employees of Telkom Indonesia for their dedication and hard work so that 2014 be a very good year. Hopefully the performance achievement in 2014 spurs the spirit of all stakeholders to carve a better performance again in 2015. Jakarta, March 26, 2015 On behalf of the Board of Commissioners, Hendri Saparini The President Commissioner 28 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe development of Indonesian Digital Network should bring business and economic benefits for the Company and Indonesian society in general 29 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Alex J. Sinaga President Director 30 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESRePoRT of THe PResIDenT DIRecToR To Drive Digital Business to Create Sustainable Competitive Growth Telkom recorded excellent financial and operational performances in 2014, along with the high performance of its subsidiary PT Telekomunikasi Selular ("Telkomsel"). At the same time, Telkom has aggressively continued developing broadband infrastructure to support its digital business growth in the future. Esteemed Shareholders and Stakeholders, On behalf of the Board of Directors of PT Telkom Indonesia (Persero), allow us to report the Company’s management during 2014 and their key performance achievements to both shareholders and stakeholders. Macroeconomic conditions and Telecommunications Industry 2014 Throughout 2014, the Indonesian economy grew quite healthily, with gross domestic product rising by 5.1%, particularly supported by domestic consumption, one of which was the telecommunications sector. In line with the growing middle class whose needs for various telecommunications services increased remarkably, the telecommunications sector grew by 9.1%, which was higher than the national economic growth. The telecommunications industry itself has been very dynamic, consequently requiring industry players to adapt very quickly as well. Telecommunications customer demand has shifted from the legacy of voice and SMS to data services. The growth of youth segment, accompanied by an increasing number of middle class with the characteristics of a digital lifestyle, has increasingly pushed high demand for data services. Meanwhile, the performance of voice and SMS services was limited by the presence of various replacement applications such as instant messaging applications. The SIM-card penetration rate was estimated to have exceeded 125% in 2014, indicating a relatively high degree of saturation. In the future, the growth of the telecommunications industry will be supported by growth in the digital business. Penetration of data users in Indonesia is still relatively low at about 50% presently, with the use of smartphone also still low at less than 30% in spite of rapid increases in adoption in recent years. Data traffic increased significantly, more than 100% year on year, mainly driven by the use of data via smartphones. At the same time, the telecommunications industry in Indonesia has to face many challenges. Among the most important challenge is the emergence of Over the Top ("OTT") services that offer substitutes for traditional voice and SMS services. In addition, the weakening of the Rupiah against the US dollar is also potentially detrimental to industry players given that most of the capital expenditures (capex) in the telecommunications sector are in foreign currencies, especially the US dollar. Furthermore, the implementation of the ASEAN Economic Community ("AEC") in 2015 would certainly provide a significant challenge, given the competition area becomes wider, namely in the ASEAN region. The Indonesian telecommunications sector in 2014 was characterized by an industry consolidation. We see consolidation in the telecommunications sector has resulted in a reduced number of players in this industry, which is expected to have a positive impact for the creation of a more healthy competition level. 31 2014 Annual Report PT Telkom Indonesia Tbk (Persero)E C A F E R P E C N A M R O F R E P D N A L A C N A N F I I I T H G L H G H I T R O P E R T N E M E G A N A M F O N O I T A M R O F N I L A R E N E G I A S E N O D N I M O K L E T ’ I I N O S S U C S D S T N E M E G A N A M E C N A N R E V O G E T A R O P R O C I L A T N E M N O R V N E D N A L A C O S I I I Y T I L B S N O P S E R I S E C D N E P P A from Left to Right: Abdus Somad Arief Director, Honesti Basyir Director, Herdy Rosadi Harman Director, Muhammad Awaluddin Director, Alex J. Sinaga President Director, Dian Rachmawan Director, Indra Utoyo Director, Heri Sunaryadi Director. I S S Y L A N A D N A Strategic Work Program In order to maintain sustainable growth, in 2014, we continued implementing the Three Main Programs, namely: double-digit growth in Telkomsel's cellular business, broadband network development on the Indonesia Digital Network platform, as well as international expansion. Telkomsel is still the backbone of our revenues, contributing an more than 70% of our consolidated revenues. In line with the potential growth of mobile data services, Telkomsel’s strategy is to build the infrastructure to meet the demand for traffic data, which has been growing very signiﬁcantly, to ensure that Telkomsel’s customers get the best mobile data experience. Between 60% and 65% of our capital expenditure is allocated to Telkomsel. In addition, Telkomsel is also still trying to exploit the revenue growth from voice and SMS services such as through intelligent pricing strategy based on cluster, which analyze various factors, including competition level and network utilization in each cluster. The Indonesia Digital Network or IDN program is the infrastructure foundation to support data services for our mobile and ﬁxed-line businesses. Telkom has focused on providing the best experience for its customers, by building broadband network infrastructures that is superior in terms of coverage, capacity and capability. IDN consists of Id-Access, a high-speed broadband access via optical ﬁber network, Id-Ring, a nationwide ﬁber optic backbone network based on internet protocol (IP), and Id-Convergence, a high-capacity data center that is integrated with Telkom's network. In addition, we have also expanded our business internationally, and strengthened our regional presence with a business model that is proﬁtable with well-managed risks. Under the mobile virtual network operator ("MVNO") scheme, Telkom is present in four countries namely Malaysia, Hong Kong, Macau and Saudi Arabia. Telkom also has a subsidiary that operates fully as a mobile network operator in Timor Leste. In addition, we are 32 2014 Annual Report PT Telkom Indonesia Tbk (Persero) present in Australia and New Zealand, providing Business Process Outsourcing services, as well as in several other countries where we have satellite and network-related businesses. With all of the above programs, we aim to achieve the goal of becoming a digital company, with the main benchmark to have the digital business contribute to more than half of our total business. We hope we can achieve our aim to become a digital company in the next few years. Company Performance in 2014 Our performance in 2014 is the evidence that we are on the right track to bring Telkom to become a digital Company. On a consolidated basis, the contribution of the data, internet and IT segment increased to 32.5% from 28.2% in the previous year, while contribution of the digital business segment in our cellular subsidiaries has signiﬁcantly increased to approximately 23.6% from 19.4% last year. Our digital business revenue growth was supported by data users, with the number of data users increasing by 12.1% to 71.3 million subscribers by the end of 2014. We recorded excellent ﬁnancial performance in 2014. Our consolidated revenue grew 8.1% to reach Rp89.7 trillion. The Data, Internet & IT segment (excluding SMS) grew by 24.0%, the highest increase among our business lines, due to the increase in demand for this segment and excellent infrastructure support. We were also able to manage costs efficiently, with operating costs growing by only 6.5% to Rp43.9 trillion. We were therefore able to record a fairly high EBITDA growth of 9.7% to Rp45.8 trillion, with EBITDA margin of 51.1%, which was better than the previous year's margin of 50.4%. Our Net Income increased 3.0% to Rp14.6 trillion in 2014. The relatively low growth in net proﬁt was mainly because of the proceeds from the divestment of 80% ownership of Telkom Vision in 2013. From the operational aspect, our subsidiary, Telkomsel, continued strengthening its network infrastructure so that by the end of 2014 it had 85,420 BTS, an increase of 22.3% from the previous year, of which 45% was 3G base stations and 200 4G base stations, which was aimed at supporting growth in data services. Data traffic increased signiﬁcantly by 143% to 235 Peta-Bytes, mainly 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 33 E C A F E R P E C N A M R O F R E P D N A L A C N A N F I I I T H G L H G H I T R O P E R T N E M E G A N A M F O N O I T A M R O F N I L A R E N E G I A S E N O D N I M O K L E T ’ I I N O S S U C S D S T N E M E G A N A M I S S Y L A N A D N A E C N A N R E V O G E T A R O P R O C I L A T N E M N O R V N E D N A L A C O S I I I Y T I L B S N O P S E R triggered by the use of data services via smartphones. By the end of 2014, Telkomsel smartphone users totaled 40.4 million, a 71% increase from the previous year. of a Joint Venture Company between Telkom Metra and the largest operator of Australia, Telstra; as well as the acquisition of a 75% stake in Contact Centres Australia Pty Ltd (CCA). To maintain Telkomsel's position as the market leader, we always adopted the most advanced technology. In December 2014, Telkomsel successfully performed the ﬁrst commercial 4G services launch in Indonesia to enhance customer experience in using data services. In 2014, we decided to discontinue our ﬁxed wireless services, namely Flexi by 2015, and encourage Flexi customers to switch to our mobile subsidiary Telkomsel. In addition, the 800MHz spectrum previously used by Flexi has been decided by the Government to be allocated to Telkomsel. We believe that the termination of our ﬁxed wireless services will be compensated by the strengthening of mobile services so that overall it would be optimal for us. We have further strengthened broadband infrastructure to support our digital services business, both for the needs of the cellular and ﬁxed line business units. By the time this report is written, we have built 76,700 km of our nationwide ﬁber-based backbone network connecting the Indonesian region of Aceh to Papua, as well as installing 170,000 Wi-Fi access points. We have also had ﬁber that passed more than 13.2 million homes at the end of 2014. In addition, we have developed a 54,800 m2 data center to meet the demand for cloud services. We consistently maintain the level of capital expenditure to sufficiently support growth. Throughout 2014, we spent Rp24.6 trillion, which was relatively stable compared to Rp24.9 trillion in the previous year, in building infrastructure with a focus on supporting data services. Approximately 60% of the capital expenditure was allocated to build mobile business-related infrastructure. Approximately 20% was used for infrastructure development to strengthen the ﬁxed broadband business lines and access strengthening, while the rest was used for business development entities of other subsidiaries in the ﬁeld of telecommunication towers, information technology, and international expansion. In 2014 we completed several corporate actions in order to create value through synergies with our business units. These include: the purchase of a 25% stake in Tiphone Mobile Indonesia Tbk, which is one of the largest distributors of gadgets in Indonesia; the establishment Company Prospects With our investments in the past several years, particularly to build broadband infrastructure, we believe that the Company has good prospects. For our mobile business unit, nearly half of Telkomsel's BTS supported data services. With approximately 50% of user being data users and smartphone penetration still low at about 30%, the data business segment has a very high growth potential, in light of the data traffic growth over the past year of more than 100%. We also have excellent IT skills to support complex pricing strategies for voice and SMS services so that we can exploit the growth of legacy businesses. We also have assets in the ﬁxed line business unit, which if managed with the right strategies will bring substantial growth potential. We will put all our efforts to revive the ﬁxed line business through IndiHome, which is our product bundling that consists of ﬁxed voice, the internet and IP TV services. We also plan to grow inorganically through international expansions, which has signiﬁcant potential to be explored and developed. Through our international business unit of PT Telkom Indonesia International, we have been present in 10 countries with a variety of business models. We will widen and strengthen the business in the countries where we have had the track record, as well as seek new business opportunities to be developed. We are committed to expanding our market, diversifying our business and strengthening our human resources so as to be ready in facing the ASEAN Economic Community in 2015. Corporate Governance We uphold the application of Good Corporate Governance ("GCG"), and have been consistently increasing its implementation from year to year. One of our signiﬁcant developments in the implementation of GCG is the strengthening of organizational governance structure with a character of a holding company, through the implementation of the Executive Board mechanism for our subsidiaries. We have also implemented Enterprise Risk Management ("ERM") as a whole, producing an I S E C D N E P P A 34 2014 Annual Report PT Telkom Indonesia Tbk (Persero) integrity pact within the scope of the group, strengthening IT governance, and remediation of internal controls to ensure the reliability of ﬁnancial statements. As part of the implementation of GCG practices, since 2011 we have adopted the standards of the International Financial Reporting Standards ("IFRS"). We have met the criteria of the ASEAN Corporate Governance Scorecard, which assesses the quality of the GCG implementation in public companies in six ASEAN countries. Recognition of the quality of our GCG implementation is reﬂected in the awards we have received. In 2014 we received the "Most Trusted Company", which is the sixth consecutive time we've received the award. In addition, at the IMAC 2014 awards, we simultaneously achieved awards for Best Managed Companies, Best Corporate Governance, Best Investor Relations, Best CSR, and the Most Committed to a Strong Dividend. In the Public Company Awards 2014, we were awarded Best Listed Company of the Year, The Best CEO of Listed Company 2014, the CEO of the Year, and the ﬁrst winner of the category of Corporate Communications, Risk Management, and Infrastructure Working Group. We also received an award for the Most Trusted Company for six consecutive times in a survey of Corporate Governance Perception Index ("CGPI") and Capital Market Award 2014 award for the category Large Companies on the Indonesia Stock Exchange. Corporate Social Responsibility We align our CSR activities with our vision and mission as well as our business portfolio. In deﬁning our CSR, we have adopted the theme of "Telkom Indonesia for Indonesia". Telkom CSR programs were undertaken in an effort to support the advancement of the welfare of the people of Indonesia including disadvantaged and remote communities, through a series of activities, based on the three main pillars of our CSR, aimed at developing the Digital Environment, Digital Society, and the Digital Economy. efficiency of BTSs, increase use of renewable energy, encourage the concept of a paperless office, implement waste management and water management and recycle water. Of all the social development objectives channeled through the Community Development Program, we have prioritized the provision of assistance in the areas of education and health as well as development of a creative camp facilities to cultivate the digital creative industries. From all these efforts, we obtained the grand Platinum award for awards in nine areas and categories in the Indonesian CSR Award 2014. The award is a testament to the achievement of our performance, which is in line with the ISO 26000-based CSR foundation. Human Resource Development Our human resource management strategy consists of three components, each with different weighting: character has the greatest weight (50%), followed by competence, with a weight of 30%, and coopetition, with a weight of 20%. We are constantly developing leadership programs, based on the Telkom Group Leadership Architecture, with the philosophy of "Always The Best" through our Talent Development Framework. To develop globally competitive human resources, we also have a Global Leadership Capability Development program. This human resource development strategy is in line with our business transformation that focuses on TIMES. To anticipate the changing needs of competence, we strengthen the competence of human resources through structured and planned training and education, in order to prepare our human resources for the digital age. Each year, we provide employees with a variety of awards as a token of appreciation for their dedication and hard work. The success of our programs include, among others, nine employees rece iving Satyalencana Pembangunan and Satyalencana Wira Karya awards from the Government of the Republic of Indonesia for their dedication in raising the name of Telkom. We seek to perform a variety of programs related to environmental preservation, which are summarized in our "Telkom Go Green Action" program. The program includes efforts to minimize carbon emissions, improve energy efficiency of office buildings, optimize energy Corporate Culture Our corporate culture is embodied in "The Telkom Way", which is the belief system and the reference values for all employees of Telkom, with supporting pillars for corporate culture comprising three core elements: namely 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 35 E C A F E R P E C N A M R O F R E P D N A L A C N A N F I I I T H G L H G H I T R O P E R T N E M E G A N A M F O N O I T A M R O F N I L A R E N E G I A S E N O D N I M O K L E T ’ I I N O S S U C S D S T N E M E G A N A M I S S Y L A N A D N A E C N A N R E V O G E T A R O P R O C I L A T N E M N O R V N E D N A L A C O S I I I Y T I L B S N O P S E R We have Telkom way that is our belief system and our foundation value for all Telkom employees Philosophy to be the Best, that contains basic philosophy for all employees to always provide their best; Principles to be the Star, which refer to three core values to be a star, known as 3S, for Solid, Speed, Smart; and Practices to be the Winner, which refer to key behaviors and practices to be winners. The concept for the development for the Telkom Group's organizational culture is based on the 8S elements, namely Spirituality, Style, Shared Values, Strategy, Staff, Skill, System and Structure. Changes in Composition of the Board of Directors Let us express our gratitude and highest appreciation to our predecessors on the board of directors, especially to Mr. Arief Yahya, who served as the President Director up to December 19, 2014. We should be proud because the best son of this Company has been entrusted as one of the ministers in the Cabinet. Thanks also go to Mr. Sukardi Silalahi, Mr. Rizkan Chandra, Mr. Priyantono Rudito, and Mr. Ririek Adriansyah, who had stints on the Board of Directors since their appointment by the General Meeting of Shareholders ("AGMS") of Telkom on April 23, 2013 to the Extraordinary General Meeting of Shareholders ("EGMS") of Telkom on December 19, 2014. Appreciation On behalf of the entire ranks of the Board of Directors, we express our thanks and deepest appreciation to all shareholders, the Board of Commissioners, and all employees for their hard work and achievements of this remarkable performance. We also express great appreciation for the trust of customers and partners who have supported us throughout the year. Furthermore, we present the Company’s performance and achievements in 2014 comprehensively in this Annual Report, including the Financial Statements that consists of the consolidated statement of ﬁnancial position and consolidated statement of comprehensive income for the ﬁnancial year 2014. The Consolidated Financial Statements have been audited by Purwantono, Suherman & Surja ( a member ﬁrm of Ernst & Young Global Limited) with an "unqualiﬁed" opinion. Jakarta, March 26, 2015 Subsequently, since December 19, 2014, the composition of the new Board of Directors is as follows: Alex J. Sinaga President Director : President Director Alex J. Sinaga : Director Indra Utoyo : Director Abdus Somad Arief : Director Heri Sunaryadi : Director Herdy Rosadi Harman : Director Dian Rachmawan Honesti Basyir : Director Muhammad Awaluddin : Director I S E C D N E P P A 36 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Our performance in 2014 is the evidence that we are on the right track to bring Telkom to become a digital Company 37 2014 Annual Report PT Telkom Indonesia Tbk (Persero)04 GENERAL INFORMATION OF TELKOM INDONESIA 40 Telkom Indonesia in Overview 42 Telkom Indonesia Profile 44 Telkom Indonesia Milestones 46 Awards and Certifications 50 Significant Events 2014 54 Corporate Identity of Telkom Indonesia 55 Vision and Mission 56 Culture Values 58 Articles of Association 58 Products and Services 60 Trademarks, Copyrights, Industrial Designs and Patents 62 Management of Telkom Indonesia 76 Telkom Business Group 84 Stock Overview 91 Capital Market Supporting Professional 92 Capital Market Trading Mechanism and Telkom ADS 94 Addresses of Telkom Indonesia TelKoM InDonesIA HIGHlIGHTs Telkom is a State-Owned Enterprises ("SOE") which is engaged in the field of telecommunications and network services in Indonesia and therefore subject to the laws and regulations in Indonesia. With its status as a state-owned company whose shares are traded on the stock exchange, the Company's majority shareholder is the Government of the Republic of Indonesia at 52.56% while the rest 47.44% is controlled by the public. The Company's shares are traded on the Stock Exchange and the NYSE. 40 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESWe continue to innovate and develop synergies the entire product, services and solutions through our subsidiaries. We strengthen our organization with the formation of the Executive Board ("BOE"). BoE facilitate parenting mechanism toward subsidiaries by grouping subsidiaries into four categories, namely cellular business, media, infrastructure, and international. Cellular business is led by PT Telkom Indonesia Cellular ("Telkomsel"), the media business is led by PT Multimedia Nusantara ("TelkomMetra"), the infrastructure business is under coordination of PT Indonesian Telecommunications Infrastructure ("TelkomInfra"), while the international business is controlled by PT Telkom Indonesia International (" Telin "). We have a vision of "To Become a Leading Telecommunications, Information, Media & Edutainment and Services (TIMES) Player in the Region". The Company's mission is "To Provide More for Less TIMES Services" and "To be the Role Model as the Best Managed Indonesian Corporation". To achieve the vision and mission, we conduct a thorough transformation in five aspects to address the challenges of global market to help the Company achieve sustainable competitive growths. The five aspects of transformations include transformation in human resources, business, structure, cultural and infrastructure/systems. Telkom Group's management concept is based on element of 8S, namely Spirituality, Style, Shared Values, Strategy, Staff, Skill, System, and Structure. 41 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TelKoM InDonesIA PRofIle Name of the Company Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk Address Gedung Graha Merah Putih, Jl. Japati No. 1 – Bandung, Indonesia 40133 Abbreviated Name PT Telkom Indonesia Tbk (Persero) Commercial Name Telkom Line of Business Telecommunication and network services Group of Business Good and Service Trading Telephone +62-22-4521404 Facsimile +62-22-7206757 Call Center 147 Website www.telkom.co.id Taxpayer Identification Number 01.000.013.1-093.000 Email corporate_comm@telkom.co.id, investor@telkom.co.id Certificate of Company Registration 101116407740 Rating idAAA (Pefindo) for 2012, 2013 and 2014 Business License 510/3-0689/2013/7985-BPPT Domicile Bandung - West Java Date of Legal Establishment November 19, 1991 42 Telkom Property 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESLegal Basis of Establishment Based on Government Regulation No.25 of 1991, we were converted from a state agency existing at that time to a state-owned limited liability company based on the Notarial Deed of Imas Fatimah, SH No. 128 dated September 24, 1991 which was approved by the Minister of Justice of the Republic of Indonesia in Decree No.C2- 6870.HT.01.01 year 1991 dated November 19, 1991 and published in State Gazette of the Republic of Indonesia No.5 dated January 17, 1992, Supplement No.210. Amendments to our Articles of Association by notarial deed of A. Partomuan Pohan, SH, LLM. No. 4 dated April 6, 2006 and published in the State Gazette of the Republic of Indonesia No.51 dated June 27, 2006, Supplement No.666, among other matters, changed the authority and responsibilities of our Board of Directors and Commissioners. Authorized Capital 1 Series A Dwiwarna and 399.999.999.9999 Series B shere 1 Head Office Offices - - 7 Regional Division (“Divre") Offices - 58 Regional Telecommunications ("Witel") Service Offices consisting of - 572 Plasa Telkom outlets - - 409 GraPARI (including third party managed outlets) - 268 units Mobile GraPARI 1 Foreign GraPARI in Hong Kong Stock Listed - Indonesia Stock Exchange (“IDX”) - New York Stock Exchange (“NYSE”) Since June 5, 2014, Telkom shares are no longer traded on the London Stock Exchange ("LSE") Capital Market Profession Public Accountants Purwantono, Suherman, & Surja Public Accountant Office Member Firm of Ernst & Young Global Limited Issued and Fully Paid Capital 1 Series A shere and 100.799.996.399 Series B shere Ownership - The Government of the Republic of Indonesia 52.56% - Public 47.44% Registrar PT Datindo Entrycom Trustee PT Bank CIMB Niaga Tbk. Stock Code - TLKM on Indonesia Stock Exchange (“IDX”), Jakarta, Custodian PT Kustodian Sentral Efek Indonesia Indonesia - TLK on The New York Stock Exchange (“NYSE”), New York, United State of America Rating Agency PT Pemeringkat Efek Indonesia Listing on the Stock Exchange The Company's shares were listed on the Jakarta Stock Exchange and Surabaya Stock Exchange on July 14, 2003The Company's shares were listed on the NYSE, Indonesia Stock Exchange (then Jakarta Stock Exchange) and Surabaya Stock Exchange (which merged with the Jakarta Stock Exchange in 2007) on November 14, 1995. Depositary Receipts The Bank of New York Mellon Details of capital market profession visible on General Information of Telkom Indonesia – Stock Information. 43 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TelKoM InDonesIA MIlesTones 1856-1884 On October 23, 1856, the Dutch colonial government deployed the first electromagnetic telegraph service operation in Indonesia, which connected Jakarta (Batavia) and Bogor. We consider this event to be part of the beginnings of Telkom’s history and have thus adopted October 23 as the anniversary of our “beginning”. In 1884, the Dutch colonial government established a private entity, "Post en Telegraafdienst" to provide postal and telegraph services. 1991 Perumtel was transformed into a limited liability company and renamed Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia (Telkom) under Government Regulation No.25 of 1991. Our business operations was then divided into 12 telecommunication regions which was later reorganized in 1995 into seven regional divisions (Divre), namely Divre I Sumatra, Divre II Jakarta and the surrounding areas, Divre III West Java, Divre IV Central Java and Yogyakarta, Divre V East Java, Divre VI Kalimantan, and Divre VII Eastern Indonesia. 1999 Law No. 36/1999 on the Elimination of Telecommunications Monopoly, which became effective in September 2000, facilitated the entrance of new players to foster competition in the telecommunications industry. 1 2 3 4 5 6 7 1906-1965 In 1906, the Dutch Colonial Government established a government agency to assume control postal services and telecommunications in Indonesia, named Jawatan Pos, Telegrap dan Telepon (Post, Telegraph en Telephone Dienst/PTT). In 1961, its status was changed to newly- established state-owned company, Perusahaan Negara Pos dan Telekomunikasi (PN Postel). In 1965, the Government separated postal and telecommunications services by dividing PN Postel into Perusahaan Negara Pos dan Giro (PN Post & Giro) and Perusahaan Negara Telekomunikasi (PN Telekomunikasi). 1995 On May 26, 1995, we and Indosat established Telkomsel, Our Initial Public Offering/IPO 2001 We acquired 35% of Telkomsel was on November 14, 1995, with our shares shares from PT Indosat as part of listed on the Jakarta Stock Exchange (now the restructuring of the tele com- Indonesia Stock Exchange) and the Surabaya munications service industry in Stock Exchange (SSX). Our shares were also Indonesia, which was characterized listed on the NYSE and the LSE in the form by the elimination of joint ownership of American Depositary Shares (“ADSs”), and cross-ownership between us and publicly offered without listing (POWL) and Indosat. With this transaction, in Japan. 1974 PN Telekomunikasi was turned into Perusahaan Umum Telekomunikasi Indonesia (Perumtel), which provided domestic and international telecommunications services, and sub- sequently spun-off PT Industri Telekomunikasi Indonesia (PT INTI), which manufactured telecommunications equipment, into an independent company. we controlled 77.7% shares in Telkomsel. Indosat then took over 22.5% of our shares in Satelindo and 37,7% of our shares in PT Lintasarta Aplikanusa. At the same time, we lost our exclusive rights as the sole operator of fixed line services in Indonesia. 44 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES2002 We divested 12.72% of Telkomsel shares to Singapore Telecom Mobile Pte Ltd (Sing Tel Mobile), and were left with 65% of shares in Telkomsel. We acquired the entire share capital of Pramindo in three stages, with 30% of the shares acquired on the date of the contract on August 15, 2002, 15% on September 30, 2003 and the remaining 55% on December 31, 2004. 2009 We underwent a transformation from an information telecommunication company to TIME Company. Our new image was introduced to the public with a new corporate logo and tagline of "the world in your hand". 2010 The Submarine fiber optic cable project JaKaLaDeMa linking Java, Kalimantan, Sulawesi, Denpasar, and Mataram was successfully completed in April 2010. 2013 As of 2013, we begin to operate in seven countries, namely,Hong Kong-Macau, East Timor, Australia, Myanmar, Malaysia, Taiwan, and the United States of America. 8 9 10 11 12 13 14 15 16 2004 We launched an international direct dialing service for fixed lines with the access code 007. 2011 We commenced the reform of the telecommunications infrastructure through the Telkom Nusantara Super Highway project, which unites the archipelago from Sumatra to Papua, as well as the True Broadband Access project to provide Internet access with a capacity of 20-100 Mbps to customers throughout Indonesia. 2014 We were the first operator in Indonesia to commercially launch 4G LTE services in December 2014. 2005 TheTelkom-2 Satellite was launched to 2012 We increased broadband penetration replace all satellite transmission services through the development of Indonesia that were previously provided by Palapa Wi-Fi to as part of our “Indonesia Digital B-4, which brought the total of satellite Network” program. We reconfigured launched by us to eight satellites, our business portfolio from TIME to including Palapa A-1. TIMES (Telecommunication, Information, Media, Edutainment & Service) to increase business value creation. 45 2014 Annual Report PT Telkom Indonesia Tbk (Persero)AWARDs & ceRTIfIcATIons January 4, 2014 • • 1st in Infrastructure, Utilities and Transportations, The Best 20 of Most Admired Companies in Indonesia, and Highest Leap in FIMAC Ranking Fortune Indonesia and Hay Group Indonesia Magazine April 30, 2014 Platinum Winner Anugerah Kartini BUMN 2014 Executive General Manager, Enterprise Service Division. BUMN Track and Leadership Inc May 13, 2014 Best Issuer 2014 Capital Market Awards May 14, 2014 • TOP IT, TOP Green IT, TOP IT Solution, TOP Telco 2014 • Top IT Agility in Telco 2014 for KartuHalo (post paid), Simpati, and Kartu As (prepaid), and Telkomsel Flash (wireless internet). • Top Data Center Services 2014, Top Cloud Application Provider 2014 (TelkomSigma) • Top Contact Center Solution 2014 (Infomedia) • TOP IT Innovation in IT Services for Health 2014 (AdMedika) TOP IT & TOP Telco 2014 May 28, 2014 Platinum The Best Team Work, Platinum The Best Technology Innovation, Gold The Best Operation, Gold The Best Business Contribution, Gold The Best Technology Innovation, Silver The Best HR Retention Program, Silver The Best Operation, Silver The Best HR Retention Program, Silver The Best Business Contribution Indonesia Contact Center Association (ICCA) 46 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESMay 30, 2014 Gold - Technology Company, Silver - Customer Service of The Year The 1st Asia-Pacific Stevie Awards, Seoul June 4, 2014 Internet Provider and Telecommunication Company Corporate Image Award – Indonesia’s Most Admired Companies (IMAC), Frontier Consulting Group and Tempo Magazine June 19, 2014 Best SME Service through Indonesia Digital Interpreneur (IndiPreneur) program, Project of The Year Indonesia Digital School (IndiSchool) Asia Communication Awards 2014, Total Telecom in Singapore June 5, 2014 Best Managed Companies, Best Corporate Governance Best Investor Relations, Best CSR, Most Committed Company to a Strong Dividend Policy Finance Asia Best Managed Companies” & “Corporate Image Award Indonesia’s Most Admired Companies (IMAC)” 2014, Frontier Consulting Group and Tempo Magazine July 16, 2014 Winner 2014 Indonesia MAKE Award Dunamis Organization Services June 26, 2014 Best Sustainable Business Innovation Company in Green Telecommunication Technology and Best Green CEO 2014 Social Business Innovation Award 2014, Warta Ekonomi. July 16, 2014 2nd Rank Indonesia Top 100 Most Value Brand 2014, 1st Rank In Strongest Indonesia Brands, 2nd Rank of The Highest Brand Value Growth In Indonesia SWA and Brand Finance 47 2014 Annual Report PT Telkom Indonesia Tbk (Persero)July 31, 2014 Sustainable Marketing Excellence Award through Telkom Solution program, Marketing Campaign of the Year through Indonesia Digital School (IndiSchool) program, Effective Use of Marketing Communication Award through Indonesia Digital Entrepreneur (IndiPreneur) program, Marketing Professional of the Year 5th CMO Asia Awards for Excellence in Branding & Marketing 2014 in Singapore September 23, 2014 • Data Communication Service Provider of the Year, Telecom Service Provider of the Year 2014 (Telkom), • Indonesia Green BTS Operator of the Year, Indonesia Mobile Broadband Service Provider of the Year, Indonesia Mobile Data Service Provider of the Year, Indonesia Mobile Service Provider of the Year (Telkomsel) • Contact Center Outsourcing Service Provider of the Year (Infomedia) • Data Service Provider of the Year (Telkomsigma) Frost & Sullivan Indonesia Excellence Awards 2014 November 28, 2014 • Grand Platinum “Freedom of Associating and Assembling” (category of Human Rights) • Telkom Go Green Action: Mitigation of carbon dioxide emission and stimulation of Environment Friendly Business activities (category of Environment) • Telkom Customer Satisfaction Based on Global Customer Satisfaction Standard (GCSS) in the form of Measurement CSI and CLI (category of Consumer) Indonesian CSR Awards 2014 (ICA 2014) August 21, 2014 Gold Winner for Strategic Marketing & Tactical Marketing, First The Best Chief Marketing Officer (CMO) BUMN Marketing Awards 2014 August 29, 2014 Best Listed Company of The Year, The Best CEO Listed Company 2014, CEO of The Year, 1st winner for the category of Corporate Communication, 1st winner for the category of Risk Management, 1st winner for the category of Performance Group (Infrastructure). Anugerah Perusahaan Terbuka Indonesia 2014 2 Desember 2014 Telkom menerima World Communication Awards (WCA) 2014 yang berlangsung di London, Inggris. Ajang yang diikuti seluruh operator Telco di dunia ini memberikan penghargaan kategori "Best Small Business Service" kepada program IndiPreneur (Indonesia Digital Entrepreneur) dari Telkom. WCA 2014 48 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES1 2 3 4 5 6 7 8 9 ceRTIfIcATIon No Date Sertification Receiver Given by Valid until 1 2 3 4 5 6 7 8 9 2013 ISO 9001:2008 PT Dayamitra Telekomunikasi (Mitratel) United Register for System (URS) 2013 ISO 9001:2008 Divisi Business Service TUV Rheinland Cert GmbH 2013 ISO 9001:2008 PT Telkom Akses TUV Rheinland Cert GmbH 2012 ISO 9001:2008 PT Finnet DQS GmbH 2012 AS/NZS ISO 9001:2008 PT Administrasi Medika (AdMedika) Verification New Zealand Limited 2012 ISO/IEC 27001:2005 PT Finnet DQS Gmbh 2012 ISO/IEC 27001:2005 Divisi Infratel dan Divisi Access TUV Rheinland Japan Ltd 2011 2011 ISO 9001:2008 Divisi Telkom Flexi TUV Rheinland Cert GmbH ISO 9001:2008 Divisi Enterprise Service TUV Rheinland Cert GmbH 2016 2016 2016 2015 2015 2015 2015 2014 2014 49 2014 Annual Report PT Telkom Indonesia Tbk (Persero)sIGnIfIcAnT eVenTs 2014 JANUARY 10 Through subsidiary PT Sigma Cipta Caraka (Telkomsigma), Telkom has the fourth and fifth data center in 2014. Data center specification tier 3 and 4 located in Balikpapan, East Kalimantan and industry area of Cikarang, West java. 22 Telkom Group built 11 Integrated Services Posts for Mount Sinabung eruption refugees in Karo District, North Sumatra. Telkom Group also distributed food assistance, medicine, and clean water supply by deploying five cars. FEBRUARY 8 Participating in the re-operation of Halim Perdanakusuma Airport for commercial flight, Telkom held Indonesia Wifi internet service (Wifi.id) at the airport. 14 The Launching of UseeTV in conjunction with art performances of Erros Djarot 40 Years Opus at the Jakarta Convention Center. 21 Telkomsel synergize with Telkom to bring the first Seamless Wi-Fi Mobile solution in Indonesia, Telkomsel Flashzone-Seamless that utilize Telkom Wi-Fi network as an additional cellular network. This collaboration provides the experience of surfing with high speed and stability. It also allows customers to switch network connection from 2G/3G to Wi-Fi automatically (auto connect). MARCH 6-7 Telkom Internasional (Telin) in cooperation with other 17 global telecommunication providers signed MoU of submarine cable development project, South East Asia - Middle East -Western Europe 5 (SEA-ME-WE 5) in Kuala Lumpur, Malaysia 50 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES13 Through subsidiary, Telkom Akses, Telkom accelerate the development of broadband infrastructure to fulfill the Government program in providing fast internet access throughout Indonesia. Broadband infrastructure will pass 20 million points/houses up to 2015 in around 900 inhabited islands in Indonesia. Currently, Telkom broadband infrastructure pass through 13,2 million houses (home passed). 27 Telkom for the first time operate vending machine technology that is integrated with the e-ticketing service in Kualanamu International Airport, North Sumatra. This was stated by EBIS Director, Muhammad Awaluddin on the sidelines of the inauguration of the airport by the President of the Republic of Indonesia Susilo Bambang Yudhoyono. APRIL 4 Telkom Annual General Meeting of Shareholders (AGMS) with the agenda of to change the composition of Telkom Board of Commissioners and Directors 22 The development of Telkom TMoney service starts to target on railway transportation service. KRL Jabodetabek e-ticketing has already reached 600.000 transactions each day. Out of that number, around 55% are multi trip card (KMT) users. 28 Telkom organizes an international certification training program called "Indonesia Digital Creative", which is jointlyheld with Intel Indonesia Corporation and fully supportedby MIKTI, IWAPI, and PGRI with a target of 100,000participants in 2015. JUNI 10 Telkom launced WiFi Corner 100Mbps in Surabaya and Denpasar. This innovation was driven by the growing public demand to high-speed data access. JULY 10 Telkom supports the Indonesian digitization program in 2015 to enhance the global competitiveness, especially in technology and communications. This was announced by the Director of ISP, Indra Utoyo, when met with the Minister of Communications and Information, Tiffatul Sembiring and Hermawan Kartajaya at the GMP, Jakarta. 51 2014 Annual Report PT Telkom Indonesia Tbk (Persero)22 Telkom launched Delima Remittance service in Taiwan for providing remittance service for Indonesian people in Taiwan. The launched was marked by the signing of Cooperation Agreement between President Director of Finnet Indonesia (Telkom subsidiary), Otong Iip with Director of Indonesia Delivery Service (Index) Chou Lin Chieh in Taipei City, Taiwan. AUGUST 17 Enliven the momentum of Indonesian 69thIndependence Day, Telkom received an award from the Indonesian Record Museum on the success of holding 1.000 WiFi.ID Corner 100 Mbps throughout Indonesia within a month. MURI award was presented by the Director, Jaya Soeprana at the Independence Day ceremony in the courtyard GMP Building, Jakarta. SEPTEMBER 17 – 18 Telkom presented performance exposure through the Investor Summit and Capital Market Expo held at The Ritz-Carlton Pacific Place Jakarta. OCTOBER 20 Telkom provides full support in one of the activities of People Thanksgiving, which was "Video Conference President Joko Widodo with People." Telkom provide the services of Video Conference or the so-called e-Blusukan followed by volunteers from eight cities. NOVEMBER 3 Director of Enterprise & Business Service Telkom launched CRM Mobile Apps of UKM Hebat (Terrific SME) named ZAPA in Jakarta. Telkom targeted, in 2015 there will be 1.000.000 SMEs involved and connected with various applications that have been developed. DECEMBER 19 Extraordinary General Meeting of Shareholders, with the agenda of altering the compositition of Telkom Board of Commissioners and Board of Directors. 52 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESSINERGY AMONG US IS A MUST IT MAKES US UNBEATABLE Alex J. Sinaga coRPoRATe IDenTITY of TelKoM InDonesIA LOGO The new logo of the Company established based on the Company's Regulations No. PD.201.03/2014 on New Corporate/Brand Identity dated June 20, 2014. Tagline: the world in your hand Which in Bahasa means “Dunia dalam genggaman Anda”, where the message conveyed is that Telkom will make everything easier and more enjoyable in accessing the world. Meaning of Logo Referring to Telkom Corporate philosophy, which is Always The Best - a basic belief to always provide the best in every job completed and continually amend ordinary condition becoming better, and eventually led to become the best. Color Philosophy Red - Courage, Love, Energy, Tenacious Reflects the spirit of Telkom to always optimistic and brave in facing the challenges and the company. White - Holy, Peace, Light, Unite Reflects the spirit of Telkom to provide the best for the nation. Black - Basic Colors Symbolizes determination. Grey – Transition Color Symbolizes technology. 54 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESVIsIon AnD MIssIon Our vision and mission is stated in our long-term plan approved by the Board of Commissioners on May 30, 2014 by the Decree of the BOC No. 11/KEP/DK/2014/ RHS and amendment approved on December 31, 2014 by the Decree of the BOC No. 18/KEP/DK/2014/RHS. Vision To become a leading Telecommunication, Information, Media, Edutainment and Services ("TIMES") player in the region. Mission ● To provide "more for less" service with respect to TIMES. ● Being exemplary of best corporate management in Indonesia. Explanation on Vision and Mission: Leading means leading in terms of our performance on the financial aspects (revenue and profit) and market capitalization and being included in the leading telecommunication operators group (both of which only have telecommunication portfolio and TIMES) in the region. Region means Asian region, so that our performance will be compared with the telecom operators in the region. More for less is a new business model seeks to promotes benefits before price. This business model is often called as Paradox Marketing, which provide more benefits or value at a lower price (for less). We develop our quality of service standards in the Telkom Quality System based on international standards. We seek to manage our business using the best methods and tools applied by world-class companies, in order to be the best company in Indonesia and a role model for other companies 55 2014 Annual Report PT Telkom Indonesia Tbk (Persero) cUlTURe VAlUes Telkom Corporate Philosophy : Always The Best Telkom Leadership Architecture : Lead by Heart, Managed by Head The Telkom Way : Solid-Speed-Smart The Telkom Corporate Philosophy: Always The Best Corporate Philosophy Always the Best is a basic spirit to continuously provide the best in every job. Always the Best is a mental attitude to become the best, which has the essence of Ihsan, which contains three meanings; repair, better, and best. Telkom Leadership Architecture: Lead by Heart, Managed by Head The Leadership Architecture contains three core elements are referred to as 3P, namely philosophy, principle and practice. Leadership Philosophy to be the Best is the basic belief that contains basic philosophies for the whole range of Telkom to be the best leader; basic belief that should always create harmony between the Heart and Head (2H) and create synergies between the Spirit and Strategy (2S); and commitment that should always be embedded within the whole range. Leadership Principles to be the Star is the core values that contain the basic principles to be the star leader that include two core values, namely; Lead by Heart & Managed by Head. Principles Lead by Heart and Managed by Head are interpreted into the behavior practices in achieving its goal, which is to become a winner in TIMES business competition. Leadership Practices to be the Winner is standard behaviors that contain noble practices to become the winner leader. The Telkom Way The Telkom Way contains 3P three core elements, namely philosophy, principle, and practice. Philosophy to be the Best: Always The Best Philosophy Always the Best is the basic belief that contains basic philosophies for the whole range of Telkom to be the best being. Principles to be the Star: Solid-Speed-Smart (3S) Principles to be the Star, which is the core value that contains the basic principles to be the star being. Principle to be the Star contains three core values called 3S: Solid, Speed, Smart. 56 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESSolid is the realization of one heart (pure heart), one mind, and one action. Solid is an interpretation of the first Always the Best, namely integrity. Speed is to act rapidly in every job. Speed is an interpretation of the second elements Always the Best, namely enthusiasm. Smart is to behave, to think, and to act intelligently in every job through sharp intuition, the course of ratio through creativity and innovation that produces breakthrough, and the course of body through impressive actions. Smart is the interpretation of the third elements of Always the Best, namely totality. Practices to be the Winner: Imagine-Focus-Action Practices to be the Winner are standard behaviors that contain noble practices to become a winner being. Practices to be the winner containing standards of behavior : Imagine - Focus - Action. 57 2014 Annual Report PT Telkom Indonesia Tbk (Persero)ARTIcles of AssocIATIon Articles of Association of the Company ("Articles of Association") has been registered under the Limited Liability Company Law No.1/1995 and has been approved by the Minister of Justice of the Republic of Indonesia based on the Decree of Ministry of Justice No.C2-7468.HT.01.04.TH.97 of 1997. In connection with the issuance of the Limited Liability Company Law No.40/2007, which replaced the Limited Liability Company Law No.1/1995, the Company has adjusted its Articles of Association and has been approved by the Minister of Law and Human Rights of the Republic of Indonesia based on the Decree of Ministry of Justice and Human Rights No.AHU.46312.AH.01.02/2008 dated July 31, 2008 and was registered in the State Gazette of the Republic of Indonesia No.84 dated October 17, 2008, Appendix Official Gazette No.20155. Amendments to the last Articles of Association include changes in the capital structure through a stock split of the Company from Rp 250, - to Rp50, - and the suppression of the Partnership and Community Development Program from the content of the Company’s Work Plan and Budget. Amendments to the Articles of Association has been carried out based on notarial deed Ashoya Ratam, SH, Mkn. No.11 dated May 8, 2013. Notification of the amendment has been received by the Minister of Justice and Human Rights of the Republic of Indonesia by virtue of No.AHU- AH.01.10-22500 dated June 7, 2013. PRoDUcTs AnD seRVIces Corresponding to the Article of Association, the Company’s main business is telecommunication services that include fixed wireline and fixed wireless, mobile communication, network and interconnection service, as well as internet service and data communication. We also provides various services in the field of information, media and edutainment, including cloud-based and server based managed services, e-Payment and IT enabler, e-Commerce and other portal services. Telkom continues to innovate in other sectors than telecommunications and to build synergy among the entire products, services and solutions. To increase business value, in 2012, we transform its business portfolio into TIMES (Telecommunication, Information, Media and Edutainment & Service). To run the business portfolio, based on the Board of Executive we classify subsidiaries into four groups, they are; cellular business led by Telkomsel, international business led by Telin, multimedia business led by Telkom Metra, and infrastructure business led by Telkom Infra. Telecommunication We serve fixed services (fixed phone, fixed broadband and Wi-Fi), mobile services (full and limited mobility), network & infrastructure services (interconnection & international traffic, network services, satellite and tower). Information Information services consist of platform services (managed application & SI, BPM, e-payment, premise integration, data center & cloud, M2M), big data and ecosystem solution (e-health, e-logistics, e-tourism, e-transportation and e-governance). Media and Edutainment Media and Edutainment services offered digital life, digital home and digital advertising. Services Services became one of the Company's business model oriented to the customer. This is in line with our Customer Portfolio to Personal customer, Consumer/Home, Business, Enterprise, Wholesale, and International. 58 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESStrategy Framework – Strategy Formulation Vision & Mission To Become a Leading TIMES Player in the Region Corporate Strategic Objective Creating Superior Value To Provide More for Less TIMES Services To be the Role Model as the Best Managed Indonesian Corporation Corporate Strategy Directional Strategy : Sustainable Competitive Growth Portfolio Strategy : Converged TIMES Portfolio Parenting Strategy : Strategic Guidance sTRATeGIc obJecTIVe TelKoM We have defined our corporate strategies broadly as follows: 1. Directional Strategy 2. Portfolio Strategy 3. Parenting Strategy : Sustainable competitive growth : Converged TIMES portfolio : Strategic guidance Directional Strategy refers to a sustainable competitive growth strategy that supports and grows our market capitalization. Portfolio Strategy refers our strategy to develop a converged TIMES portfolio that provides seamless converged services (multiservice in multi device) by exploiting the synergies of the Telkom Group. Parenting Strategy calls for us to manage multiple businesses with different maturity levels. To support growth, the strategic guidance covers all aspects of planning and optimizing of synergies within the Telkom Group. To ensure that our business transformation is progressing well and thoroughly, from the corporate to the functional level, we applied the strategic formulation model in stages. Corporate Strategy consists of a strategic situation analysis (SSA), Strategy Formulation (SF), Strategy Implementation (SI), Strategy Evaluation & Control (SEC), and translating those deeper at the various levels from division to functional level. 59 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TRADeMARKs, 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 ("Ditjen HKI") 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. The following table lists the trademark submitted for the application registration for the period of 2013 and 2014: No Title Application No. Application Date 1 2 3 4 5 6 7 8 9 10 11 IndiHome t-money Bos Toko Telkom Indonesia Telkom Indonesia (with tag line “the world in your hand”) J002014043700 September 25, 2014 J002014028601 J002014028602 J002014028603 June 23, 2014 June 23, 2014 June 23, 2014 J002014028604 June 23, 2014 Delima (new logo) J002014028605 June 23, 2014 U See Zone UTV U Zone U U meet me J002013014812 J002013014813 J002013014814 J002013014815 J002013022833 April 2, 2013 April 2, 2013 April 2, 2013 April 2, 2013 May 16, 2013 The following table lists of registration letter of copyrights accepted for the period of 2014: No Innovation Title Application No. Application Date Registration Date Innovation Number “Super Resolution in Speedy Monitoring” Computer Program “Monitoring Penerimaan Pendapatan Tunai” Computer Program “Kesehatan Ibu dan Anak (KIA) Online” Computer Program C00201400479 February 5, 2014 March 17, 2014 67906 C00201400480 February 5, 2014 March 17, 2014 67907 C00201400481 February 5, 2014 March 17, 2014 67908 “Upoint” Computer Program C00201400482 February 5, 2014 March 17, 2014 67909 “Wifi.id finder” Computer Program C00201400483 March 14, 2014 March 14, 2014 67827 1 2 3 4 5 60 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe following table lists the copyrights that have been registered by us in 2013 and 2014: No Innovation Title Type of Intellectual Property Rights Application No. Application Date Registration Date 1 2 3 4 5 6 7 8 9 New Indihome Logo C00201403674 September 25, 2014 Telkom Game Center Application 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 U See Zone U Zone U 10 U TV Logo Logo Logo Logo C00201301288 April 2, 2013 C00201301289 April 2, 2013 C00201301290 April 2, 2013 C00201301291 April 2, 2013 11 12 Firmware Telkom Homegateaway Computer Program C00201301292 April 2, 2013 Indi Home Logo C00201305330 December 3, 2013 We did not submit or register any patents in 2013 and 2014. - - - - - - - - - - - 61 2014 Annual Report PT Telkom Indonesia Tbk (Persero)MAnAGeMenT of TelKoM InDonesIA In accordance with Telkom Annual General Meeting of Shareholders (AGMS) on April 4, 2014, the composition of the Board of Commissioners and Directors are as follows: Commissioners Jusman Syafii Djamal Parikesit Suprapto Hadiyanto Gatot Trihargo Johnny Swandi Sjam Virano Gazi Nasution Directors Arief Yahya Honesti Basyir Indra Utoyo Sukardi Silalahi Muhammad Awaluddin Rizkan Chandra Priyantono Rudito Ririek Adriansyah : President Commissioner : Commissioner : Commissioner : Commissioner : Independent Commissioner : Independent Commissioner : President Director : Director : Director : Director : Director : Director : Director : Director In accordance with Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014, the composition of the Board of Commissioners and Board of Directors went through some changes. : President Commissioner Commissioners Hendri Saparini Dolfie Othniel Fredric Palit : Commissioner : Commissioner Imam Apriyanto Putro : Commissioner Hadiyanto : Independent Commissioner Parikesit Suprapto : Independent Commissioner Johnny Swandi Sjam : Independent Commissioner Virano Gazi Nasution Directors Alex J. Sinaga Indra Utoyo Abdus Somad Arief Heri Sunaryadi Herdy Rosadi Harman Dian Rachmawan Honesti Basyir Muhammad Awaluddin : President Director : Director : Director : Director : Director : Director : Director : Director 62 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES63 2014 Annual Report PT Telkom Indonesia Tbk (Persero)President Director TELKOM ORGANIZATIONAL STRUCTURE Senior Vice President Corporate Secretary Department VP Legal & Compliance VP Regulatory Management VP Corporate Office Support VP Corporate Communication Senior Vice President Program Management Office PMO Controller Head of Internal Audit VP Infrastructure & Operations Audit VP Support & Subsidiary Audit VP Enterprise Management Audit Director of Consumer Service VP Consumer Product Planning VP Consumer Relationship Management VP Consumer Marketing & Sales VP Consumer Service Supervision Director of Enterprise & Business Service VP Enterprise Business Strategy VP Enterprise Service VP Business Service VP Marketing & Operation Alignment Director of Wholesale & International Service VP Wholesale & International Development VP Wholesale & International Voice Service VP Wholesale & International Network Service EGM Regional 1-7 Division EGM Enterprise Service Division EGM Business Service Division EGM Government Service Division EGM Wholesale Service Division 64 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESDirector of Human Capital Management VP Human Capital Policy VP Industrial Relation VP Organisation Development VP Telkom Smart Office SGM Human Capital Center SGM Community Development Center SGM Telkom Corporate University Center SGM Assessment Center Indonesia Director of Finance VP Management Accounting VP Corporate Finance VP Financial & Logistic Policy VP Investor Relation VP Risk & Process Management VP Supply & Planning Control SGM Finance Billing & Collection Center SGM Supply Center Director of Innovation & Strategic Portofolio SVP Strategic Investment VP Strategic Investment Execution VP Strategic Investment Planning SVP Sinergy VP Integration & Portfolio Management VP Corporate Strategic Planning VP Innovation Strategy EGM Digital Business Division SGM Innovation & Design Center Director of Network, IT & Solution VP Infrastructure Service & Governance VP Information Technology Strategy & Governance VP Solution EGM Broadband Division EGM Wireless Broadband Division EGM Network of Broadband Division EGM Information Technology Service & Solution Division We have adopted a holding company approach to corporate management, which we believe will provide productive flexibility for all our business entities in accordance with the needs of the respective units. In implementing this holding company approach: 1. the role of the corporate office is focused on the Corporate Level Strategy function (i.e. directing overall strategy, portfolio strategy and parenting strategy). 2. we tailor parenting style to the particular characteristics of the business entity. 3. we seek to empower each business entity in line with their respective particular characteristics. In addition, we introduced the 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 Chief 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 as well as fostering a harmonious relationship between subsidiaries and the parent. Telkom’s Organizational Structure Network, IT & Solution Directorate Focuses on managing the Infrastructure Strategy and Governance, IT Strategy and Governance, and Solution, as well as managing the IT utilization and service operation and 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. Inovation & Strategic Portfolio Directorate Focuses on managing the functions of corporate strategic planning, strategic business development, innovation strategy and synergy, as well as the operational management of the Digital Business Division and Innovation and Design Center units. Consumer Service Directorate Focuses on managing the consumer product planning, consumer realtionship amagement, consumer marketing and sales and consumer service supervision. Enterprise & Business Service Directorate Focuses on managing marketing and operation aligment, enterprise business strategy, enterprise service, business service, through the Enterprise Services Division and Business Services Division. Wholesale & International Service Directorate Focuses on managing the wholesale and international business segment, and the operational management of the Wholesale Services Division. Human Capital Management 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. Finance Directorate Focuses on the company’s financial management through Corporate Finance unit, Managemnt Accounting unit, Investor Relations unit, Financial Logistic Policy, Risk and Process Management unit, and managing financial operations centrally through the Finance, Billing and Collection Center unit. 65 2014 Annual Report PT Telkom Indonesia Tbk (Persero)BOARD OF COMMISIONERS PROFILE DR. HENDRI SAPARINI (PRESIDENT COMMISSIONER) Personal Born : Kebumen, June 16, 1964. Age : 50 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis President Commissioner, appointed based on the result of Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor of Arts in Economics from Gajah Mada University (1988); Master in International Development Policy from Tsukuba University, Japan and a doctorate degree in International Political Economy from Tsukuba University, Japan. Career Hendri Saparini was a Expert Staff of Minister of Cooperation and SME/Head of Indonesian SME Development Agency, Economic Lecturer on Magister Management Gajah Mada University, Magister Management Faculty of Development Studies Bandung Institute of Technology, Doctoral Program Economic Faculty UMS, Economic Consultant in several financial institutions, Bank Indonesia, and international institution, as well as Managing Director Centre of Reformation (CORE Indonesia). DOLFIE OTHNIEL FREDRIC PALIT (COMMISSIONER) Personal Born : Kijang, Riau Islands, October 27, 1968. Age : 46 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Commissioner, appointed by Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bandung Institute of Technology, 1995 Career Dolfie Othniel Fredric Palit has served as Executive Director at Yayasan Bumi Indonesia (2001-2003), Executive Director at the Institute for Strategic Consultant (Strategic Planning) Research Policy and Regional Autonomy - REKODE (2004 - 2009), as a member of the House of Representatives (2009 - 2014 ), Member of Special Committee Act of Prevention and Combating Money Laundering, Bank Century Supervisory team Member, Member of Budget Committee of the House of Representatives, and Member of the Special Committee of the Law on BPJS. 66 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESIMAM APRIYANTO PUTRO (COMMISSIONER) Personal Born : Cilacap, March 22, 1964. Age : 50 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Commissioner, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Imam Apriyanto Putro served as Telkom Commissioners since April 2014. Education Economic Faculty Diponegoro University Semarang, Magister Management from Institut Bisnis Indonesia (IBI) Jakarta, and a doctotare degree Management from State University Jakarta. Career Imam Apriyanto Putro was the Commissioner of PT Semen Indonesia Tbk and currently served as the Secretary of Ministry of SOE. HADIYANTO (COMMISSIONER) Personal Born : Ciamis, October 10, 1962 Age : 52 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia. Position and Appointment Basis Commissioner, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Hadiyanto served as Telkom Commissioners since May 11, 2012. Education Law degree from the University of Padjadjaran, Bandung; Master of Law (LLM) from Harvard University Law School, USA, and a doctorate degree in Legal Studies from the University of Padjadjaran, Bandung. Career Currently Hadiyanto also served as the Director General of State Assets in the Ministry of Finance. Previously, Hadiyanto served as Head of the Legal Secretariat General of the Ministry of Finance, and Alternate Executive Director of the World Bank. In the corporate environment, Hadiyanto has served as President Commissioner of PT Garuda Indonesia Tbk (2007 - 2012) and President Commissioner of PT Bank Ekspor Indonesia (2007-2009). 67 2014 Annual Report PT Telkom Indonesia Tbk (Persero)JOHNY SWANDI SJAM (INDEPENDENT COMMISSIONER) Personal Born : Jakarta, August 15, 1960. Age : 54 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Independent Commissioner, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Johny Swandi Sjam served as Telkom Independent Commissioners since January 1, 2011. Education Diploma III of Computer Engineering from Bandung Institute of Technology, Diploma IV in Industrial Management from the School of Industrial Management Department of Industry, Bachelor of Informatics Management from Gunadarma University, Jakarta, and Masters in Business Administration and Policy from the University of Indonesia, Jakarta. Career Johny Swandi Sjam has served as Commissioner of PT INTI (2010-2011), President Director of PT Indosat Tbk (2005 - 2007), President Director of Satelindo (2002 - 2003) and several other important positions in subsidiaries Indosat such as Sisindosat and Intikom (1997- 2002). PARIKESIT SUPRAPTO (INDEPENDENT COMMISSIONER) Personal Born : Surabaya, August 8, 1951 Age : 54 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Independent Commissioner, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Parikesit Suprapto served as Telkom Independent Commissioners since May 11, 2013. Education Bachelor in Corporate Economics from Sekolah Tinggi Manajemen Industri (1980), Master in Economic Development from Indiana University, USA (1990); and doctorate degree in Economic Development from Notre Dame University, Indiana, USA (1995). Career Currently serving as commissioner of Indonesian Central Securities Depository. Parikesit Suprapto served as Deputy for Services, the Ministry of SOEs (2010 - 2012), Deputy for Banking and Financing Industry, the Ministry of SOEs (2008 - 2010), and Advisor to the Minister of Cooperatives and SMEs Small Business Sector (2006 - 2008). In the corporate environment, Parikesit Suprapto served as Commissioner of PT Indosat Tbk (2011 - 2012) and Commissioner of PT Bank Negara Indonesia (Persero) Tbk. 68 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESVIRANO GAZI NASUTION (INDEPENDENT COMMISSIONER) Personal Born : Bandung, August 23, 1968 Age : 46 Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Independent Commissioner, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Virano Nasution served as Telkom Independent Commissioners since May 11, 2012. Education Bachelors degree in the field of Systems Engineering, University of Arizona and a master's degree in Economic Engineering, Stanford University, USA. Career Virano Gazi Nasution served as Commercial Director of PT Indonesia Comnet Plus, a subsidiary of PT PLN (2009 - 2012), Expert Staff to the Minister of Communications and Informatics Technology (2008 - 2009), and President Director of PT Bakrie Telecom Tbk (2001 - 2005). 69 2014 Annual Report PT Telkom Indonesia Tbk (Persero)BOARD OF DIRECTOR PROFILE ALEx J. SINAGA (PRESIDENT DIRECTOR) Personal Born Age : Pematang Siantar, September 27, 1961. : 53 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis President Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor degree of Electronic Telecommunications of Bandung Institute of Technology and Master of Telematics of the University of Surrey, Guidford-UK. Career Alex J. Sinaga previously served as President Director of Telkomsel, President Director of PT Multimedia Nusantara, Division Head of Fixed Wireless Networks, Head of Enterprise Services, President Commissioner of PT Sigma Cipta Caraka, and Vice President of Toba Lake Golf Club, General Manager Telkom West Jakarta, Senior Manager of Performance - Regional Division II Jakarta. ABDUS SOMAD ARIEF (DIRECTOR) Personal Born Age : Sidoarjo, September 25, 1963. : 51 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor degree of Electrical Engineering from Bandung Institute of Technology and Master of Information Systems and Technology from Bandung Institute of Technology. Career Abdus Somad Arief’s career mostly in Telkom. Previously, Abdus Somad Arief was Director of Network Telkomsel, Executive General Manager of the Enterprise Service Division Telkom (2009 - 2012), Vice President of Business Development - Enterprise & Wholesale Telkom (2008 - 2009), and Deputy Executive General Manager - Enterprise Service Division Telkom (2007 - 2008). Abdus Somad Arief also been the President Commissioner of PT Pramindo Ikat Nusantara (2011 - 2012) and Commissioner of PT Infomedia Nusantara (2010 - 2011). 70 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESMUHAMMAD AWALUDDIN (DIRECTOR) Personal Born : Jakarta, January 15, 1968. Age : 46 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor degree of Electrical Engineering from Sriwijaya University (1990); Master of Business Administration from European University Antwerp Belgium (1998). Career Muhammad Awaluddin started his career at Telkom since 1991. Awaluddin has served as General Manager of Kandatel Bogor, General Manager of Kandatel Central Jakarta, Executive General Manager of Divre I Sumatra, Vice President of Public and Marketing Communications and Executive General Manager of the Division of Access. Previously, Awaluddin was the President Director of PT Infomedia Nusantara. HERI SUNARYADI (DIRECTOR) Personal Born : Jember, June 26, 1965. Age : 49 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia. Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor Degree Faculty of Agriculture from Bogor Agricultural University (1987). Career Heri Sunaryadi previously was the President Director of PT Bahana Pembinaan Usaha Indonesia (Persero) in 2009 - 2013 and President Director of PT Kustodian Sentral Efek Indonesia (2013 - 2014). 71 2014 Annual Report PT Telkom Indonesia Tbk (Persero)HONESTI BASYIR (DIRECTOR) Personal Born : Padang, June 24, 1968. Age : 46 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelor Degree of Industrial Engineering from Bandung Institute of Technology (1992) and Master Degree of Corporate Finance from Sekolah Tinggi Manajemen Bandung (2004). Career Honesti Basyir has served as Finance Director of Telkom (2012 - 2014), Vice President of Strategic Business Development Directorate of IT Solutions and Strategic Portfolio Telkom. Assistant Vice President of Business and Finance Analysis and Project Controller-1 Project Management Office Telkom. HERDY ROSADI HARMAN (DIRECTOR) Personal Born : Bandung, June 28, 1963. Age : 51 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Bachelors Degree of Law from University of Padjadjaran, Bandung; MBA from the Asian Institute of Management Philippines-Institute Management Telkom University, and Master of Law (LLM) from Washington College of Law, DC, USA. Career Herdy Rosadi Harman previously served as the Director of Human Capital Management Telkomsel (2012 - 2014). Herdy Rosadi Harman served as Vice President of Legal & Compliance Telkom (2006 - 2007) as well as Vice President of Regulatory Management Telkom (2007 - 2012). 72 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESDIAN RACHMAWAN (DIRECTOR) Personal Born : Bangil, May 14, 1964. Age : 50 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Education Master in Telecommunication Engineering of Bradford University, England. Career Dian Rachmawan previously was the CEO of PT Telekomunikasi Indonesia International (Hong Kong) Limited or Telin HK. INDRA UTOYO (DIRECTOR) Personal Born : Bandung, February 17, 1962. Age : 53 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Position and Appointment Basis Director, appointed based on Telkom Extraordinary General Meeting of Shareholders (EGMS) on December 19, 2014. Indra Utoyo served as Director since February 28, 2007 and had served as Acting President Director by virtue of the BOC No.201/SRT/DK/2014 dated October 31, 2014. Education Bachelor of Electrical Telecommunication Engineering from Bandung Institute of Technology and Master Degree in Communication and Signal Processing from Imperial College of Science, Technology and Medicine, University of London, England. Career Indra Utoyo joined Telkom since 1986. Indra Utoyo has served as a Senior General Manager of Information System Center Telkom, and Director of IT Solutions & Supply Telkom. 73 2014 Annual Report PT Telkom Indonesia Tbk (Persero)ExECUTIVES PROFILE Position Name Senior Vice President Corporate Secretary Department Triana Mulyatsa Senior Vice President Program Management Office Department Ikhsan Head of Internal Audit Vice President Corporate Communication Vice President Regulatory Management Vice President Corporate Office Support Vice President Legal and Compliance Vice President Infrastructure and Operations Audit Vice President Support and Subsidiary Audit Vice President Enterprise Management Audit Mohammad Nuhin Arif Prabowo Henry Christiadi Dodi Irawan Rudy Agustian Rubi Handojo Purwadi Siswana Purwoto Vice President Financial and Logistic Policy Agus Hery Prasetyo Vice President Management Accounting Vice President Corporate Finance Vice President Risk and Process Management Vice President Supply Planning and Control Vice President Investor Relation Edi Witjara Roby Roediyanto Jajat Sutarjat I K Dody Wirawan Andi Setiawan Senior General Manager Finance Billing and Collection Center Martinus Wisnu Adji Senior General Manager Supply Center Vice President Human Capital Policy Vice President Organization Development Vice President Industrial Relation Vice President Telkom Smart Office Senior General Manager Human Capital Center Weriza Aris Hartoni Danang Baskoro Djonet Hartono Ardi Purwanto Nurdito Waluyo Senior General Manager Telkom Corporate University Center Dwi Heriyanto B. Senior General Manager Assessment Center Indonesia Rini Lestari Utami Senior General Manager Community Development Center Nur Hassim Haji Rusdi Vice President Corporate Strategic Planning Executive Vice President Strategic Investment Vice President Strategic Investment Execution Vice President Strategic Investment Planning Andy Revara N/A Setyanto Hantoro Yusuf Wibisono Vice President Innovation Strategy IGN. Wiseto Prasetyo Agung Senior Vice President Synergy Department Joddy Hernady 74 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPosition Executive General Manager Digital Business Senior General Manager Innovation & Design Center Vice President Consumer Product Planning Vice President Consumer Relationship Management Vice President Consumer Marketing & Sales Operational Vice President Consumer Service Supervision Vice President Marketing & Operation Alignment Vice President Enterprise Business Strategy Vice President Enterprise Service Vice President Business Service Executive General Manager Enterprise Service Division Executive General Manager Business Service Division Name Achmad Sugiarto Saiful Hidajat Teni Agustini Agus Winarno Jemy Sujito Bagyo Nugroho Wisnu Haryadi Indrawan Ditapradana Ilmianto Siti Choiriana Yusron Hariyadi Executive General Manager Government Service Division Mohammad Salsabil Vice President Wholesale & International Development Mohamad Ramzy Vice President Wholesale & International Voice Service Erik Orbandi Vice President Wholesale & International Network Service Budi Satria Dharma Purba Executive General Manager Wholesale Service Division Faizal Rochmad Djoemadi Vice President Infrastructure Service & Governance Vice President IT Strategy & Governance Vice President Solution Arief Musta’in Alip Priyono Dani Ramdani Executive General Manager Broadband Division Revolin Simulsyah Executive General Manager Wireless Broadband Division Pramasaleh Hario Utomo Executive General Manager Network of Broadband Division Era Kamali Nasution Executive General Manager IT Service & Solution Division Halim Sulasmono Executive General Manager Regional 1 Division Teuku Muda Nanta Executive General Manager Regional 2 Division Executive General Manager Regional 3 Division Executive General Manager Regional 4 Division Executive General Manager Regional 5 Division Executive General Manager Regional 6 Division Executive General Manager Regional 7 Division Prasabri Pesti Suparwiyanto Rosydul Umam Aly Iskriono Windarjanto Joko Raharjo Mohammad Firdaus 75 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TELKOM BUSINESS GROUP To perform a business portfolio according to the principles of good corporate governance and best practices, as well as with regard to the provisions of legislation in force, Telkom Group formed a Board of Executive ("BOE"), facilitating parenting mechanism towards subsidiaries. Subsidiaries are divided into some category, the cellular business led by Telkomsel, media led by Telkom Metra, infrastructure led by Telkom Infra, and international led by Telin. TELKOM BUSINESS GROUP STRUCTURE Business group structure and composition of the Telkom Group's shares are presented in the following diagram. 76 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES77 2014 Annual Report PT Telkom Indonesia Tbk (Persero)SUBSIDIARIES AND ASSOCIATED COMPANIES According to the Telkom Group Board of Executive Charter that was decided on December 19, 2013, the management structure grouped by Corporate Strategic Scenario ("CSS"). CSS is set up a framework of rules, basic principles, and reference in the management as well as the mechanism of the relationship between the subsidiary and us in an integrated manner. CSS is applied in order to achieve the objectives of the company with the principles of Good Corporate Governance (GCG) and best practices, as well as taking into account the legislation in force. The following table presents the company structure, including the direct and indirect holdings in various subsidiaries, which are divided into of cellular business, international, media, and infrastructure category. Subsidiaries and Associated Companies in Cellular Business Category Company Shareholdings Line of Business Operation Status Description PT Telekomunikasi Selular (“Telkomsel”), Jakarta 65% Telecommunication Operate Telkomsel, was established on May 26, 1995, provides telecommunications and mobile phone service. Using the Global System for Mobile Communication technology (GSM). 78 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESSubsidiaries and Associated Companies in International Business Category Company Shareholdings Line of Business Operation Status Description PT Telekomunikasi Indonesia International (“Telin”), Jakarta Telekomunikasi Indonesia International Pte. Ltd. (“Telin Singapore”), Singapore Telekomunikasi Indonesia International (Hong Kong) Limited. (“Telin Hong Kong), Hong Kong Telekomunikasi Indonesia International (TL) S.A. (“Telin Timor Leste ”), Dili Telekomunikasi Indonesia International Pty Ltd.,Australia (“Telkom Australia”), Melbourne Telkom Macau Limited, Macau Telkom Taiwan Limited, Taipe City Telekomunikasi Indonesia International (USA) Inc., Los Angeles Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd., Kuala Lumpur 100% Telecommunication Operate 100% through Telin Telecommunication Operate 100% through Telin Telecommunication Operate 100% through Telin Telecommunication Operate 100% through Telin Telecommunication business and IT-based services Operate 100% through Telin Hong Kong 100% through Telin Hong Kong MVNO Service Operate MVNO Service Operate 100% through Telin Telecommunication and IT Operate 49% through Telin Telecommunication, MVNO Service Operate Previously known as PT Ariawest International, Telin was acquired on July 31, 2003 and is a wholly owned subsidiary of Telkom. Currently, Telin has obtained the fixed closed network (“Jartaptup”) license and Network Access Provider license. Telin provides network services and international telecommunication services, as well as international business. Telin Singapore was established on December 6, 2007, pursuant to the laws of Singapore. Telin Singapore is a wholly owned subsidiary of TII. The Company has obtained Facility Based Operator License. Currently, it provides wholesale voice, wholesale data and Managed Service. Telin Hong Kong was established in Hong Kong on December 8, 2010 a wholly owned subsidiary of TII. Telin 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 is provided under the brand Kartu As 2in1. Telin Timor Leste was a subsidiary of Telin Indonesia, established on September 17, 2012. Telin Timor Leste has obtained radio spectrum and general registration certificate license. The service currently provided Fixed Telephone Connections; Mobile Connections; Internet Connections; Traffic-Fixed Line; Traffic-Mobile Telkom Australia is a subsidiary owned exclusively by Telin Indonesia. Established on January 14, 2013 by running Business Process Outsourcing (BPO), Information Technology Outsourcing (ITO), and Telecomunication Services. Telkom Macau is a subsidiary of Telin Hong Kong Limited, which was established on May 13, 2013. Telkom Taiwan is a subsidiary of TelinHong Kong Limited, which was established on June 3, 2013. Telekomunikasi Indonesia International (USA) Inc. is a subsidiary that entirely owned by Telin Indonesia. Established on December 11, 2013. Telekomunikasi Indonesia International (Malaysia) Sdn. Bhd.s a joint venture company with Compudyne. Sdh. Bhd, providing MVNO after receiving Applications Service Provider Class ("ASPCC") license on July 23, 2013 and Network Service Provider (“NSP”) on August 23, 2013. Officially operated on August 25, 2013. 79 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Subsidiaries and Associated Companies in Media Business Category Company Shareholdings Line of Business Operation Status Description PT Multimedia Nusantara (“Telkom metra”), Jakarta 100% Telecommunications networks and multimedia services Operate Operate Operate PT PINS Indonesia (“PINS”), Jakarta 100% PT Patra Telekomunikasi Indonesia (“Patrakom”), Depok PT Sigma Cipta Caraka (“Telkomsigma”), Tangerang 100% 100% through Telkom metra PT Infomedia Nusantara (“Infomedia”), Jakarta 100% (including through 49% ownership of the Company) Services and telecommunications development Services of satellite communication systems, related services and facilities for companies engaged in the oil industry Informatics technology service – implementation and integration system, outsourcing, and license & software maintenance Data and information services - providing telecommunications information services and other information services in print and electronic media, and call center services Telkom Metra, founded on May 9, 2003, managing our multimedia bussines. Telkom Metra provides the development service, construction, and network maintenance as well as multimedia services (data communication system services, portal services, and online transaction services). PINS was originally established to operate our KSO in Sumatra and was acquired on August 15, 2002. Patrakom was established on September 28, 1995. On September 25 and November 29, 2013, the Company acquired additional interest of 40% and 20%, respectively, of Patrakom. Operate Telkomsigma was established on May 1, 1987, provides IT and solutions service. Operate Infomedia was acquired on September 22, 1999 to organize KSO in Sumatra. Infomedia has transformed from focusing on 3 pillars of business (directory services, contact center services, and content services) into a Business Process Outsourcing and Digital Media & Rich Content service. PT Metra Digital Media (“MD Media”), Jakarta 99,99% through Telkom metra Information telecommunication service Operate MD Media was established on January 22, 2013. PT Finnet Indonesia (“Finnet”), Jakarta 60% through Telkom metra Banking communication and data Operate 75% through Telkom metra Administration and insurance/health services Operate 60% through Telkom metra 99,99% through Telkom metra Portal service Operate Multimedia portal service Operate 51% through Telkom metra Travel agent/bureau service Operate Finnet was established on October 31, 2005, as provider of IT infrastructure, applications, and content for information system and financial transactions for the banking industries and other financial services industries. Ad Medika was established on February 25, 2010, provides online claim service between the hospitals and health insurance companies. Metra Plasa established on April 9, 2012 Metranet was established on April 17, 2009. Pointer was established on April 18, 2008. On August 30, 2013, Metra changed its ownership in pointer become 51% 99,99% through Telkom metra Trade services and telecommunications network, satellite, and multimedia tools Operate SMI was established on March 25, 2013. PT Administrasi Medika (“Ad Medika”), Jakarta PT Metra Plasa (“Metra Plasa”), Jakarta PT Metranet (“Metranet”), Jakarta PT Pojok Celebes Mandiri (“Pointer”), Jakarta PT Satelit Multimedia Indonesia (“SMI”), Jakarta 80 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCompany Shareholdings Line of Business Operation Status Description PT Metra Digital Investama (“MDI”), Jakarta 99,99 % through Telkom metra Trading, supplier, construction services Operate MDI was established on January 8, 2013 PT Metra TV (“Metra TV”), Jakarta 99,83% through Telkom metra Broadcasting subscription service Operate Metra TV was established on January 8, 2013. PT Indonusa Telemedia ( “TelkomVision”), Jakarta 20% (including through 4,33% ownership by Telkom metra) TV and content subscription Operate Established on May 7, 1997, Indonusa is a multimedia (pay-TV, internet service) service provider. Since 2007, Indonusa was the first Pay TV operator in Indonesia to launch DTH Prepaid (Prepaid Satellite Pay TV), under the “TelkomVision” brand. On October 8, 2013, 1,036,059, 483 Indonusa shares (equivalent to 80% of its ownership in Indonusa) were sold to PT Trans Corpora and PT Trans Media Corpora. PT Integrasi Logistik Cipta Solusi (“ILCS”), Jakarta 49% through Telkom metra E-trade logistic service and other related service. Operate Telkom Metra establish ILCS with Pelindo II on September 21, 2012. PT Melon Indonesia (“Melon”), Jakarta 51% through Telkom metra Digital Content Exchange Hub (“DCEH”) service Operate Melon is a joint venture company between Telkom and SK Telecom Korea. Melon was established on August 16, 2010. The Company expanded into media and edutainment business, providing digital music content and related content services for mobile phone, computer, consumer electronics channels, and other digital media. PT Citra Sari Makmur (“CSM”), Jakarta 25% Provision of Communication Systems Micro Earth Station (Very Small Aperture Terminal or "VSAT"), network application services and consulting services on telecommunications technology and related facilities Operate CSM was established on February 14, 1986. PT Pasifik Satelit Nusantara (“PSN”), Jakarta 14.60% Satellite transponder leasing services and satellite-based communication services in the Asia Pacific region Operate PSN was established on July 2, 1991. PSN conduct an initial public offering of common stock shares with the National Association of Securities Dealers Automated Quotations ("NASDAQ") in June 1996, but the company delisted on November 6, 2001 failed to meet NASDAQ National Market Listing certain requirements. 81 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Subsidiaries and Associated Companies in Infrastructure Business Category Company Shareholdings Line of Business Operation Status Description PT Infrastruktur Telekomunikasi Indonesia (“Telkom Infra”), Jakarta 100% Telecommunication development service Operate PT Dayamitra Telekomunikasi (“Mitratel”), Jakarta 100% Telecommunication Operate On January 16, 2014, The Company established a subsidiary with the name of PT Infrastructure Telecommunications Indonesia. Mitratel provides fixed line telephone services, supply of telecommunications facilities and infrastructure and telecommunications services. Acquired on May 17, 2001, Mitratel transformed it self by entering the telecommunications infrastructure supply business, which includes supplying telecommunications towers to meet the BTS installment needs of telecommunications operators all over Indonesia. On October 9, 2014, the Company signed a Conditional Shares Exchange Agreement with PT Tower Bersama Infrastructure Tbk ("TBI") to exchange its 49% ownership in Mitratel for 5.7% ownership in TBI. In addition, there is an option to exchange the Company’s remaining 51% ownership in Mitratel within 2 years that will increase the Company’s ownership up to 13.7% in TBI. As of the date of approval and authorization for the issuance of the consolidated financial statements, the transaction is still in progress PT Graha Sarana Duta (“TelkomProperty” atau "GSD"), Jakarta 99,99% Office leasing and building management, maintenance service, civil consultant, and developer. Operate Acquired on April 25, 2001, Telkom Property operates throughout Indonesia and manages buildings owned by us and third parties. 55% through Telkom Property Property management and developer service. Operate 51% through Telkom Property Tourism service Not yet operating Telkom Property establishes TLT with Yakes Telkom on February 1, 2012. TelkomProperty founded GYS together with Yakes Telkom on April 27, 2012 focus on of hospitality services. 100% Construction, services and trade in telecommunications 99,99% through Telkom Property Building management and hotel services Operate Telkom Akses was established on November 26, 2012. Not yet operating NSN was established on September 1, 2014 99,99% through Telkom Property Service and Trading Not yet operating NSI was established on September 1, 2014 99,99% through Telkom Property Service and Trading Not yet operating NSR was established on September 1, 2014 PT Telkom Landmark Tower (“TLT”), Jakarta PT Graha Yasa Selaras (“GYS”), Jakarta PT Telkom Akses (“Telkom Akses”), Jakarta PT Nusantara Sukses Sarana (“NSS”) , Jakarta PT Nusantara Sukses Investasi (“NSI”) , Jakarta PT Nusantara Sukses Realiti (“NSR”), Jakarta 82 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES83 2014 Annual Report PT Telkom Indonesia Tbk (Persero)sTocK oVeRVIeW SHAREHOLDER COMPOSITION The authorized capital of the Company consists of 1 stock of Series A Dwiwarna, and 399.999.999.999 Series B stocks (ordinary stocks). The authorized issued and fully paid capital of 100.799.996.400, consisting of 1 stock of Series A Dwiwarna and 100.799.996.399 Series B stocks. 1 stock of Series A Dwiwarna belongs to Government of the Republic of Indonesia ("Government"). Company Shareholders per December 31, 2014 Series A Dwiwarna Share Series B Shares (Common Stock) Percentage of Ownership Government Public Capital Subtotal (issued and fully paid) Treasury Stock Total 1 1 1 51,602,353,559 46,573,500,040 98,175,853,599 2,624,142,800 100,799,996,399 52.56 47.44 100.00 - 100.00 Composition of Telkom shareholders per December 31, 2014 is as follows: 1. Shareholders with Ownership More Than 5% (Main/Controlling Shareholder) Title of Class Person or Group Number of Shares Series A Series B Government Government 1.00 51,602,353,559 Percentage of Ownership - 52.56 Relationship with The Government and Goverment Agencies The Government is our majority and controlling shareholder. It is also our regulator as it adopts, administers and enforces relevant laws that regulate telecommunications sector, sets tariffs and issues licenses. It is also one of our customers and one of our lenders. As used in this section, the term “Government” includes the Government of Indonesia and its ministries, directly- owned government departments and agencies, but excludes SOEs. The Government as Shareholder The Government is our majority and controlling shareholder and owns 52.56 % of our common stock as of December 31, 2014. Its ownership of the Series A Dwiwarna share gives it special voting and veto rights. Under the relevant laws, the “ownership” of our common stock and the single outstanding Series A Dwiwarna share is vested in the Ministry of Finance (“MoF”). In turn, and under the authority of the MoF, the Minister of State-Owned Enterprise (“MSOE”) exercises the rights vested in these securities as our “controlling shareholder.” 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 ability to operate on a commercial basis. The material rights and restrictions that apply to our common stock also apply to the Series A Dwiwarna share, except that the Government may not transfer the Series A Dwiwarna share, and has special right with regard to: (i) the nomination, appointment and removal of our Directors; (ii) the nomination, appointment and removal of our Commissioners; (iii) the issuance of new shares and (iv) any amendments to our Articles of Association, including with respect to actions to merge or dissolve our Company, increase or reduce our authorized capital, or reduce our subscribed capital. 84 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES The Government as Regulator The Government regulates the telecommunications sector through the MoCI. The MoCI has the authority to issue regulations that implement laws, which are typically broad in scope. Through such decrees the MoCI defines the structure of the industry, determines tariff formulas, establishes our USO, and otherwise controls many factors that could influence our competitive position, operations and financial position. Through the DGPT, the MoCI regulates the allocation of frequencies and sets numbers for fixed telephone lines. We are required to obtain a license from the DGPT for each type of service offered, including licenses for the frequencies we use (as allocated by the MoCI). We and other operators are required to pay frequency usage fees. Telkomsel also holds licenses issued by the MoCI (some of which were previously issued by the Minister of Communications) for the provision of cellular services, and from the Indonesian Investment Coordinating Board in relation to Telkomsel’s investments for the development of cellular phone services with national coverage, including the expansion of network coverage. The Government, through the MoCI as regulator, has the authority to issue new licenses for the establishment of new joint ventures and other new arrangements, particularly in telecommunications. The Government as Lender In July 1994, the Government arranged a facility under which certain foreign institutions provided us with a two-step loan for certain expenditures (the “sub-loan borrowings”). The sub-loan borrowings were made through the Government and are guaranteed by it. As A number of ministries and government agencies utilize our services as direct commercial customers of December 31, 2014, we had a total of Rp1,615 billion, or US$130 million, in such outstanding two-step loans, including current maturities. We are required to pay the Government interest and repay the principal, which the Government then remits to the respective lenders. As of December 31, 2014, 72.9% of such sub-loan borrowings were denominated in foreign currencies, with the remaining 27,1% denominated in Rupiah. In 2014, the annual interest rates charged 8.5% on loans repayable in Rupiah, 4.0% on those denominated in US Dollar and 3.1% for those denominated in Japanese Yen. The Government as Customer A number of ministries and government agencies utilize our services as direct commercial customers. No services are provided for free or on an in-kind basis. We deal with these departments and agencies as separate customers. In 2014, the amount of revenues from Government departments and agencies was Rp749 billion, which was approximately 1.95% of our consolidated revenues and did not constitute a material part of our revenues. The Government departments and agencies are treated for tariff purposes with respect to connection charges 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 MSOE 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. 85 2014 Annual Report PT Telkom Indonesia Tbk (Persero)2. Ownership of Stocks by Directors and Commissioners On December 31, 2014, none of our Director or senior managers who have more than 1.0% of our stocks. In addition, on December 31, 2014 none of our Commissioners owned our common stock. Directors or Commissioners Number of Shares Percentage of Ownership (%) Directors Total Indra Utoyo Honesti Basyir Dian Rachmawan 27,540 540 60,540 88,620 <0.01 <0.01 <0.01 <0.01 3. Shareholders with Less than 5% Ownership Group Foreign Business Individual Local Business Entities Companies Mutual Funds Insurance Companies Pension Funds Other Business Entities Individuals Total Number of Shares of Common Stock Owned Percent (%) of Common Stock Owned 38,969,793,385 14,222,600 2,415,515,005 2,383,296,000 1,672,652,600 563,724,750 74,945,790 479,349,910 46,573,500,040 39.69 0.01 2.46 2.43 1.70 0.57 0.08 0.49 47.44 86 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 4. Proportion of Common Stock Held in Indonesia and Abroad As of December 31, 2014, we had 42,508 common stock shareholders, including the Government. This total includes 39,971,745,785 common stock shares owned by 1,971 shareholders outside Indonesia. As of the same date, there were 98 ADS shareholders who owned 55,381,118 ADS (1 ADS is equivalent to 200 common stock shares). 5. List of the 20 Biggest Public Shareholders The following was our twentieth biggest of public shareholders on December 31, 2014. No Shareholders Name Percentage of Ownership (%) 1 2 3 4 5 6 7 8 9 BPJS KETENAGAKERJAAN-JHT BNYM SA/NV AS CUST OF EMPLOYEES PROVIDEN BBH BOSTON S/A VANGRD EMG MKTS STK INFD GIC S/A GOVERNMENT OF SINGAPORE JPMCB-VIRTUS EMERGING MARKETS OPPORTUNIT PT PRUDENTIAL LIFE ASSURANCE-REF HSBC BANK PLC S/A SAUDI ARABIAN MONETARY BBH BOSTON S/A MATTHEWS PACIFIC TIGER FU RBC ISB S/A VONTOBEL FUND-EMERGING MARKE 10 SSB OBIH S/A ISHARES MSCI EMERGING MARKE 11 12 13 14 15 16 17 18 19 THE NORTHERN TRUST CO S/A SAUDI ARABIAN JPMCB-STICHTING DEPOSITARY APG EME MRKT SSB 1BA9 ACF MSCI EQUITY INDEX FUND B-IN JPMCB-JPMORGAN FUNDS -2157804185 SSB ZM47 S/A INVESCO DEVELOPING MARKETS JPMCB-VANGUARD TOTAL INTERNTNL STOCK IND PT AIA FINL - UL EQUITY HSBC BK PLC RE AGUS FUND MANAGER S/A ABU BNYM SA/NV AS CUST OF NEWTON ASIAN INCOM 20 BBH BOSTON S/A MATTHEWS ASIA DIVIDEND FU 1.07 1.06 0.97 0.95 0.72 0.64 0.58 0.52 0.48 0.43 0.41 0.39 0.39 0.38 0.35 0.34 0.32 0.31 0.31 0.26 87 2014 Annual Report PT Telkom Indonesia Tbk (Persero)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 01/10/2004 Stock Split (1:2) 10,320,470,712 51.2 9,839,528,568 48.8 21/12/2005 Share repurchase program (I) - (211,290,500) Share Ownership Composition 10,320,470,712 51.7 9,628,238,068 48.3 29/06/2007 Share repurchase program (II) - (215,000,000) Share Ownership Composition 10,320,470,712 52.3 9,413,238,068 47.7 20/06/2008 Share repurchase program (III) - (64,284,000) Share Ownership Composition 10,320,470,712 52.5 9,348,954,068 47.5 19/05/2011 Share repurchase program (IV) - (520,355,960) Share Ownership Composition 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 - 59,811,400 Share Ownership Composition 10,320,470,712 53.7 8,888,409,508 46.3 30/07/2013 Transferred share repurchase program I by private placement - - 211,290,500 - Share Ownership Composition 10,320,470,712 53.1 9,099,700,008 46.9 02/09/2013 Stock Split (1:5) 51,602,353,560 53.1 45,498,500,040 46.9 13/06/2014 Transferred share repurchase program I by private placement - - 1,075,000,000 - Share Ownership Composition 51,602,353,560 52.6 46,573,500,040 47.4 (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. 88 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES1. 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) reasury stock transferred to 24.993 employees which had a total fair value of Rp661 billion. As of December 31, 2014, 139,140,110 of our shares were owned by 16,805 of our employees and our retirees. In 2014, we did not conduct the ESOP. 2. Purchases of Equity Securities by The Issuer and Affiliated Purchasers Share Buy Back Program Accordance with Purchase Periode Total Number of Shares Purchased Average Price Paid per Share in Rp Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under the Plans SBB I SBB II SBB III EGMS December 21, 2005 AGMS June 29, 2007 AGMS June 20, 2008 SBB IV AGMS May 19, 2011 December 21, 2006 - June 20, 2007 June 29, 2007 - December 28, 2008 June 20, 2008 - December 20, 2009 May 19, 2011 - November 20, 2012 1,056,452,500 1,731 1,056,452,500 1,075,000,000 1,832 1,075,000,000 321,420,000 1,448 321,420,000 2,601,779,800 1,461 2,601,779,800 - - - - As of December 31, 2012, we had repurchased 5,054,652,300 common stock shares, equivalent to 5.0% of our issued and outstanding common stock, at an aggregate repurchase price of Rp8,067 billion, excluding broker and custodian fees. Under our repurchase program, we repurchased 591,882,500 shares in 2006, 631,820,000 shares in 2007, 1,229,170,000 shares in 2008, 1,415,427,300 shares in 2011 and 1,186,352,500 shares in 2012. In last program, SBB IV in 2011 and 2012, we repurchased 2,601,779,800 common stock shares at an aggregate repurchase price Rp3,803 billion. On April 19, 2013 in accordance with the Resolution of the AGMS and regard with clause 4 letter a number (3) Bapepam-LK XI.B.2 we executed the transfer of 299,057,000 shares of Series B from Share Buyback Phase III through Employee Stock Ownership Program. On July 30, 2013, we sold 1,056,452,500 shares which are part of Share Buyback Phase I by private placement. The selling price was Rp2,280 per share, which is not lower than Rp1,731 per share which is the average repurchase price of treasury stock, Rp2,258 per share which is the average closing price for the last 90 (ninety) days before the sale, and Rp2,280per share, which is the closing price on the day before the selling date. On June 13, 2014, we sold 1,075.000,000 shares which are part of Share Buyback Phase II by private placement. The selling price after stock split was Rp2,405 per share, which is not lower than Rp1,832 per share which is the average repurchase price of treasury stock, Rp2,330 per share which is the average closing price for the last 90 (ninety) days before the sale, and Rp2,405 per share, which is the closing price on the day before the selling date. 89 2014 Annual Report PT Telkom Indonesia Tbk (Persero)As of December 31, 2014, our treasury stock balance is 2,624,142,800.0 common stock shares, equivalent to 2.6% of our issued and outstanding common stock which comprise of Share Buyback Phase IV with average repurchase price after stock split were Rp1,454, excluding broker and custodian fees. (See Note 25 to our Consolidated Financial Statement). The nominal value of the above has considered the results of the stock split 1: 5, which became effective September 2, 2013. C. Chronology of Bonds The Company issued bonds worth Rp 1.000 billion at July 16, 2002, at a nominal price for a period of five years. These bonds bear fixed interest of 17% per annum, payable quarterly since October 16, 2002. The bonds are traded on the Surabaya Stock Exchange with maturity date on July 16, 2007. The trustee of the bonds is BRI, which since January 17, 2006 effectively replaces BNI. PT Kustodian Sentral Efek act as custodian. The Company has made the settlement of the debt bonds on July 16, 2007. We issued the second Rupiah bonds on June 25, 2010, respectively Rp 1.005 billion for Series A with a term of five years and Rp 1.995 billion for Series B with a period of ten years. The issuance of bonds were listed on the Indonesia Stock Exchange with the bond underwriters PT Bahana Securities, PT Danareksa Sekuritas, and PT Mandiri Sekuritas. The trustees are PT CIMB Niaga Tbk., PT Pemeringkat Efek Indonesia (Pefindo) on December 31, 2014, provides idAAA bond rating (Triple A. 90 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCAPITAL MARKET SUPPORTING PROFESSIONAL Capital Market Supporting Professional Address Service ExTERNAL Auditor PAF Purwantono, Suherman & Surja (Member firm of Ernst & Young Global Limited) Gedung Bursa Efek Jakarta Tower 2, 7th Floor Jl. Jend. Sudirman Kav. 52-53 Jakarta - 12100 Conducted Integrated Audit of PT Telekomunikasi Indonesia, Tbk. (“Telkom”) and General Audit over the financial statement of subsidiary. The issuance of Consent Letter. Assignment Period 2012, 2013, 2014 ADMINISTRATION SECURITIES BUREAU PT Datindo Entrycom Wisma Sudirman Jl. Jendral Sudirman Kav. 34-35 Jakarta - 10220 Acts as Custodian of Telkom common stocks which being traded in Indonesia Stock Exchange. Since IPO Telkom 1995 TRUSTEE PT Bank CIMB Niaga Tbk. Graha Niaga, 20th Floor Jl. Jend. Sudirman Kav. 58 Jakarta - 12190 Represents the interest of Bondholders with the Company for bonds II Telkom. 2010 CENTRAL CUSTODIAN PT Kustodian Sentral Efek Indonesia Gedung Bursa Efek Jakarta Tower 1, 5th Floor Jl. Jend Sudirman Kav. 52-53 Jakarta - 12190 • Provide central Since 1995 custodian service and stock transaction settlement at Indonesia Stock Exchange. • Storage service and settlement for securities transaction, distribution of corporate action result. RATING AGENCY PT Pemeringkat Efek Indonesia Panin Tower Senayan City, 17th Floor Jl. Asia Afrika Lot. 19 Jakarta - 10270 Provide rating over credit risk for Telkom bond issuance. 2012, 2013, 2014 ADS CUSTODIAN bank The Bank of New York Mellon Depositary Receipts 101 Barclay Street, New York, United State of America - 10286 Acts as ADS stock Custodian which being traded at NYSE. Since 1995 91 2014 Annual Report PT Telkom Indonesia Tbk (Persero)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 as ADSs, where one ADS represents 200 shares of Common Stock. 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, 2014, the IDX had 506 issuers for equity and 110 active brokerage houses. In 2014, IDX recorded a trading volume of 169 billion shares. As at December 31, 2014, the total market capitalization was valued at Rp5,227 trillion (US$429.5billion). Trading is divided into three segments, the regular market, negotiated market and the 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, 2013 with trading sessions as follow: Trading Session Pre-opening 1st 2nd Market Regular Regular Cash Negotiation Regular Day Monday - Friday Monday-Thursday Friday Monday-Thursday Friday Negotiation Monday-Thursday Pre-closing Post Trading Regular Regular Friday Monday-Friday Monday-Friday Trading Hours 08.45.00-08.55.00 09.00.00-12.00.00 09.00.00-11.30.00 13.30.00-15.49.59 14.00.00-15.49.59 13.30.00-16.15.00 14.00.00-16.15.00 15.50.00-16.00.00 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 lot size, tick price and maximum price movement, which effected on January 2, 2013. 92 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESLot 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 (Rp) Tick Price (Rp) Maximum Share Price Movement (Rp) Group Price (Rp) Tick Price (Rp) Maximum Share Price Movement (Rp) ≤ 200 200 – 500 500 – 2,000 2,000 – 5,000 ≥ 5,000 1 5 10 25 50 10 50 100 250 500 ≤ 500 500 – 5,000 ≥ 5,000 1 5 25 20 100 500 Transactions on the IDX regular market must be settled no later than the third trading day after the transaction. Transactions on the negotiated market are settled on the basis of the agreement between the selling exchange members and the buying exchange members, on a transaction by transaction basis. Transactions on the IDX cash market must be settled on the day of the transaction and reported to the IDX. If an exchange member defaults on the settlement of a transaction, the securities can be traded by direct negotiation on cash and carry terms. Each exchange member is required to pay a transaction fee as stipulated by the IDX. Any delay in payment of the transaction fee is subject to a fine of 1.0% of the outstanding amount for each day of delay. The IDX may impose sanctions on its members for any violation of exchange rules, which may include fines, written warnings, suspension or revocation of licenses. When conducting share transactions on the IDX, each exchange member is required to pay a transaction cost for transactions on the regular market and cash market of 0.03%, guarantee fund 0.01% of the transaction value and VAT and other tax obligation. For the negotiated market, a transaction cost is 0.03% or depended on exchange policy. A minimum monthly transaction fee of Rp2 million is applied as a contribution for the provision of exchange facilities and continues in effect for members who are suspended or Exchange Member Approval (“SPAB”) revoked. B. Trading on the NYSE Bank of New York Mellon (previously “The Bank of New York”) serves as the “Depositary” for our ADSs which are traded on the NYSE. Investors pay a depositary fee directly or through a broker acting on their behalf for the delivery or surrender of ADSs for the purpose of withdrawal. The Depositary also collects fees for making distributions to investors by deducting the fee from the amount distributed or by selling a portion of the distributable property to pay the fee. The Depositary may collect its annual fee for depositary services by making a deduction from the cash distributions or by directly billing investors or by charging the book-entry system accounts of the parties acting on their behalf. The Depositary may refuse to provide fee-generating services until its bills for such services are paid. 93 2014 Annual Report PT Telkom Indonesia Tbk (Persero) ADDResses of TelKoM InDonesIA Corporate Office Graha Merah Putih, 1st Floor Jl. Japati No. 1 Bandung 40133 q 022-4521108 p 022-4240313 1. Sekretariat of President Director Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52, Jakarta 12710 q 021-52922007 ext. 114/112 p 021-5202702 2. Director Human Capital 10. Management Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 106 p 021-5209632 3. Director of Consumer Service Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 108 p 021-5209637 4. Directorate of Wholesale & International Business Service Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 117 p 021-5205072 5. Director of Innovations & Strategic Portfolio Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 104 p 021-52963102 6. Director of Network IT & Solution Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 121 p 021-5209835 7. Direktur Enterprise & Business Service Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 102 p 021-5213834 8. Director of Finance Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 110/118 p 021-5220900 94 9. Department of Corporate 17. Community Development Secretary Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52922007 ext. 124 p 021-5203322 Internal Auditor Graha Merah Putih, 5th Floor Jl. Japati No. 1 Bandung 40133 q 022-4525227 p 022-7206870 11. Department of Project Management Office Graha Merah Putih, 1st Floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710, q 021-52920014 p 021-52922511 12. Finance & Billing Collection Center (FBCC) Graha Merah Putih,3rd Floor Jl. Japati No. 1 Bandung 40133 q 022-4523371 p 022-4523377 13. Human Capital Center Graha Merah Putih, 5th Floor Jl. Japati No. 1 Bandung 40133 q 022-4525121 p 022-7206986 14. Telkom Corporate University Center Jl. Gegerkalong Hilir No. 47 Bandung 40152 q 022-2014343 p 022-2014429, 022- 2013238 15. Supply Center Graha Merah Putih, 6th Floor Jl. Japati No. 1 Bandung 40133 q 022-4526170 q 022-4526327 p 022-7206583 p 022-4526431 16. Innovation & Design Center (IDeC) Jl. Gegerkalong Hilir No. 47 Bandung 40152 q 022-4574784, 022- 2014669, 022-2013505 p 022-2014669 Center (CDC) Graha Merah Putih, 8th Floor Jl. Japati No. 1 Bandung 40133 q 022-4528219 p 022-4528206 18. Human Resource Assessment Service (Assesment Center Indonesia) Jl. Kapten Tendean No. 1 Bandung 40141 q 022-2035269, 022-2035287, 022-2035259 p 022-2034201 19. ITSS Division Graha Merah Putih, 4th Floor Jl. Japati No. 1 Bandung 40133 q 022-4524228 p 022-7201890 20. Enterprise Service Division Gedung Menara Multimedia 19th Floor, Jl. Kebon Sirih No. 12 Central Jakarta 10110 q 021-23515000 21. Business Service Division Jl. S. Parman Kav. 8 West Jakarta 11440 q 021-5656500, 021-5651700 p 021-5652600, 021-5656000 22. Wholesale Service Division Graha Merah Putih, 8th floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52917007 p 021-52892080 23. Broadband Division Graha Merah Putih, 7th floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-52903482 p 021-5221300 24. Wireless Broadband Division Jl. Kebon Sirih No. 36 Central Jakarta 10110 q 021-3447070 ext. 103 p 021-3440707 25. Network of Broadband Division Graha Merah Putih, 9th floor Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-5221500, 021-5221400 p 021-5229600 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 26. Solution Convergence 37. Witel of Jambi Division Gedung Menara Multimedia 17th floor Jl. Kebon Sirih No. 12 Central Jakarta 10110 q 021-38600500 p 021-3860300, p 021-3860370 27. Regional Division I of Sumatera Jl. Prof HM Yamin SH No. 2, Medan 20111 q 061-4151747 p 061-4150747 28. Witel of Western North Sumatera Jl. Prof HM Yamin SH Medan 20111 q 061-4530011 29. Witel of Bangka Belitung Jl. Rustam Effendi No.03, Pangkalpinang 33128 q 0717-421861 30. Witel of Riau Islands Jl. Jaksa Agung R Suprapto, Sekupang, Batam q 0778-322000 p 0778-322720 31. Witel of Lampung Jl. Majapahit No. 14, Lampung 35118 q 0721-266525 p 0721-263699 32. Witel of Eastern North Sumatra Jl. Asahan Km 4.5, Pematangsiantar q 0622-7550300 p 0622-7554082 33. Witel of South Sumatra Jl. Jendral Sudirman No. 459 KM - 3,5 Palembang 30129 q 0711 - 360360 p 0711 - 310444 34. Witel of West Sumatra Jl. KH Ahmad Dahlan No. 17, Padang 25138 q 0751-7050000 p 0751-7050001 35. Witel of Riau Land Jl. Jend. Sudirman 199, Pekanbaru 28111 q 0761-31000 p 0761-40404 36. Witel of Nanggroe Aceh Darussalam Jl. S.A Mahmudsyah No.10, Banda Aceh q 0651-32500 p 0651-21818 Jl. Sumantri Brojonegoro No. 54, Jambi q 0741-60000 p 0741-64000 48. Witel of Western West Java Jl. Padjadjaran No. 37 Bogor q 0251-8301107 p 0251-8329999 38. Witel of Bengkulu 49. Regional Division III West Jl. Soeprapto No. 132, Bengkulu 38221 q 0736-28000 p 0736-20000 39. Regional Division II Jakarta Graha Merah Putih, lt, 10 Jl. Jenderal Gatot Subroto Kav. 52 Jakarta 12710 q 021-5215100 p 021-5202733 40. Witel of West Banten (Serang) Jl. Raya Jakarta Km. 9,5 Ciruas Serang q 0254-282001 41. Witel of East Banten (Tangerang) Graha Telkom BSD, Jl. Pahlawan Seribu Serpong Tangerang q 021-5380000 p 021-5371500 Java JL. WR. Supratman No. 66A Bandung q 022-4532225 p 022-4532134 50. Witel of Northern West Java Jl. Tuparev No. 24 Karawang q 0267-404444 p 0267-410002 51. Witel of Southern West Java JL. Mesjid No. 17 Sukabumi q 0266-212710 p 0266-225765 52. Witel of Central West Java JL. Lembong No.11 Bandung q 022-4540362 53. Witel of Eastern West Java JL. Papagongan No. 11 Cirebon q 0231-255001 p 0231-201800 42. Witel of West Jakarta 54. Witel of West Java of Eastern Jl. S Parman Kav. 8 West Jakarta q 021-56969100 p 021-5655100 South JL. Merdeka No. 23 Tasikmalaya q 0265-322400 43. Witel of Central Jakarta 55. Regional Division IV Central Jl. Kebon Sirih No. 36 Central Jakarta q 021-3447070 44. Witel of South Jakarta Jl. Sisingamangaraja Kav 4 - 6 Kebayoran Baru, South Jakarta q 021-7257171 p 021-7228400 45. Witel of North Jakarta Jl Yos Sudarso Kav. 23 - 24 North Jakarta q 021-4366000 p 021-43921550 Java & DI Yogyakarta Jl. Pahlawan No. 10, Semarang q 024-8303306 56. Witel of Central Java of Western North Jl. Merak No. 2, Pekalongan q 0285-421000 q 0285-459118 p 0285-424355 57. Witel of Central Java of Western South Jl. Merdeka No. 26, Purwokerto q 0281-645122, 0281-645201 46. Witel of East Jakarta 58. Witel of Northern Central Jl. DI Panjaitan Kav. 42 North Jakarta 13350 q 021-8560000 p 021-8560196 Java Jl. Pahlawan No. 10, Semarang q 024-8303627, q 024-8303628 47. Witel of West Java of 59. Witel of Central Java of Northern West Jl. Rawa Tembaga No. 4 Bekasi 17141 q 021-8890000 p 021-8894100 Eastern North Jl. Jenderal Sudirman No. 66 - 68 Kudus q 0291-4250293 95 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 73. Regional Division VI Borneo Jl. MT.Haryono No.169 Balikpapan 76114 q 0542-872104 p 0542-873340 85. Witel of SouthSulawesi Jl. AP. Pettarani No.2 Makassar 90221 q 0411-880000 p 0411-888804 74. Witel of Central East Borneo 86. Witel of Western South 60. Witel of Southern Central Java JL. Yos Sudarso No. 2, Magelang q 0293-364755, q 0293-362757 61. Witel Yogyakarta JL.Yos Sudarso No.9, Yogyakarta q 0274- 577200, q 0274-577227 62. Witel of Central Java of Eastern South Jl. Mayor Kusmanto No. 1, Solo 57113 q 0271-634400, q 0271-678253 63. Regional Division V East Java Jl. Ketintang No. 156 Surabaya 60231 q 031-8297100 p 031-8286080 64. Witel of Central West Java Jl. Hayam Wuruk No. 45 - 47 Kediri 64122 q 0354-680942 65. Witel of Western East Java Jl. D.I Panjaitan No. 19 Madiun q 0351 - 493900 p 0351-494104 67. Witel of Southern East Java Jl. A Yani No. 11 Malang 65125 q 0341-489100 p 0341-499111 68. Witel of Northern East Java Jl. Wachid Hasyim No. 11 Gresik 61444 q 031-3977000 p 031-3971000 69. Witel of East Java Suramadu Jl. Ketintang No. 156 Surabaya 60231 q 031 - 8298837 p 031-8299350 Jl. Awang long No.54 Samarinda 75121 q 0541-732000 p 0541-762010 75. Witel of Northern East Borneo Jl. Simpang Tiga Tarakan 77111 q 0551-21000 76. Witel of Southern East Borneo Jl. MT.Haryono no 169 Balikpapan 76114 q 0542-873500 p 0542-873030 77. Witel of West Borneo Jl. Teuku Umar No.2 Pontianak 78117 q 0561-734055 p 0561-78000 78. Witel of Central Borneo Jl. A.Yani No.45 Palangkaraya 73111 q 0536-3221116 p 0536-3224321 79. Witel of South Borneo Jl. Pangeran Samudra No 42 Banjarmasin 70111 q 0511-436500 p 0551-3366220 80. Regional Division VII Eastern Indonesia Area Jl. AP. Pettarani No.2 Makassar 90221 q 0411-867777 p 0411-881651 81. Witel of South Bali Jl. Raya Puputan Renon No. 33 Denpasar q 0361-222021 p 0361-262111 70. Witel of East Java of Central 82. Witel of North Bali East Jl. Sultan Agung No. 48 Sidoarjo 61211 q 031 - 8941000 p 031-8962500 71. Witel of Eastern East Java Jl. Gajah Mada No. 182-184 Jember q 0331 – 353200 p 0331-483321 72. Witel of East Java of Southern East Jl. Alun-Alun No. 1 Pasuruan q 0343-432100 Jl. Letkol Wisnu No. 2, Singaraja q 0362-231187 p 0362-231187 83. Witel of West Nusa Tenggara Jl. Pendidikan No.23 Mataram q 0370-632000 p 0370-632000 84. Witel of East Nusa Tenggara Jl. WJ. Lalamentik No.93 Kupang 85111 q 0380-840000 p 0380-840000 96 Sulawesi Jl. Andi Isa No.7 Pare-Pare q 0421-24044 p 0421-24697 87. Witel of Central Sulawesi Jl. Ir. Juanda No. 25 Palu 94125 q 0451-421759 p 0451-421759 88. Witel of Southeast Sulawesi Jl. A. Yani No.8 Kendari 93117 q 0401-3912100 p 0401-3912100 89. Witel of North Sulawesi & North Maluku Jl. WR. Supratman No.5 Manado 95112 q 0431-853000 p 0431-853000 90. Witel of Maluku Jl. JB. Sintala No.9 Ambon 97115 q 0911-349100 p 0911-349100 91. Witel of West Papua Jl. A.Yani No. 16, Sorong q 0951-3102009 p 0951-3102009 92. Witel of Papua Jl. Kayu Batu Base G, Jayapura q 0967-541499 p 0967-541499 93. PT Telekomunikasi Selular (Telkomsel) Wisma Mulia, Jl. Jenderal Gatot Subroto Kav. 42 Jakarta 12710 www.telkomsel.com q 021-5240811 q 021-52906090 p 021-52906123 94. PT Telekomunikasi Indonesia Internasional (Telin) Menara Jamsostek North Tower 24th floor Jl. Gatot Subroto No. 38 Jakarta 12710 www.telin.co.id q 021-29952330 q 021-2962358 p 021-52962358 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 95. PT Multimedia Nusantara 100. PT Sigma Cipta Caraka 104. PT Finnet Indonesia (Metra) Gedung EAST 37th floor, Jl. Dr. Ida Anak Agung Gede Agung Kav. E.3.2. No. 1 East Kuningan Setiabudi South Jakarta 12950, www.metra.co.id q 021-521013 p 021-5210124 96. PT Infrastruktur Telekomunikasi Indonesia (Telkom Infra) Mugi Griya Building 5th floor, JL. MT Haryono Kav 10 Jakarta www. telkominfra.com q 021-83708471 97. PT Dayamitra Telekomunikasi (Mitratel) Gedung Graha Pratama 5th floor, Jl. MT Haryono kav. 15 Jakarta 12810, www.mitratel.co.id q 021-83709593 p 021-83709591 98. PT Infomedia Nusantara Jl. Fatmawati No. 77 - 81, Jakarta Selatan 12510 q 021-7201221 p 021-720126, 021-7258116 (Telkom Sigma) Desa Sigma, German Center 5th Floor, Jl. Kapt. Subijanto Dj BSD Tangerang 15321, www.telkomsigma.co.id q 021-5388538 p 021-5388505 101. PT Metra-Net (Plasa MSN) Menara DEA 8th Floor, Mega Kuningan District, Jl. Mega Kuningan Barat IX Kav. E.4.3 Jakarta Selatan www.metranet.co.id q 021-5762150 p 021-5762155 102. PT PINS Indonesia (PINS) Plasa Kuningan, Gd. Anex 7th floor Kav.C 11 - 14 Jl. HR Rasuna Said South Jakarta 12940 MuliaBusiness Park Building J Jl. MT Haryono Kav 56 - 60, South Jakarta 12780, www.pramindo.com q 021-79187250, q 021-5202560 p 021-79187252, p 021-52920156 99. PT MD Media 103. PT Administrasi Medika Mulia Business Park Building J, Jl. MT Haryono Kav 56 - 60, South Jakarta 12780, www.mdmedia.co.id q 021-7997488, 021-7997469 p 021-7258116 (AdMedika) STO Gambir Gedung C, Jl. Medan Merdeka Selatan No.12, Central Jakarta, www.admedika.co.id q 021-34831100 p 021-34830101 Menara Bidakara 12th floor, Jl. Jenderal Gatot Subroto Kav. 71 - 73 Pancoran Jakarta 12780 www.finnet-indonesia.com q 021-8299999 p 021-8281999 105. PT Melon Indonesia Jl. Sisingamangaraja Kav. 4 - 6, South Jakarta, www.melon.co.id q 021-7244956, 021-7244390 106. Telkom Property (PT Graha Sarana Duta) Jl. Kebon Sirih No. 10 - 12, Central Jakarta 10110, www. telkomproperty.co.id q 021-3800900, q 021-34830653, q 021-3800686, 021-500473 p 021-34835489 107. PT Telkom Akses Jl. S Parman Kav. 8 , West Jakarta 11440, www.telkomakses.co.id q 021-29337000, q 021-29336000 TELKOM OVERSEAS ADDRESS 1. Telin Singapore 4. Telkom Australia 7. 1Maritime Square, #09-63 Harbour Front Center, Singapore - 099253 q +65 6278 8189 p +65 6273 1169 2. Telin Hong Kong Suite 905, 9/F, Ocean Center, 5 Canton Road, Tsim Sha Tsui, Kowloon, Hongkong q +852 3102 3309 p +852 3102 3306 3. Telin Timor-Leste www.telkomcel.tl Timor Plaza 4th floor, Rua Presidente Nicolao Lobato, Comoro, Dili q +670 737373 p +670 747474 www.telkom.com.au Lantai 5, 30 Collins Street, Melbourne VIC 3000 q +613 963 98 270 5. Telkom Macau Av.Praia Grande No. 369, Keng Ou, Commercial Building, 17/ FL, Macau q +853 2855 3191 6. Telkom Taiwan 10F No.15 Sec.2, Keelung Road, Xinyi District, Taipei City 11052 Taiwan q +886 2875 2507102 Telin Malaysia Suite 23 A-1, 23 A Floor, Wisma UOA II, Number 21, Jalan Pinang, 50450 Kuala Lumpur, Malaysia q +60 3233 20680 p +60 3216 12276 8. Telkom USA The Bloc Executive Suites 700 S. Flower Street, 11th floor, Office no: 36, 37A-B, Los Angeles, CA 90017 9. Telin Branch Office in Myanmar No.#0502, Level 5, Sakura Tower Nomor.339, Bogyoke aungsan street Kyauktada township, Yangon, Myanmar q +95 9420182434 97 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 05 MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S PERFORMANCE 101 Economic and Industry Overview 106 Business Overview 119 Financial Overview 150 Operational Overview 158 Functional Overview Continuing a solid performance The growth of Indonesian economy in 2014, measured by Gross Domestic Product (GDP) at current prices, grew by 5.1%, with be supported by strong domestic consumption. The rupiah against the US dollar exchange rate determined based upon by Bank Indonesia exchange rate reached Rp 12,440 or depreciated 2.1% at the close of December 31, 2014, a better from depreciation rate in the previous year at 25.8%. Such global economic condition provided less significant impact to our business thus the foreign exchange rate encouraged certain risks on sales, purchase and financing transaction primarily denominated in foreign currencies. Our revenues over 2012 to 2014 period reflected a progressive growth in revenues. The growth was largely driven by increase in revenues from data, internet and information technology service, which increased by 15.7%. This growth was primarily driven by increasing of data usage and mobile broadband subscriptions. Moreover, revenues growth was also driven by increasing in cellular voice revenue at 6.7%. On the other hand, operating income for 2012 to 2014 period also reflected increase in expenses which was triggered by operating, maintenance and telecommunication service expenses which were primarily as the result of network capacity expansion required to support our services to the customers, especially for data and internet services, as well as in fixed line and cellular subscribers. The following management’s discussion and analysis on the performance of this company is based on Consolidated Financial Statements for the years ended on December 31, 2012, 2013, and 2014 which is also attached in this Annual Report. The presentation of Consolidated Financial Statements complies with FAS applied in Indonesia, which in several terms differ with IFRS. Our principal business is providing local, domestic and international telecommunication service in Indonesia. Through our 65% of ownership in Telkomsel, we become the biggest mobile cellular service provider. Our consolidated revenues increased by 8.1% to Rp89,696 billion. We successfully maintain a high level of profitability with EBITDA margin of 51.1%, an increase from the previous year by 50.4%. While the net profit margin recorded at 16.3% slightly lower than the previous year by 17.1%. As of December 31, 2014 we had 140.6 million cellular phone subscribers through Telkomsel, 9.7 million subscribers on fixed wireline networks, 4.4 million subscribers on fixed wireless networks. Our broadband subscribers consisted of 31.2 million Telkomsel Flash users, 5.8 million Blackberry users and 3.4 million fixed broadband subsribers. We also provide wide range of communication services, including multimedia, data and internet communication-related services, satellite transponder leasing, leased line, interconnection, cable television and VoIP services, as well as multimedia business such as contents and applications. We also operate Multimedia businesses such as content and applications. 100 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESECONOMIC AND INDUSTRY OVERVIEW GLOBAL MACRO ECONOMY Overall global economic landscape in 2014 was showing a moderation trend. European economic condition was relatively unstable with Greek and some of other countries’ crises as notable issues. This encouraged Europe Central Bank (ECB) to apply interest cut and to implement monetary stimulus as an initiative to drive the economics. On the other hand, China as Asian economic booster also indicated an economic growth deceleration despite relatively high growth at 7% level. The decrease in growth rate was due to export weakening as the impact of decreasing global demand, concerning that export has a prominent factor for China’s economic. Thus, the slowdown was still saved by economic growth posted by India and several ASEAN countries that booked positive growth trend. INDONESIAN MACRO ECONOMY Indonesian economic growth was managed to grow progressively at 5.1% along 2014, underpinned by household consumption and primary commodities export. Prominent household consumption was triggered by increasing number of middle class, supported by Indonesian demography model at productive age as well as increase in income per capita growth. Meanwhile, political activity of General Election (Pemilu) and Local Election (Pemilukada) occurred in 2014 also encouraged high domestic consumption. Hence, this economic growth dynamic obligates discipline and consistency in determining policies to maintain stability and sustainability of economic development. Moderate global economic will potentially suppress domestic economic landscape. Non-recovered economy of emerging countries market also has reduced demand on Indonesian export, mainly for primary commodities. The Government and Bank Indonesia has implementing accurate and integrated policies that Indonesian economic was maintained at positive growth level. On November 18, 2014, the Government has decided significantly reduce subsidy post by increasing oil fuel (BBM) price. The policy is driving the Government to have more stable State Budget with higher allocation for infrastructure development. Having higher capital Economic recovery took place in United States over 2014 brought a hope amid decelerating performance of other global economic engines. This economic recovery was a result of series of monetary policies implemented namely stimulus given by Federal Reserve. Economic key indicators have indicated improvement such as through job creation and real sector performance. In 2015, global trading is estimated to grow higher. The growth of global trading volume will be underpinned by economic recovery both in developed and developing countries, including the recovery of United States and most of European countries economics, which were expected to boost export volume to these countries. In ASEAN region, ASEAN Economy Community is expected to encourage inter-state production and trading activities in the region. expenditure allocation for building bigger supporting infrastructure that is expected to provide multiplier effect to our economics. Nearly throughout 2014, BI Rate remained at 7.5% level showing stability of domestic economy. BI Rate booked an increase in November 2014 by 25bps to 7.75% as BI took prudent initiative in responding increasing oil fuel price. Meanwhile, Rupiah against US Dollar exchange rate reached to Rp12,440 or depreciated by 2.1% as closing of December 31, 2014, well beyond depreciation level posted in preceded year at 25.8%. The Government is assumed to retain fiscal room flexibility while also increase expenditure allocation for infrastructure sector. Adequate budget spending in infrastructure development will encourage real sector investment which will later expand job opportunity and increasing domestic consumption. Further, various incentives are also needed namely by simplifying licensing process to boost foreign investment inflow to Indonesia to support economic development. The Government is expected to achieve domestic economic growth at approximately 5.4% - 5.8% in 2015. 101 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TELECOMMUNICATIONS INDUSTRY IN INDONESIA Ever since the changes in telecommunication sector management scheme was implemented by the Government, from a monopoly to competition scheme under Law No. 36 of 1999 on Telecommunication, Indonesian telecommunication industry indicated a rapid growth. The growth is further accelerated by advance in communication technology which occupies radio frequency spectrum as an alternative means of telecommunication which previously relied on wired and satellite networks. There are several factors or conditions which support prospect of telecommunication industry growth in Indonesia, such as: 1. Indonesia's demographics, with the fourth largest population in the world and a fast growing middle class segment, as well as Indonesia's economy that has shown stable and respectable growth in recent years, are expected to drive further demands for telecommunication and data services. 2. Relatively low internet penetration compared with other countries in the region, while, the society is more exposed by digital lifestyle globalization and mostly rapid growth on smartphone occupation with more affordable price or high traffic on social media, are expected to boost mobile internet service growth. We believe that the growth of mobile internet service will sustain in line with increasing popularity of 102 smartphone, tablet as well as other mobile devices with internet access features, faster wireless network data transmission and growing trend of smart devices and affordable internet service trends. 3. The increasingly open and significant competition among telecommunication operators, which is expected to result in improved service quality, higher industry efficiency, and constant innovations in products and services, and eventually drive more growth in Indonesia's telecommunication industry. The consolidation of the telecommunications industry resulting from the recent merger of XL and Axiata has led to a reduction in the number of major competitors operating in the industry. Future technology Road Map shifts to Neutral technology, 4G/LTE and IP-based network. The 4G/LTE will upgrade wireless data capacity and speed from existing network, with most significant challenge on availability of frequency in domectic market. Comprehensive IP-based network coverage will affect on cost transformation and competitiveness. New digital technology and trend, mainly as substitution for our legacy product might transform into telecommunication industry threat which also provides new opportunity to the operators 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCOMPETITION 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 “Management Discussion and Analysis of Telkom Indonesia Performance – Financial Overview - The Impact of the Regulation Changes towards the Company - 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 area and control of a particular market. Specifically, Decree No.33/2004 prohibits dumping, predatory pricing, cross- subsidies, mandatory use of a provider’s services (to the exclusion of competitors) and hampering mandatory interconnection (including discrimination against specific providers). Competition in the telecommunications sector, like all Indonesian business sectors, is also governed more generally by Law No.5/1999 dated March 5, 1999 regarding Prohibition of Monopolistic Practice and Unfair Business Competition (“Competition Law”). The Competition Law bans agreements and activities tending toward unfair business competition, as well as the abuse of a dominant market position. Pursuant to the Competition Law, the Commission for the Supervision of Business Competition (“KPPU”) has been established as Indonesia’s antitrust regulator with the authority to enforce the provisions of the Competition Law. The Competition Law is implemented by various regulations, including Government Regulation No.57/2010 dated July 20, 2010 regarding Mergers and Acquisitions Potentially Causing Monopolistic Practices or Unfair Business Practices. Government Regulation No.57/2010 permits voluntary consultation with the KPPU prior to a merger or acquisition, which will result in the KPPU issuing a non-binding opinion. Government Regulation No.57/2010 also requires that a mandatory report be made to the KPPU after a merger or acquisition is completed if the transaction exceeds certain asset or sales value thresholds. Fixed Wireline and DLD Our exclusive right to provide domestic fixed line telecommunications services in Indonesia ended following the Telecommunications Law’s implementation in 2000. The MoC issued licenses to Indosat for domestic fixed line services in August 2002 and for DLD telephone services in May 2004. We entered into an interconnection agreement with Indosat dated September 23, 2005 to allow interconnection between our local fixed line services in Jakarta, Surabaya, Batam, Medan, Balikpapan, Denpasar and certain other areas. By 2006, Indosat was able to provide nationwide DLD services through its CDMA- based fixed wireless network, its fixed line network and these interconnection arrangements with us. In an attempt to liberalize DLD services, the Government required each DLD provider to implement a three-digit access code to be dialed by customers making DLD calls. These regulations were first implemented in Balikpapan in 2008, with Balikpapan residents given the option to make a normal DLD call or to select a three- digit code assigned to Indosat or to us. Under current regulations, this system is to be applied nationally beginning September 27, 2011. See “Management Discussion and Analysis of Telkom Indonesia Performance – Financial Overview - The Impact of the Regulation Changes towards the Company - Introduction of Competition in the Indonesian Telecommunications Industry”. We compete against other major fixed broadband service providers such as PT First Media Tbk and PT Supra Primatama Nusantara (BizNet Networks) as well as a new and upcoming competitor, PT Media Nusantara Citra. We expect to face increasing competition especially in key parts of the big cities in the future. Nonetheless, we expect demand for fixed broadband services to rise as a result of the growing middle class and changing consumer trends. 103 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Cellular We operate our cellular service business through our majority-owned subsidiary, Telkomsel. As of December 31, 2014, Indonesia’s cellular market is dominated by Telkomsel, Indosat and XL Axiata, which collectively account for 97.5 % of the full-mobility cellular market. Other providers include Hutchison, Smart Telecom and Bakrie Telecom. There were approximately 270 million mobile cellular subscribers in Indonesia as of December 31, 2014, a 12.9% decrease from approximately 310 million as of December 31, 2013. We believe that Telkomsel competes effectively in the Indonesian cellular market on the basis of price, coverage, service quality and value added services. As of December 31, 2014, Telkomsel remained the largest national licensed provider of cellular services in Indonesia, with approximately 140.6 million cellular subscribers and a market share of 52.1% of the mobile cellular market. The second and the third largest providers were Indosat and XL Axiata, which have a market share of 23.3% and 22.1% respectively, based on the estimated number of subscribers as of December 31, 2014. In addition to the nationwide GSM operators, a number of smaller regional GSM, analog and CDMA fixed wireless providers operate in Indonesia. Hutchison also provide cellular services in Indonesia and has been allocated frequency spectrum of 20 MHz. IDD We compete in traditional IDD services (non-VoIP) in Indonesia primarily with Indosat, as well as Bakrie Telecom. IDD also faces competition with VoIP and other internet- based voice services like Skype and Google Talk. VoIP We formally launched our VoIP services in September 2002. VoIP uses data communications to transfer voice traffic over the internet, which usually provides substantial cost savings to subscribers. A number of other companies, including XL Axiata, Indosat, Atlasat Solusindo Pte, Ltd., PT Gaharu Sejahtera, PT Satria Widya Prima, PT Primedia Armoekadata Internet and PT Jasnita Telekomindo also provide licensed VoIP services in Indonesia. Other unlicensed operators also provide VoIP services that may be accessed through websites or through software that allows voice communications through the internet using computers or smartphones. 104 VoIP operators compete primarily on the basis of price and service quality. VoIP operators, including us, offer budget calls and other products such as prepaid calling cards aimed at price sensitive users. We currently offer our primary VoIP service “Telkom Global-01017” and the lower-cost alternative “Telkom Save”. Telkom Save offers discounted rates for certain countries to which there is heavy traffic from Indonesia while offering regular VoIP tariff rates for other countries. In addition to other VoIP operators, we also compete with internet-based voice services likes Skype and Google Talk. Satellite The Asia-Pacific region and especially Southeast Asia continues to need satellites for both telecommunications and broadcasting infrastructure. This need is driven by the high demand from services such as cellular backhaul, broadband backhaul, enterprise network, OUTV (Occasional Usage TV), military and goverment network, video distribution, DTH television, flight communication and disaster recovery. Supply transponders in Southeast Asia at this time could only meet 75% of the existing demand. Some operators are in the process of development of a satellite in orbit slot position and coverage of Southeast Asia such as: satellite MEASAT-3B (91.8 oBT), Telkom-4 (108oBT), satellite SES-9 (108.2oBT), Telkom-3S (118oBT), satellite THAICOM-7 (119oBT), satellite APSTAR-9 (142oBT), satellite PSN-VI (146oBT), and BRI SAT (150.5oBT). In 2019 an estimated supply will approach the demand, but it still remains lacking. There are 18 satellite operators with satellites covering Southeast Asia: 1. SES Global (Luxembourg) 2. Eutelsat Asia (France) 3. APT Satellite (Hong Kong) 4. AsiaSat (Hong Kong) 5. JSAT (Japan) 6. MEASAT (Malaysia) 7. MCI – Media Citra Indostar (Indonesia) 8. Indosat (Indonesia) 9. VinaSat (Vietnam) 10. SingTel/Optus (Singapore) 11. Telkom (Indonesia) 12. ChinaSat (China) 13. Mabuhay (Philippines) 14. Thaicom (Thailand) 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES15. ABS (Hong Kong) 16. Lippo Star (Indonesia) 17. Intelsat (US) 18. Telesat (Canada) Satellite service delivery essentially consists of a satellite transponder leasing to the broadcaster, VSAT service provider backhaul, enterprise networks and military networks. In the provision of transponder, the competition was not relatively high, which contained the competition is on VSAT service providers. This condition generally causes the satellite transponder market prices remained stable. The big difference in price was caused by the quality of power. Viewing the market opportunities and limitations of satellite transponder, we developed a satellite business with build Telkom-3S (substitute) and Telkom-4. Currently, Telkom-3S is in the process of manufacturing with the RFS targets by the end of 2016, while Telkom-4 is in the process of planning. Telkom-4 as a substitute for Telkom-1 satellite in orbit slot 108oBT will be used to maintain the continuity of existing services. For the service expansion in the international market, we conduct development of beam to India with the capacity of 24 TPE C-Band through Telkom-4. STRATEGIC WORKING PROGRAM 2014 As part of State-Owned Enterprise (SOE), in 2014, we are honorary mandated by the President of Republic of Indonesia and Minister of SOE in carrying out our business. The mandate from President of RI is as follows: becoming a global player who listed on Fortune-500, considered as Top 500 reputable companies worldwide. becoming a Company with blue chips shares. building excellent broadband infrastructure as a means of nation integration. The mandate from Minister of SOE is translated to 3E principles which are Existence of the nation, Engine of Growth and Emperor of the region. The Minister of SOE mandated us to: strengthen national resilience. lead frontline of national economic growth engine. have global expansion and global competitive advantage. The current trend in the satellite business is the development of broadband satellite. As the bandwidths in the C-Band and Ku-Band frequencies are fully utilized, utilization of the Ka-Band frequencies will become an option. The technology for Ka-Band frequencies has been progressing rapidly in the last decade. Broadband satellite utilize Ka-Band frequencies with a re-use configuration, resulting in capacities of up to 100 Gbps. Currently, we are engaged in design and demand studies for broadband satellites. BTS As of December 31, 2014, we operated 85,420 BTS located throughout Indonesia. Through our subsidiary, Dayamitra, we lease out space to other operators to place their telecommunications equipment on these towers, for which we receive a fee. Our principal competitors in this business are XL Axiata, Indosat, Bakrie Telecom and PT Tower Bersama Infrastructure Tbk. Others Deregulation in the Indonesian telecommunications sector has encouraged competition in the multimedia, internet, and data communications services businesses. The diversification of businesses has gained momentum resulting in intense competition, particularly in terms of price, range of services offered, quality and network coverage, as well as customer service quality. To answer global market challenge and exercise those mandates, we implement Key Program 2014 prepared under 3S (Sustaining – Scaling – Scoping) framework. The key programs are based on Great Spirit Solid – Speed – Smart and Grand Strategy also backed with correct portfolio selection (focusing on center of growth) and efficient resource allocation. In 2014, we had three Main Program, Telkomsel Revenue Double Digit Growth (Sustaining), Indonesia Digital Network 2015 (Scaling), and the International Expanssion & King of Digital (Scoping). 105 2014 Annual Report PT Telkom Indonesia Tbk (Persero)BUSINESS OVERVIEW BUSINESS PORTFOLIO As the largest TIMES service provider and a SOE, we serve millions of subscribers all over Indonesia. We booked a revenue of Rp82,967 billion for the year ended on December 31, 2013 and Rp89,696 billion for the year ended on December 31, 2014. Historically and up to the present, the largest share of our revenue is contributed from services related with telecommunications, data and internet. As a TIMES provider, we continuously pursue innovation in other non- telecommunication sectors, and seek to build synergies among our products, services, and solutions. Our converged TIMES portfolio is part of our business transformation. We have organized our TIMES portfolio into 15 business portfolios comprising of nine products portfolios and 6 customers portfolios. Our business portfolios are classified under several business lines as follows: Telecommunications Business Our telecommunication business portfolios include: Fixed Services (fixed wireline services, fixed broadband, Wi-Fi) Mobile Services (full mobility, or cellular services and limited mobility, or fixed wireless services) Network and Infrastructure Services (interconnection (including international) traffic, network services, satellite, and tower) Information Business Our information business portfolios include: Platform Services (Managed Applications and System Integration, Business Process Management, e-payment, premises integration, data center & cloud, and M2M (machine to machine) Big Data Ecosystem Solution (e-health, e-logistic, e-tourism, e-transportation, and e-governance) 106 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESMedia and Edutainment Business Our media and edutainment business portfolios include: Digital Life Digital Home Digital Advertising Our customer portfolios include Personal Consumer/Home Business Enterprise Wholesale International OPERATIONAL OVERVIEW BY SEGMENT As part of the Company’s strategy to provide a one-stop solution to our customers, since 2013, we have changed our business segment approach from product based to customers based. These changes result in our segment information presentation from fixed wireline, fixed wireless, cellular and others becomes segmental reports of corporate, home, personal and others. We have four main operating segments, described in more details as follows: 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. Our home segment provides fixed wireline telecommunications services, pay TV, data and internet services to home consumers. Our personal segment provides mobile cellular and fixed wireless telecommunications to individual consumers. Our others segment provides building management services. Corporate Segment Satelit-transponder Leased Channel & Satellite IPLC Datacomm Corporate Internet Fixed wireline Fixed broadband (Speedy) Home Segment Fixed wireline Fixed broadband (Speedy) Individual Segment Seluler Unit (000) MHz (000) e1 (000) Mbps (000) Mbps (000) Mbps (000) subscribers (000) subscribers (000) subscribers (000) subscribers 3,560 91,817 8,639 930,327 93,368 1,465 353 8,233 3,047 (000) subscribers 140,585 Fixed wireless (Classy + Trendy) (000) subscribers Mobile broadband (Flash) Blackberry (000) subscribers (000) subscribers 4,404 31,216 5,835 Year ended on December 31, 2014 2013 2012 3,007 2,650 415,540 388,462 9,421 381,440 62,687 1,408 315 7,943 2,698 131,513 6,766 17,271 7,556 15,782 281,063 66,340 1,343 263 7,603 2,078 125,146 17,870 11,039 5,764 107 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Year ended December 31, 2014 compared to year ended December 31, 2013. Corporate Segment Our corporate segment revenues increase by Rp3,824,9 billion, or 14.9%, from Rp25,590 billion in 2013 to Rp29,414.3 billion in 2014. The increase was mainly due to an increased in others telecommunications services by Rp1,855.5 billion, or 41.1%, was reflect by an increase in tower lease revenue by Rp678.1 billion, or 34.1%, in line with growth in BTS number by 31.2% and tower tenats by 31.4%, Customer Premise Equipment (“CPE”) also increased by Rp342 billion, or 29.1 %, management service revenue by Rp391.4 billion, or 1261.7%, and E-payment revenue to Rp341.2 billion, or 180.7%. An increased in network revenue by Rp694.7 billion, or 18.6%, due to the increased in transporder revenue by Rp 691.9 billion, 41.7%. Data and internet revenue increased by Rp554.6 billion, or 8.1%, due to an increased in Astinet revenue of Rp 390.6 billion, or 71.2%, and Metro E revenue by Rp430.3 billion or 43.3%. Interconnection revenues increased by Rp394.5 billion, or 7.0%, due to the increased in our wholesale voice revenue by Rp146.5 billion, or 25.1%, IP Transit revenue by Rp130.8 billion, or 16.8%, SLI 007 incoming interconnection revenue of Rp 91.2 billion or 6.1%. Rp 309.1 billion, or 6.6%, increased in our wireline revenue due to the increase in call center by Rp393.6 billion, or 33.9%. Our corporate segment expenses increase by Rp2,200.9 billion, or 10.8%, from Rp20,375.9 billion in 2013 to Rp22,575.8 billion in 2014, primarily due to an increased of Rp 1,219.9 billion, or 12.9% in operating and maintenance expenses as a result of higher tower rent expenses Rp599.0 billion, or 129.2%, as well as an increased in tower lease revenue, site operating expense by Rp300.9 billion, and Rp292.4 billion. or 1,928.1%. managed services expense. Depreciation expense increased by Rp322.4 billion, or 14.7% due to the increased in depreciation of equipment and installation of transmission and depreciation expense of power supply by Rp186.9 billion, or 33.7%, and Rp115.1 billion or 50.7%. Rp178.0 billion, or 4.6%, increased in interconnection expenses due to the increased in cellular long distance transit interconnection expense by Rp 121.9 billion, or 20.3% and Telkom Global 017 interconnection charges by Rp109.4 billion, or 68.4%, and the decline in foreign exchange loss by Rp 616.1 billion, or 92.5%. Home Segment Our home segment revenues decrease by Rp114 billion, or 1.2%, from Rp9,463 billion in 2013 to Rp9,349.3 billion in 2014 mainly due to the decline in wireline revenues by Rp 399.5 billion, or 8.6% decrease in local usage. This decrease was partially offset by the increased in data and internet revenues by Rp 287.7 billion, or 8.0%, due to the increased in speedy revenue in line with the customer growth from 3,013 thousand to 3,400 thousand, or 12.8%, in 2014. Our home segment expenses increase by Rp9.7 billion, or 0.1% from Rp8,885 billion in 2013 to Rp8,894 billion in 2014, primarily due to a decreased in other income by Rp 511.0 billion, or 70.6%, and a decrease in the difference of fair value investments Rp 228.2 billion, or 98.3%. This decreased was offset by a decreased in operating expense by Rp266.9 billion, down 2.9%, due to a decreased in personnel expense Rp461.6 billion, or 12.4%, due to a decreased in bonus expense by Rp200.4 billion, or 23.3%, and net periodic post-retirement healthcare expense by Rp170.9 billion, or 80.2 %. Personal Segment Our personal segment revenues increase by Rp5,299.4 billion, or 8.6% from Rp61,386 billion in 2013 to Rp66,685.8 billion in 2014, mainly due to the increased in data and internet revenues by Rp4,270.0 billion, or 18.3%, which increased in Telkomsel cellular data by Rp4,007.9 billion, or 38.6%, parallel with the increase in 67.9 million, or 48.3%, the number of subscribers (including pay as you use) subscribers. Payload data traffic increased to 234.862 TB, or 142.9%. Rp547.8 billion, or 4.2%, increased in our SMS revenue. Revenue in mobile increased by Rp2,035.0 billion, or 6.3%, due to an increase in cellular monthly subscription revenue by Rp1,200.0 billion, or 17.8%, mobile long distance revenues increased by Rp 487.8 billion, or 5.4%, and Rp380.8 billion, or 2.7%, in local cellular. Supported by the increased in mobile subscribe by 6.9% from 131.5 billion in 2013 to 140.6 billion in 2014. Chargable MoU increased by 15.0% to 161.4 billion minutes in 2014. Our personal segmen expenses increase by Rp5,307.7 billion, or 13.4% from Rp39,463 billion in 2013 to Rp44,770.7 billion in 2014, primarily due to the increased in operation and maintenance expenses by Rp4,192.7 billion, or 25.4%, due to the increased of antenna and tower expense by 109 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Rp1,014.5 billion, or 40.8%, and radio base station expense by Rp446.9 billion, or 11.7%, due to the growth of BTS number by 22.3% from 69,864 unit in 2013 to 85.420 units in 2014. Increased in leased line expense by Rp799.3 billion, or 8027.4%, an increased in satellite transmission expense by Rp411.5 billion, or 9,724.6%, Rp 432.5 billion ,or 5,714.3%, in outsourcing. Land and buildings expense increased by Rp270.1 billion, or 65.5%, in line with the increased in the number of BTS and GraPARI. USO expense increased by Rp222.9 billion, or 29.4%. Depreciation expense increased by Rp159.2 billion, or 8.3%, due to the increased in depreciation of equipment and installation of transmission by Rp1,279.0 billion, or 7.45%, were offset by a decreased in depreciation expense lease assets - equipment and installations transmission by Rp264.2 billion, or 29.5%. Impairment of fixed assets increased Rp 209.6 billion, or 35.2%. Other Segment Our other segment revenues increase by Rp745 billion, or 65,5%, from Rp1,138 billion in 2013 to Rp1,883 billion in 2014 mainly due to an increase in building management revenue by Rp499.3 billion, or 112.6%, due to the addition of building management combine with energy management, and additional rental of completed buildings. Total area of the building being leased in 2014 increased by 5.5%, transport management services revenue increased by Rp 66.5 billion, or 116.8%. Security services revenue increased by Rp55.1 billion, or 20.6%, due to the addition of personnel and an increase in the UMR in 2014, and management projects revenue increased by Rp50.2 billion, or 29.6%, and property development revenue increased by Rp44.4 billion, or 62.1%. Our other segment expenses increase by Rp710 billion, or 70,46%, from Rp1,008 billion in 2013 to Rp1,718 billion in 2014 mainly due to an increased in operating and maintenance expense by Rp 652.8 billion, or 79.0%, due to the increased in electric by Rp494.7 billion, or 345.8%, increased in security services expenses by Rp 40.7 billion, or 17.2%, due to the addition of personnel and salary increased as a result of the minimum wage, increased in transport management by Rp 38.3 billion, or 321.7%. The increased was also due to an increased in the personnel expenses by Rp 27.2 billion, or 28.7%, due to an increase in outsourcing expense. Year ended December 31, 2013 compared to year ended December 31, 2012 Corporate Segment Our corporate segment revenues increased by Rp3,543.0 billion, or 16.1%, from Rp22,047.0 billion in 2012 to Rp25,590.0 billion in 2013. The increase was mainly due to an increase of Rp1,192.4 billion, or 27.0%, in revenues from data and internet revenues, reflecting an increase in value added services revenue as well as an increase in Metro Ethernet E-LINE monthly revenue due to the migration from low cap connectivity to high cap connectivity. Revenues from other telecommunications services increased by Rp1,192.4 billion, or 35.7%, as a result of an increase in tower lease revenues in line with the growth in tenancy ratio, and an increase in support CPE revenues. Network revenues increased by Rp516.9 billion, or 16.1%, primarily reflecting an increase in C-band satellite transponder monthly subscription revenue due to higher market demand, and an increase in International Ethernet Private Line (IEPL) revenue. Interconnection revenues increased by Rp347.4 billion, or 6.2%, mainly as a result of an increase in IP transit monthly subscription revenue due to higher demand for internet connectivity from ISPs and corporate customers, and an increase in revenues from wholesale voice. A decline of Rp243.4 billion, or 29.3%, was recorded in IDD 007 retail OLO origin interconnection revenue due to the discontinuance of a promotion which we operated in 2012 which had driven interconnection revenues but which did not provide satisfactory margins and thus was discontinued in 2013. Our corporate segment expenses increased by Rp2,399.0 billion, or 13.3%, from Rp17,976.0 billion in 2012 to Rp20,375.0 billion in 2013, primarily due to an increase of Rp1,985.3 billion, or 26.9%, in operation and maintenance expenses as a result of higher tower rent expenses as well as an increase in hardware system integration expense in line with the growth of solution services provided to our corporate customers. General and administration expenses increased by Rp1,087.1 billion, or 99.0% reflecting increases in provision expenses for telecommunication services receivables, director and 110 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICEScommisioner remuneration, and in employee training expenses relating 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 primarily relating to promoting and educating customers about our new products. A decline of Rp897.6 billion, or 69.2%, was recorded in other expenses due to a decline in other operating expenses primarily relating to loss of Telkom-3 satellite which was built and launched but failed to reach useable orbit in 2012, which was not repeated in 2013, while the decline of Rp6.4 billion, or 0.2%, in personnel expenses reflected a decline in employee severance payments, partially offset by an increase in post-retirement healthcare benefit expenses. Home Segment Our home segment revenues decreased by Rp120.0 billion, or 1.3%, from Rp9,583.0 billion in 2012 to Rp9,463.0 billion in 2013, mainly due to a decline of Rp710.9 billion or 13.2%, in fixed wireline revenue, reflecting a decline in local usage revenue and in monthly subscription revenue in line with the shift in customer communication behavior trends. These were partially offset by an increase in other telecommunication services of Rp225.9 billion, or 24.6%, due to increases in CPE lease revenue. Data and internet revenues increased by Rp159.3 billion, or 4.7%, due to an increase in monthly subscription revenue for Speedy in line with the 28.7% growth in Speedy customer base to 3.0 million subscribers. Our home segment expenses increased by Rp946.0 billion, or 11.9%, from Rp7,939.0 billion in 2012 to Rp8,885.0 billion in 2013, primarily due to an increase of Rp1,496.7 billion, or 136.8%, in operation and maintenance expenses. A decline of Rp568.5 billion, or 86.0%, was recorded in other expenses, due to a decline in other operating expenses primarily relating to supervising construction. Personal Segment Our personal segment revenues increased by Rp5,111.0 billion, or 9.1%, from Rp56,275.0 billion in 2012 to Rp61,386.0 billion in 2013, mainly due to an increase of Rp1,316.8 billion, or 4.3%, in cellular revenues, reflecting an increase in long distance cellular revenue as well as in cellular monthly subscription revenue due to a 5.1% growth in our cellular subscriber base to 131.5 million subscribers. Data and internet revenue increased by Rp3,275.1 billion, or 16.3%, due to an increase in cellular data communication revenue in line with the 10.8% growth in our data services users to 60.5 million users, and an 86.1% growth in data traffic. Cellular SMS revenue also increased due to the promotion of our simPATI and kartu As products. Other telecommunication services revenue increased by Rp270.9 billion, or 114.3%. Network revenues increased by Rp173.5 billion, or 64.8%. Revenue from fixed wireless decreased by Rp174.0 billion, or 14.3%, reflecting a decline of Rp129.1 billion, or 22.2%, in local prepaid usage in line with our migration strategy for our fixed wireless business. Our personal segment expenses increased by Rp3,091.0 billion, or 8.5%, from Rp36,372.0 billion in 2012 to Rp39,463.0 billion in 2013, mainly due to an increase of Rp1,475.5 billion, or 14.6%, in depreciation expense, which reflected an increase in provision for asset impairment loss primarily relating to our fixed wireless business as a result of lower tariffs and declining customers in the fixed wireless market and an increase in depreciation of leased assets. Operation and maintenance expenses increased by Rp1,930.3 billion, or 13.2%, as a result of the increase in operation and maintenance expenses for support facilities, operation and maintenance expenses for antenna and towers due to accelerated BTS construction by Telkomsel, and in operation and maintenance expenses for building installations. Other Segment Our other segment revenues increased by Rp373.0 billion, or 48.8%, from Rp765.0 billion in 2012 to Rp1,138.0 billion in 2013, reflecting an increase of Rp372.0 billion, or 48.6%, in Telkom Property's other telecommunication revenues, mainly as a result of an increase of Rp105.0 billion, or 31.0%, in building maintenance services revenue as well as an increase in security services revenue due to tariff adjustments. Revenue from project management increased by Rp57.5 billion, or 51.3%, reflecting enhanced synergies within the Telkom Group as we implemented a strategy for all our subsidiaries to use Telkom Property for building management in 2013. Revenue from management transport services a new line of business recorded an increase of Rp56.9 billion, or 100%, from 2012, while revenue from building lease increased by Rp46.2 billion, or 65.0%, due to an increase in rental rates. Our other segment expenses increased by Rp323.0 billion, or 47.2%, from Rp685.0 billion in 2012 to Rp1,008.0 billion in 2013, mainly reflecting an increase of Rp260.4 billion, or 46.0%, in operation and maintenance expenses, due to increases in project management expenses, electricity bills, and in third-party cooperation expenses. Personnel expenses increased by Rp28.9 billion, or 44.0%, mainly due to an increase in outsourcing expenses. 111 2014 Annual Report PT Telkom Indonesia Tbk (Persero)PRODUCT OVERVIEW Telecommunication Business 1. Fixed Wireline Services Our fixed wireline services include plain old telephone services (“POTS”), value-added services (“VAS”), Intelligent Network (“IN”) services and session initiation protocol (“SIP”) services. IN services are IP-based network services that are connected to our exchange systems and telecommunications network. Session Initiation Protocol services are IP multimedia subsystem (“IMS”) services which combines wireless and fixed line technologies for voice and data communications. In 2014, we continued our “More for Less” program, which helped promote our fixed wireline business by offering fixed broadband and IPTV services as part of a bundle with our fixed wireline services. "triple play" services). We also provide a prepaid on- demand, “pay as you use” broadband internet service using Speedy or Wi-Fi access under the commercial name of “Speedy Instan”. 3. Cellular Services We provide cellular communications services using GSM technology through our subsidiary, Telkomsel. Cellular services (including mobile data services) remained the largest contributor to our consolidated revenues in 2014. We have two primary types of cellular products and services, postpaid services represented by kartuHalo and prepaid services represented by simPATI, Kartu As and Loop. 2. Fixed Broadband Our primary non-cellular based broadband internet service, using ADSL and fiber optic technology, is offered under the commercial name “Speedy” (which is in the process of being rebranded to "IndiHome", which offers in 2014, Telkomsel adopt 4G as the latest technologies for mobile devices. Telkomsel also launched the "Loop" as an independent brand that specifically target the youth segment by offering a variety of attractive data packets. 112 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES kartuHALO is a postpaid mobile communications service. As of December 31, 2014, kartuHalo had 2.9 million subscribers, compared with 2.5 million subscribers as of December 31, 2013. simPATI is a prepaid premium service that can be purchased at any cellular shop in the form of starter packs and top up vouchers. Our brand proposition is “Discover Excitement” Kartu As is a prepaid service with a more price sensitive market segment compared to simPATI. Loop is a prepaid service that targets the youth segment through the provision of attractive data packages. In 2014, we continued with marketing programs for cellular services generally to promote sales and enhance awareness of Telkomsel's brands. We also focused on making our loyalty programs, such as Telkomsel Points, more attractive to our customers. We also provided Flexi subscribers with incentives through vouchers to be used toward the purchase of GSM phones or credit. We also launched 4G services in December 2014, with initial coverage in Jakarta and Bali, and were the first operator in Indonesia to launch 4G services commercially.Our mobile cellular subscriber base increased from 131.5 million subscribers at the end of 2013 to 140.6 million by the end of 2014, an increase of 6.9% or 9.1 million subscribers. 4. Fixed Wireless Services Our fixed wireless business, which uses limited mobility CDMA technology and operates under the "Flexi" brand, its business was transfered to our subsidiary, Telkomsel, effective as of October 1, 2014. However, we continue to serve Flexi customers who do not migrate yet until the end of 2015, and then we will stop Flexi. During 2014, with our migration strategy, we have also continued with our migration strategy to encourage our fixed wireless customers to enter into plans operated by Telkomsel. The number of our fixed wireless connections in service continued to decline in 2014, from approximately 6.8 million as of December 31, 2013 to 4.4 million as of December 31, 2014. 5. Interconnection Services We also earn revenue from other telecommunications operators that utilize our extensive network infrastructure in Indonesia, both for calls that end at or transit via our network. Similarly, we also pay interconnection fees to other telecommunications operators when we use their networks to connect a call from our customers. Interconnection services that we provide to other telecommunications operators comprise domestic and international interconnection services. 6. Network Services We directly manage the provision of network services such as leased lines to customers comprising of our business partners, commercial businesses and OLOs. Our network services customers may enter into short- term deals for several minutes of broadcasting to longer- term agreements for one to five year periods. 7. Satellite Our satellite operations consist primarily of leasing satellite transponders capacity to broadcasters and operators of VSAT, cellular and IDD services and ISPs, as well as providing earth station satellite up linking and down linking services to domestic and international users. In view of market opportunities and the limited supply, we plan to expand our satellite business with the construction of Telkom-3S satellite through a partnership on acquired orbital slot. The Telkom-3S satellite is currently under development. We manage our satellite business through our subsidiaries, Metra and Patrakom. 8. Tower Through our subsidiary, Dayamitra, we lease out space to other operators to place their telecommunications equipment on these towers for which we receive a fee. Information Business Our information business portfolio includes: 1. Platform Services, which includes Managed Applications and System Integration, Business Process Management, E-Payment, Premises Integration, Data Center and Cloud, and Machine to Machine "M2M". Managed Applications and System Integration services provide software development cloud-based IT and server-based management services. Business Process Management services provide customer relationship management, analytic consulting, services operation management and enterprise shared services. E-Payment includes services related to billing payment, remittance, e-payment platform (e-money) and e-payment solution (e-Voucher services). Premises 113 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Integration services includes customer premises equipment ("CPE”) trading, managed CPE services, managed network services and managed security services. Data Center and Cloud Services includes server colocation, hosting, disaster recovery center, content delivery network services, IaaS (infrastructure as a service, which offers configurable virtual servers and storage) and SaaS (software as a service, which offers cloud-based software and IaaS services). To complement and leverage our information business, our subsidiary Telkom Metra formed a joint venture on August 29, 2014 with Telstra Holding Singapore Pte. Ltd. to provide network application services to Indonesian enterprises, multinationals and Australian companies operating in Indonesia. The joint venture will focus on four key areas, namely, managed network services, managed security services, and unified communications and cloud solutions. 2. Big Data, which includes mobile subscriber pattern analytics churn prevention, infrastructure site deployment recomendation, targeted digital advertising, post call marketing and analytics, M2M analytics, data monetization for enterprise service providers and sentiment analytics. We are currently exploring opportunities to provide services in this area. 3. Ecosystem Solution, which includes services involving e-Tourism, e-Gov, e-logistic, e-Education, e-Health and e-Transportation. We are currently exploring opportunities to provide services in this area. Media and Edutainment Business Our Media and Edutainment business portfolio includes the following : 1. Digital Life refers to digital content services (such as music and e-books), applications and games which are distributed through apps store and web stores, e-commerce marketplace, portals, e-radio and internet- based UseeTV. 2. Digital Home refers to a development of home media content convergence services for multi-screen/device, and multi-platform, which are consists of media entertainment (Pay TV : DTH, UseeTV cable), digital media storage, home automation and security. Television broadcast services comprising of: 114 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Pay TV is a pay TV service broadcasted over satellite links offering premium-grade contents in news, sports, entertainment, and others. IPTV is an Internet Protocol-based television ("IPTV") under the commercial name ”UseeTV Cable”. The service is delivered using Speedy broadband access network, and offers ”pause and rewind” features for contents such as video- on-demand programming, FTA TV, premium TV, internet radio and TV on demand, which allows playback of program content from the last seven days. OTT TV (Over the Top TV) is an internet TV service under the commercial name ”UseeTV” that can be accessed from Telkom's internet network, offering free content such as video-on-demand programming, live TV, internet radio, and some pay video programming. Similar to UseeTV Cable, the OTT TV is also capable of allowing play back of program content from the last three days. 3. Digital Advertising is a commercial service for the promotion of products or services of any third party that are presented in digital or print media, such as radio, television, internet, newspapers, brochures/ leaflets and billboards. TELECOMMUNICATIONS SERVICES AND TARIFFS OVERVIEW We set our telecommunications tariffs in accordance with government regulations. Based on Law No.36/1999 and Government Regulation No.52/2000, tariffs for operating telecommunications network and/or services are determined by providers based on the tariff type, structure and the price cap formula set by the Government. Fixed line telephone tariffs The Government issued a new tariff adjustment formula in 2008, which is stipulated in the MoCI Decree No.15/ PER/M.KOMINFO/4/2008 dated April 30, 2008 concerning “Procedure for Tariff Determination for Basic Telephony Service which Connected through Fixed Line Network”. Under the Decree, the tariff structure for basic telephony services, which is connected through fixed line network consists of the following: activation fee monthly subscription charges usage charges additional facilities fee. Mobile cellular telephone tariffs On April 7, 2008, the MoCI issued Decree No.09/PER/M. KOMINFO/04/2008 (“MoCI Decree 09/2008”) regarding “Mechanism to Determine Tariff of Telecommunication 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 activity cost. Under the Decree, the cellular tariffs of operating telecommunication services which connected through mobile cellular network consist of basic telephony services tariff, roaming tariff and/or multimedia service tariff, with the following structure: activation fee monthly subscription charges usage charges additional facilities fee. Interconnection tariffs ITRA, in its letter No.227/BRTI/XII/2010 dated December 31, 2010, decided to implement new interconnection tariffs effective from January 1, 2011 for mobile cellular networks, satellite mobile networks and fixed local networks and effective from July 1, 2011 for fixed wireless local network with a limited mobility. Based on Director General of Post and Informatics Decree No.201/KEP/DJPPI/KOMINFO/7/2011 dated July 29, 2011, ITRA approved our revision of RIO regarding the interconnection tariff. ITRA, in its letter No.262/BRTI/ XII/2011 dated December 12, 2011, changed the basis for SMS interconnection tariffs from Sender Keep All (“SKA”) basis to a cost-based interconnection fee calculation (“Non-SKA”) effective from June 1, 2012, for all telecommunication provider operators. We derive substantial revenue from interconnection services because we have the largest network in Indonesia and our competitors must pay tariffs to connect to our network. As regulated by the MoCI, although SMS interconnection rates as a result of ITRB No.60/BRTI/ III/2014 and No.125/BRTI/IV/2014 effective from April 2104 increase from Rp23 to Rp24, SMS interconnection rates have been decreasing prior to that in recent years and may decrease again in the future. Network lease tariffs Through the 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 115 2014 Annual Report PT Telkom Indonesia Tbk (Persero)to the MoCI Decree, the Government released Director General of Post and Telecommunication Decision Letter No.115/2008 dated March 24, 2008, regarding “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. 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 no stipulation for the tariff of other services. IMES tariffs In providing IME services, our New Economy Business, we work with a number of partners. These collaborations are based on considerations of capability, time to market and idea creation. Tariffs for our IME services are determined in agreement with these partners based on the scheme of cooperation between us and each respective partner. MARKETING AND PROMOTION ASPECTS Distribution Channels The following are the primary distribution marketing channels for our products and services: 1. Plasa Telkom and GraPARI are outlets that function as walk-in customer service points, where customers have access to the full range of Telkom and Telkomsel’s respective products and services, including billing, payment, subscription cancellation and promotion to complaint handling. As of December 31, 2014, we managed 572 Plasa Telkom outlets and 88 GraPARI outlets in Indonesia and one GraPARI in Hong Kong, and had an additional 321 GraPARI outlets which were managed by thirdparty business partners. Several of the GraPARI outlets operate on a 24 hour basis. We also operate 263 mobile GraPARI outlets which are sales points located in vehicles which can travel to reach customers across the country. 116 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 2. Contact centers are call centers that support our customers’ ability to access certain of our products and services, including make billing enquiries, submit complaints, and access certain promotions and service features. We operate 24-hour contact center facilities in five cities, namely Medan, Jakarta, Bandung, Makassar and Surabaya. Inbound calls to our contact centers have generally been decreasing due to changes in methods used by the customers in seeking out product information, subscribing or submitting complaints, from voice calls to online requests on our websites. 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. To increase sales, we also use above and below the line marketing channels, to promote our services to certain parties and communities. We also continue to place advertisement in printed and electronic media and implement marketing methods such as point of sales broadcasting as well as promotion and sponsorship events. In line with shifting consumer behavior and lifestyles, we have also actively developed national scale partnerships with several partners such as Intel and Bank BTN. Through the partnership, we sell bundle- based products at our partners’ sales outlets. 4. Feet on The Street Are sales agents that conduct direct marketing of our products, particularly for our IndiHome products, through door-to-door sales, open table discussions, exhibitions, product demonstrations, and other similar activities. 5. Authorized dealers and retail outlets Are distribution outlets for a variety of telecommunication products such as Speedy Instant 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. 6. Account Management Teams Are teams that manage relationships with our individual, business and corporate customers. We also provide a Tele Account Manager service to support customers or prospective business customers through inbound and outbound calls for pre-sales, sales and other customer services requirements. 7. Telkom Solution Houses Are places where an enterprise customer can obtain information on a variety of TIMES solutions, products and services, and the latest technology. At Telkom Solution Houses, we provide free live demon for free(such as IndiHome, Hotspot, PDN, IP-Phone), live demonstrations for commercial products (such as video conferene), enterprise consultation and ecosystem business solutions for customized TIMES for corporations and simulated demonstrations (such as e-Payment and VPN over GSM and Flexi). 8. SME Centers These centers function as a communication center supported with advanced office facilities, a community center where our customers can interact and a commerce center specifically for e-Commerce solutions. 9. Website Our website, www.telkom.co.id and www.telkomsel. com enables customers to access certain of our products and services. Available services include e-billing registration, collective billing registration and submission of complaints. 10. Social Media We use social media, primarily Facebook and Twitter, to enable the customers to interact with us regarding our products and services. To increase sales, we also use above and below the line marketing channels, to promote our services to certain parties and communities 117 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Marketing Strategy We implement a “paradox marketing” framework in managing our marketing as illustrated in following diagram: In our implementation of the “paradox marketing” framework as illustrated above, the “more for less” concept is based on the value preposition of the products and services we offer to customers, with the aim that customers can acquire more relevant benefits at a lower price compare to our competitors, with mass customization that is in line with customers’ requirements for our product and services. In the consumer segment, for example, and particularly in the Home segment, our Indihome service has been developed as one of our innovations for customers. IndiHome is an integrated TIMES service that incorporates internet broadband access, telephony, IPTV (under the USeeTV brand) and home automation services. We have implemented a comprehensive marketing strategy to bolster our brand and to boost sales as well, including through marketing communication activities and product and service distribution channel development. Our Plasa Telkom outlet is one of our principal distribution channels for our products and services, in addition to other service distribution networks. 118 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESFINANCIAL OVERVIEW FINANCIAL POSITION OVERVIEW 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, 2014 2013 2012* (Rp billion) (US$ million) (Rp billion) (Rp billion) 33,762 107,133 140,895 31,786 22,984 54,770 67,807 2,726 8,650 11,376 2,566 1,856 4,422 33,075 94,876 127,951 28,437 22,090 50,527 27,973 83,396 111,369 24,107 20,284 44,391 5,475 60,542 51,541 *As re-stated, see Note 48 to the Consolidated Financial Statements 2012 Year ended December 31, 2014 compared to year ended December 31, 2013 1. Assets a. Current Assets As of December 31, 2014, our current assets were Rp33,762 billion (US$2,726 million) compare to Rp33,075 billion as of December 31, 2013. The increase in current assets was mainly due to an increase in our cash and cash equivalents by Rp2,976 billion, or 20.3%, and Rp796 billion, or 20.2% in our advances and prepaid expenses. This increase was partially offset by a decrease in our other current financial assets of Rp4,075 billion, or 59.3%. b. Non Current Assets As of December 31, 2014, our non current assets were Rp107,133 billion (US$8,650 million) compare to Rp94,876 billion as of December 31, 2013. This increase was due to: - - An increase in our advanced and other non-current asset of Rp1,684 billion, or 35.1%, and - An increase in long term investment-net of Rp1,463 billion or 481.3%. An increase in property, plant and equipment-net accumulated depreciation by Rp8,048 billion, or 9.3%, 2. Liabilities dan Equity a. Current Liabilities Current liabilities were Rp31,786 billion (US$2,566 million) as of December 31, 2014 and Rp28,437 billion as of December 31, 2013. This increase was primarily due to: - - - An increase of Rp1,378 billion, or 319.0 %, in short-term bank loans; An increase of Rp806 billion, or 15.8%, in current maturities of long-term liabilities, and An increase of Rp678 billion, or 39.9%, in tax payable. 119 2014 Annual Report PT Telkom Indonesia Tbk (Persero)b. Non Current Liabilities Non current liabilities were Rp22,984 billion (US$1,856 million) as of December 31, 2014 compare to Rp22,090 billion as of December 31, 2013. The increase was partially due to increase in bank loans of Rp2,243, or 39.8%. This increase was partially offset by a decrease in bond and notes of Rp834 billion, or 27.1%. c. Equity Total equity increase by Rp8,701 billion, or 11.2%, from Rp77,424 billion as of December 31, 2013 to Rp86,125 billion as of December 31, 2014. The increase of equity was primarily the result of total comprehensive income for the year attributable to owners of the parent of Rp21,470 billion in 2014, the sale of treasury stock of Rp1,969 billion, increase in paid in capital by Rp576 billion. This increase offset by cash deviden of Rp9.943,6 billion. Our retained earnings increase by Rp4,695 billion, or 8.0%, and total equity attributable to owner of the parent increase by Rp7,265 billion, or 12.0%, from Rp60,542 billion as of December 31, 2013 to Rp67,807 billion as of December 31, 2014. Year ended December 31, 2013 compared to year ended December 31, 2012 1. Assets a. Current Assets As of December 31, 2013, our current assets were Rp33,075 billion (US$2,718 million) compare to Rp27,973 billion as of December 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 in cash and cash equivalents Rp1,578 billion, or 12.0%, and our third party trade receivable of Rp604 billion, or 13.3%. This increase was partially offset by a decrease of Rp426 billion, or 97.7%, in claim for tax refund. b. Non Current Assets As of December 31, 2013 our non current assets were Rp94,876 billion (US$7,796 million) and Rp83,396 billion as of December 31, 2012. This increase was primarily due to an increase in property, plant and equipment of Rp9,714 billion, or 12.6%, and advance and prepaid expense of Rp1,784 billion or 50.8%. This increase was partially offset by a decrease of Rp105 million, or 10.2%, in prepaid pension benefit costs. 2. Liabilities dan Equity a. Current Liabilities Current liabilities were Rp28,437 billion (US$2,337 million) as of December 31, 2013 and Rp24,107 billion as of December 31, 2012. This increase was primarily due to: - An increase of Rp3,926 billion, or 57.3%, in third party trade payable, and - An increase of Rp761 billion, or 27.9%, in unearned income. This increase was partially offset by a decrease of Rp899 million, or 14.6%, in accrued expense. b. Non Current Liabilities Non current liabilities were Rp22,090 billion (US$1,815 million) as of December 31, 2013 and Rp20,284 billion as of December 31, 2012. Our non-current liabilities increase primarily due to an increase of Rp2,507 billion, or 138.2%, in obligation under finance lease. This increase was partially offset by a decrease of Rp1,148 million, or 16.9%, in bank loan. c. Equity Total equity increase by Rp10,446 billion, or 15.6%, from Rp66,978 billion as of December 31, 2012 to Rp77,424 billion as of December 31, 2013. The increase of equity was primarily the result of increase of total comprehensive income for the year attributable to owners of the parent of Rp14,317 billion in 2013, the sale of treasury stock of Rp2,262 billion, paid in capital of Rp1,250 billion. This increase offset by cash dividend of Rp Rp7.068 billion. As a result of foregoing, our retained earnings increase by Rp5,851 billion, or 15.6% and total equity attributable to owner of the parent increase by Rp9,001 billion, or 17.5% from Rp51,541 billion as of December 31, 2012 to Rp60,542 billion as of December 31, 2013. 120 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES INCOME STATEMENT OVERVIEW The following table sets out our Consolidated Statements of Comprehensive Income, itemized according to our main products and services, for the three years 2014 through 2012. Each item is expressed as a percentage of total revenues or expenses: Revenues Telephone Revenues Cellular Usage charges Features Monthly subscription charges Total Cellular Fixed Line Usage charges Monthly subscription charges Call center Installation charges Others Total Fixed Line As of December 31, 2014 (Rp billion) (US$ million) % 2013 (Rp billion) % 2012 (Rp billion) % 32,972 2,662 36.8 30,722 37.0 29,477 38.2 751 567 61 46 0.8 0.6 686 730 0.8 0.9 558 696 0.7 0.9 34,290 2,769 38.2 32,138 38.7 30,731 39.8 5,347 2,697 736 31 70 432 218 59 2 6 6.0 3.0 0.8 0 0.1 6,453 2,682 7.8 3.2 7,323 2,805 324 0.4 12 0 230 0.3 228 112 194 9.5 3.6 0.3 0.1 0.3 8,881 717 9.9 9,701 11.7 10,662 13.8 Total Telephone Revenues 43,171 3,486 48.1 41,839 50.4 41,393 53.6 Data, Internet and Information Technology Services Revenues Internet, data communication and information technology services 23,550 1,902 26.3 19,267 23.3 14,857 19.3 Short Messaging Service ("SMS") 14,034 1,133 15.7 13,134 15.8 12,631 16.4 e-Business VoIP Total Data, Internet and Information Technology Services Revenues Interconnection Revenues Network Revenues Others Telecommunications Services Revenues Total Revenues Expenses 103 25 8 2 0.1 0 83 119 0.1 0.1 55 81 0.1 0.1 37,712 3,045 42.1 32,603 39.3 27,624 35.9 4,708 380 5.3 4,843 1,280 2,825 103 228 1.4 3.1 1,253 2,429 5.9 1.5 2.9 4,273 1,208 2,645 5.5 1.6 3.4 89,696 7,242 100 82,967 100 77,143 100 Operations, Maintenance and Telecommunication Services Expenses Operations and maintenance 12,583 1,016 20.5 10,667 18.5 9,012 16.7 Radio frequency usage charges 3,207 259 5.2 3,098 5.4 3,002 5.6 Concession fees and Universal Service Obligation (USO) charges Electricity, gas and water Cost of phone,set top boxes, SIM and RUIM cards Leased lines and CPE Vehicles rental and supporting facilities Cost of IT service Insurance 1,818 147 3.0 1,595 2.8 1,452 2.7 1,180 1,031 758 581 357 335 95 83 61 47 29 27 1.9 1.7 1.2 0.9 0.6 0.5 1,063 752 440 439 677 374 1.8 1.3 0.8 0.8 1.2 0.6 879 687 407 293 222 671 1.6 1.3 0.8 0.5 0.4 1.2 121 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Project Management Expenses Others Total Operations, Maintenance and Telecommunication Services Expenses As of December 31, 2014 (Rp billion) (US$ million) 180 258 15 21 2013 (Rp billion) 138 89 % 0.3 0.4 2012 (Rp billion) 102 76 % 0.2 0.2 % 0.2 0.1 22,288 1,800 36.2 19,332 33.6 16,803 31.1 Depreciation and Amortization Expenses 17,131 1,383 27.9 15,780 27,3 14,456 26.8 Personnel Expenses Salaries and related benefits Vacation pay, incentives and other benefits Employees’ income tax Net periodic pension costs Housing LSA expense Other employee benefit Insurance Net periodic post-retirement health care benefits costs Other post-retirement benefits costs Early Retirement Program Others Total Personnel Expenses Interconnection Expenses Marketing Expenses General and Administrative Expenses Gain (loss) 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 3,759 3,182 1,317 645 224 115 108 98 74 61 0 33 9,616 4,893 3,092 3,963 14 396 303 257 106 52 18 9 9 8 6 5 0 3 6.1 5.2 2.1 1.1 0.4 0.2 0.2 0.2 0.1 0.1 0 0.1 3,553 3,252 1,160 873 6.2 5.6 2.0 1.5 220 0.4 19 71 92 0 0.1 0.2 3,257 3,400 1,022 789 200 121 38 83 6.0 6.3 1.9 1.4 0.4 0.2 0.1 0.2 374 0.7 90 0.2 66 0 53 0.1 0 0.1 65 699 22 0.1 1.3 0.1 776 15.8 9,733 16.9 9,786 18.2 395 250 320 1 8.0 5.0 6.5 0 32 0.6 4,927 3,044 4,155 249 480 8.5 5.3 7.2 0.4 0.8 4,667 3,094 3,036 189 1,973 8.6 5.7 5.6 0.3 3.7 61,393 4,957 100 57,700 100 54,004 100 1,074 87 29,377 2,372 1,238 100 (1,814) (146) (17) (1) 28,784 2,324 (7,338) (592) 21,446 1,734 25 2 2,579 27,845 836 (1,504) (29) 27,149 (6,859) 20,290 112 2,559 25,698 596 (2,055) (11) 24,227 (5,866) 18,362 26 18,388 Total comprehensive income for the year 21,471 1,734 20,402 Profit for the year attributable to owners of the parent company Profit for the year attributable to non-controlling interest Total comprehensive income for the year attributable to owners of the parent company Total comprehensive income for the year attributable to non-controlling interest 14,638 1,182 14,205 12,850 6,808 550 6,085 5,512 14,663 1,184 14,317 12,876 6,808 550 6,085 5,512 Income per share (in full amount) 149.83 147.42 133.84 122 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Year ended December 31, 2014 compared to year ended December 31, 2013 1. Revenues Total revenues increased by Rp6,729 billion, or 8.1%, from Rp82,967 billion in 2013 to Rp89,696 billion in 2014. The increase in revenues was primarily contributed by data internet and information technology service revenues, and cellular telephone revenues, and to a lesser extend others telecomunication services revenues. a. Cellular Telephone Revenues Cellular telephone revenues increased by Rp2,152 billion, or 6.7%, from Rp32,138 billion in 2013 to Rp34,290 billion in 2014. Usage charges increased by Rp2,250 billion, or 7.3%, from Rp30,722 billion in 2013 to Rp32,972 billion in 2014 due to an increase of 6.9% in both our prepaid and postpaid subscribers, also due to increasing of our local and long distance usage. Revenues from features increased by Rp65 billion, or 9.5%, from Rp686 billion in 2013 to Rp751 billion in 2014 due to increase in usage features by our subscribers. Monthly subscription charges decreased by Rp163 billion, or 22.3%, from Rp730 billion in 2013 to Rp567 billion in 2014. Our total cellular telephone revenues accounted for 38.2% of our consolidated revenues for the year ended December 31, 2014. b. Fixed Lines Revenues Fixed lines revenues decreased by Rp821 billion, or 8.5%, from Rp9,701 billion in 2013 to Rp8,881 billion in 2014. The decrease in fixed lines revenues due to decrease in fixed line revenue and and fixed wireless revenues by 4.8% and 42.1%. The decrease was primarily due to decrease in usage charges of Rp1,106 billion, or 17.1%, caused by a decrease in local and domestic long distance usage. The decreased in fixed line revenue was partially offset by an increased in our call center revenues by Rp412 billion, or 127.2%. revenues for the year ended December 31, 2014, compared to 39.3% for the year ended December 31, 2013. Data, internet and information technology service revenues increased by Rp5,109 billion, or 15.7%, from Rp32,603 billion in 2013 to Rp37,712 billion in 2014. This increase was primarily due to an increase in revenues from internet, data communication and information technology services by Rp4,283 billion, or 22.2%, which was driven cellular data usage and revenues, witch increased by Rp3,538 billion, primarily from an increased of 80.7% in Flash subscribers from 17,3 million in 2013 to 31,2 million in 2014.. SMS revenues increased by Rp900 billion, or 6.9%, from Rp13,134 billion in 2013 to Rp14,034 billion in 2014. d. Interconnection Revenues Interconnection revenues comprised interconnection revenues from our fixed line network and interconnection revenues from Telkomsel’s mobile cellular network. Interconnection revenues included incoming international long-distance revenues from our IDD service (TIC-007). Interconnection revenues decreased by Rp135 billion, or 2.8%, from Rp4,843 billion in 2013 to Rp4,708 billion in 2014 primarily due to an decrease in incoming calls subcribers. e. Network Revenues Network revenues increased by Rp27 billion, or 2.2%, from Rp1,253 billion in 2013 to Rp1,280 billion in 2014 primarily due to an increase in our satellite transponder lease revenue by Rp278 billion, or 71.0%, from 392 billion in 2013 to Rp670 billion in 2014 as result of an increase in satellite transponder capacity lease by 18,4% from 3.007 million Mhz in 2013 to 3.560 million MHz in 2014. f. Other Telecommunications Services Revenues Other telecommunications service increased by Rp396 billion, or 16.3%, from Rp2,429 billion in 2013 to Rp2,825 billion in 2014. The increase was primarily due to an increase of Rp730 billion, or 240.9%, in CPE revenue from Rp303 billion in 2013 to Rp1,033 billion in 2014. c. Data, Internet and Information Technology Services Revenues Our data, internet and information technology service revenues accounted for 42.0% of our consolidated The increase was partly offset primarily by decrease in revenues from USO by Rp327 billion, or 64.4%, from Rp508 billion in 2013 to Rp181 billion in 2014. 123 2014 Annual Report PT Telkom Indonesia Tbk (Persero) g. Other Income b. Depreciation and Amortization Expenses Other income decreased by Rp1,505 billion, from Rp2,579 billion in 2013 to Rp1,074 billion in 2014 as we had recognized a gain on the sale of 80% of our ownership in PT Indonusa. 2. Expenses Total expenses increased by Rp3,693 billion, or 6.4%, from Rp57,700 billion in 2013 to Rp61,393 billion in 2014. For futher explaination as shown below: Depreciation and amortization expenses increased by Rp1,352 billion, or 8.6%, from Rp15,780 billion in 2013 to Rp17,131 billion in 2014, primarily due to an increase in depreciation expense related to switching equipment as an efforts improving service to customers and by our allowance for impairment losses of fixed assets due to changes in business strategies for our fixed wireless phone. c. Personnel Expenses a. Operations, Maintenance and Telecommunication Service Expenses Operations, maintenance and telecommunication service expenses increased by Rp2,956 billion, or 15.3%, from Rp19,332 billion in 2013 to Rp22,288 billion in 2014. Personnel expenses decreased by Rp117 billion, or 1.2%, from Rp9,733 billion in 2013 to Rp9,616 billion in 2014 due to a decreased by Rp300 billion, or 80.2% in net periodic post-retirement health care benefit and a decrease in net periodic pension cost by Rp228 billion, or 26.1%, due to actuarial calculations. The increase in operations, maintenance and telecommunication service expenses was primarily attributable the following: - Operations and maintenance of Rp1,916 billion, or 18.0%, due to an increase in expenses associated with network maintenance to improve our cellular business performance; - Leased lines and CPE increased by Rp318 billion, or 72.3%, which was used for operation and maintenance of leased lines as a result of an increased in projects from our corporate customers; - Cost of phone, set top boxes, SIM and RUIM cards increase by Rp279 billion, or 37.1%, from Rp752 billion in 2013 to Rp1,031 billion in 2014 due to modem and terminal bundling program. The above increases were offset by a decrease in cost of IT services decreased by Rp320 billion, or 47.3%, from Rp677 billion in 2013 to Rp357 billion in 2014 due to efficiency gain as a result of using an from integrated system. The decreased was offset by increase in salaries and related benefits by Rp206 billion or 5.8% due to an increase in employee number by 1,37% from 25,011 people in 2013 to 25,284 people in 2014. This resulted in increase in employees’ income tax by Rp157 billion, or 13.5%, from Rp1,160 billion in 2013 to Rp1,317 billion in 2014. d. Interconnection Expense Interconnection expense decreased by Rp34 billion, or 0.7%, from Rp4,927 billion in 2013 to Rp4,893 billion in 2014 primarily due to an decrease of Rp81 billion, or 2.2% in domestic interconnection and transit interconnection expense. e. Marketing Expense Marketing expenses increased by Rp48 billion, or 1.6%, from Rp3,044 billion in 2013 to Rp3,092 billion in 2014 due to an increase of Rp80 billion, or 15.1%, in customer education expenses primarly for our broadband service. The increase was offset by decrease in advertising and promotion expenses by Rp18 billion, or 0.7%, due to the selective use of media for promotion and increase group synergy to market the product. 124 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 6. Other Comprehensive Income Other comprehensive income decreased by Rp87 billion, or 77.7%, from Rp112 billion in 2013 to Rp25 billion in 2014 due to a decreased in foreign currency translation by Rp 96 billion, or 80%. 7. Profit for the Year Attributable to Owners of the Parent Company Profit for the year attributable to owners of the parent company increased by Rp433 billion, or 3.0%, from Rp14,205 billion in 2013 to Rp14,638 billion in 2014. 8. Profit for the Year Attributable to Non-controlling Interest Profit for the year attributable to non-controlling interest increased by Rp723 billion, or 11.9%, from Rp6,085 billion in 2013 to Rp6,808 billion in 2014. 9. Comprehensive Income for the Year Comprehensive income for the year increased by Rp1,068 billion, or 5.2%, from Rp20,402 billion in 2013 to Rp21,471 billion in 2014. 10. Net Income per Share Net income per share increased by Rp2,4, or 1.6%, from Rp147.42 in 2013 to Rp149.83 in 2014. f. General and Administrative Expense General and administrative expense decreased by Rp192 billion, or 4.6%, from Rp4,155 billion in 2013 to Rp3,963 billion in 2014 primarly due in part to an decrease in provision for doubtful accounts by Rp805 billion, or 50.6%. This decreased was partially offset with an increase in general expense by Rp292 billion, or 43.3% and also an in our training, education and recruitment expense by Rp117, or 28.3%. g. Gain (loss) on Foreign Exchange - nett Loss on foreign exchange - net decreased by Rp235 billion, from Rp249 billion in 2013 to Rp14 billion in 2014. h. Other Expenses Other expenses decreased by Rp84 billion, from Rp480 billion in 2013 to Rp396 billion in 2014. 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increased by Rp1,531 billion, or 5.5%, from Rp27,846 billion in 2013 to Rp29,377 billion in 2014. Operating profit margin decreased from 33.6% in 2013 to 32.8% in 2014. 4. Profit before Income Tax and Pre-Tax Margin As a result of the foregoing, profit before income tax increased by Rp1,635 billion, or 6.0%, from Rp27,149 billion in 2013 to Rp28,784 billion in 2014. Pre-tax margin decreased from 32.7% in 2013 to 32.1% in 2014. 5. Income Tax Expense Income tax expense increased by Rp479 billion, or 7.0%, from Rp6,859 billion in 2013 to Rp7,338 billion in 2014, in line with the increase in profit before income tax. 125 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Year ended December 31, 2013 compared to year ended December 31, 2012 Year ended December 31, 2013 compared to year ended December 31, 2012 1. Revenues Total revenues increased by Rp5,824 billion, or 7.5%, from Rp77,143 billion in 2012 to Rp82,967 billion in 2013. The increase in revenues in 2013 was due to the increase in all sub revenues exclude revenues from fixed lines telephone. The increase in revenues in 2013 was primarily contributed by cellular telephone revenues and data, internet and information technology services revenues. a. Cellular Telephone Revenues Cellular telephone revenues increased by Rp1,407 billion, or 4.6%, from Rp30,731 billion in 2012 to Rp32,138 billion in 2013 due to increases in all sub cellular telephone revenues. The increased primarily due to 5.1% increase in our cellular subscriber. Usage charges increased by Rp1,245 billion, or 4.2%, from Rp29,477 billion in 2012 to Rp30,731 billion in 2013 due to an increase in both our prepaid and postpaid subscriber, also due to increasing of our Long Distance Usage. Revenues from features increased by Rp128 billion, or 22.9%, from Rp558 billion in 2012 to Rp686 billion in 2013. Monthly subscription charges increased by Rp34 billion, or 4.9%, from Rp696 billion in 2012 to Rp730 billion in 2013 due to 15.8% increase in our postpaid subscriber. Our total cellular telephone revenues accounted for 38.7% of our consolidated revenues for the year ended December 31, 2013, compared to 39.8% for the year ended December 31, 2012. b. Fixed Lines Revenues Fixed lines revenues decreased by Rp961 billion, or 9.0%, from Rp10,662 billion in 2012 to Rp9,701 billion in 2013. The decrease in fixed lines revenues was primarily due to a decrease in usage charges, of Rp870 billion, or 11.9%, and monthly subscription charges revenues of Rp123 billion, or 4.4% which was primarily caused by a decrease in local and domestic long distance usage due to the shifting usage to cellular telephone services. 126 c. Data, Internet and Information Technology Services Revenues Our total data, internet and information technology service revenues accounted for 38.2% of our consolidated revenues for the year ended December 31, 2013, compared to 35.9% for the year ended December 31, 2012. Data, internet and information technology services revenues increased by Rp4,085 billion, or 14.8%, from Rp27,624 billion in 2012 to Rp31,709 billion in 2013. This increase was primarily due to an increase in revenues from internet, data communication and information technology services by Rp3,516 billion, or 23.7%, which was driven by this following revenues: - - - - cellular data communication revenues from an increase in Flash mobile broadband subscribers of 56.5%, from 11 million subscribers in 2012 to 17.3 million subscribers in 2013. Speedy monthly subscription revenues due to an increase in Speedy subscribers of 28.7% from 2.3 million subscribers in 2012 to 3.0 million subscribers in 2013. data communication Ethernet revenue due to increase in data volume which pass through metro Ethernet of 39.4%, from 240,315 Mbps in 2012 to 334,935 Mbps in 2013, and data communication VPN revenue due to increase in data volume which pass through VPN network of 14.1%, from 40,750 Mbps in 2012 to 46,505 Mbps in 2013. SMS revenues increased by Rp503 billion, 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 billion messages to 147.9 billion messages in 2013. Effective June 1, 2012, in line with the cost- based interconnection regime for voice calls, the Government implemented cost-based interconnection for SMS. As Telkomsel historically had more incoming SMS than outgoing SMS, cost-based interconnection for SMS resulted in an overall benefit for Telkomsel. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESd. Interconnection Revenues Interconnection revenues comprised interconnection revenues from our fixed line network and interconnection revenues from Telkomsel’s mobile cellular network. Interconnection revenues included incoming international long-distance revenues from our IDD service (TIC-007). Interconnection revenues increased by Rp570 billion, or 13.3%, from Rp4,273 billion in 2012 to Rp4,843 billion in 2013. This increase was triggered by an increase in domestic interconnection revenues of Rp353 billion, or 13.5%, and an increase of Rp218 billion, or 13.2%, in international interconnection revenues, due to our promotion rate offers for international calls and the increased number of incoming calls to mobile subscribers. e. Network Revenues Network revenues increased by Rp45 billion, or 3.7%, from Rp1,208 billion in 2012 to Rp1,253 billion in 2013 mainly due to a increase in our revenues from leased lines services by Rp37 billion, or 4.5%, from Rp824 billion in 2012 to Rp861 billion in 2013. This increase was due to increasing number of our subscriber by 27,078, or 7.0%. f. Other Telecommunications Services Revenues Revenues from other telecommunications services increased by Rp678 billion, or 25.6%, from Rp2,645 billion in 2012 to Rp3,323 billion in 2013. The increase was primarily due to an increase of Rp260 billion, or 64.8%, in lease revenue, an increase in revenues from USO compensation due to an increase in USO projects to establish internet service centers in various provincial capital cities in 2013 and an increase of Rp151 billion, or 14.4%, in CPE and terminal revenue. The increase was partly offset by a decrease in revenues from pay TV of Rp131 billion, or 32.3%due to our corporate action the sale of TelkomVision one of our subsidiaries in pay TV. g. Other Income Other income increased by Rp20 billion, from Rp2,559 billion in 2012 to Rp2,579 billion in 2013. 2. Expenses Total expenses increased by Rp3,695 billion, or 6.8%, from Rp54,005 billion in 2012 to Rp57,700 billion in 2013. The increase in expenses was attributable primarily due to increases in operations, maintenance and telecommunication services, depreciation and amortization also general and administrative expenses. These expenses are further explained below: a. Operations, Maintenance and Telecommunication Services Expenses Operations, maintenance and telecommunication services expenses increased by Rp2,529 billion, or 15.1%, from Rp16,803 billion in 2012 to Rp19,332 billion in 2013. The increase in operations, maintenance and telecommunication services expenses was attributable by the following: - An increase in operations and maintenance of Rp1,655 billion, or 18.4%, due to a decrease in expenses associated with increasing the capacity of receiver and transmission stations and Telkomsel’s broadband services. - Cost of IT services increased by Rp455 billion, or 205.0%, from Rp222 billion in 2012 to Rp677 billion in 2013. This increase was primarily due to the increase in integration system expenses. - Electricity, gas and water expenses increased by Rp184 billion, or 20.9%, from Rp879 billion in 2012 to Rp1,063 billion in 2013, due to an increase in electricity expenses due to increasing number of our BTS and network for Telkomsel’s broadband services and electricity tariff. The above increases were offset by insurance expenses decreased by Rp297 billion, or 44.3%, from Rp671 billion in 2012 to Rp374 billion in 2013 due to no satellite insurance payment for Telkom-3. Our total operations, maintenance and telecommunication services expenses accounted for 33.5% of our consolidated expenses for the year ended December 31, 2013, compared to 31.1% for the year ended December 31, 2012. 127 2014 Annual Report PT Telkom Indonesia Tbk (Persero)b. Depreciation and Amortization Expenses f. General and Administrative Expenses Depreciation and amortization expenses increased by Rp1,324 billion, or 9.2%, from Rp14,456 billion in 2012 to Rp15,780 billion in 2013 primarily due to increased in depreciation expense by Rp1,476 billion, or 10.8%, from Rp13,635 billion in 2012 to Rp15,109 billion in 2013. The increase in depreciation expense primarily related to depreciation of transmission installation and equipment amounting to Rp1,065 billion, or 14.0%, and an increase of loss in impairment of Rp349 billion, or 141.3%, compare to prior year. c. Personnel Expenses Personnel expenses decreased by Rp53 billion, or 0.5%, from Rp9,786 billion in 2012 to Rp9,733 billion in 2013 due to no early retirement programs were offered in 2013 that cause a decrease by Rp699 billion or 100.0% in early retirement program expenses. This decrease above was partially offset by an increase in salaries and related benefits by Rp296 billion or 9.1% from Rp3,257 billion in 2012 to Rp3,553 billion in 2013 and an increase in net periodic post-retirement health care benefit costs by Rp284 billion, or 315.6%. d. Interconnection Expenses Interconnection expenses increased by Rp260 billion, or 5.6%, from Rp4,667 billion in 2012 to Rp4,927 billion in 2013 primarily due to an increase of Rp256 billion, or 7.4%, in domestic interconnection and transit interconnection expenses, in line with an increase of 13.5% in domestic interconnection and transit revenues. e. Marketing Expenses Marketing expenses decreased by Rp50 billion, or 1.6%, from Rp3,094 billion in 2012 to Rp3,044 billion in 2013 primarily due to a decrease in advertising and promotion expenses by Rp93 billion, or 3.8%, due to using selective media for promotion and increasing group synergy. General and administrative expenses increased by Rp1,119 billion, or 36.9%, from Rp3,036 billion in 2012 to Rp4,155 billion in 2013 due in part to an increase in provision for impairment of receivables by Rp674 billion, or 73.7.0%, from Rp915 billion in 2012 to Rp1,589 billion in 2013. This increase primarily resulted from current year individual and collective assessment for impairment of receivables. The increased also contribute by a 59.1% increased in training, education and recruitment by Rp153 billion and a 28.1% increased by Rp148 billion in general expenses. This increase above was partially offset by a 34.1% decreased in social contribution expenses by Rp44 billion, or 34.4%. g. (Gain) loss on Foreign Exchange – net Loss on foreign exchange - net increased by Rp60 billion, from Rp189 billion in 2012 to Rp249 billion in 2013. The increase was primarily due to the appreciation of the US Dollar by 26.3%. h. Other expenses Other expenses decreased by Rp1,493 billion, from Rp1,973 billion in 2012 to Rp480 billion in 2013. The decrease primarily related to derecognition in 2012 of the carrying value of the Telkom-3 Satellite, which was built and launched, but failed to reach usable orbit, amounting to Rp1,606 billion. 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increased by Rp2,148 billion, or 8.4%, from Rp25,698 billion in 2012 to Rp27,846 billion in 2013. Operating profit margin increased from 33.3% in 2012 to 33.6% in 2013. 4. Profit before Income Tax and Pre - Tax Margin As a result of the foregoing, profit before income tax increased by Rp2,921 billion, or 12.1%, from Rp24,228 billion in 2012 to Rp27,149 billion in 2013. Pre - tax margin increased from 31.4% in 2012 to 36.7% in 2013. 128 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 5. Income Tax Expense Income tax expense decreased by Rp993 billion, or 16.9%, from Rp5,866 billion in 2012 to Rp6,859 billion in 2013, following the increase in profit before income tax. 6. Other Comprehensive Income (Expenses) - Net Other comprehensive expenses increased by Rp86 billion, or 330.8%, from Rp26 billion in 2012 to Rp112 billion in 2013 due to increase in foreign currency translation by Rp89 billion offset by decrease in change in fair value of available-for-sale financial assets by Rp3 billion. 7. Profit for the Year Attributable to Owners of the Parent Company Profit for the year attributable to non-controlling interest increased by Rp573 billion, or 10.4%, from Rp5,512 billion in 2012 to Rp6,085 billion in 2013. 8. Profit for the Year Attributable to Non-controlling Interest Profit for the year attributable to owners of the parent company increased by Rp1.355 billion, or 10.5%, from Rp12,850 billion in 2012 to Rp14,205 billion in 2013. 9. Comprehensive Income for the year Comprehensive income for the year increased by Rp2,014 billion, or 11.0%, from Rp18,388 billion in 2012 to Rp20,402 billion in 2013. 10. Net Income per Share Net income per share increased by Rp14, or 10.4%, from Rp133.84 in 2012 to Rp147.42 in 2013. 129 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CASH FLOW STATEMENT OVERVIEW The following table sets out information concerning our consolidated cash flows, as set out in (and prepared on the same basis as) our Consolidated Financial Statements: As of December 31, 2014 2013 2012 (Rp billion) (US$ million) (Rp billion) (Rp billion) Net cash : provided by operating activities used in investing activities used in financing activities Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents 37,736 (24,748) (10,083) 2,905 71 Cash and cash equivalents at beginning of year 14,696 Ending balance of disposed subsidiary Cash and cash equivalents at end of year - 17,672 3,047 36,574 (1,998) (22,702) 27,941 (11,311) (814) 235 6 1,187 - 1,428 (13,327) (13,314) 545 1,039 13,118 (6) 3,316 168 9,634 - 14,696 13,118 Year ended December 31, 2014 compared to year ended December 31, 2013 deposit, a decrease in advances and other non-current assets by Rp783 billion, or 99.0% and proceeds from sale of property and equipment by Rp35 billion, or 7.5%. 1. Cash Flows from Operating Activities Net cash provided by operating activities in 2014 was Rp37,736 billion (US$3,047 million) compared to Rp36,574 billion in 2013. The increase was primarily due to an increase of Rp7,549 billion, or 9.8%, in cash receipts from customers, Rp404 billion, or 48.6%, increase on our interest income received. This was partially offset by an increase in cash payment for expense by Rp5,707 billion, or 20.8%, and increase in payment for value added tax- net of Rp493 billion. 2. Cash Flows from Investing Activities Net cash flows used in investing activities in 2014 was Rp24,748 billion (US$1,998 million) compared to Rp22,702 billion in 2013. This increase was primarily due to an increase of Rp5,154 billion, or 26.2% in acquisition of property and equipment, Rp2,121 billion placement in escrow account, and acquisition of long-term investments by Rp1,467 billion. This was partially offset by an increase of Rp8,466 billion or 370.0% on our placement in time 3. Cash Flows from Financing Activities Net cash flows used in financing activities was Rp10,083 billion (US$814 million) in 2014 compared with Rp13,327 billion in 2013. This increase was primarily due to decrese in repayment of short-term borrowings by Rp1,840 billion, or 452.1%. Increase of Rp1,589 billion, or 19.0%, in cash dividends paid to our stockholders and an increase of Rp795 billion, or 17.0%, in our cash devidens paid to non-controling stockholder of subsidiaries. Year ended December 31, 2013 compared to year ended December 31, 2012 1. Cash Flows from Operating Activities Net cash provided by operating activities in 2013 was Rp36,574 billion (US$3,005 million) compared to Rp27,941 billion in 2012. The increase was primarily due to an increase of Rp5,103 billion, or 7.1%, in cash receipts from customers and from other operators of Rp528 billion, 130 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES or 13.2%, due to the increase of our operating revenue and also due to the decrease in cash payment for our expense of Rp.6,211 billion, or 18.5%. This was partially offset by an increase of Rp1,809 billion, or 32.4%, in payment for income tax and cash payment to employees of Rp1,721 billion, or 21.1%. 2. Cash Flows from Investing Activities Net cash flows used in investing activities in 2013 was Rp22,702 billion (US$1,865 million) compared to Rp11,311 billion in 2012. This increase was primarily due to an increase of Rp11,423 billion in acquisition of property and equipment. This was partially offset by a decrease of Rp1,720 billion, or 42.9%, in placement in time deposit and an increase of cash received in divestment of subsidiary and associate company Rp926 billion. 3. Cash Flows from Financing Activities Net cash flows used in financing activities totaled Rp13,327 billion (US$1,095 million) in 2013 compared to Rp13,314 billion in 2012. This increase by Rp13 billion, or 0.1%, was primarily due to a increase of Rp2,368 billion in proceed from sale of treasury stock and a decrease of Rp1,744 billion, in payments for treasury stock. This was partially offset by an increase of Rp1,227 billion, or 17.2%, in cash dividends paid to our stockholders and Rp1,083, or 30%, to non-controlling stockholders subsidiaries due to the increase of our operating profit and a decrease of Rp1,271 billion obtain from additional bank loan. Obligation and Commitment A. Contractual Obligation The following table sets forth information on certain of our material contractual obligations as of December 31, 2014. By Payment Due Dates Contractual Obligations Total Less than 1 year (7) 1-3 years (7) 3-5 years (7) More than 5 years (7) (Rp billion) (Rp billion) (Rp billion) (Rp billion) (Rp billion) Long-Term Debts(1)(5) Capital Lease Obligations(2) Operating Leases(3) 16,853 4,789 29,373 5,328 571 3,847 5,035 1,175 6,791 3,059 1,163 6,426 Interest on Long-term Debts and Capital Lease Obligations(6) 6,097 1,718 2,323 1,337 Unconditional Purchase Obligations(4) 16,195 16,195 - - 3,431 1,880 12,309 719 - Total 73,307 27,659 15,324 11,985 18,339 (1) See Notes 18-21 to our Consolidated Financial Statements. (2) Related to the leases of the slot of the tower, property and equipment under RSA, transmission installation and equipment, data processing equipment, office equipment, vehicles and CPE assets. (4) Capital expenditures committed under contractual arrangements. (5) Excludes the related contractually committed interest obligations. (6) See “Risk Management - Risk Factors –We are exposed to interest rate risk”. (3) Related primarily to leases of leased line, telecommunication (7) Less than 1 year = 2015, 1-3 years = 2016-2017, 3-5 years = 2018-2019, equipment and land and building. more than 5 years=2020 thereafter. 131 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 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, 2014, we had long-term liabilities for pension plan and post-retirement health care benefits and contributed Rp226 billion to plan. See Notes 36 to our Consolidated Financial Statements.. B. Indebtedness Consolidated total indebtedness consisting of short-term and long-term loans and other borrowings as of December 31, 2014, 2013 and 2012 were as follows: Indonesian Rupiah US Dollar(1) Japanese Yen(2) Total As of December 31, 2014 2013 2012 (Rp billion) (US$ million) (Rp billion) (Rp billion) 20,013 2,643 796 23,452 1,615 213 64 1,892 17,543 1,734 979 20,256 16,192 2,053 1,031 19,276 (1) The amounts as of December 31, 2012, 2013 and 2014 translated into Rupiah at Rp9,645, Rp12,180 and Rp12,390 = US$1, respectively, being the Reuters sell rates for US Dollar at each of those dates. (2) The amounts as of December 31, 2012, 2013 and 2014 translated into Rupiah at Rp111.8, Rp115.9 and Rp103.6 = Yen 1, respectively, being the Reuters sell rates for Yen at each of those dates. Of our total indebtedness, as of December 31, 2014, Rp7,709 billion Rp6,210 billion, Rp4,222 billion and Rp5,311 billion were scheduled for repayment in 2015, 2016 to 2017, 2018 to 2019 and thereafter, respectively. For further information on our Company’s indebtedness, see Notes 17-21 to our Consolidated Financial Statements. C. Material Contract In 2014 and 2013, 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. LIQUIDITY 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, 2014, we had Rp17,672 billion in cash and cash equivalents available, which increased by Rp2,976 billion compared to Rp14,696 billion in 2013. In 2014, the increase of cash flow provided by operating activities primarily arise from cash receipts from customers of Rp84,748 billion. We made net repayments of current indebtedness for borrowed money of Rp5,843 billion in 2012, Rp6,239 billion in 2013 and Rp7,724 billion in 2014. Cash outflows in 2014 reflected payments for short-term loans and other borrowings of Rp2,247 billion and long-term loans and other borrowings of Rp4,538 billion. Our internal liquidity strength reflected in our current ratio, which we calculate as current assets divided by current liabilities, maintain over 100%. In 2014 our curent ratio was to 106.2% compared to 116.3% in 2013. 132 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES B. External Liquidity Sources Our primary external sources of liquidity are short and long-term bank loans, two-step loans, bonds and notes payable. In 2014 we used external liquidity bank loans of Rp6,626 billion and other borrowings of Rp3,580 billion. C. Outstanding Liquidity Sources We had undrawn loan facilities which include the following sources of unused liquidity: - - - - - - CIMB Niaga loan facility in the amount of Rp820 billion; BNI loan facility in the amount of Rp234 billion; BRI loan facility in the amount of Rp6 billion; Danamon Bank loan facility in the amount of Rp20 billion; Bank Ekonomi Raharja loan facility in the amount of Rp70 billion; Syndicated loan facility of BNI, BRI and Bank Mandiri in the amount of Rp103 million. (US$160 million) as of December 31, 2014. The decrease in net working capital was primarily due to: - - - - A decrease of Rp4,075 billion in other current financial assets; A decrease of Rp48 billion in asset held for sale; A decrease of Rp35 billion in inventories – net of provision for obsolescene; and A decrease of Rp12 billion in other receivable - net of provision for impairment of receivable. This was partially offset by: - - - - An increase of Rp1,378 billion in short-term bank loan; An increase of Rp806 billion in current marturities of long-term liabilities; An increase of Rp473 billion in unearned income; and An increase of Rp286 billion in trade payable – third parties. WORKING CAPITAL Net working capital, calculated as the difference between current assets and current liabilities, amounted to Rp4,638 billion as of December 31, 2013 and Rp1,976 billion We believe that our working capital is sufficient for our present requirements. We expect that our working capital will continue to be addressed by various funding sources, including cash from operating activities and bank loans. SOLVENCY Our solvency or our ability to meet our short-term and long-term obligations highly influenced by our source of liquidity. Refer to explanation on “Liquidity”. A. Current Liabilities Our ability to pay our current liabilities is indicated by the ratios on the table below: Ratios Current ratio Quick ratio Cash ratio 2014 106.2% 104.7% 64.4% B. Non-Current Liabilities Our ability to pay our debt is indicated by the ratios on the table below Ratios Debt to equity ratio Debt to EBITDA 2014 34.6% 50.4% 2013 116.3% 114.5% 75.8% 2013 33.5% 46.4% 2012 116.0% 113.6% 74.4% 2012 37.4% 48.0% Times interest earned ratio 25.6 times 29.0 times 19.5 times For detail discussion about our debt, see Notes 17-21 to our Consolidated Financial Statements. 133 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 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 25.4 days in 2014 and 24.7 days in 2013. Our receivable turnover for 2014 and 2013 were 14.4 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 Rp3.096 in 2014 and Rp2.872 billion in 2013. As of December 31, 2014 and 2013, the carrying amount of our receivables considered past due but not impaired amounted to Rp3.355 billion and Rp2.418 billion, respectively. We concluded that past due but not impaired receivables, along with receivables that are neither past due nor impaired, are due from customers with good debt history and are expected to be recoverable. For detail discussion about our receivable, see Note 6 to our Consolidated Financial Statements. CAPITAL STRUCTURE Our capital structure as of December 31, 2014 is described as follows: Short Term Long Term Debt Equity Total Invested Capital Amount (Rp billion) Portion (%) 1,810 21,642 23,452 67,807 91,259 1.99 23.76 25.75 74.25 100 We take a qualitative approach towards our capital structure and debt levels. Under our syndicated loan agreement with BNI and BRI, we are required to maintain a debt to equity ratio of not more than 2.0 and debt service coverage ratio of more than 1.25. As of December 31, 2014, our debt to equity ratio was 34.6 and our debt service coverage ratio was 4.8 times, indicating our strong ability to meet our debt obligations. Our debt levels are primarily driven by our plans to develop our existing and new strategic businesses. In determining our optimum debt levels, we also consider our debt ratios with reference to regional peers in the telecommunications industry. For detail discussion about management policy on capital structure, see Note 45 to our Consolidated Financial Statements. CAPITAL ExPENDITURES In 2014, we incurred capital expenditures of Rp24,661 billion (US$1,991 million). Our capital expenditures are grouped into the following categories for planning purposes: Broadband services, which consist of broadband, IT, application and content and service node; Network infrastructure, which consists of core transmission network, metro-ethernet and Regional Metro Junction (“RMJ”), IP backbone and satellite; Optimizing legacy, for fixed lines; and Capex supports. 134 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESOf our Rp24,661 billion capital expenditure in 2014, Telkom, as parent company, incurred capital expenditures of Rp8,099 billion (US$654 million), Telkomsel incurred capital expenditures of Rp13,002 billion (US$1,050 million) and our other subsidiaries incurred capital expenditures of Rp3,560 billion (US$287 million) as follows: Table of realization of our capital expenditure Telkom (parent company) 8,099 5,313 4,040 Years Ended December 31, 2014 2013 2012 (Rp billion) (Rp billion) (Rp billion) Subsidiaries Telkomsel Others Subtotal for subsidiaries Total for Telkom Group 13,002 3,560 16,562 24,661 15,662 3,923 19,585 24,898 10,656 2,576 13,232 17,272 The realization of the future capital expenditures may differ from the amounts indicated above due to various factors, including but not limited to the Indonesian and global economy environments, the Rupiah/US Dollar or other applicable foreign exchange rates, the availability of supply or vendor or other financing on terms acceptable to us, and also any technical or other problems in the implementation. MATERIALITY LIMITATIONS Materiality in our Consolidated Financial Statement was based on BAPEPAM/LK decision letter No. KEP-347/ BL/2012 about Presentation and Disclosure of Financial Statements Public Company dated June 25, 2012, with appendix Regulation No. VIII.G.7 about Presentation of Financial Statements of the Company or Public Company where 5% of the total assets for asset accounts, 5% of the total liability for the liabilities accounts, 5% of the total equity for equity accounts, 10% of revenue for items of comprehensive income, and 10% of the profit from continuing operations before taxes for the effect of an event or transaction. MATERIAL COMMITMENT FOR CAPITAL INVESTMENT A. Purpose of the Commitment As of December 31, 2014, we had material commitments for capital expenditures under certain contractual arrangements of Rp16,195 billion, principally relating to procurement and installation of the broadband network, transmission equipment and cable system. These include for cooper wire access modernization through Trade In/Trade Off method project, Luwuk- Tutuyan Cabel System project, Outside Plant Fiber To The Home (OSP FTTH) project, Sulawesi Maluku Papua Cable System (SMPCS) project, expansion and Maintenance Support (MS) Service for Metro Ethernet Platform ALU project, expansion of DWDN platform ALU project, WIFI CISCO project, IP Radio Equipment for Backhaul Node-B project, Cabel System for Broadband Network Division 2014 project, Telkom-3 Subtitution (T3S) Satelite System project. Our subsidiary, Telkomsel, has material commitment for capital expenditures related , among others, the combined 2G and 3G CS Core Network Rollout project, 2G BSS and 3G UTRAN Rollout agreement for the provision of 2G GSM BSS and 3G UMTS Radio Access Network project, Next Generation Convergence (“NGC”) IP RAN Rollout and Technical Support project, Maintenance and procurement of equipment and related service agreement for NGC Core Transport Rollout and Technical Support project, Online Charging System (“OCS”) and Service Control Points (“SCP”) System Solution Development project, OCS dan CSP technical support project, Customer Relationship Management dan Contact Center Solutions project, CS Core System Rollout dan CS Core System Technical Support project, OSDSS Solution project, GGSN service complex rollout project, Gateway GPRS Support Node Service Complex technical support project. 135 2014 Annual Report PT Telkom Indonesia Tbk (Persero)In addition, PT Graha Sarana Duta (“TelkomProperty”) dan Telin also have material commitment for capital expenditure, facade Unitized System Telkom Landmark Tower project, Development of Infomedia’s building project , Operational Supporting System, Base Sub Station project, Value Added System, System Rollout, Radio Access Network dan Core System Rollout project. D. 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. For more detailed discussion regarding our material commitments for capital expenditures, see Note 41 to our Consolidated Financial Statements. B. Source of Funds We have historically funded our capital expenditures primarily with cash generated from operations. In 2014, we expect that our capital expenditure to revenue ratio will be approximately in the range of 25%-30%. We expect that of the total increase in amount of capital expenditure in 2014 over 2013, the most significant proportions will be allocated broadband services with a portion of the increase allocated to our subsidiaries. We expect to fund the above commitments with our internal and external source of funds. We expect to fund the above commitments with our internal and external sources of funds. See explanation on “Capital Expenditures”. C. Denomination of Currency As of December 31, 2014, details of material commitment for capital investment by currency are as follows: Currencies Rupiah US Dollar Euro SGD Amounts in Foreign Currencies (in millions) Equivalent in Rupiah (in billions) 512 0.35 0.40 9.837 6.349 5 4 16,195 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 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, exchange rate and interest rate see Notes 41 and 44 to our Consolidated Financial Statements. MATERIAL INFORMATIONS OF INVESTMENT, ExPANSION, DIVESTMENT, ACQUISITION AND DEBT/CAPITAL RESTRUCTURE In 2014, we did some activities related to investments, divestments, acquisitions and debt/capital restructuring. The activities are as follows: A. Investment - On August 29, 2014, Telkom Metra entered into a shareholders agreement with Telstra Holding Singapore Pte. Ltd. to establish a joint venture known as PT TeltraNet Application Solutions ("Teltranet"). Telkom Metra acquired ownership of 51% or US$4,29 million of the total issued share capital US$8,43 million, but Telkom Metra was not have control in determining the financial and operating policies of Teltranet. Teltranet engaged in services and communication systems. 136 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESB. Expansion - On January 16, 2014, we establish 100% ownership subsidiary under the name PT Infrastruktur Telekomunikasi Indonesia ("Telkom Infra") was accepted and approved by the Ministry of Law and Human Rights of the Republic of Indonesia (“MoLHR”) in its Letter No. AHU-03196.AH.01.01.2014 dated January 23, 2014 with. Telkom Infra is engaged in the construction, services and telecommunications trade. - On August 27, 2014, based on notarial deed Zulkifli Harahap, SH 21 dated August 27, 2014, was accepted and approved by the MoLHR in its Letter No AHU- 22722. 40.10.2014 dated September 1, 2014, Telkom Property formed a 99.99% ownership subsidiary called PT Nusantara Sukses Sarana ("NSS"). NSS focused on the building and hotel management services and other services. - On August 27, 2014, based on notarial deed Zulkifli Harahap, SH 22 dated August 27, 2014, was accepted and approved by the MoLHR in its Letter No AHU- 22723. 40.10.2014 dated September 1, 2014, Telkom Property formed a 99.99% ownership subsidiary called PT Nusantara Sukses Realti ("NSR"). NSR focused on services and trade. - On August 27, 2014, based on notarial deed Zulkifli Harahap, SH, No. 23 dated August 27, 2014, was accepted and approved by the MoLHR in its Letter No AHU-22724. 40.10.2014 dated September 1, 2014, Telkom Property formed a 99.99% ownership subsidiary called PT Nusantara Sukses Investasi ("NSI"). NSI focused on services and trade. - On September 11, 2014, based on notarial deed Jimmy TANAL, SH, MH, No. 118 dated September 11, 2014, PINS buy 25% of outstanding shares of PT Tiphone Mobile Indonesia, Tbk ("Tiphone") with an acquisition cost of Rp1.395 billion. Tiphone establish on June 25, 2008 with the name Tiphone Mobile Indonesia Tbk, with the main activities of running a business in the field of telecommunications equipment trade in the form of the following mobile phone spare parts, accessories, pulses as well as repair services and the provision of content through its subsidiaries. C. Divestation In 2014, we have no divestation transacation. D. Acquisition - On September 25, 2014, Telkom Australia Telin through acquisitions over 75% share of Australia Pty Ltd Contact Centres. ("CCA") with an acquisition cost of AU$ 10,843,000 or equivalent to Rp116 billion. CCA is a private company based in Surry Hills, Sydney and founded in 2002. The company provides solutions Business Process Outsourching ("BPO"), engaged in the contact center services for fundraising (not for profit organization) and commercial business, a comprehensive and integrated with other services for end-to-end solution that is complete. E. Debt/Capital Restructure In 2014, we have no debt/capital restructure. MATERIAL INFORMATION OF CONFLICT OF INTEREST AND/OR AFFILIATED TRANSACTION In 2014, we have no conflict of interest or affiliated transaction. MATERIAL INFORMATION AND FACTS AFTER ACCOUNTANT REPORTING DATE We are not aware of any subsequent events occurred after the accountant’s report date until the issuance date of this Annual Report. CHANGE IN ACCOUNTING POLICIES The consolidated financial statements of the Group has 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. Changes to the statements of financial accounting standards (PSAKs) and interpretations of statements of financial accounting standards (Interpretasi Standar Akuntansi Keuangan or “ISAKs”) 137 2014 Annual Report PT Telkom Indonesia Tbk (Persero) On January 1, 2014, the Group adopted new and revised PSAKs, which were effective in 2014. Changes to the Group’s 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: ISAK 27, “Transfer of Assets from Customers” ISAK 28, “Extinguishing Financial Liabilities with Equity Instruments” 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 Group but are effective only for financial statements covering the periods beginning on or after either January 1, 2015. Effective beginning on or after January 1, 2015 PSAK 1 (2013), “Presentation of Financial Statements”, adopted from International Accounting Standards (IAS) 1. These amendments are expected to only impact the presentation of the consolidated financial statements and not expected to impact the Group’s consolidated financial position and performance. PSAK 4 (2013), “Separate Financial Statements”, adopted from IAS 4. The amendments are not expected to impact the Group’s consolidated financial position and performance. PSAK 15 (2013), “Investments in Associates and Joint Ventures”, adopted from IAS 28. The amendments are not expected to impact the Group’s consolidated financial position and performance. PSAK 24 (2013), “Employee Benefits”, adopted from IAS 19. The amendments are expected to impact the Group’s consolidated financial position and performance mainly for the changes in: past service costs is no longer deferred and recognized over the vesting period; actuarial gains or losses are recognized immediately; interest cost and expected return on plan assets are replaced with net interest cost which is calculated by applying the discount rate to the net defined benefit liability or asset at the beginning of period. PSAK 46 (2014), “Income Tax”, adopted from IAS 12. The amendments are not expected to impact the Group’s consolidated financial position and performance. PSAK 48 (2014), “Asset Impairment”, adopted from IAS 36. The amendments are not expected to impact the Group’s consolidated financial position and performance. PSAK 50 (2014), “Financial Instrument: Presentation”, adopted from IAS 32. The amendments are expected to only impact the presentation of the consolidated financial statements and not expected to impact the Group’s consolidated financial position and performance. PSAK 55 (2014), “Financial Instrument: Measurement and Recognition”, adopted from IAS 39. The amendments are not expected to impact the Group’s consolidated financial position and performance. PSAK 60 (2014), “Financial Instrument: Disclosure” adopted from International Financial Reporting Standards (IFRS) 7”. The amendments are expected to impact the disclosure of consolidated financial statements and not expected to impact the Group’s consolidated financial position and performance. PSAK 65, “Consolidated Financial Statements”, adopted from IFRS 10. The amendments are not expected to impact the Group’s consolidated financial position and performance. 138 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPSAK 66, “Joint Arrangements”, adopted from IFRS 11. The standards are not expected to impact the Group’s consolidated financial position and performance. PSAK 68, “Fair Value Measurement”, adopted from IFRS 13. The standards are not expected to impact the Group’s consolidated financial position and performance. PSAK 67, “Disclosure of Interest in Other Entities”, adopted from IFRS 12. The standards are not expected to impact the Group’s consolidated financial position and performance. ISAK 26 (2014), “Revaluation of Embedded Derivatives”, adopted from IFRIC 9. The interpretations are not expected to impact the Group’s consolidated financial position and performance. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN IFAS AND IFRS 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 deﬁned beneﬁt liability or asset comprises interest cost on the deﬁned beneﬁt 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 (OJK) 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. 139 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Under IFRS, a government-related entity is an entity that is controlled, jointly controlled or 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. d. Offsetting financial assets and liabilities Under PSAK, financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when currently there is a legally enforceable right to set-off the recognized amounts and there is an intention to realize the assets and settle the liabilities simultaneously. PSAK does not specify the circumstances in which the right of set-off must be legally enforceable in order to meet the criterion of the right of set-off. Under IFRS, financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when currently there is a legally enforceable right to set-off the recognized amounts and there is an intention either to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. The right of set-off must be legally enforceable in all of the following circumstances: (a) the normal course of business, (b) the event of default, and (c) the event of insolvency or bankruptcy of the entity and all of the counterparties. Refer to Note 48 our consolidate financial statement. 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”). A “non-resident individual” is a foreign national individual who does not reside or intend to reside in Indonesia and is not physically present in Indonesia at the most 183 days within 12 month period, during which period such non-resident individual receives income in respect of the ownership or disposition of common stock or ADSs and a “non-resident entity” is a corporation or a non-corporate body that is established, domiciled or organized under the laws of a jurisdiction other than Indonesia and does not have a fixed place of business or otherwise conducts business or carries out activities through a permanent establishment in Indonesia during an Indonesian tax year in which such non-resident entity receives income in respect of the ownership or disposition of common stock or ADSs. In determining the residency of an individual or entity, consideration will be given to the provisions of any applicable double taxation treaty to which Indonesia is a party. 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 with the following strict requirements: (i) the recipient of the income is the beneficial owner of the dividends, (ii) the recipient of the income must have submitted a specific form set by the Indonesian Tax Office acting as a Certificate of Residency (the “Certificate of Residency”) that is filled in by the recipient of the income and validated by the competent authority of the country where the recipients are resident and (iii) the recipient of the income does not misuse the tax treaty as set out in the provision on the prevention of misuse the tax treaty. Indonesia has concluded double taxation treaties with a number of countries, including Australia, Belgium, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, Sweden, Switzerland, the United 140 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESKingdom and the United States of America. Under the US-Indonesia double taxation treaty, the withholding tax on dividends is generally, in the absence of a 25% voting interest, reduced to 15%. 2. Capital Gains The sale or transfer of common stock through the IDX is subject to a final withholding tax at the rate of 0.1% of the value of the transaction. The broker executing the transaction is obligated to withhold such tax. The holding of founder shares or the sale or transfer of founder shares through an IDX may, under current Indonesian tax regulations, be subject to additional 0.5% final income tax. Subject to the promulgation of implementing regulations, the estimated net income received or accrued from the sale of movable assets in Indonesia, which may include common stock not listed on an IDX or ADSs, by a Non- Indonesian holder (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 at the rate of 20%. In 1999, the Ministry of Finance issued a decision that stipulates the estimated net income for the sale of shares received by a non-resident taxpayer in a non-public company to be 25% of the sale price, resulting in an effective withholding tax rate of 5% of the sales price. This is a final withholding tax and the obligation to pay lies with the buyer (if it is an Indonesian taxpayer) or our Company (if the buyer is a non-resident taxpayer). Exemption from withholding tax on income from the sale of shares in a non-public company may be available to non-resident sellers of shares depending on the provisions of the relevant double taxation treaties. In order to benefit from the exemption under the relevant double taxation treaty, the non-resident seller must provide a specific form set by the Indonesian Tax Office acting as a Certificate of Residence that is completed by the recipient of the income and validated by the competent authority of the country where the recipients are resident to the buyer or our Company and to the Indonesian Tax Office that has jurisdiction over the buyer or our Company (if the buyer is a non-resident taxpayer). In cases where a purchaser or Indonesian broker will be required under Indonesian tax laws to withhold tax on payment of the purchase price for common stock or ADSs through the IDX, theoretically, that payment may be exempt from Indonesian withholding or other Indonesian income tax under applicable double taxation treaties to which Indonesia is a party (including the US- Indonesia double taxation treaty). However, except for the sale or transfer of shares in a non-public company, the current Indonesian tax regulations do not provide specific procedures for removing the purchaser’s or Indonesian broker’s obligation to withhold tax from the proceeds of such sale. To take advantage of the double taxation treaty relief, Non-Indonesian Holders may have to seek a refund from the Indonesian Tax Office through the IDX by making a specific application accompanied by a specific form set by the Indonesian Tax Office acting as a Certificate of Residency that is filled in by the recipient of the income and validated by the competent authority of the country where the recipients are resident. 3. Stamp Duty Stock transactions in Indonesia are subject to stamp duty. Pursuant to Government Regulation No. 24/2000 on the amendment and the amount of stamp duty rates Imposing Limits Imposed Price Nominal stamp duty, a transaction of up to Rp1,000,000 needs a stamp duty of Rp3,000, while any transaction of more than Rp1,000,000 needs a stamp duty of Rp6,000. b. Considerations Regarding Certain US Federal Income Tax Pursuant to requirements relating to practice before the Internal Revenue Service, any tax advice in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties imposed under the US Internal Revenue Code, or (ii) promoting, marketing, or recommending to another person any tax-related matter. The following is a summary of certain US federal income tax considerations relating to the acquisition ownership and disposition of ADSs or common stock by US Holders (as defined below) that hold their ADSs or common stock as “capital assets” (generally, property held for investment) under section 1221 of the US Internal Revenue Code (the “Tax Code”). This summary is based upon existing US federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. This summary does not discuss all aspects of US federal income taxation which may be important to particular investors in light of their individual investment 141 2014 Annual Report PT Telkom Indonesia Tbk (Persero)circumstances, including investors subject to special tax rules (for example, financial institutions, insurance companies, broker-dealers, partnerships and their partners, and tax-exempt organizations (including private foundations), holders who are not US Holders, investors that will hold ADSs or common stock as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for US federal income tax purposes, or investors that have a functional currency other than the US Dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any US federal estate and gift tax considerations, or state, local, or non-US tax considerations. Each holder is urged to consult their tax advisors regarding the US federal, state, local and non-US income, and other tax considerations of their investment in the ADSs or common stock. For purposes of this summary, a “US Holder” is a beneficial owner of ADSs or common stock that is, for US federal income tax purposes, (i) an individual who is a citizen or resident of the US, (ii) a corporation, or other entity treated as a corporation for US federal income tax purposes, created in, or organized under the laws of, the US or any state or the District of Columbia, (iii) any entity created or organized in or under the laws of any other jurisdiction if treated as a domestic corporation pursuant to the Tax Code, (iv) an estate the income of which is includible in gross income for US federal income tax purposes regardless of its source, or (v) a trust (A) the administration of which is subject to the primary supervision of a US court and which has one or more US persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a US person under the Tax Code. If a partnership (or other entity treated as a “tax transparent” entity for US tax purposes) is the beneficial owner of ADSs or common stock, the tax treatment of a partner in the partnership (or interest holder in the “tax transparent” entity) will generally depend upon the status of the partner (or interest holder) and the activities of the partnership (or “tax transparent” entity). For US federal income tax purposes, US Holders of ADSs will be treated as the beneficial owners of the underlying Common Stock represented by the ADSs. 1. Threshold Passive Foreign Investment Company (“PFIC”) Classification Matters A non-US corporation, such as our Company, will be treated as a PFIC, for US federal income tax purposes, if 75% or more of its gross income consists of certain types of “passive” income or 50% or more of its assets are passive. Based on our 2014 income and assets, we do not believe that we should be classified as a PFIC for 2013. Because PFIC status is a fact-intensive determination made on an annual basis, no assurance can be given that we are not or will not become classified as a PFIC. The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or common stock” is written on the basis that we will not be classified as a PFIC for US federal income tax purposes. 2. Dividends Any cash distributions paid by us out of earnings and profits, as determined under US federal income tax principles, will be subject to tax as dividend income and will be includible in the gross income of a US Holder upon receipt. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at a maximum US federal tax rate of 15% rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met. Note that as from January 1, 2011, dividends from a qualified foreign corporation are treated as ordinary income with a maximum tax rate of 39.6% for non- corporate recipients of dividends received after the end of 2010. A non-US corporation (other than a PFIC) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the US which the Secretary of Treasury of the US determines is satisfactory for purposes of this provision and which includes an exchange of information program or (ii) with respect to any dividend it pays on stock (or ADSs backed by such stock) which is readily tradable on an established securities market in the US. There is currently a tax treaty in effect between the US and Indonesia which the Secretary of Treasury has determined is satisfactory for these purposes and we believe that we should be eligible for the benefits of the treaty. Additionally, because the ADSs are listed on the NYSE, an established securities market in the US, they are considered readily tradable on that exchange. 142 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe amount of any cash distribution paid in Rupiah should equal the US Dollar value of such Rupiah on the date of receipt of the distribution, regardless of whether the Rupiah are actually converted into US Dollar at that time. Gain or loss, if any, recognized on a subsequent sale, conversion, or other disposition of Rupiah generally will be US source ordinary income or loss. Dividends received on the ADSs or common stock will generally not be eligible for the dividends received deduction allowed to corporations. Dividends generally will be treated as income from foreign sources for US foreign tax credit purposes. A US Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on ADSs or common stock. A US Holder who does not elect to claim a foreign tax credit for foreign tax withheld, may instead claim a deduction, for US federal income tax purposes, in respect of such withholdings, but only for a year in which such holder elects to do so for all creditable foreign income taxes. 3. Sale or Other Disposition of ADSs or Common Stock A US holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or common stock in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or common stock. Any capital gain or loss will be long-term if the ADSs or Common Stock have been held for more than one year and will generally be US source gain or loss for US foreign tax credit purposes. The deductibility of a capital loss is subject to limitations. 4. PFIC Considerations If we were to be classified as a PFIC in any taxable year, a US Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of US federal income tax that a US Holder could derive from investing in a non-US company that does not distribute all of its earnings on a current basis. In such event, a US Holder may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sale of ADSs or common stock and (ii) any “excess distribution” paid on ADSs or common stock (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, a US Holder will be subject to an interest charge on such gain or excess distribution. Finally, the 15% maximum rate on Company dividends would not apply if we become classified as a PFIC. Each US Holder is urged to consult its tax advisor regarding the potential tax consequences to such holder if we are or become classified as a PFIC, as well as certain elections that may be available to mitigate such consequences. 5. Backup Withholding Tax and Information Reporting Requirements US backup withholding tax and information reporting requirements generally apply to certain payments to certain non corporate holders of stock. Information reporting generally will apply to payments of dividends on and to proceeds from the sale or redemption of, ordinary shares made within the US or by a US pay or US middleman to a holder of ordinary shares (other than an “exempt recipient,” including a corporation, a payee that is not a US person that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ADSs or common stock within the US or by a US payor or US middleman to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is 25% for years through 2014. The backup withholding tax is not an additional tax and may be credited against a US holder’s regular US federal income tax liability or, if in excess of such liability, refunded by the Internal Revenue Service (“IRS”) if a timely refund claim is filed with the IRS. Copies of any information returns or tax returns for claims for refund filed by non-US Holders with the IRS may be made available by the IRS, under the provisions of a specific treaty or other agreement providing for information exchange, to the taxing authorities of the country in which a non-US Holder resides. 143 2014 Annual Report PT Telkom Indonesia Tbk (Persero)IMPACT OF THE REGULATION CHANGES TOWARDS THE COMPANY The framework for the telecommunications industry is comprised of specific laws, government regulations, ministerial regulations and ministerial decrees enacted and issued from time to time. The current telecommunications policy was first formulated and articulated in the Government’s “Blueprint of the Indonesian Government’s Policy on Telecommunications”, contained in MoC Decree No.KM.72/1999 dated September 17, 1999. 1. Telecommunications Law The telecommunications sector is primarily governed by Law No.36 of 1999 (“Telecommunications Law”), which became effective on September 8, 2000. The Telecommunications Law sets guidelines for industry reforms, including industry liberalization, facilitation of new entrants and enhanced transparency and competition. The Telecommunications Law eliminated the concept of “organizing entities” thereby ending our and Indosat’s responsibility for coordinating domestic and international telecommunications services, respectively. To enhance competition, the Telecommunications Law prohibits monopolistic practices and unfair competition among telecommunications operators. The Telecommunications Law was implemented through several Government Regulations, Ministerial Regulations and Ministerial Decrees. The most important of such regulations include: Government Regulation No.52/2000 regarding Telecommunications Services. MoCI Regulation No.1/PER/M.KOMINFO/01/2010 dated January 25, 2010 regarding Operation of Telecommunications Networks. MoC Decree No.KM.21/2001 regarding the Provision of Telecommunications Services that was most recently amended by MoCI Regulation No.8/2015 regarding the Fourth Amendment of Decree of the Minister of Communication No.KM.21/2001 regarding the Provision of Telecommunications Services. MoC Decree No.33/2004 regarding Supervision of Healthy Competition in the Provision of Fixed Network and Basic Telephony Services. MoC Decree No.KM.4/2001 dated January 16, 2001 regarding the Determination of Fundamental Technical Plan National 2000 for National Telecommunications Development most recently amended by MoCI Regulation No.09/PER/M.KOMINFO/06/2010 dated 144 June 9, 2010 regarding the sixth amendment of MoC Decree No.KM.4/2001 regarding the Determination of Fundamental Technical Plan National 2000 for National Telecommunications Development. 2. Telecommunications Regulators In February 2005, the authority to regulate the telecommunications industry was transferred from the MoC to a newly-established Ministry, the MoCI. Pursuant to authorities assigned to him through Telecommunication Law, the Minister of Communication and Information sets policies, regulates, supervises and controls telecommunications industry in Indonesia. On October 28, 2010, MoCI engaged in certain organizational and administrative reforms that included transferring licensing and regulatory authority to two newly established general directorates, the Directorate General of Posts and Informatics Resources and Equipment (“DGRE”) and Directorate General of Post and Informatics Operations (“DGPIO”) pursuant to MoCI Regulation No.17/PER/M. KOMINFO/10/2010 regarding the Organization and Administration of Ministry of Communication and Information. Following the reforms, certain adjustments were made through MoCI Regulation No.15/PER/M. KOMINFO/06/2011 dated June 20, 2011 regarding title adjustments in a number of Decrees and/or MoCI regulations that regulate Special Materials in Post and Telecommunications and/or in Decrees of the Director General of Posts and Telecommunications, which transfer all substances related to the postal and telecommunications sectors to the DGPIO including licensing, numbering, interconnection, universal service obligation and business competition. Meanwhile, matters related to radio frequency spectrum and standardization of telecommunications equipments were transferred to the DGRE. Following the enactment of the Telecommunications Law, the MoC established an independent regulatory body as stipulated in MoC Decree No.KM.31/2003 dated July 11, 2003 regarding the Establishment of the ITRA which was later revoked by MoC Regulation No.KM.36/ PER/M.KOMINFO/10/2008 dated October 31, 2008 and amended by MoCI Regulation No.1/PER/M. KOMINFO/02/2011 dated February 7, 2011 (“MoCI Regulation No.36/2008”). Pursuant to MoCI Regulation No.36/2008, the ITRA was assigned the authority to regulate the Indonesian telecommunication industry, including the provision of telecommunication networks and services. The ITRA which is chaired by the Director General of Post and Informatics Operations and comprises of nine members, including six members of the public, 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESand three members selected from Government institutions (DGRE and Director of DGPIO and a government representative appointed by the Minister of Communication and Information). 3. C l a ss i f i c at i o n a n d L i ce n s i n g o f Telecommunications Providers The Telecommunications Law organized telecommunication services into following three categories: (i) provision of telecommunication networks, (ii) provision of telecommunication services, and (iii) provision of special telecommunications services. Licenses issued by MoCI are required for each category of telecommunications services. MoCI Regulation No.1/2010 and MoC Decree No.KM.21/2001 dated May 31, 2001 regarding the Operation of Telecommunications Services, as last amended by MoCI Regulation No.8/2015 regarding the Fourth Amendment of Decree of the Minister of Communication No.KM.21/2001 regarding the Provision of Telecommunications Service, are the principal implementing regulations governing licensing. MoCI Regulation No.1/2010 classified network operations into fixed and mobile networks. MoC Decree No.KM.21/2001 categorized the provision of services into basic telephony services, value-added telephony services, and multimedia services. 4. Introduction of Competition in the Indonesian Telecommunications Industry In 1995, we were granted a monopoly to provide local fixed line telecommunications services until December 31, 2010, and DLD services until December 31, 2005. Indosat and Satelindo (which subsequently merged with Indosat) were granted a duopoly for provision of basic international telecommunications services until 2004. As a consequence of the Telecommunications Law, the Government terminated our exclusive rights to provide domestic fixed line telephone and DLD services and Indosat’s and Satelindo’s duopoly rights to provide basic international telephone services. Instead, the Government adopted a duopoly policy to create competition between Indosat and us as comprehensive service and network providers. 5. DLD Services To liberalize DLD services, the Government amended the National Telecommunications Technical Plan pursuant to MoCI Decree No.6/P/M.KOMINFO/5/2005 dated May 17, 2005 (“MoCI Decree No.6/2005”) to assign each provider of DLD services a three-digit access code that would permit their customers to select an alternative DLD services provider by dialing the three-digit access number. MoCI Decree No.6/2005 did not provide for immediate implementation of the three-digit system for DLD calls, but as the first DLD service provider, we were required to gradually open our network to the three-digit access codes in all coded areas throughout Indonesia by April 1, 2010. We were assigned the “017” DLD access code, while Indosat was assigned “011”. The MoCI thereafter amended the National Telecommunications Plan as provided in MoCI Decree No.43/P/M.KOMINFO/12/2007 dated December 3, 2007, (“MoCI Decree No.43/2007”), which delayed the deadline for the implementation of three digit access code for DLD calls throughout all the area code in Indonesia until September 27, 2011. Pursuant to MoCI Decree No.43/2007, we opened our network to the “01X” three-digit DLD access service in Balikpapan by April 3, 2008. Since that date, our customers are able to make DLD calls from Balikpapan by first dialing Indosat’s “011”. As stipulated in MoCI Regulation No.43/2007, we have provided a nation-wide network for three-digit access code for fixed and fixed wireless DLD with “01X” that can be used by Indosat or other licensed operator starting September 27, 2011. To date, no other licensed operators have submitted a request to us to connect their networks and enable DLD access. 6. IDD Services We received our IDD license in May 2004 and began offering IDD fixed line services to customers in June 2004 using the “007” IDD access code. The Indosat IDD access code is “001”. Our December 2005 interconnection agreement with Indosat enables Indosat’s network customers to access our IDD services by dialing “007” and our network customers to access Indosat’s IDD services by dialing “001”. 7. Limited Mobility Wireless Services MoC Decree No.KM.35/2004 dated March 11, 2004 regarding Implementation of Fixed Wireless Networks with Limited Mobility, as amended by MoCI Decree No.16/ PER/M.KOMINFO/06/2011 dated June 27, 2011, (“MoC 145 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Decree No.KM.35/2004”) provides that only local fixed network operators holding licenses issued by the MoC may offer limited mobility wireless (or fixed wireless) access services. In addition, MoC Decree No.35/2004 states that each limited mobility wireless access operator must provide basic telephone services. Under an automated migration feature, customers are able to make and receive calls on their fixed limited mobility wireless access phones using a different number with a different area code. 8. Cellular Cellular telephone service is provided in Indonesia on the radio frequency spectrum of 1.8 GHz (DCS technology), 2.1 GHz (UMTS technology) and 900 MHz (GSM and UMTS technology). The MoCI regulates the use and allocation of the radio frequency spectrum for mobile cellular networks. Telkomsel has obtained frequency allocation for cellular services on the 900 MHz, 1.8 GHz and 2.1 GHz frequency bands. For the allocation of radio frequency spectrum 2.1 GHz, in 2006 the government allocates a tender process for the allocation of 5 MHz, whereas for the allocation of additional radio spectrum allocated through an evaluation mechanism in 2009 and selection in 2013 where each is the addition of 5 MHz. The allocation of bandwidth in the 2.1 GHz frequency spectrum is regulated by: MoCI Decree No.19/KEP/M.KOMINFO/2/2006 dated February 14, 2006 regarding the Determination of Winner of IMT-2000 Mobile Cellular Operator Selection at 2.1 GHz Radio Frequency Band. MoCI Decree No.268/KEP/M.KOMINFO/9/2009 regarding the Determination of Additional Allocation of Radio Frequency Bandwidth Blocks, Tariffs, and Payment Scheme Radio Frequency Spectrum Right of Usage Fees for IMT-2000 Moble Cellular Operators at 2.1 GHz Radio Frequency Band. MoCI Decree No.191 Year 2013 regarding the Determination of PT Telekomunikasi Selular as Winner in the Selection of Users of Additional Frequency Bandwidth at 2.1 GHz Radio Frequency Band for IMT-2000 Moble Cellular Operators. 9. Interconnection The Telecommunications Law expressly prohibits monopolistic and unfair business practices and requires network providers to allow users to access other users or obtain services from other networks by paying interconnection fees agreed upon by each network operator. Government Regulation No.52/2000 dated July 11, 2000 regarding Telecommunications Operations provides that interconnection charges between two or 146 more network operators must be transparent, mutually agreed upon and fair. On February 8, 2006, the MoCI issued Regulation No.8/ PER/M.KOMINFO/02/2006 on Interconnection (“MoCI Regulation No.8/2006”), mandated a cost-based interconnection tariff scheme for all network and services operators replacing the previous revenue-sharing scheme. Under the new scheme, interconnection charges are determined by the network operator on which a call terminates based on a long-run incremental cost formula. MoCI Regulation No.8/2006 requires operators to submit to the ITRA annual RIO proposals containing proposed interconnection tariffs for the coming year. Operators are required to use the cost-based methodology in preparing RIO proposals, and the ITRA and MoCI are required to use the same methodology in evaluating the RIO proposals and approving interconnection tariffs. Pursuant to MoCI Regulation No.8/2006 and ITRA Letter No.246/BRTI/VIII/2007 dated August 6, 2007, we submitted a RIO proposal to the ITRA in October 2007, which covered adjustments for operational, configuration, technical and service offerings. In December 2007, we and all other network operators signed new interconnection agreements that superseded previous interconnection agreements between us and other network operators which also amended all interconnection agreements signed in December 2006. On February 5, 2008, the ITRA required that we and other operators begin implementing the cost-based interconnection tariff regime. On April 11, 2008, pursuant to Directorate General of Post and Telecommunication (“DGPT”) Decree No.205/2008, the ITRA and the MoCI approved RIO proposals from all operators to replace previous interconnection agreements. The RIO approved in 2008 was effective until July 29, 2011 when new interconnection charges were implemented as stipulated in ITRA Letter No.227/BRTI/XII/2010 dated December 31, 2010 regarding the Implementation of Interconnection Charges in 2011. This is the result of interconnection charges recalculation conducted in 2010 by MoCI that was agreed on by all operators and outlined in a Memorandum of Understanding. The results of this interconnection charges reform caused a slight decrease in interconnection costs. On December 12, 2011, the ITRA changed the SMS interconnection fee basis from a “Sender Keep All” basis to a cost basis interconnection fee calculation which 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESrequired certain amendments to RIOs agreed upon in 2011. MoCI Regulation No.8/2006 stipulates that the RIO of telecommunications network operators generating operating revenue that is equal to or more than 25% of the combined revenues of all telecommunication operators that serve the same respective segment, must obtain ITRA’s approval, necessitating changes in our and Telkomsel’s RIOs which were approved on June 20, 2012. Until this report is published, no recalculation of interconnection fees for 2012 had been done as doing such should have been preceded by an evaluation on interconnection charges in 2011. 10. VoIP In January 2007, the Government implemented new interconnection regulations and a five-digit access code system for VoIP services pursuant to MoCI Decree No.06/P/M.KOMINFO/5/2005. Under the Decree, the prefix for VoIP, which was originally 01X, was changed to 010XY. On April 27, 2011, the MoCI issued Regulation No.14/PER/M.KOMINFO/04/2011, as partly revoked by MoCI Regulation No. 11 of 2014, which imposed quality control standards in relation to VoIP services, which became effective three months thereafter, to which we and other operators must adhere the regulation. 11. IPTV Several provisions in the MoCI Regulation No.11/PER/M. KOMINFO/07/2010 (“MoCI Regulation No.11/2010”) regarding the Implementation of Internet Protocol Television (IPTV) Service has been amended by Regulation No.15/2014 regarding the Implementation of Internet Protocol Television (IPTV) Service that became the legal basis for the IPTV licensing and regulates the provision of IPTV services, including the rights and obligations of IPTV providers, technical standards, foreign ownership requirements and the use of domestic independent content providers. MoCI Regulation No.11/2010 recognizes IPTV as a convergence of telecommunications, broadcasting, multimedia and electronic transactions and provides that only a consortium comprising at least two Indonesian entities may be licensed as an IPTV provider. Referring to MOCI Regulation No.15/2014, the licenses that we needed, among others: (a) Local Fixed Network License, Mobile Network or Fixed Closed Network License; (b) Operating Internet Access / ISP License; and (c) Broadcasting Operation of Subscription Television Broadcasting Services Institution License. Such a consortium may only provide IPTV services in the area covered by all three required licenses. This was in line with abolition of the provisions of the Implementation of Broadcasting Operation of Subscription Television Broadcasting Services Institution via cable, become Broadcasting Operation of Subscription Television Broadcasting Services Institution. In the Government Regulation No.52/2005 regarding the Broadcasting Implementation of Broadcasting Subscription Institute ("LPB") mentioned that the broadcasting could be conducted via satellite, cable and terrestrial. Broadcasting via satellite could reach nationwide, while cable and terrestrial has a range of a particular region. LPB licenses of broadcasting via satellite owned by PT Indonusa (Telkomvision) became our legal basis became our legal basis to enforce IPTV services nationally. 12. Satellite Our international satellite business is highly regulated. In addition to being subject to domestic licensing requirements and regulation for the use of orbital slots and radio frequencies, our satellite operations also been the subject of Radio Communications Agency of the International Telecommunication Union. Furthermore, MoCI Regulation No.37/2006 dated December 6, 2006 requires foreign satellite operators to obtain a landing right license to operate in Indonesia which requires (i) foreign satellite operators to coordinate with domestic satellite operators, including us, to ensure that no Indonesian satellite and terrestrial systems will be disrupted by their operation,and (ii) the country of origin of the foreign satellite operators must also give permission to the Indonesian satellite operators to operate in that country. 13. Consumer Protection Under the Telecommunications Law, each network provider is required to protect consumer rights in relation to, among others, quality of services, tariffs and compensation. Customers injured or damaged by negligent operations may file claims against negligent providers. Telecommunications consumer protection regulations provide service standards for telecommunication operators. 14.USO All telecommunications operators, whether network or service providers, are bound by a USO regulation that requires them to contribute to providing telecommunication facilities and infrastructure in the interest of opening 147 2014 Annual Report PT Telkom Indonesia Tbk (Persero) equal access to telecommunications throughout all regions in Indonesia, which is generally done by way of financial contribution. MoCI Regulation No.32/PER/M. KOMINFO/10/2008 dated October 1, 2008 regarding the USO (as amended by MoCI Regulation No.03/PER/M. KOMINFO/02/2010 dated February 1, 2010) (“MoCI Regulation No.32/2008”) provides that USO funds received will be used to fund telephone, SMS and internet access in remote and other areas of Indonesia that have been classified as USO regions where it is not economical to provide these services. USO payment requirements are calculated as a percentage of our unconsolidated gross revenues less uncollectable receivables from the telecommunication operation (e.g., bad debt expense) and payments received for interconnection expense which belong to other parties. Pursuant to Government Regulation No.7/2009 dated January 16, 2009 regarding Tariffs for Non-Tax State Revenue that apply to the Ministry of Communication and Information (“GR No.7/2009”), the current USO tariff rate is 1.25% of gross revenue. 15. Telecommunication Regulatory Charges On January 16, 2009, the Government issued Government Regulation No.7/2009, which sets the types of non-tax state revenues that apply to the MoCI derived from various services, including telecommunications. On December 13, 2010, the Government issued Government Regulation No.76/2010 amending Government Regulation No.7/2009. Pursuant to Government Regulation No.76/2010, we are no longer required to pay right-of- use fees calculated with reference to the BTSs that we deploy in our network, except for BTSs deployed in our backbone, with effect from December 15, 2010. As a result, our right-of-use fees are now calculated based on the bandwidth of the radio frequency spectrum that we use. In addition to radio frequency spectrum right-of-use fees, Government Regulation No.7/2009 requires all telecommunications operators to pay an annual license fee for telecommunication operation, which is equal to 0.5% of unconsolidated gross revenues, from which 148 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESuncollectible receivables from telecommunication operation (e.g., bad debt expense) interconnection payable, and/or connections utilized by other parties may be deducted. Pursuant to Law No.28/2009 regarding Local Taxes and Local Fees, local governments are permitted to impose fees on the sites that we use for telecommunications towers. The fees may not exceed 2% of the site’s assessed tax value. Currently, there are some 525 local (provincial and regency level) governments through out Indonesia that may be authorized to impose these fees to increase in the future. 16. Telecommunications Towers On March 17, 2008, the MoCI issued MoCI Regulation No.02/PER/M.KOMINFO/3/2008 regarding Guidelines on Construction and Utilization of Sharing Telecommunication Towers (“MoCI Regulation No.02/2008”). Under MoCI Regulation No.02/2008, the construction of telecommunications towers requires permits from the relevant governmental institution, while the local government determines the placement and locations at which telecommunications towers may be constructed. In addition, telecommunications providers that own telecommunication towers and other tower owners are obligated to allow other telecommunication operators to utilize their telecommunication towers without any discrimination, with due regards to the technical capacity of the respective tower. Since the operations of telecommunication towers involves a number of relevant Government bodies, on March 30, 2009, a joint regulation is issued in the forms of Minister of Home Affairs Regulation No.18/2009, Minister of Public Works Regulation No.07/PRT/M/2009, MoCI Regulation No.19/PER.M.KOMINFO/03/2009 and Head of the Investment Coordinating Board Regulation No.3/P/2009 regarding Guidelines for the Construction and Shared Use of Telecommunications Towers (“Joint Decree”). The Joint Decree regulates that license for telecommunication tower construction is to be issued by regents or mayors, and for Jakarta Province, its Governor. The Joint Decree also provides for tower construction standards and requires that telecommunications towers be made generally available for shared use by telecommunications service providers. The owner of a telecommunications tower is allowed to collect a fee, which is negotiated with reference to costs associated with investment and operational costs, the return of investment and a profit. Monopolistic practices in the ownership and management of telecommunications towers is prohibited. 149 2014 Annual Report PT Telkom Indonesia Tbk (Persero)PROPERTY, PLANT & 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 the right to build and use for a period of 10 to 45 years, which will expire between 2015 and 2053. We believe that there will be no difficulty in obtaining the extension of the land rights when they expire. 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 and is 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 the Company have been pledged as collateral for bonds (Notes 20a). Certain property and equipment of the Company’s subsidiaries have been pledged as collateral under lending agreements (Notes 17 and 21). As of December 31, 2014 the cost of fully depreciated property and equipment of Company that are still used in operations amounted to Rp47,910 billion. We are currently performing modernization of network assets to replace the fully depreciated property and equipment. INSURANCE As of December 31, 2014, our property and equipment except land rights, with net carrying amount of Rp85,352 billion were insured against fire, theft, earthquake and other specified risks, with a maximum loss claim of Rp15,244 billion, US$119 million, EURO133 thousand, SGD29 million and HKD19 million. Management believes that the insurance coverage is adequate to cover potential losses from the insured risks. 150 OPERATIONAL OVERVIEW NETWORK INFRASTRUCTURE DEVELOPMENT Our network infrastructure can be categorized into national and international network infrastructure. National network infrastructure was held to realize one of our major programs, namely Indonesia Digital Network ("IDN"). International Networks We operate international gateways in Batam, Jakarta, and Surabaya to route outgoing and incoming calls on our IDD service (“007”). After the Batam Singapore Cable System (BSCS), Asia America Gateway (AAG), and Singapore Japan Cable System (SJC) on March 7, 2014, our subsidiary TII or Telin, in cooperation with other 17 global telecommunication providers signed MoU of submarine cable development project, South East Asia – Middle East -Western Europe 5 (SEA-ME-WE 5) in Kuala Lumpur, Malaysia. SEA-ME- WE5 is a submarine cable system with a length of approximatelly 20.000 km stretching from Dumai, Indonesia to several countries in Southeast Asia, France and Italy with direct connection from Indonesia to Europe, SEA-ME-WE 5. Development of submarine cable system infrastructure was also carried out by signing MoU of Southeast Asia – United States (SEA – USA) Cable System, where Telin is also joined as member on a consortium with other 6 global telecommunication companies. SEA – US connects Manado (Indonesia), Davao (Philippines), Piti (Guam), Oahu (Hawaii, United States), and Los Angeles (California, United States). In line with SEA-ME-WE5, the submarine cable system has a capacity to accommodate data and internet requirement from Indonesia directly to the owner of the majority of the world internet content, silicon valley. To support the international services both voice and data, Telin operates 16 points of presence (“POP”) in various parts of the world, including in Asia (Dubai, Singapore, Hong Kong, Malaysia and Tokyo), Europe (London , Frankfurt and Amsterdam) and the USA (Ashburn, New York, Los Angeles, San Jose and Palo Alto). National Network In the master plan and IDN infrastructure, our target was 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESto modernize legacy network into a network that used a broadband access infrastructure. We have 13.3 million homepass of broadband access while Telkomsel digital network was strengthened by 85,420 base stations. We continue to pursue development of our network infrastructure to offer a more efficient and cost-competitive service as 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 the framework of developing high-quality, efficient and competitive infrastructure in terms of the costs in delivery services, we continue to pursue the development and improvement of the network infrastructure, known as Telkom One Network, which was built and operated by Telkom Group. 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. Fixed Wireline Network As of December 31, 2014, we managed 9.7 million fixed wireline connections. In the master plan and IDN infrastructure, our target was to modernize legacy network into a network that used a broadband access infrastructure. Operating Statistics Exchange capacity Installed lines Lines in service* As and for the year ended December 31, 2014 2013 2012 2011 2010 13,946,801 13,918,369 13,908,003 12,180,214 11,237,229 10,341,807 10,650,652 11,109,156 11,005,208 10,510,048 9,698,255 9,350,806 9,034,010 8,688,526 8,302,818 * Lines in service are subscriber lines and public telephone lines, including the lines in service that we operate under revenue-sharing arrangements. Fixed Wireless Network Our fixed wireless infrastructure consists primarily of mobile switching centers (“MSC”) and base station sub systems (“BSS”), which consists of a base station controller (“BSC”) and a base transceiver station (“BTS”). According to the Decree of the Minister of Communication and Information of the Republic of Indonesia No. 934, dated September 26, 2014, approval has been given for the allocation of radio frequency 8 MHz in the range of 880-887.5 MHz paired with 925-932.5 MHz from our Company to Telkomsel. On June 27, 2014, we entered into a Conditional Business Transfer Agreement with Telkomsel to transfer parts of our fixed wireless business and migrated subscribers to Telkomsel. However, we plan to continue to operate the Flexi service till the end of 2015 or until our remaining Flexi customers have migrated to Telkomsel, if earlier. Cellular Network Our cellular services, which are operated by our subsidiary, Telkomsel, have the most extensive network coverage of any cellular operators in Indonesia. Telkomsel currently operates on the GSM/DCS, GPRS, EDGE,3.5G and 4G networks. The GSM/DCS network consists of 7.5 MHz of bandwidth on the 900 MHz frequency and 22.5 MHz of bandwidth on the 1.8 GHz frequency. Telkomsel’s 3G network uses 15 MHz of bandwidth on the 2.1 GHz frequency. The range of cellular services on the GSM network provided by Telkomsel extends to all cities and districts in Indonesia. In 2014, Telkomsel has added 15,556 unit of BTS. As of December 31, 2014, Telkomsel’s digital network was supported by 85,420 BTS. 151 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Data and Internet Network In 2014, we continued to improve the quality of our data network by providing additional capacity and coverage. In this year, we provided broadband access using MSAN technology with 13.3 million homepass. As of December 31, 2014, we have expanded our metro ethernet network by 874,450Mbps which is able to provide broadband services throughout Indonesia. The Metro ethernet is also used as the main link for the IP DSLAM, MSAN for Speedy (which is in the process of being rebranded to IndiHome) broadband, softswitch, IP VPN and GPON broadband for mobile backhaul, corporate business solutions and triple pay services. As of December 31, 2014, we have added additional 11,802 BTS node B, bringing it to a total of 38,836 BTS node B. As of December 31, 2014, we have extended the capacity of our internet gateway to reach an installed capacity of 390,2 Gbps. This ensures the adequacy of the capacity of the internet gateway so that it is able to anticipate the expected growth in broadband traffic for both fixed and mobile. In 2014, we also operated a content distribution network (“CDN”) with a capacity of 261Gbps in collaboration with Akamai, Google and Yahoo. Throughout 2014, we continued to expand the scope of Indonesia’s Wi-Fi services by deploying additional network access points either through internal development programs and various forms of cooperation with third parties. As of December 2014, a total of 177,514 access points have been installed. Data Center Our subsidiary, Telkomsigma, manages our data center. With the support of Telkom Indonesia’s network across Indonesia, we expect Telkomsigma’s data center to reach a total building area of 100,000m2 by 2015. With the capabilities of this network, Telkomsigma will be able to provide integrated data storage solutions for many companies in Indonesia, including for those located far from the big cities. Transmission Network As of 2014, our broadband network serves as the backbone for our entire network infrastructure. 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 2014 Capacity (number of Transmission medium circuits) E1 STM-1 STM-4 STM-16 STM-64 STM-256 131,546 131,303 129,557 720 736 708 92 100 108 55 58 63 260 337 398 3 3 2 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 ("STM") 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. 152 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESWe operate two satellites, namely Telkom-1 and Telkom-2. Telkom-1 has a capacity of 36 transponders consisting of 24 Standard C-Band transponders and 12 extended C-band transponders, while Telkom-2 has a capacity of 24 C-band transponders Standards. Both satellites are controlled from the main control station in Cibinong - Bogor, West Java, and to ensure the continuity of services, since early 2014 we have had a backup control station in Banjamasin Borneo. In addition to our Telkom-1 and Telkom-2 satellites, we also lease transponder capacity for 35 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, 6 TPE from the Intelsat-8 (169 BT) satellite, and 1 TPE from Koreasat (75 BT). Besides operating the satellite, we also provides 161 link of IP backhaul links for ourselves network or as well as 322 earth station with around 1.36 Gbps capacity. Transponder capacity for this link mostly through lease transponder capacity from Foreign. To maintain the continuity and developing of this business, we have entered into a contract for the construction of Telkom-3S (satelite) and are preparing for the procurement of Telkom-4 as a replacement for Telkom-1. Telkom-3S has a 49 TPE capacity that consists of 24 TPE standard C-band, 12 TPE Extended C-band and 13 TPE Ku-Band. Meanwhile, Telkom-4 as a replacement for Telkom-1 with the development of coverage to India has a capacity of 60 TPE which consists of 24 TPE standard C-band with coverage of Indonesia, 24 TPE standard C-band with India coverage and 12 TPE extended C-band with coverage of Indonesia. Telkom-3S which is currently under construction is planned to be rolled at the end of 2016, while Telkom-4 is planned to be rolled at the end of 2017. In line with the construction of Telkom-3S and Telkom-4, we are currently planning the placement of Telkom-2 RFS post Telkom-3S and Telkom-1 RFS post Telkom-4. The placement of these two satellites, then in 2018, we will operate four satellites with a total capacity of 169 TPE. To increase the value, we formulate one door policy in the provision of capacity for Telkom Group. In order to implementate this policy, we are currently exploring the patterns of of cooperation with operators include cooperation in providing capacity through long-term leases, joint development of a satellite in the orbit slot which covers Indonesia and acquisition of satellites in the orbit. RESEARCH AND DEVELOPMENT As a technology-based company, we continue to focus on our product and service through ongoing research and development program to create new innovations. Our research and development activity are under Innovation & Strategic Portfolio Directorate, Innovation & Design Center (“IDeC”) unit. The following are main activity of IDeC: Act as TIMES product development center, through innovation incubation management, either from internal or external party of the Company. Product/service innovation activity is carried out in a product incubation adopting Lean Startup method. Under this method, customer’s admired product will be created to be the solution for the customer’s issue. Product innovation incubation phase in Telkom covers customer/problem validation, product validation, business model validation, and market validation. These phases are also applied for innovation driven from internal and external of the company’s proposed by the Startup through Indigo program. New digital business ecosystem development. Through a convergent perspective and coherent effort carried out, several new digital business ecosystem developments is performed through series of business analysis phase on current ecosystem and by giving new benefits acquired from digital technology implementation. In this digital business ecosystem, comprising of ready to be developed products. Research on new technology, infrastructure, product and business. Infrastructure research is a new technology implementation view activity starting with technology scanning to the determination of it system/equipment standardization, prove of concept practice and quality assurance activity performed through laboratory testing or sampling test activity on its implementation. The infrastructure developed is supporting factors and integrated part with the developed products and services. These infrastructure research activities refer to technology roadmap applied by NITS Directorate. 153 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Preparation of technology standard and implementation of product & infrastructure quality assurance. As sequence of technology and product implementation preparation, a technology standard is prepared as a specification manual for infrastructure equipment. This technology standard will be further functioned as quality assurance testing reference for the infrastructure equipments to be implemented. Besides undertaking quality assurance on infrastructure equipment, a product quality assurance function is also developed before entering commercial phase. The execution of quality assurance product includes namely testing phase for application security, response time and user experience/user interface. Provision of solutions and technical analysis on operational issues Besides developing new technology and conducting quality assurance, IDeC Unit supports problem solving for operational issue in form of technical analysis. To support this function implementation, an infrastructure test bed has been developed to simulate infrastructure behavior and provide solution of occurred problems. According to our 2014 Core Program, to support Telkomsel Double Digit Growth, Indonesia Digital Network and International Expansion, the IDeC also covers 10 areas including: Creative Center & Indigo Incubator, eTourism, Portal Hi Indonesia, Apps. Hi City, Mini Lab IDN, Radio 2.0, Smart Home Box, Smart Building, Upoint Phase 2, SDP & IMS Integration. As part of our Indigo Incubator Program in 2014 for external innovations, there were 398 proposals submitted by startups of which we selected 17 product innovations to be incubated through Bandung Digital Valley (BDV) and Jogja Digital Valley (JDV) business incubators. We routinely make investments to improve products and services. We have spent about Rp 13 billion, Rp 14 billion and Rp 4 billion (US $ 3 million) respectively for the years 2012, 2013 and 2014. 154 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESLICENSING 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: 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 Telephony of PT Telekomunikasi Indonesia Tbk; - MoCI Decree No.383/KEP/M.KOMINFO/10/2010 dated October 28, 2010 on the License of Operating Fixed Network of International Call and Basic Telephony Services of PT Telekomunikasi Indonesia Tbk; and - MoCI Decree No.398/KEP/M.KOMINFO/11/2010 dated November 12, 2010 on the License of Operating Closed Fixed Network of PT Telekomunikasi Indonesia Tbk. Following the issuance of MoCI Decrees No.381, 382 and 383, our previous licenses for operating a fixed network and basic telephony services previously owned by us based on MoC Decree No.KP.162 of 2004 dated May 13, 2004 ceased to be in effect. The licenses do not have a set expiry date, but are evaluated every five years. Cellular Telkomsel holds licenses to operate a nationwide mobile cellular telephone network using 7.5 MHz of radio frequency bandwidth in the 900 MHz band, 22.5 MHz of radio frequency bandwidth in the 1.8 GHz band and 15 MHz of radio frequency bandwidth in the 2.1 GHz band. The licenses do not have a set expiry date, but will be evaluated every five years. Telkomsel also holds licenses from the Indonesian Investment Coordinating Board that permits Telkomsel to develop cellular services with national coverage, including the expansion of its network capacity. In addition, Telkomsel holds permits and licenses from and registrations with certain regional governments and/ or governmental agencies, primarily in connection with its operations in such regions, the properties it owns and/or the construction and use of its BTS. In connection with the transfer of the Flexi business to Telkomsel, in September 2014, the MOCI, through Decree No. 934 of 2014, approved the reallocation of the 800 MHz frequency spectrum being used for our Flexi business to Telkomsel. The reallocation is expected to take place after we terminate our Flexi service on the earlier of December 31, 2015 or the migration of our Flexi customers to Telkomsel. International Calls We commenced our international call service in 2004. Our license for operating a fixed network to provide international call services was adjusted in 2010 to meet the requirements of MoCI Decree No.01/2010 with the issuance of MoCI Decree No.383/2010. The license does not have a set expiry date, but it will be evaluated in 2015. We have a license to operate a closed fixed network based on MoCI Decree No.398/KEP/M.KOMINFO/11/2010, which amends the previous license to meet the provisions in MoCI Decree No.01/2010. The license allows us to lease the installed closed fixed network to, among others, telecommunication network and service operators, and to provide an international telecommunication transmission facility through a SCCS directly to Indonesia for overseas telecommunication operators. 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 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 155 2014 Annual Report PT Telkom Indonesia Tbk (Persero)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. Internet Interconnection Service We hold a license to provide internet interconnection services by referring to DGPI Decree No.331/KEP/M. KOMINFO/09/2013 dated on September 24, 2013 regarding the 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. On March 2, 2010, the MoCI issued Decree No.75/KEP/M. KOMINFO/03/2010 granting our subsidiary, Telin, a license to operate a closed fixed line network which enables Telin to provide international infrastructure services. Separately, Telin secured landing rights in Indonesia from the DGPT to provide international telecommunications transmission facilities through SCCS. VoIP We are licensed to provide internet telephony services for public needs as stated in DGPT Decree No.384/KEP/ DJPT/M.KOMINFO/11/2010 dated November 29, 2010 on Voice over Internet Protocol ("VoIP") services. This license does not have a set expiry date, but it will be evaluated every five years. Telkomsel is also licensed to provide public VoIP services based on DGPT Decree No.65 of 2015 dated February 3, 2015 regarding the provision of ITKP services. This license does not have a set expiry date, but it will be evaluated every five years by the Government. ISP We are licensed as an ISP under DGPI Decree No.83/ KEP/DJPPI/KOMINFO/4/2011 dated April 7, 2011, as amended by Director General of Post and Informatics Operations Decree No. 302 0f 2013. 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 comprehensive evaluation every five years. BWA In July 2009, we won a tender for a wireless broadband access license and the right to provide BWA services in 12 zones, comprising eight zones on 3.3 GHz (North Sumatra, South Sumatra, Central Sumatra, West Kalimantan, East Kalimantan, West Java, JABODETABEK and Banten) and five zones on 2.3 GHz (Central Java, East Java, Papua, Maluku, and the northern part of Sulawesi). In August 2009, the MoCI issued Ministerial Decree No.237/KEP/M.KOMINFO/7/2009 regarding the Appointment of the Winning Bidders for Packet Switched- Based Local Fixed Access Network Operators Using the 2.3 GHz Radio Frequency for Wireless Broadband Services, as last amended by MoCI Decree No 325/KEP/M. KOMINFO/05/2012. Due to inadequate implementation by the winning bidders, the MoCI later issued Regulation No.19/PER/M.KOMINFO/09/2011 dated September 14, 2011 (“MoCI Regulation No.19/2011”), which released operators on the 2.3GHz radio frequency from the obligation to use the particular technology specified in the bid terms for the 2.3 GHz radio frequency, which were set out in MoCI Regulation No.22/PER/M. KOMINF0/04/2009 April 24, 2009 (“MoCI Regulation No.22/2009”). Pursuant to MoCI Regulation No.19/2011, operators on the 2.3 GHz radio frequency are now permitted to freely choose their technology in providing BWA on the 2.3 GHz radio frequency, subject to a requirement that they pay an annual usage rights fee for the third through the tenth year of the license period in which a technology divergent from that specified in MoCI Regulation No.22/2009 is used. On January 9, 2012, MoCI announced that it plans to make available for bidding additional 2.3 GHz radio frequency in the 2300-2360 MHz range for BWA services utilizing neutral technology. 156 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESMoCI Regulation No.19/2011 also stipulates domestic component obligations for telecommunications devices and equipment used in providing BWA on the 2.3 GHz radio frequency. Initial domestic component obligations are 30% for subscriber stations and 40% for base stations, to be increased to 50% within five years. As a result of the switch to neutral technology under MoCI Regulation No.19/2011, we lost vendor support for our preferred technology, which is based on fixed BWA technology. Vendors instead preferred to support the mobile BWA technology selected by other operators. Mobile BWA technology competes with Telkomsel. We therefore returned 4 of the 5 zones, which we had received. We retained our BWA license for Maluku zone so we would continue to qualify as a BWA operator on 2.3 GHz and have the right to access the BWA networks maintained by other operators. Becoming a wireless broadband access operator is in line with the transformation of our business to TIMES, which requires us to have infrastructure that is capable of responding to an increasingly complex market and the demand for ever more convergent products and services, whether in the consumer, enterprise or wholesale segments. In July 2011, we are licensed to operate packet switched based on local fixed network by referring to MoCI Decree No.331/KEP/M.KOMINFO/07/2011 dated July 27, 2011 on the License of Operating Packet Switched Based Local Fixed Network of PT Telekomunikasi Indonesia Tbk. This license does not have a set expiry date, but it will be evaluated annually, with a comprehensive evaluation every five years. Data Communication System (“SISKOMDAT”) We provide SISKOMDAT services under DGPI Decree No. 169/KEP/DJPPI/KOMINFO/6/2011 dated June 6, 2011 regarding License for Data Communications Systems Services Operation for PT Telekomunikasi Indonesia Tbk. This license does not have a set expiry date but will be thoroughly evaluated every five years. Payment Method Using e-Money Following the implementation of Bank Indonesia’s Regulation No.11/11/PBI/2009 and Circular Letter of Bank Indonesia No.11/10/DASP each dated on May 13, 2009 regarding how to use card-based payment instruments (“APMK”) and Bank Indonesia’s Regulation No.11/12/ PBI/2009 and Circular Letter of Bank Indonesia No.11/11/ DASP each dated May 13, 2009 on e-money, Bank Indonesia has redefined the meaning of “principal” and “acquirer” in operating APMK and e-money business. In light of these regulations, Bank Indonesia confirmed our status as an issuer of e-money based on letter of Directorate of Accounting and Payment System of Bank Indonesia No.11/13/DASP dated May 25, 2009. We operate our e-money business under the brand names “T-cash”. With the issuance of Bank Indonesia Circular Letter No. 9/9/DASP dated January 19, 2007, Telkomsel is also permitted to conduct APMK activities, with the launch of Telkomsel Tunai prepaid card. Remittance Service Based on a license from Bank Indonesia No.11/23/Bd/8, dated August 5, 2009 and No.12/48/DASP/13, we and Telkomsel may operate as a money transfer services provider. IPTV On April 27, 2011, we and TelkomVision together obtained a license to operate IPTV services through the MoCI Decree No.MCIT.160/KEP/M.KOMINFO/04/2011 regarding the Telkom and TelkomVision IPTV Service Consortium Agreement. In accordance with Regulation 15 year 2014 on Amendment of MCIT Decree No.11/PER/M. KOMINFO/07/2010 regarding the Implementation Services Internet Protocol Television ("IPTV"), that the IPTV service can be applied nationally. Construction Services Business License (“IUJK”) On June 6, 2012, the City Government of Bandung issued a construction services business license to us through IUJK No. 1-3273-858971-2-001772 for Telkom. The IUJK is valid for the execution of construction services throughout the domain of the Republic of Indonesia, comprising architecture, civil, mechanical and electrical works. The IUJK is valid until June 5, 2015. We are in the process of renewing this license. 157 2014 Annual Report PT Telkom Indonesia Tbk (Persero) FUNCTIONAL OVERVIEW HUMAN CAPITAL In order to win the global competition, we continuously develop the professionalism of our Human Capital through global certification and global talent programs. This becomes our preparation in welcoming ASEAN Economic Community (“AEC”) in 2015. Telkom realizes that Human Capital plays a strategic position and role towards achieving our vision as a world-class company with global standards. Therefore, Telkom continues to develop existing Human Capital, while also enhancing industrial relations aspects with the employees. GLOBAL TALENT PROGRAM (“GTP”) As TIMES provider with vision to become global market player, human capital holdsvery important role. To win international level competition, strong leadership and excellent employees with global experience and internationally acknowledge certification are required. Respective international-scale leadership and employees are prepared under Global Talent Program (GTP) by delegating particular assignment to chosen employee. GTP is performed by referring to Competency Development Policy pursuant to Decree No.PR.206.03/2013 dated April 12, 2013. The policy states that GTP is a special assignment for talented employee to be trained as Great People. The special assignment aims to win the competition and achieve corporate business targets throughout international assignment experience and certification. 158 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESGTP is part of Corporate University (CorpU). We have committed by implementing Center of Excellence as first and principal Strategic Initiative of the Company to develop learning organization. CorpU becomes a means of competency development by utilizing knowledge to support corporate business requirement to establish International Standard Center of Excellent Human Capital in TIMES industry. The effort is also carried out to support business performance enhancement as well as to implement new corporate culture under the tagline “From Competence to Commerce.” The tagline means that competent employee will create business. EMPLOYEE PROFILE AND COMPOSITION In 2014, our employees reached to 25,284 employees, comprised of 17,279 Telkom employees and 8,005 subsidiaries employees. Employees of Telkom recorded 3.4% decrease from position as of December 31, 2013 in line with continuation of multi exit program as part of our effort in undertaking HR revitalization and efficiency improvement since 2002. Employee Profile and Composition Composition Telkom Employees as of December 31, 2012 2013 2014 Subsidiaries Employees as of December 31, 2012 2013 2014 Employee Numbers Composition changes to the previous year (%) 19,185 17,881 17,279 6,498 7,130 8,005 - (6.8) (3.4) - 9.7 12.3 159 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Employee profile based on position was changed. In 2014, senior management were of 541 employees, increased from 2013 which was 441 employees. Total employees on middle management position grew from 3,987 employees in 2013 to 4,181 employees in 2014. Increase in total employees based on position was also recorded on supervisor level from 12,031 employees in 2013 to 12,031 employees in 2014. Meanwhile, on other positions, employees profile decreased from 8,552 employees in 2013 to 7,485 employees in 2014. Employee Profile by Position Position Position in 2014 Senior Management Middle Management Supervisors Others Total in 2014 Position in 2013 Senior Management Middle Management Supervisors Others Total in 2013 Telkom Subsidiaries Telkom Group (%) 151 2,939 10,233 3,956 17,279 135 2,711 9,936 5,099 17,881 390 1,242 2,844 3,529 8,005 306 1,276 2,095 3,453 7,130 541 4,181 13,077 7,485 25,284 441 3,987 12,031 8,552 25,011 2.1 16.5 51.7 29.6 100.0 1.8 15.9 48.1 34.2 100.0 2.2% 29.6% 16.5% 1.8% 15.9% 34.2% 51.7% 48.1% 2014 2013 Senior Management Middle Management Supervisors Others 160 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESOur employee profile based on education level in 2014 was dominated by university graduate at 11,769 employees, while diploma graduate was 5,184 employees, 5,995 pre-college employees and 2,336 post-graduate employees. Employee Profile by Educational Background Level of Education Telkom Subsidiaries Level of Education in 2014 Pre University Diploma Graduates University Graduates Post Graduates Total in 2014 Level of Education in 2013 Pre University Diploma Graduates University Graduates Post Graduates Total in 2013 Telkom Group 5,995 5,184 11,769 2,336 (%) 23.7 20.5 46.5 9.2 5,289 4,093 6,159 1,738 706 1,091 5,610 598 17,279 8,005 25,284 100.0 5,632 4,260 6,262 1,727 17,881 665 974 6,297 5,234 5,002 11,264 489 2,216 25.2 20.9 45.0 8.9 7,130 25,011 100.0 Pre University Diploma Graduates University Graduates Post Graduates 161 2014 Annual Report PT Telkom Indonesia Tbk (Persero)In 2014, employees profile based on age is as follows. Employees over 45 years old were 13,740 employees while the employees under 30 years were 2,643 employees and employees between 31-45 years were 8,901 employees. Employee Profile by Age Age Group Age Group in 2014 <30 31 - 45 >45 Total in 2014 Age Group in 2013 <30 31 - 45 >45 Telkom Subsidiaries Telkom Group (%) 680 3,784 12,815 1,963 5,117 925 2,643 8,901 13,740 10.5 35.2 54.3 17,279 8,005 25,284 100.0 756 4,170 1,644 2,001 2,400 6,171 12,955 3,485 16,440 9.6 24.7 65.7 Total in 2013 17,881 7,130 25,011 100.0 162 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESFrom gender group, employee profile was largely dominated by male employees at 78.8% in 2014 and 79.4% in 2013. The employee profile based on gender is comprehensively illustrated on following table. Employee Profile by Gender Gender Group Gender Group in 2014 Male Female Total in 2014 Gender Group in 2013 Male Female Total in 2013 Telkom Subsidiaries Telkom Group (%) 14,091 3,188 5,824 2,181 19,915 5,369 78.8 21.2 17,279 8,005 25,284 100.0 14,662 5,204 19,866 3,219 17,881 1,926 7,130 5,145 79.4 20.6 25,011 100.0 Male Female 163 2014 Annual Report PT Telkom Indonesia Tbk (Persero)HUMAN CAPITAL 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 company 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. Information contained on Telkom Group Human Capital Master Plan was as follows: projections of Telkom Group human capital numbers, calculated on the basis of the business portfolios for the next five years; projections of the composition of our human capital with reference to job stream, education, age and position; and a workforce plan that contains annual human capital planning for each company in the Telkom Group Formulation of an integrated Human Capital Master Plan helps the Company to accurately project the human capital needs, in terms of both numbers and competencies; develop staffing plan and employee career development plan; and measure the human capital productivity. Fulfillment of HC requirement and related infrastructure is addressed with emphasis on the synergy and optimization of internal resources existing within the Telkom Group. Our human capital management strategies emphasizes on the harmonization of the number and competencies of our workforce in line with our business portfolio that has already more focused on TIMES. We are also striving to improve synergy and efficiency among companies within Telkom Group and continuously enforce implementation of corporate values as implemented. The effort is implemented by preparing a five year employee allocation and workforce plan annually to provide more accurate information to support the company’s growth. 164 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESRecruitment Our recruitment program has a strategic objective in capturing best talents on workforce market, aiming not only to prepare future Telkom leader succession but also to strengthen our excellence in the business. The program is prepared and carried out particularly throughout fresh graduate recruitment to hire future leader potential employee with international standard, as well as to recruit professional with deeper skill. Series of tight selection is performed to ensure suitability of the candidate’s competency with the Company’s needs. We implemented recruitment program by optimizing internal resource through synergy between the Company and subsidiaries including carrier days event, campus recruitment event, sharing database management, sharing infrastructure & facilities as well as other synergies based on necessity. As of December 31, 2014, we have hired 224 new employees. HC Competency Development Competency Based Human Resources Management (”CBHRM”) We implemented human capital competency development stated on Human Capital Human Capital Master Plan, which is in line with implemented corporate business strategy throughout CSS and Corporate Annual Message (“CAM”). Further, the competency development strategy is gradually translated by means of Learning Blueprint Development of Curriculum (DACUM), Learning Road Map, and Human Capital Development Plan (“HCD Plan”). The HCD Plan is continuously revised annually to align with our business dynamics. Being consistent with prior initiatives taken in previous years, we implement CBHRM approach on the management of entire human capital system including employee competency assessment. The assessment is performed by referring to several competencies required on the job as stated under Distinct Job Manual (DJM) for each position. We also have competency list managed by the Company under Competency Directory which is prepared through competency model comprising of Mandatory Competency (values), Generic Competency (Personal Quality), and Specific Competency (Skill & Knowledge). All of these three models are developed, adjusted and refined to support fair and transparent employee performance assessment process. The concept of Telkom Group management is grounded on 8S’s elements which are Spiritual, Style, Share values, Strategy, Staff, Skill, System, Structure. “Spiritual” will become a guidance for a “Leader” in exercising leadership, other cultures and elements in the Company. Employee competency development program is focused on following aspects: Culture development, focusing on core values internalization and enforcement as the culture shaping basis which are Solid, Speed, Smart or Telkom 3S. Role skill Development, focusing on personal quality development required by each preferred/defined role category. Competency development based on job demand. Following the corporate business transformation which focuses on TIMES business, HC competency development may be conducted through series of training and educational programs, either directly or indirectly related with business and operational strategies. In preparing 2015 competition, we set up competency and skill development programs toward digital company ear. Besides hard skill (Telco 1.0), related with infrastructure, soft skill (Telco 2.0) also needed which in relation with product innovation business (service development, partnership, software and design, customer experience management, customer data, financial model), big data related with utilization of data base linked to customer behavior (psychology, statistic, math), digital (user experience, user interface, design). Employee Remuneration Telkom offers competitive remuneration package based on prevailing law and periodically benchmarking the market price. Objectives of Telkom Remuneration System comprises of 4 (four) main pillars are: a. To attract Remuneration system of Telkom is designed and developed particularly to attract potential and highly qualified employee candidate, both fresh graduate and professional staff which will be directly placed on certain positions. b. To retain Remuneration system of Telkom is designed as a tool to establish comfort working sphere that will retain and enhance loyalty of high quality professional employee. 165 2014 Annual Report PT Telkom Indonesia Tbk (Persero)c. To motivate b. Benefit Remuneration system of Telkom is designed as a mean to raise motivation of each employee to always improve personal quality and to become high performed employee. d. To support Remuneration system of Telkom is designed to support the management in pursuing the objectives, performance target and corporate business strategy comprehensively. Based on objectives of remuneration distribution, Remuneration system component in Telkom is divided into 3 (three) major parts known as 3P Remuneration System which are: a. Pay for Person A remuneration component to appraise individual competency of each employee according to competency profile required on chaired position and working period. Pay for person shifting throughout Remuneration Adjustment is determined based on competency assessment result and also aligned with the remuneration comparation condition. b. Pay for Position A remuneration component provided to appraise policy, mastery and accountability required for certain position. Shifting on pay for position through the Remuneration Adjustment is determined by employee position class as well as Job Characteristics and Unit Function. c. Pay for Performance A remuneration component provided to appraise employee performance in achieving target as implemented on certain period. Process in determining employee remuneration on pay for performance is carried out by considering Individual Performance Score and Unit Performance Score. Based on type and nature of remuneration components, Telkom Remuneration Structure comprises of 2 (two) major components which are: a. Compensation The component consists of Monthly Salary, Holiday Feast Allowance, Leaves Allowance and Income Tax (PPh 21). The component consists of Fixed Benefit and Variable Benefit. These two sub-components are provided in form of Cash Benefit and Non Cash Benefit. For incentive distribution, the Company budgeted on current year but the realization will be distributed on next years after the publication of audited Financial Statements and approved on the General Meetings of Shareholders (GMS). The incentive distribution will only be conducted if Net Income target is achieved. Employee Reward We annually grant several rewards to raise employee’s working spirit to support achievement of business target, corporate value, service quality to the customers and employee performance. IT based HC Services IT based HC services which have been developed since 2009 are continuously optimized such as E-Learning, Online Scholarship Registration, Online Individual Working Target, Online Presence, Online Official Travel Order Letter (SPPD), Online Leaves, Online Career, Competency Assessment, Online Distinct Job Manual, Online SPT, Retirement Application, Learning Card, ESOP Shares Trading Application, Knowledge Management Application (KAMPIUN) and Health Information Website. Telkom also implements several IT applications such as corporate business automation both in form of electronic official note, virtual meeting, unified communication, shared files, online survey, personal workbook and intranet. Moreover, to strengthen internal communication, which is mainly related with HC policy, Human Capital Management and employee helpdesk are provided and accessible for the employee who wishes to acknowledge other policies and information related with HC management and development. We also optimize employee media relation and HC service center to ensure that several employee-related issues will be handled and communicated effectively. Besides, we also prepare phone line, personal service, email and website that will facilitate communication between the employees and HC Division. 166 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPension Program We have two pension program, Defined Benefit Pension Plan (“PPMP”) and Defined Pension Premium (“PPIP”) a. Defined Benefit Pension Plan (PPMP) Defined Benefit Pension Plan (“PPMP”) Pension calculation for PPMP participant is based on working period, salary level on the retirement period and is transferrable to insured parties if respective employee passed away. Telkom Pension Fund is in charge to manage this program and primary source of the Pension Fund is acquired form employees contribution and from the Company. Employees’ participation on this program is 18% from basic salary (before March 2003, level of the employees contribution is 8.4%) while the Company supports the rest of the contribution. Monthly pension benefit for retired employees are around Rp425,000 per months. Contribution of the Company to the Pension Fund reached to Rp187 billion, Rp186 billion and Rp nil billion each for years ended on December 31, 2011, 2012 and 2013. Telkomsel also held PPMP for its employees. Under this program, employee reserves the rights on pension benefit calculated based on latest basic or net salary received and employee working period on PT Asuransi Jiwasraya (Persero), which manages this program based on annual insurance contract. Up to 2004, employee’s contribution on this program was 5% from monthly paid salary while Telkomsel pays rest of implemented contribution. Since 2005, contribution for the program is fully paid by Telkomsel. Moreover, Telkomsel also provides reward program for the employees with long working period in form of cash reward or additional leaves. The reward is provided for the employees with certain working period or during the employment dismissal. Infomedia also holds PPMP program for its employees. 167 2014 Annual Report PT Telkom Indonesia Tbk (Persero)b. Defined Contribution Pension Program (PPIP) Telkom holds Defined Contribution Pension Program for permanent employees recruited since July 1, 2002. The PPIP is managed by Financial Institution Pension Fund (DPLK), where the employees may choose over several DPLK to perform this program. Annual contribution of the Company on PPIP is determined based on certain percentage from basic salary of participated employee, which reached to Rp5 billion, Rp6 billion and Rp5 billion for years ended on December 31, 2011, 2012 and 2013. To establish more effective and competitive business environment, we also have Advance Retirement Program (“Pendi”). The program is implemented align with Human Capital Master Plan implementation for 2014 – 2018 period which is estimated will reduce number of Telkom’s employee to improve employee’s composition. The program is offered voluntarily to the employee who is considered has fulfilled certain requirement related with education level, age, position and performance. Since 2002 to December 31, 2014, the Company has allocated Rp7.3 trillion fund as a compensation for 14,195 employees as the participation of this program Health Service Program Health service for employees and core families as dependents were managed by Yakes. The health service is expected to contribute in improving the Company’s productivity. We hold medical check-up annual for the employees with health status (stakes) as the result. We have also issued healthy life perspective policy. The health facility is also available for retired employees including dependent family, through two following scheme: Employee was appointed as permanent employee before November 1, 1995 and has working period for more than 20 years is illegible to participate on health service facility managed by Yakes Telkom; and All other permanent employees are also illegible to get health facility in form of insurance allowance. Employees of subsidiaries entitle to a government- sponsored health facility program, acknowledged as BPJK. Total budget allocated for employee insurance program in recent 5 years is shown on below table: Employee Health Service Budget 2010 2011 2012 2013 2014 Total (Rp billion) 136 121 150 162 153 Industrial Relation Management Pursuant to Presidential Decree No. 83/1998 on Ratification of ILO Convention No.87 of 1948 on Freedom to Unite and Protection on Rights to Establish Organization, Telkom’s employee established “Telkom Workers Union” or known as “SEKAR.” As of August 2014, SEKAR has 15,526 members from employees or 89.9% from total Telkom’s employees. In compliance with Law No.13/2003 on Employment and Joint Labor Agreement (“PKB”) and Regulation of Ministry of Workforce and Transmigration No.16/2011 on Company Establishment and Regulation Authorization as well as Preparation and Registration of Joint Labor Agreement, SEKAR is authorized to represent employees on PKB discussion with the Company’s management. In 2014, PKB V is applied which had been authorized in 2014. The PKB is always be reviewed through Bipartite Cooperation Institution (LKS). Several communications conducted by the Company and workers union are as follows: Evaluating PKB Agreement. Incidental Meeting, to discuss technical aspects related with PKB realization. Socialization in cooperation between management and SEKAR related with PKB and other corporate policies. Industrial relation training for SEKAR’s committee. As of November 2014, there were seven meetings held between the Company and SEKAR to discuss various issues related with the Company’s policy. Telkomsel and Infomedia also have a workers union. The workers union in Telkomsel, “SEPAKAT” or “Serikat Pekerja Karyawan Telkomsel” consists of 3,723 employees as members or 81.1% from total Telkomsel’s employees. 168 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESExtracurricular Activity We provide an opportunity to entire employees to participate on extracurricular activity, mostly one which will support the employees’ productivity. Employee’s extracurricular activity includes religious, cultural and sport aspects. On religious aspect, extracurricular activities held were namely Telkom Bandung Raya Christmas Celebration, Telkom Bandung Raya Easter Celebration, Book Review, Qoran Recital Competition, Utsawa Dharma Gita (Hindu), Musabaqoh Tilawatil Quran, Ramadhan Boarding School, and others. On cultural sector, activities held were namely Gamelan Art, Keroncong, Bakti Bagi Negeri, Photography (Photo – 135), Toastmaster Club (Public Speaking & Leadership), and others. For sport aspect, the activities held were namely Tennis, Basket Ball, Cycling, Motor Cycle, Table Tennis, Nature Adventure, Zumba, Yoga, Aerobic and others. million per employee who participated on the program. In 2013, we spent Rp265.3 billion, or average budget per employee of Rp10.6 million. INFORMATION TECHNOLOGY Information Technology has a vital role for the Company in supporting the business process, both in front office and back office. As an integrated part of all of organization function, information technology division is managed based on strategic plan translated into vision and mission. Information technology management in Telkom is grounded by firm vision, “To become an excellent IT service & solution provider.” The vision illustrates that Information Technology of Telkom serves as IT service provider as core business of the Company towards a reliable and superior business with an excellent utilization through a structured and controlled process and innovation environment. HUMAN CAPITAL INVESTMENT To implement training and education program in 2014, the Company spent of Rp195 billion or average of Rp7.7 Further, the vision needs to be achieved by carrying mission of “Nurturing digital culture in providing integrated, effective, and efficient business solution as well as 169 2014 Annual Report PT Telkom Indonesia Tbk (Persero)competitive IT service innovation.” The mission determined information technology management direction by growing and implementing digital culture under following principles: Information system solution as business enabler for Telkom as an integrated solution. Quality of Information Technology solution in Telkom has to be created from effectiveness and productivity of business process and the business supported. Information technology management is directed towards efficient and cost-effective management to give optimum value to the Company. Development of conducives environment to encourage IT innovation to support Telkom business transformation. Excellent IT solution creation to bring differentiation and competitive value for Telkom’s initiative in winning digital market competition. IT Governance Structure Information Technology management in Telkom Group, which way too complex, requires a good and firm governance. Information Technology governance in Telkom Group is directed to provide operational and business support by providing IT Shared Service developed by optimizing existing resource. Below illustrated the governance structure scheme: OSS BSS Development & Operation r e t n e C s e c i v r e S d e r a h S ERP Development & Operation Data Center Infrastructure & Operation Cloud Services Data Analytics IT Service (Integration & Solution) Service Delivery Platform IT Operation Outsourching Office Operation System IT Shared Services thru Center of IT Excellence 170 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Information Technology in Telkom Group is managed by Personnel with competency and skill in line and according to the Company’s business planning, development, operation and support. Several knowledge has to be equipped by IT Telkom personnel, among others: TM Forum Framework overview knowledge including business process, application and information. ITIL Foundation COBIT Foundation Having those three knowledge, Telkom IT Personnel will have understanding and providing solution on the Company’s business issue and demand. Further personnel’s knowledge and competency development will be aligned with scope of duty and expertise hold. For the personnel certification requirement will be adjusted with Company/unit necessity with adequate quantity level including Expert/Master/Career Certification, Specialized Certification, and Fundamental/Basic Certification as illustrated on below scheme: Expert/Master/Career Certification TMForum Career Cert. CISA,CISM C GEIT CRISC Open Group Cert.Architec IT Specialist Specialized Certification CISSP CSSLP CDCE ISO/IEC Lead Auditor CISA, CISM, C3EIT, CRISC Open Group TOGAF Cert. EC Council BCM Institut CDCS ISO/IEC Auditor Vendor Prncipal Specific Sertification Master Level Expert Level Associate Level Fundamental/Basic Certification ITIL Project Management COBIT ISACA Framework TMForum Enterprise Solution Architecture Agile/SDLC Data Center I/S Security BILLING, PAYMENT AND COLLECTION We apply periodic billing system based on product characteristic and customers segment. We provide range of payment channels to support the telecommunication service customers by cooperating with Collecting Agents (“CA”), such as national commercial banks, regional commercial banks, PT Pos Indonesia, employee cooperatives, mini market and others. The payment can be done in cash and non-cash method. Cash payment can be performed through Telkom service payment locket such as Plasa Telkom, Cooperatives, bank, Post Office, Minimarket and other sub-CA lockets, meanwhile, for non-cash payment is done through auto debit, credit card, transfer to Telkom account (for corporate/OLO subscribers), Authorized Teller Machine (“ATM”), mobile banking, internet banking or source of fund (Mcash atau Tcash). Particularly for mobile service users, Telkomsel as one of our subsidiaries has implemented collection system based on Online Charging System (“OCS”) applied for prepaid and postpaid products. This new system is expected to improve quality of service to the customers by giving an access to choose payment method and to give a flexibility to Telkomsel to take regional/cluster based pricing. Previously, Telkomsel implemented periodic billing system with centralized, accurate and standardized system in each area. Subscribers of kartuHalo post-paid service will receive billing statement delivered to the subscriber’s domicile address every month with usage calculation based on: (i) total usage minutes for mobile service; (ii) value-added service charged by periodic usage cost; and (iii) subscription fee for basic service and other services. In July 2013, Telkomsel provides a support for postpaid subscriber through e-billing statement where the billing notification is sent via email. 171 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Telkomsel billing payment can be done through direct payment at GraPARI Plasa outlet or ATM, cash payment through bank teller, phone banking, internet banking, mobile banking, credit card and auto debit. Telkomsel also cooperates with CA, including National Commercial Banks, Regional Banks and PT Pos Indonesia, which are authorized to receive payment from KartuHalo subscribers. Hence, the subscribers are also able to pay through TCare web (https://my.telkomsel.com). Customer Receivable Management The Finance, Billing and Collection Center Unit (“FBCC”) manage billing and payment of receivables of customers who are grouped according to customer and product segments service management concept, by applying Telkom Revenue Management System (“TREMS”). The application of TREMS has features that it: allows customers to pay bills throughout the service area. receives both cash and non-cash payment. receives Security Deposit (“SD”) from a customer who plans to unsubscribe which is estimated based on average, warm or pro-rata usages, the SD will be recalculated in the next bill. receives an advance as down payment which will be stated in the next month’s billing statement. facilitates partial payments from corporate customers. facilitates payment by installments. features Telkom Single Invoice (“TSI”) which combines multiple invoices from multiple services into a single billing statement, in addition to other various comfortable payment transactions. In a case a customer has not made payment until the due date, the customer will be penalized according to the type of products and services he/she uses. Sanctions imposed may include the imposition of late fees, call limitation and line disconnection as set out in the Subscription Contract. We have applied Integrated Dunning Management System (“IDMS”) designed to provide initial billing information and reminding calls for current, 1-month and 2-month overdue bills. IDMS is also used for electronic billing statement (“eBS”) which is sent to subscribers’ e-mail accounts. Invoices for corporate and OLO customers are printed and sent by special couriers. Telkomsel has its own mechanism for receivable collection. If a customer has not made payment until his/her bill’s due date, Telkomsel will suspend the customer outgoing calls. If such customer fails to make payments until the second month after the due date, Telkomsel will disconnect 172 the customers’ line. In the mean time, Telkomsel will keep seeking payment from such customer, including in collaboration with debt-collecting agents. A customer whose line has been disconnected, but intends to continue subscribing to Telkomsel services must first settle his/her overdue bill and fill out an application for new services. Telkomsel does not charge fees or impose interest on late payments. SERVICE OVERVIEW As a realization of Good Corporate Governance (“GCG”) implementation for our customers and society, we maintain communication with our customers. We believe that efficient and proactive communication has an important role for the Company’s business continuity, and to assure above average quality standard. Service to Customers Service Level Guarantee (SLG) compliance survey is carried out in several processes of delivery, assurance & service billing. SLG which has been predetermined for each product and customer segment covers new installations service process, trouble handling and customer complaint handling. After delivery & assurance process done, a Post Delivery Survey (PDS) will be performed as customer satisfaction survey towards quality of service delivery. Customer Protection In 2014, we seek to implement various initiatives and improvement in product safety management, complaint service and after sales assurance to provide comfort and consumer protection assurance, which covers following activities: Ensuring a new developed product will become the right product as a well-received commercial product in the market. We have implemented a standard manual for innovation product incubation process trough several phases which includes idea submission, customer and idea validation, product validation, business model validation, and market validation. Holding a principle to ensure product and service produced have high-quality and able to generate optimum benefit and contribute to economic growth. Always preserve ethical code in product sales (direct sales), advertising and promotion activity. Implementing ethical advertising practice by concerning with advertising ethical code in Indonesia. Ensuring that after sales product and service are accessible by public. Supporting fair competition principle and practice implementation. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Always oriented to customer’s satisfaction. Strive to fulfill indicators required in several Ministerial Law regulating service quality standard which refers to Ministerial Law on Service Quality Standard for Local Fixed Network, SLJJ Fixed Network, International Call Fixed Network, Fixed Wireless Access (“FWA”) Fixed Network and Telephony Internet Service for Public Needs (“ITKP”). Giving compensation if the service does not comply with required indicators. Service Quality Assessment Service quality assessment is performed through several stages based on service process. In the interaction process with distribution channel, mystery shopping and mystery calling are done to ensure service standard has been implemented consistently and with high quality. Indicators as the assessment result took form as Service Quality Index which is monthly monitored and evaluated. By end-to-end, Customer Satisfaction and Loyalty Survey (CSLS) is conducted annually. The indicators assessed are Customer Satisfaction Index (CSI), Customer Dissatisfaction Index (CDI) and Customer Loyalty Index (CLI). These indicators are measured from customer satisfaction on four pillars including product, price, promotion and service. Beside measurement on these indicators, an improvement priority of service attributes in the four pillars that effective evaluation and follow-up on service quality and customer satisfaction improvement will be able to be carried. Service Quality Improvement Initiative Service quality and customer satisfaction improvement program consist of following initiatives: Higher Speed Same Price (“HSSP”) HSSP program is a customer retention program, with the provision of a fixed price so that the customers gain better experience experience as part of appreciation to our loyal customers. Indihome Suggested Package (ISP) ISP Program is Indihome bundling package which offering to our existing customers using “suggested package,” which is Indihome package adjusted with each customers specifically. TAM – Tele Account Management TAM is a customer management on retail segment. Number of customers are managed under one agent to deliver caring or selling for respective customers. Telkom Membership Telkom Membership is a membership card for our loyal customer with various benefit and advantages. The program is performed by inviting banking partner (Bank Mandiri). Benefit and advantages for our customers are including: a. Offering Telkom billing payment with Mandiri Credit Card. b. Offering promotion package for cross-sel and product upgrade. c. Special sales promotion offer for Mandiri Credit Card holder. 173 2014 Annual Report PT Telkom Indonesia Tbk (Persero)06 CORPORATE GOVERNANCE 177 Concept and Foundation 177 Corporate Governance Awards 178 Rating and Assessment Of Corporate Governance 178 Road Map and Strengthening of Corporate Governance 180 Corporate Governance Framework 181 Corporate Governance Structure 237 Risk Management 260 Legal Matters 262 Acces and Transparation Information 268 Relationship with Stakeholders 269 Business Ethics and Corporate Culture 271 Whistleblowing System 273 Corporate Governance Socialization 275 Consistency in Implementing GCG 280 Summary of Significant Differences Between Indonesian Corporate Governance Practices and The NYSE’s Corporate Governance Standards CORPORATE GOVERNANCE The year 2014 was a momentous year in relation to the results of tests of the Company’s Good Corporate Governance (“GCG”) practices. In an annual evaluation by the Indonesian Institutes for Corporate Governance (“IICG”), an independent corporate governance rating agency in Indonesia, the Company was once again rated The Most Trusted Company in accordance with GCG assessment year 2013/2014 theme of “Corporate Governance in the Learning Organization Perspective”. In the “BUMN Bersih” evaluation programme conducted by the Development and Financial Supervisory Agency (“BPKP”), Telkom also received a declaration of very satisfactory. The criterion of “Bersih” which was used in the “BUMN Bersih” program includes the assessment of the good corporate governance principles, namely: transparency, accountability, responsibility, independence and fairness towards the Board of Directors and Board of Commissioners. Upon evaluation, Telkom received a value of 8.3 (on a scale from 0 to10). The “BUMN Bersih” programmed has been applied in the corporate governance of the Company. The implementation of GCG will strengthen the corporate reputation as a healthy and competitive Company as well as provide added value creation to the company (sustainable value creation) by being sustainably ethically and dignified in the long term. 176 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCONCEPT AND FOUNDATION We apply the principles of good corporate governance to all organs and levels in a planned, targeted and measurable manner. This is aimed at ensuring that the GCG implementation runs consistently in conformity with the best practices of GCG implementation. As proof of our commitment in implementing GCG, the Integrity Pact statement has been signed by the entire Board of Commissioners and our Board of Directors. As our shares are listed and traded on the Indonesia Stock Exchange (“BEI”) and New York Stock Exchange (“NYSE”), apart from the implementation of the GCG, the Company also has to comply with Indonesian laws and regulations as well as the Code of Good Corporate Governance issued by the Indonesian National Committee on Governance (locally abbreviated as “KNKG”). In addition, the Company has to comply with Sarbanes Oxley Act (“SOA”) in 2002 and other SEC regulations. Currently, there are two SOA regulations and provisions that are relevant to the company. Firstly, section 404 of the SOA stipulates that the management is responsible for Internal Control Over Financial Reporting (“ICOFR”) to ensure the reliability of financial reporting and the preparation of financial statements. Secondly, section 302 of the SOA requires management to take responsibility over the manufacture, maintenance and evaluation of the effectiveness procedure to ensure that the information contained in the report has been in conformity with the provisions of the US Capital Market Law. In 2014, the Company and the Group sharpened its GCG practice to steamline with business demands and the latest changes in the industries. Telkom Group GCG is strengthened to create an ethical and dignified business practices (GCG as ethics). In implementing GCG, we seek to ensure that the company is well managed. Currently, in addition to being able to manage risk well, the Company is also able to respond to the latest changes and capitalize on the change to increase the Company’s capacity and value so as to achieve the Company’s objectives and the sustainability of the Company in the long term. CORPORATE GOVERNANCE AWARDS In 2014, the Company has gained a number of awards in the field of Corporate Governance. It depicts that the implementation of corporate governance is heading towards Good Corporate Governance Excellence. The list of awards received is as follow: 1. Indonesia Sustainability Reporting Awards (ISRA). 2. Finance Asia Best Managed Company in 2014, which consists of: - Best Managed Companies, - Best Corporate Governance, - Best Investor Relations, - Best CSR, - Most Committed to a Strong Dividend Company Policy. 177 2014 Annual Report PT Telkom Indonesia Tbk (Persero)RATING AND ASSESSMENT OF CORPORATE GOVERNANCE The Company’s corporate governance performance is monitored through an annual evaluation by the Indonesian Institutes for Corporate Governance ("IICG"), an independent corporate governance rating agency in Indonesia. IICG routinely conducts research and rating of Corporate Governance Perception Index ("CGPI") of public companies, SOEs and other companies. The process of assessment and ranking of CGPI consists of four stages with different weighting for each stage: 1. Selfassessment stage, where the Company is asked to fill in a questionnaire based on the GCG assessment theme. 2. Document observation stage, where the Company deliver policies, procedures and other evidence that depicts the implementation of GCG in the Company. ROAD MAP AND STRENGTHENING OF CORPORATE GOVERNANCE We continue sharpening our GCG implementation primarily in relation to new initiatives to integrate the management of Governance Risk and Compliance (GRC) integrally through business performance management, corporate governance, risk management, legal compliance and social responsibility where they support each other for the realization of the Company’s business growth and sustainability. The Company realizes that we must anticipate business dynamics, and therefore we continue to explore and design good governance initiatives to ensure the sustainability of the organization. This is because we believe that GCG is not a barrier but rather a way of sustaining the Company’s growth performance. Our GCG implementations have been recognized by both our external appraisers and investors. We continually strive to improve the policies and infrastructure that supports GCG through new initiatives to strengthen governance which we have grouped into three main pillars, namely: 1. Strengthening Governance Structure Building governance initiatives to further strengthen the effectiveness of the communication and relationships between the Company’s organs to avoid potential agency issues and to achieve effectiveness of the chemistry between the different elements within the organization 178 3. Papers and presentations assessment stage, where the Company writes a paper explaining the company’s activities in implementing GCG assessment in conformity with the assessment theme and presents the paper to the jury. 4. Observation stage, where the board of Jury IICG visits the Company to perform question and answer session, observes and visits sites to review the implementation of GCG certainty referring to the selfassessment result, document observation and papers. From the results of the assessment and the ratings, Telkom was once again accorded the best award as the Most Trusted Company in accordance with 2013/2014 GCG assessment theme of “Corporate Governance in Perspective Learning Organization”. of our Company, while observing checks and balances. This is characterized by the speed and accuracy of decisionmaking, through evaluation and strengthening of the BoD/BoC/Audit Charter, empowering committees, implementing “six eyes principles” to ensure the accountability of business initiatives, implementation notarized power and others initiatives. 2. Strengthening Governance Process Building governance initiatives to further strengthen corporate governance to be more effective and efficient through: implementing enterprise risk management and integrity pacts within the scope of the business group, strengthening the IT governance, and remediating internal controls to ensure the reliability of financial reports, strengthening leadership system, and others initiatives. 3. Strengthening Culture Instilling noble values through the implementation of our corporate culture and business ethics as a role model of doing business and having honorable employees with moral and integrity through the segregation of duties (“SOD”) in business processes, role modeling leadership, ensuring business ethics and trustworthy business practices / running prudential practices, reinforcing the corporate values, and others initiatives. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESThe road map for implementing and strengthening GCG from 2010 to 2016 is as follow: PERIOD ACTIVITY • Strengthening governance departments through a notarized power policy and strengthening the 2010 Company’s culture of The Telkom Way. • Strengthening governance processes through the management of risk as an inherent culture. 2011 • Strengthening governance organs through initiatives to build the Telkom Group GCG by determination of Guidance of Telkom Group as set out in the Company's policy No.PD.602 / 2011. • Strengthening the governance process to ensure that risk management and compliance runs effectively in the Company • Strengthening governance organs through empowering the Telkom Group GCG, designing checklists of GCG implementation and self assessment guidelines for GCG of its subsidiaries, and the determination of the Board of Directors of subsidiaries as members of executive board of Telkom Group and Vice 2012 President of Telkom in line with his/her tasks and responsibilities as Group Head of Telkom Group as set out in the Policy Office Organization No.PD.202 / 2012. • Strengthening the governance process to make sure that business processes is aligned with business and organizational transformations. • Strengthening governance departments through the development, implementation of GCG involving business group through the preparation of the Executive Board in framework of conditioning the company's ability to execute a strategic step in managing portfolios, which is supported by parenting mechanism 2013 that is more appropriate with the demands of the business ecosystem. • Continue strengthening the governance process to ensure that business processes are in conformity with business and organizational transformations of "New Telkom" in accordance with the Company's Office Organization Policy of the Telkom Group No.202.11 / 2013. • Strengthening governance organs through GCG for implementation of a holding organization which includes subsidiaries through the implementation of the Executive Board mechanism and improved application. 2014 • Strengthening governance processes through the implementation of disciplined process based on ISO / ISO certification for new organization of "New Telkom". • Implementing COSO 2013 Framework as the basis for the implementation of Internal Control and Integrated Audit. • Sharpening of Business Ethics policies, including Telkom Group. • Launching of Cultural Year. • Strengthening governance organs through the GCG implementation assessment for subsidiaries. • Strengthening the governance process to ensure certification / surveillance of ISO. • Implementing "Governance Risk and Compliance (GRC)". • Strengthening Mechanism for the Executive Board. 2015 2016 179 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CORPORATE GOVERNANCE FRAMEWORK The company’s commitment to implementing GCG is based on the Decision of the Board of Directors on GCG guidance No.29/2007 and the Group GCG Guidance No.602/2011. The Board Directors decision contains several GCG implementation systems to ensure that GCG has been implemented both for internal and external transaction ethically and in accordance with sound and good corporate governance practices. The GCG implementation systems encompasses: business ethics, policies and procedures, risk management, internal control and supervision, leadership, management of tasks and responsibilities, management empowerment and employee’s competency, performance evaluation, and rewards as well as recognition. Telkom developed the GCG framework and road map to ensure that the implementation of GCGis organized on the basis of mutual understanding between the management and all departments of the Company. The GCG framework also internalises four (4) main pillars which includes: 1. Implementation of business ethics covering the Company’s cultural values, which is disseminated to employees each year, with surveys testing the employees’ understanding; 2. Management of effective operational policies and procedures which are in conformity with the demands of the business, as guidelines in managing the Company and guidance for employees’ work; 3. Implementation of an integrated risk management based on the COSO Enterprise Risk Management; and 4. Internal controls and implementation of internal control based on the COSO Internal Control especially internal control over financial reporting. To achieve these, Telkom has formulated Telkom GCG system as follows: Business Performance Corporate Governance Risk Legal Compliance Social Responsibility BoD Charter BoC Charter Audit Charter Audit Independent Corporate Governance Structure Executive Committeee Six Eyes Principles Notarial Proxy Audit Committee & KEMPR ERM PMS IT Governance Internal Control & CSA Early Warning Note Regularisasi & Discrepancies Report Anti Fraud Program Whistle blowing System Governance Integrity Pact SOD Job Manual Procedure & Policy Leadership System Competences Development Rewards & Consequences Legal & Compliance Governance Process Organizational Sustainability Prudential Communication Culture Role Modelling Business Ethics Core Values Organizational Beliefs 180 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCORPORATE GOVERNANCE STRUCTURE GENERAL MEETING OF SHAREHOLDERS We continue improving the implementation of GCG in terms of its structure and procedure, and ensuring the application of the principles of transparency, accountability, responsibility, independence and fairness. This is aimed at mitigating the potential risk of conflict of interest at all levels including the Board of Commissioners, Board of Directors and management. Internally, the GCG structure and procedure are set in the Decision of the Board of Directors on GCG Management Guidelines No.29/2007 and No.602/2011, which state that every transaction made both internally and externally has been in accordance with sound and good corporate governance practices. Every year, we evaluate the effectiveness of any implementation of policies. At the same time, we monitor the implementation of the GCG to ensure they are conducted independently and thoroughly to achieve efficiency targets across organizational lines while at the same time maintaining the Company’s integrity in the eyes of the authorities and the public at large. . The General Meeting of Shareholders, both the Annual General Meeting (AGM) and Extraordinary General Meeting (EGM), are institutions with highest authority in the organization of corporate governance. They are also major fora where shareholders exercise their rights and authorities toward the management of the company. AGM shall be held once a year while the EGM can be held at any time deemed necessary. In exercising its authority, the AGM must consider the interests of the development and health of the Company, the interests of the stakeholders as well as the rights of the Company. 1. Telkom’s Shareholders Our shareholders can be classified into two (2) types, namely one share of Series A Dwiwarna (as the controlling shareholder) and 100,799,996,400 Shares Series B. For more details on the composition diagram of our shareholders, see “General Information on Telkom Indonesia – Securities Information - Composition Shareholders”. 181 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 2. Rights and Responsibilities of Shareholders at the General Meeting of Shareholders In the AGM and EGM shareholders are entitled to receive the same treatment and balanced position, especially in voicing their opinions and contributing to important and strategic decision-making processes relating to the: 1. Appointment and dismissal of the Board of Commissioners and Board of Directors of Telkom; 2. Determination on the remuneration and allowances of the Board of Commissioners and Board of Directors of Telkom; 3. Assessment the Company’s performance for the fiscal year reviewed; 4. Determination and approval of the use of the Company’s profits including dividends; 5. Amendments to the Articles of Association; and 6. Determination of entire corporate actions requiring the GMS decision as stated in the articles of association of the Company. The AGM also has the authority to certify the Financial Statements and the Annual Report of the Company. The Government of the Republic of Indonesia as a controlling shareholder, which is manifested in its possession of Series A Dwiwarna, must pay attention to their responsibilities when using their right to influence the company’s management decisions, both when using the voting rights or in other matters. The government has special rights that can be used when giving approval to the plan of mergers, acquisitions, divestitures or liquidation through the AGM and EGM. 3. Procedures for the Implementation of the Shareholders General Meeting The mechanism of voting right by the shareholders in the AGM or EGM has been arranged in such away that shareholders can use their voting rights directly or through proxies. As stated in the Limited Liability Company Law and the Company’s Articles of Association, GMS consists of Annual General Meeting that must be held at the longest of six months after the end of the fiscal year. During the Annual General Meeting, the Board of Commissioners and members of the Board of Directors should present the following things: 1. Annual Report Book. 2. Recommendations on the utilization of net profit as long as the company netted a profit. 3. Recommendations on public accounting firm to audit the Company’s financial statements for the current financial year, based on the advice of the Board of Commissioners, or transfer this authority to appoint the Board of Commissioners. 4. Other matters that require shareholder approval at the Shareholders General Meeting in the interests of the Company without prejudice to the provisions of the Articles of Association. As a State-Owned Enterprise, Telkom is subject to Article 23 of Law No.19/2003 on State Owned Enterprises and the Law No.40/2007 on Limited Liability Company, which requires Board of Commissioners to submit an annual report to shareholders in a general meeting for approval at the latest of five months after the end of the recent fiscal year. 182 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES In general, the phases of the AGM are as follows: Sending announcement letter to Financial Services Authority Advertising the notification of the planned Shareholders General Meeting Activities Deadline of filing proposed agenda of Shareholders General Meeting by holders of at least 5% share. Delivery of meeting materials and proxy to BNY Mellon Recording Date of those who are entitled to attend Shareholders General Meeting Advertisement of invitation of Shareholders General Meeting Shareholders General Meeting Advertisement of the results of Shareholders General Meeting Time H - 44 H - 37 H - 29 H – 24 H – 23 H – 22 H H + 2 - - The Company shall make an announcement/notification 14 days prior to the invitation/call on the holding of the AGM. The Company invites/calls on shareholders by registered letter or advertisement in newspapers published at least 21 days prior to the date of GMS, out of dates of spreading invitation and meeting . - As a public company, in order to ensure the coherence of the information about the plan or implementation of the GMS, and in accordance with the OJK Regulation No.32 / POJK.04 / 2014, the company must provide details of the plan to the OJK at least seven days before the invitations. - After holding the Shareholders General Meeting, the company must report to the OJK no later than two working days and announced the decision of the AGM in at least one nationally circulated Indonesian newspapers. - All issued shares have one vote unless stated otherwise in the Articles of Association of the Company. 183 2014 Annual Report PT Telkom Indonesia Tbk (Persero)In 2014, we have both heldand Extraordinary General Meeting once with a detailed description as follows: GMS Schedule Venues Agenda Newspapers AGM April 4, 2014 Ballroom 2 Hotel Mulia Senayan Jl. Asia Afrika Senayan South Jakarta 10270 EGM December 19, 2014 Ballroom III, The Ritz Carlton Jakarta Pacific Place Lt. 4 Jl. Jenderal Sudirman Kav 52-53 Sudirman Central Business District South Jakarta 12190 1. Approval of the Annual Report for Fiscal Year 2013, including the Report of Supervisory Board of Commissioners. 2. Approval of the Financial Statements of the Company and the Annual Report of the Partnership and Community Development Program for Fiscal Year 2013, as well as the Responsibility Liberation of Board of Directors and Board of Commissioners. 3. Determination on the utilization of Net Income for the Fiscal Year 2013. 4. Determination of remuneration for the members of the Board of Directors and Board of Commissioners for Fiscal Year 2014. 5. Appointment of public accounting firm to examine the Company's Financial Statements for Fiscal Year 2014, including Audit Internal Control over Financial Reporting and the appointment of Public Accountant to examine the financial statements of the Partnership and Community Development for the Fiscal Year 2014. 6. Changes in Composition of the Company’s Boards of Director. Change of the Company’s management composition Advertisement of Announcements in newspapers of Investor Daily, Indonesia Bisnis and The Jakarta Post dated March 5, 2014. Advertisement of Invitation in Investor Daily newspaper, Binis Indonesia and The Jakarta Post on March 20, 2014. Advertisement of result of AGM in Investor Daily, Bisnis Indonesia and The Jakarta Post on April 8, 2014. Advertisement of Announcements in Investor Daily, Indonesia Bisnis and The Jakarta Post on November 19, 2014. Advertisement of Invitation on Investor Daily, Binis Indonesia and The Jakarta Post dated December 4, 2014. Advertisements of result of the EGM in Investor Daily, Bisnis Indonesia and The Jakarta Post on December 23, 2014. 184 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES4. Realization of General Meeting of Shareholders (GMS) AGMS Implementation in 2014 In 2014 we have held an Annual General Meeting on April 4, 2014, with the agendas and decisions as follows: Agenda Agenda 1 Decision Approval of the Company's Annual Report with the content having been delivered at the Meeting by the Board of Directors on the situation and the Company’s course of the Financial Year 2013, including the Report of the Supervisory Board of Commissioners for the Financial Year 2013. Agenda 2 1. To ratify: a. The Company’s Consolidated Financial Statements for the Fiscal Year 2013, which has been audited by Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) in the report number: RPC- 4912 / PSS / 2014 dated February 28, 2014 stating that the financial statements are presented fairly, in all material respects, and that the consolidated financial position of the Company (Persero) PT Telekomunikasi Indonesia Tbk and its subsidiaries dated December 31, 2013 and its financial performance and cash flows for the year then ended are in accordance with Accounting Standards Finance in Indonesia; b. Annual Report of the Partnership and Community Development Program for the Fiscal Year 2013, formulated on the base of the rules of Ministry of State Enterprises which is a comprehensive basis of accounting other than generally accepted accounting principles in Indonesia and has been audited by Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) in the report No. RPC-4744 / PSS / 2014 dated February 14, 2014 stating that the financial statements are presented fairly, in all material respects, the financial position of Centre Management Partnership Program and Community Development Program (Community Development Center ) Limited Liability Company (Persero) PT Telekomunikasi Indonesia Tbk and its subsidiaries dated December 31, 2013 as well as the activities and cash flows for the year then ended on that date are in accordance with Financial Accounting Standards of Entities Without Public Accountability. 2. Subsequently, with the approval of the Company's Annual Report for Fiscal Year 2013 and the ratification of the Company's Financial Statements for Fiscal Year 2013 and the Annual Report of the Partnership and Community Development Program for the Fiscal Year 2013, the Meeting releases and fully discharges from any responsibility (volledig acquit et decharge) the members of the Company's Board of Directors on their management of the Company and members of the Board of Commissioners on their supervision of the Company, as well as on the management and overseeing of the Partnership and Community Development Program which has been implemented for FY 2013, as long as the actions are not a criminal act or have not violated the provisions and procedures of the existing law and is recorded in the Company's Financial Statements for Fiscal Year 2013 and the Annual Report of the Partnership and Community Development Program for the Fiscal Year 2013. Agenda 3 1. To approve the determination of using the Company's net profit for fiscal year 2013 totaling Rp14,204,705,801,896 to the following designations: a. Cash Dividend by 55% of the net profit or a total of Rp7,812,588,191,043, or a minimum of Rp80.458 per share, based on the number of issued shares (excluding shares bought back) by the Company as of the date of the Meeting; b. Special Cash Dividend by 15% of net income or a total of Rp2,130,705,870,284, or a minimum of Rp21.943 per share based on the number of issued shares (excluding shares bought back) by the Company as of the date of the Meeting; c. Recorded as retained earnings at the amount of Rp4,261,411,740,569, which will be used to finance the Company's business development. 2. To approve the distribution of dividends and Special Cash Dividend for Fiscal Year 2013 which is carried out with the following conditions: a. Shareholders whose names are recorded in the Register of Shareholders of the Company as of May 2, 2014 until 16:00 pm are entitled to receive Cash Dividend and Special Cash Dividend; b. Dividend and Special Cash Dividend will be paid in a lump sum on May 19, 2014. 3. The Board of Directors is authorized to further regulate the procedure of the dividend distribution and to announce the above in accordance with the relevant regulations on the stock exchanges where the shares of the Company are listed. 185 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Agenda Agenda 4 Decision Delegating the authority and power to the Board of Commissioners with the prior approval of Shareholders of Series A Dwiwarna cq Deputy Strategic Industrial and Manufacturing, to determine the amount of the bonus given to members of the Board of Directors and Board of Commissioners for the Fiscal Year 2013 and salary/honorarium, facilities, and allowance and other benefits for members of the Board of Directors and Board of Commissioners for 2014. Agenda 5 1. Re-appointing Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) to perform an integrated audit for Fiscal Year 2014, which covers the Company’s Consolidated Financial Statements and the Company's Audit and Audit of Internal Control over Financial Reporting and the use of the Fund and the Partnership Program Community Development Fiscal Year 2014. 2. Delegating authority to the Board of Commissioners to determine the amount of audit fee and the terms of appointment of the Public Accounting Firm. 3. Delegating authority to the Board of Commissioners with the prior approval of shareholders of Series A Dwiwarna to appoint the replacement for the Public Accounting Office and to establish the terms and conditions of the appointment, if the appointed Public Accounting Firm is unable to perform or continue his duties for any reason, including not being able to reach an agreement on the amount of audit fee. Agenda 6 1. To approve the resignation of Mr. Gatot Trihargo as the Company’s Commissioner since the end of the Meeting, with thanks for his contributions to the Company thus far. 2. To approve the appointment of Mr. Imam Apriyanto Putro as Commissioner to replace Mr. Gatot Trihargo with the term of office commencing from the close of the meeting and ending at the close of the fifth Annual General Meeting after his appointment, namely at the close of the company’s Annual General Meeting to be held in 2019. 3. The full composition of the Members of the Board of Commissioners since the close of the Meeting is as follow: Board Of Commissioners Mr. Jusman Syafii Djamal as the President Commissioner; Mr. Parikshit Suprapto as Commissioner; Mr. Hadiyanto as Commissioner; Mr. Virano Nasution as Independent Commissioner; Mr. Johnny Swandi Sjam as Independent Commissioner; Mr. Imam Apriyanto Putro as Commissioner; for the period until the close of the Company's Annual General Meeting to be held in 2017 except for Mr. Jusman Syafii Djamal and Mr. Johnny Swandi Sjam whose terms of office will end at the close of the Company's Annual General Meeting to be held in 2015; and for Mr. Imam Apriyanto Putro whose term of office will end at the close of the Company's Annual General Meeting to be held in 2019. 4. Authorising the Board of Directors with a substitution right to restate the decision of the meeting unto Notarial Deed and subsequently notify any changes in the composition of the Board of Commissioners to the Minister of Justice and Human Rights and register the decision in the Company Register in accordance with the existing legislation. 186 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESEGM Implementation in 2014 In 2014 held an EGM on December 19, 2014 with the following agendas and decisions: Agenda Agenda 1 Decision We hereby notify the Company's shareholders of the Company (Persero) PT Telekomunikasi Indonesia Tbk., abbreviated Telkom (subsequently called the Company), that the Extraordinary General Meeting of Shareholders (or "Meeting") which was held on 19 December 2014 in Jakarta, with the sole agenda of changes to the Company's Management, has approved and decided: Meeting with majority vote, or 71.865% of the total votes, cast at the Meeting has approved the following: 1. Approves the resignation of Mr. Arief Yahya as the President Director of the Company who has served since October 27, 2014 with thanks for his contribution of service and thought given during his tenure as a Director. 2. Dismiss with honor: a. Mr. Ririek Adriansyah as Director; b. Mr. Rizkan Chandra as Director; c. Mr. Sukardi Silalahi as Director d. Mr. Priyantono Rudito as Director; e. Jusman Syafii Djamal as Commissioner which became effective as of the close of the meeting with thanks for their contribution of service and thought given during their tenures. 3. a. To appoint: i. Mr. Alex J. Sinaga as the President Director; ii. Mr. Heri Sunaryadi as Director; iii. Mr. Abdus Somad Arief as Director; iv. Mr. Herdy Rosadi Harman as Director; v. Mr. Dian Rachmawan as Director; vi. Mrs. Hendri Saparini as President; vii. Mr. Dolfie Othniel Fredric Palit as Commissioner the tenure of Director, Director, Commissioner and the Commissioner effective from the close of the Meeting until the fifth Annual General Meeting since these appointments without prejudice in relation to the right of the GMS to dismiss at any time. b. Change of position of Mr. Parikesit Suprapto from Commissioner to Independent Commissioner with the term in office continuing from his previous remaining term. 187 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Agenda Decision Thus the structure of the Members of Directors and Board of Commissioners at the cloe of the Meeting is as follow: BOARD OF DIRECTORS: Mr. Alex J. Sinaga as the President Director; Mr. Indra Utoyo as Director; Mr. Muhammad Awaluddin as Director; Mr. Honesti Basyir as Director; Mr. Heri Sunaryadi as Director; Mr. Abdus Somad Arief as Director; Mr. Herdy Rosadi Harman as Director; Mr. Dian Rachmawan as Director. BOARD OF COMMISSIONERS: Mrs. Hendri Saparini as President Commissioner; Mr. Imam Apriyanto Putro as Commissioner; Mr. Hadiyanto as Commissioner; Mr. Parikesit Suprapto as Independent Commissioner; Mr. Dolfie Othniel Fredric Palit as Commissioner Mr. Johnny Swandi Sjam as Independent Commissioner; Mr. Virano G. Nasution as Independent Commissioner; with tenures: DIRECTORS: - Mr. Indra Utoyo; Mr. Muhammad Awaluddin; Mr. Honesti Basyir until the close of the Company's Annual General Meeting to be held in 2017; - Mr. Alex J. Sinaga; Mr. Heri Sunaryadi; Mr. Abdus Somad Arief; Mr. Herdy Rosadi Harman; Mr. Dian Rachmawan until the close of the Company's Annual General Meeting to be held in 2019. BOARD OF COMMISSIONERS: - Mr. Johnny Swandi Sjam until the close of the Company's Annual General Meeting to be held in 2015; - Mr. Hadiyanto; Mr. Parikesit Suprapto; Mr. Virano G Nasution until the close of the Company's Annual General Meeting to be held in 2017; - Mr. Imam Apriyanto Putro; Mrs. Hendri Saparini; Mr. Dolfie Othniel Fredric Palit until the close of the Company's Annual General Meeting to be held in 2019. 4. Authorise the Board of Directors with the substitution right to restate the decision of the meeting unto the Notarial Deed and subsequently to notify the change of the Company's Board to the Minister of Justice and Human Rights and to register the decision in the Register of Companies as well as to perform other necessary actions in accordance with the existing laws and regulations. Controlling Shareholder Information The controlling shareholder of Telkom Indonesia is the government of Republic of Indonesia with a stake of 52.56%, while the remaining shares are owned by the public which amount to 47.44%. 188 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESBOARD OF COMMISSIONERS To improve the effectiveness of the implementation of Board of Commissioners’ duties and functions and to ensure that the duties and functions of the Board of Commissioners is in line with the principles of good corporate governance, the Board considers it necessary to publish the Charter of the Board of Commissioners. Criteria and Provision of Board of Commissioners The criteria for the Board of Commissioners is determined by Series A Shareholder, specifically for Independent Commissioner which amounts to at least 30% of all the members of the Board Commissioners. The Board of Commissioners Charter (Board Manual) According to the Charter of the Board of Commissioners No.16/KEP/DK/2013 on December 17, 2013, the Board of Commissioners adopts the following code of conduct 1. The Board of Commissioners is an assembly and each member of the Board of Commissioners is not permitted to act alone except if it is based on the decision of the Board of Commissioners. 2. Appointment as a member of the Board of Commissioners is open to any individual with Indonesian nationality who is legally competent, except individual who has, within five (5) years prior to the appointment (a) been declared bankrupt, (b) is a member of the board of directors or members of the Board of Commissioners, or supervisory board who is found guilty for causing a company or public Company to be declared bankrupt, and (c) is convicted of a criminal offense for causing financial losses to the country and/ or state-owned companies and/ or the financial sector. 3. Members of the Board of Commissioners are appointed from Indonesian citizens who meet the requirements in accordance with the legislation. The members of the Board of Commissioners and the relationship between the members of the Board of Commissioners andthe members of the Board of Directors should not be related by blood up to three degrees, either vertically or horizontally, or as a result of marriage (or by marriage). 4. The term of office of the members of the Board of Commissioners is for a period of five (5) years from the date of his/ her appointment in an AGM until the close of the fifth AGM after their appointment. 5. The provisions concerning the term of office of the members of the Board of Commissioners does not diminish the right of the AGMS to dismiss the members of the Board of Commissioners at any time before his term ends. Termination can be done if the members of the Board of Commissioners, among others: (a) can not perform their duties properly, (b) does not implement provisions of law or the Articles of Association, or (c) engaged in acts detrimental to the Company or the State. 6. After the term of office expire, the member of the Board of Commissioners may be reappointed for only a further term of office in an AGM. 7. Members of the Board of Commissioners may not hold another position as: (a) members of the Board of Directors on the state and regional enterprises and private enterprises, (b) other positions in accordance with the provisions of law, political party officials and / or candidates/ legislative and or candidates for regional head / deputy head of the region, and or (c) other positions that may give rise to a conflict of interest. 8. A member of the Board of Commissioners is entitled to resign by giving written notification of the intention of the Company with a copy to the holders of Series A Dwiwarna, BOC and other members of the Board of Directors no later than sixty (60) days before the date of his resignation. If the request does not specify a resignation effective date of resignation and no decision on the resignation of the General Meeting, the members of the Board of Commissioners is effectively stopped since the passage of the sixty (60) days from the date of receiving the letter of resignation. 9. Position of the Board of Commissioners shall terminate if: (a) the term of office expires, (b) resigns in accordance with the provisions of the Articles of Association, (c) no longer meets the requirements of laws and regulations, (d) died, and (e) dismissed by GMS. Duties of the Board of Commissioners 1. Oversee the Company’s policies made by the Board of Directors and provide the Board of Directors with advice on, among others, the Company’s development plan, the Company’s annual budget and work plan, the implementation of the provisions of the Articles of Association of the Company and AGM decisions and legislation with regard to the interests of the Company. 2. Performe duties, authorities and responsibilities in accordance with the Articles of Association of the Company and AGM decision. 3. Research and review the Annual Report prepared by the Board of Directors as well as sign the Annual Report. 189 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Authorities of Board of Commissioners 1. Give opinion and suggestion to AGM regarding periodic reports and other reports of the Board of Directors. 2. Oversee the implementation of the Company’s work plan and budget (including the investment budget) for the previous financial year and submit the results of the assessment and opinion to the AGM. 3. Follow the Company’s development activities and in the event that the Company show withdrawal symptoms, immediately ask the Board of Directors to announce to shareholders and provide advice on corrective measures that should be taken. 4. Provide opinion and suggestion to the AGM on any other issues deemed important to the management of the Company. 5. Propose to the AGM, through the Board of Directors, on the appointment of a public accounting firm to audit the Company’s Financial Statements, including the audit of internal control over financial reporting, according to existing regulations from the capital market authority in which the Company’s shares are registered and / or recorded. 6. Provide a report on the monitoring task has been carried out during the past financial year to the GMS. 7. Perform other supervisory duties which is prescribed in the AGM. Board of Commissioners Composition and Term of Office At the AGM held on April 4, 2014, shareholders approved the resignation of Gatot Trihargo from his position as commissioner which coincided with the end of this AGM. In the AGM, shareholders approved the appointment of Imam Apriyanto Putro as Commissioner to replace Gatot Trihargo with the term of office commencing from the end of this AGM until the end of the fifth AGM to be held in 2019. Thus, the new composition of the Board of Commissioners is as follow: Board of Commissioners Position Term of Office Since Jusman Syafii Djamal President Commissioner Parikesit Suprapto Hadiyanto Imam Apriyanto Putro Johnny Swandi Sjam Virano Gazi Nasution Commissioner Commissioner Commissioner Independen Commissioner Independent Commissioner 2011 2012 2012 2014 2011 2012 The composition of the Board of Commissioners again experienced a change in accordance with the results of the EGM held on December 19, 2014. Thus, the composition of the Board of Commissioners is as follows: Board of Commissioners Position Term of Office Since Hendri Saparini President Commissioner Dolfie Othniel Fredric Palit Imam Apriyanto Putro Hadiyanto Parikesit Suprapto Johnny Swandi Sjam Virano Gazi Nasution Commissioner Commissioner Commissioner Independent Commissioner Independent Commissioner Independent Commissioner 2014 2014 2014 2012 2012 2011 2012 The brief profiles of the members of the Board of Commissioner are presented in the section General Information Telkom Indonesia - Indonesian Telkom Management - Board of Commissioners. 190 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES The Board of Commissioners’ Fit and Proper Test The Fit and proper test (“UKK”) of the Board of Commissioners is conducted based on the Minister of SOE Regulation No. PER-19/MBU/10/2014 concerning Requirements and Procedures for Appointment and Dismissal of Members of the Board of Commissioners and the Board of Trustees of State Owned Enterprises and its amendment, Minister Regulation No.PER-21/MBU/11/2014 on the Amendment of Minister Regulation No.PER-19/MBU/10/2014, relating to the Requirements and Procedures for Appointment and Dismissal of Members of the Board of Commissioners and Board of Trustees of State Owned Enterprises. In conducting the assessment of the candidate Commissioner, the Minister establishes an assessment team comprising of: 1. Deputy Technical (as the team chairman); 2. Secretary of the Ministry of SOEs; 3. Deputy of Business Infrastructure; and 4. Two (2) Special Staff of the Minister of SOEs. Independence, Dual Posts and Share Ownership Independence of the Board of Commissioners Membership of the Board of Commissioners has complied with the laws and legislation as well as regulations in the capital market that relate to the independence of members of the Board of Commissioners and the number of Independent Commissioner, to maintain the independence of the supervisory functions of the Board of Commissioners and ensure the implementation of the mechanism of checks and balances. There is a restriction on the relationship between members of the Board of Commissioners, and the relationship between the members of the Board of Commissioners and the Board of Directors members, whereby they must not be related by blood up to the third degree, either vertically or horizontally or relationship by marriage. The number of Independent Commissioner is three (3) people, or 43% of the total members of the Board of Commissioners. This number has also exceeded the 30% minimum threshold of the number of independent directors established by the Indonesia Stock Exchange. The main task of the Independent Commissioner, in addition to supervising, is also to uphold the interests of minority shareholders. Dual Post Of Board of Commissioner Name Dual Posts in Board Of Commissioner Position at Other Institution/Company Name of Other Institution/ Company Hendri Saparini President Commissioner Executive Director Center of Reform on Economics (CORE Indonesia) Hadiyanto Commissioner Director General of State Wealth Ministry of Finance Dolfie Othniel Fredric Palit Commissioner Not Dual Posts Nil Imam Apriyanto Putro Commissioner Secretary Ministry of SOE Parikesit Suprapto Independent Commissioner Commissioner Kliring Penjamin Efek Indonesia (KPEI) Johnny Swandi Sjam Independent Commissioner Not Dual Posts Virano Gazi Nasution Independent Commissioner Not Dual Post Nil Nil Shareholdings of the Board of Commissioners The entire members of the Board of Commissioners do not own shares of Telkom and other companies. 191 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Implementation of Corporate action. Report of the Board of Commissioners 2014 Throughout 2014, the Board of Commissioners has conducted a series of activities in the framework of supervisory tasks such as: 1. 2. Implementation of organizational transformation. 3. Determination of network modernization. 4. Flexi migration. 5. International business development. 6. Mobile performance. In practice, the form of supervision of the Board of Commissioners is conducted through the following activities: 1. The Board of Commissioners holds joint meeting with the Board of Directors at least once every month. In the meeting, the Company’s Board of Directors delivers both the Company’s operational and financial performance and the Company’s stock prices in a report named the Management Report. 2. Through other meetings with the management, which is coordinated by the Secretariat of the Board of Commissioner and committees within the Secretariat of the Board of Commissioner. 3. Together with a team, the Board of Commissioner conducts field visits to monitor Telkom’s performance achievement in that field and to monitor the progress of the construction of the investment. 4. Receiving reports on the processes considered strategic, which become mutual concerns. From the series of supervision that the Board of Commissioners has undertaken throughout 2014, the Board of Commissioners believes that the implementation of the management in 2014 has been quite good. The Management has been able to create revenue growth by 20% above the industry average, achieve a positive growth in POTS businesses and a double digit growth in mobile revenue. As a whole, the financial performance has been reflected by the share price performance that has grown faster than that of the stock index. Meetings of the Board of Commissioners The Board of Commissioners held at least one meeting a month or at any time if deemed necessary by one or more members of the Board of Commissioners, or upon written request by one or more shareholders who own at least one-tenth of the outstanding shares. The quorum for all meetings of the Board of Commissioners is more than half of the members of the Board of Commissioners who are present or represented by proxy granted to one of the Commissioners who is present at the meeting. The decision-making mechanism in the Board of Commissioners meeting is based on the discussion for consensus. If consensus cannot be reached, then the decision making is based on a majority of vote by the members of the Board of Commissioners who are present or represented at the meeting. If there is a tie in terms of the number of votes, then the decision is made in accordance with the opinion of the Chairman of the Meeting. Internal meeting of the Board of Commissioners In 2014, the Board of Commissioner held fifteen (15) internal meetings of the Board of Commissioners. Name Jusman Syafii Djamal(1) Johnny Swandi Sjam Virano Gazi Nasution Hadiyanto Parikesit Suprapto Gatot Trihargo(2) Imam Apriyanto Putro(3) Hendri Saparini(4) Position Attended Meeting President Commissioner Independen Commissioner IndependenCommissioner Commissioner Commissioner Commissioner Commissioner President Commissioner 13 of 13 15 of 15 11 of 15 11 of 15 14 of 15 4 of 4 6 of 11 2 of 2 2 of 2 Dolfie Othniel Fredric Palit(5) Commissioner (1) as of December 19, 2014 (4) starting from December 19, 2014 (2) as of April 4, 2014 (5) starting from December 19, 2014 (3) starting from April 4, 2014 192 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Board of Commissioners and Board of Directors Joint Meeting The Board of Commissioners has also held fifteen (15) joint meetings with the Board of Directors4. Name Position Attended Meeting Jusman Syafii Djamal(1) President Commissioner Johnny Swandi Sjam Virano Gazi Nasution Hadiyanto Parikesit Suprapto Gatot Trihargo(2) Imam Apriyanto Putro(3) Independent Commissioner Independent Commissioner Commissioner Commissioner Commissioner Commissioner Hendri Saparini(4) President Commissioner Dolfie Othniel Fredric Palit(5) Commissioner Arief Yahya(6) President Director /CEO Muhammad Awaluddin Enterprise & Business Service Director Honesti Basyir Priyantono Rudito(7) Rizkan Chandra(8) Sukardi Silalahi(9) Ririek Adriansyah(10) Indra Utoyo Alex J. Sinaga(11) Heri Sunaryadi(12) Finance Director Human Capital Management Director Network, IT & Solution Director Consumer Service Director Wholesale & International Service Director Innovation & Strategic Portfolio Director President Director/CEO Finance Director Herdi Rosadi Harman(13) Human Capital Management Director Abdus Somad Arief(14) Network, IT & Solution Director Commissioner Dian Rachmawan(15) Consumer Direktur 14 of 14 13 of 15 12 of 15 13 of 15 15 of 15 4 of 4 8 of 11 1 of 1 1 of 1 9 of 10 12 of 15 14 of 15 14 of 14 11 of 14 13 of 14 14 of 14 14 of 15 1 of 1 1 of 1 1 of 1 1 of 1 1 of 1 (1) as of December 19, 2014 (4)starting from December 19, 2014 (7)as of December 19, 2014 (10)as of Desember 19, 2014 (13) starting from December 19, 2014 (2) as of April 4, 2014 (5)starting from December 19, 2014 (8)as of December 19, 2014 (11) starting from December 19, 2014 (14) starting from December 19, 2014 (3)starting from April 4, 2014 (6)as of October 27, 2014 (9)as of December 19, 2014 (12) starting from December 19, 2014 (15) starting from December 19, 2014 Remuneration for the Board of Commissioners Each member of the Board of Commissioners is entitled to a monthly remuneration and allowances. They are also eligible for bonuses based on the Company’s performance and achievements, in which the amount is determined by the shareholders at the AGM. Members of the Board of Commissioners are also entitled to benefits as a lump sum allowance upon resignation. Remuneration for the Board of Commissioners is calculated based on a formula prepared by the Nomination and Remuneration Committee and is also used for the determination of the Directors’ salaries, and the amount refers to the percentage of Director salary approved in the AGM. In line with provisions of the Regulation of the Minister of SOEs PER-04 /MBU / 2014, GMS can specify - the type of income and/ or specific amount that is different from the stipulation of the Ministerial Regulation.' Procedure and Mechanism of Remuneration for the Board of Commissioners The procedure to determine the remuneration of the Board of Commissioners’ is as follows: - The Board of Commissioners asked the Nomination and Remuneration Committee (NRC) to draft a proposal of remuneration for the Board of Commissioners. The Nomination and Remuneration Committee then request the independent party to develop a framework for the remuneration of the Board of Commissioners. 193 2014 Annual Report PT Telkom Indonesia Tbk (Persero) - - - The Nomination and Remuneration Committee proposes the framework to the Board of Commissioners. The Board of Commissioners proposed remuneration of the members of the Board of Commissioners to the GMS. The GMS delegates authority and power to the Board of Commissioners with the prior approval of Shareholders Series A Dwiwarna to set the remuneration for the members of the Board of Commissioners. Number of Remuneration of Board of Commissioners in 2014 For 2014, the aggregate remuneration of the entire Board of Commissioners, including bonuses but excluding other benefits, was Rp25.3 billion. The total accrued remuneration of the entire Board of Commissioners for 2014 was Rp37.1 billion, including long- term incentives and allowance upon resignation. In addition, the tax on the aggregate remuneration of the Board of Commisisoners, borne by Telkom, was Rp17.2 billion.The total remuneration of the boards of commissioners of Telkom’s subsidiaries in 2014 was Rp80.2 billion. Board of Commissioners Honorarium Tantiem & THR Allowance Total Value (Rp million) Hendri Saparini Dolfie Othniel Fredric Palit Imam Apriyanto Putro Hadiyanto Parikesit Suprapto Johnny Swandi Sjam Virano Gazi Nasution Jusman Syafii Djamal (2) Gatot Trihargo(1) Description: (1) as of AGMS date of April 4, 2014 (2) as of EGMs date of December 19, 2014 - - 577.5 868.1 868.1 868.1 868.1 964.5 289.4 - - 72.3 2,909.2 2,909.2 2,909.2 2,909.2 3,232.4 1,969.2 - - 477.2 410.7 420.7 592.0 407.0 614.9 229.4 - - 1,127.0 4,187.9 4,198.0 4,369.2 4,184.3 4,811.8 2,487.9 Board of Commissioners Training and Competency Enhancement Programmes In 2014, the members of the Board of Commissioners has participated in several training programmes to increase their competences such as: Board of Commissioners Competence Improvement Name Program Location Date l Jusman Syafii Djamal Group CEO SingTel Singapore January 29, 2014 Parikesit Suprapto Group CEO SingTel Singapore January 29, 2014 Hadiyanto Technology Development Update Swedia April 25 – 29, 2014 Johnny Swandi Sjam • Indonesia Corporate Day • LTE Technology Development Update • UK & US • US - August 30 –September 6, 2014 - September 5 – 13, 2014 Imam Apriyanto Putro European HR Summit UK September 22 – 24, 2014 Assessment of Members of the Board of Commissioners Performance Overall, the GMS assesses the performance of the Board of Commissioners’,regarding the discharge of their duties and responsibilities in the respective year. Accountability for the implementation of the Board of Commissioners’ duties and responsibilities for the Fiscal Year 2014 will be made at the AGM to be held in 2015. 194 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES GCG Assessment of BOC We also assess the performance of GCG implementation conducted by the Board of Commissioners as one of the organs of GCG. The GCG ssessment process is performed out by IIGC, an independent party that performs a CGPI rating on Telkom. There are twelve aspects being assessed in the implementation of GCG , namely the aspect of commitment, transparency, accountability, responsibility, independence, fairness, competence, leadership, strategy, ethics, vision-mission-values, culture, and implementation of a learning organization. In this GCG assessment, Telkom received the rating of “Indonesia Most Trusted Company”. In addition to the assessment, we are also assessed by the BPKP in the program of “BUMN Bersih”. The program was launched by the Minister of SOEs and is characterized by the signing of a commitment by the entire SOEs Managing Director. The assessment of “BUMN Bersih” is aimed at directing the whole SOEs to implement good corporate governance (GCG) both administratively and substantively as well as to realize SOEs which are strong (professional), superior (priority system, quality, and innovation) and dignified (clean from all forms of irregularities and fraud, including corruption). The assessment is conducted in stagesg and gradually. The first stage is the assessment to the Board of Directors and the Board of Commissioners in the third month since the signing of the Company’s commitment “BUMN Bersih”. The criteria of “Bersih” used in the program “BUMN Bersih”, is broadly defined. This includes assessment of the principles of good corporate governance, namely transparency, accountability, responsibility, independency and fairness. These five principles are the foundation for management systems ranging from planning to accountability, commitment not to do any form of fraud / cheating, including all forms of corruption, receiving and/ or giving gratification associated with his/ her position. When BPKP assessed the entire ranks of Board of Directors and Commissioners, we should be grateful with the assessed value of the survey results. Telkom is the top ranks with a value of 8.3 (range 10). This means that the “BUMN Bersih” program has been implemented in the Good Corporate Governance. The Board of Commissioners Secretariat The Board of Commissioner is assisted by a Secretary of the Board of Commissioners, who is responsible for ensuring that the execution of the Board of Commissioners duties is in accordance with the Company’s Articles of Association and existing legislation. The Board of Commissioners Address The official address of Telkom’s Board of Commissioners is Graha Merah Putih, 5th Floor, Jl. Jend. Gatot Subroto, Kav.52, Jakarta 12710, Indonesia. 195 2014 Annual Report PT Telkom Indonesia Tbk (Persero)BOARD OF DIRECTORS Directors are appointed and dismissed by the GMS. To be elected, candidates must be nominated by the Shareholder Series A Dwiwarna. Each Director of Telkom have tenure for five (5) years starting from the date of appointment, unless the date of expiration of the term of office falls on a day other than a workday, in which case such term of office shall expire on the following workday. Shareholder, through an AGM or EGM, are entitled to dismiss the members of the Board of Directors at any time before the expiration of his/ her term of office. Criteria of Board of Directors Members Based on the Act 40 of 2007 on Limited Liability Company, Regulation of SOE Ministry No.1/MBU/2012 on Procedures for Appointment of Directors of SOEs and OJK Regulation No.33/ POJK.4/ 2014 on the Board of Directors and Board of Commissioners of the Public Company public or Issuer, an individual is eligible to be a member of the Board of Directors if he/ she is an individual who meets the following requirements upon appointment and during his/ her tenure: 1. Has good character, morals, and integrity. 2. Of legal age. 3 In the five (5) years prior to the appointment and during his tenure: a. Has not been declared bankrupt; b. Has never been member of the Board of Directors and/ or members of the Board of Commissioners who was found guilty of causing a company to go bankrupt; c. Has never been convicted of a criminal offense that harms the country’s financial and/ or relating to the financial sector; and d. Has never been a member of the Board of Directors and/ or members of the Board of Commissioners that during his tenure: (a) never held AGM, (b) His/her accountability as a member of the Board of Directors and/ or members of the Board of Commissioners have ever ‘not accepted’ by the GMS or ever not give an account as a member of the Board of Directors and/ or members of the Board of Commissioners to the General Meeting of Shareholders, and (c) ever led companies --that obtain a permit, approval, or registration of the OJK--, do not fulfill their obligation to submit annual reports and / or financial reports to the OJK. 4. Is committed to comply with laws and regulations; and 5. Has knowledge and/ or expertise in the field that is needed by the publicly listed company or entity. Criteria of directors will be adjusted based on the regulation of SOE Ministry No.PER.03/MBU/02/2015 on the requiretments and procedures for the appointment and dismissal of Directors of SOEs The Board of Directors Composition and Tenures In accordance with the decision of the General Meeting of Shareholders (AGM) of Telkom on April 23, 2013, the composition of the Company’s Board of Directors is as follows: Board of Directors Position Term of Office since Arief Yahya Honesti Basyir Indra Utoyo Sukardi Silalahi Muhammad Awaluddin Rizkan Chandra Priyantono Rudito Ririek Adriansyah President Director Director Director Director Director Director Director Director 2005(1) 2012 2007(2) 2012 2012 2012 2012 2012 Description: (1) He served as Enterprise and Wholesale Director based on the resolutions in AGM 2005 and he was appointed the President Director in AGM 2012. (2) He was appointed as Information Technology Solution and Supply Director in AGM 2007 and was appointed as Innovation & Strategic Portfolio Director in AGM 2012. 196 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES On October 27, 2014, Arief Yahya who was then the President Director of Telkom was appointed as Minister of Tourism, Republic of Indonesia. Therefore, in accordance with the Articles of Association and regulations, the Board of Directors meeting held on October 28, 2014 had elected Indra Utoyo, who was a Director of Innovation and Strategic Portfolio at that time, as Acting President Director. In accordance with the results of the EGM held on December 19, 2014, the composition of the Board of Directors has been amended as follow: BOD Alex J. Sinaga Heri Sunaryadi Indra Utoyo Dian Rachmawan Muhammad Awaluddin Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir POSITION President Director Director Director Director Director Director Director Director TERM OF OFFICE SINCE 2014 2014 2007(1) 2014 2012 2014 2014 2012 Description : (1) Based on the results of EGM 2007 he served as Information Technology Solution & Supply Director through the realization of EGM 2012 where he was appointed Innovation & Strategic Portfolio Director. As the follow up on the implementation of the EGM on Friday, December 19, 2014, we held a Board of Directors meeting on the same date and assigned a nomenclature of Telkom’s Board of Directors as follow: 1. Alex J. Sinaga as the President Director 2. Heri Sunaryadi as Director of Finance 3. Indra Utoyo as Director of Innovation and Strategic Portfolio (ISP) 4. Dian Rachmawan as Director of Consumer Service (CONS) 5. Muhammad Awaluddin as Director of Enterprise and Business Service (EBIS) 6. Abdus Somad Arief as Director of IT and Network Solution (NITS) 7. Herdy Rosadi Harman as Director of Human Capital Management (HCM) 8. Honesti Basyir as Director of Wholesale and International Service (WINS) Scope and Main Duties of the Board of Directors Pursuant to the Company’s Articles of Association, the BoD is primarily responsible for leading and managing the Company’s operations as well as controlling and managing its assets, under the supervision of the BoC. The BoD also has the right to act for and on behalf of the company, inside or outside the Court of Law, on any matters and for any events, with any other parties. 1. President Director as CEO of Telkom Group - - - - - - To coordinate the process of structuring and/or reconstruction of the aspects of corporate philosophy, which includes but is not limited to vision, mission, objectives, corporate culture, and leadership architecture; To formulate and to state the strategic direction for the conditioning of the Company’s capability in realizing sustainable competitive growth across Telkom Group’s business portfolio and risk management as well as interfacing with external constituent; To control the strategic planning function within the Telkom Group and to direct businesses development by focusing on new businesses portfolio; To control corporate direction in driving new business, entering/ developing new markets and for internationalization/regionalization. To control the management of strategic aspects and finance, human capital and innovation and strategic portfolio management on the entire businesses portfolio of Telkom’s group; In charge of leadership development program in Telkom Group, and to appoint and to dismiss certain official positions, in accordance with the established career management regulations, and 197 2014 Annual Report PT Telkom Indonesia Tbk (Persero) - leadership development program for the entire Telkom Group; To submit reports on the Company’s performance as required for a public company on a regular basis. 2. Finance Director (“KEU”) - - - - To determine the concept and the formula of the Company’s Long-Term Financial Planning for Telkom Group; To facilitate the process of formulating the concept of corporate level strategy, particularly the financial perspective on, but is not limited to, strategic budgeting, business & investment, parenting strategy, subsidiary performance, and capital management; To determine financial and logistic strategy and policies, which include, but is not limited to Financial Policy, Financial System Support Policy, Asset Management & Logistic Policy, Asset Management & Logistic; To determine the governance policies and the financial accounting management, accounting management (budgeting), and corporate finance (treasury); - To determine the policies, governance, and mechanism of managing the Annual Work Plan Budget (RKAP); To carry out the advisory role in determining corporate level strategy, particularly for matters related to Telkom Group’s financial resources. - - - 3. Director of Innovation & Strategic Portfolio (“ISP”) To determine the concept and formula of the Company’s Long-Term Plan (corporate strategic scenario); To determine the governance policies and the mechanisms of the management of corporate planning and strategy (policies on the level of planning and strategy - corporate level, business level and functional level); To determine the strategy and the policy of the Telkom Group’s business portfolio; - - - To determine the strategy, policy and recommendation for corporate action and strategic investment for the development of Telkom Group’s business; To determine the innovation strategy in order to explore new sources of growth for Telkom Group’s business portfolio; To determine the parenting strategy to harmonize and optimize the capability of the Telkom Group’s business entities - 198 4. Director of Consumer Service (“CONS”) - - To define the strategy and business planning to leverage the Company’s resources capability in creating competitive advantage to win the competition and long term growth of the consumer segment business portfolio (consumer home services and consumer personal services) within Telkom Group; To determine 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 consumer segment business within Telkom Group; - To determine the policy, governance, and mechanisms of the management of the consumer segment marketing functions; - To determine the policy, governance, and mechanisms of the management of the consumer segment sales and/ or partnership function; - To determine the policy, governance, and mechanism of the management of customer relationship management on the consumer segment; Ensuring the effectiveness of business risk management in all units under the Directorate of Consumer Service. - 5. Director of Enterprise Business Service (“EBIS”) - - To define the business strategy and planning to leverage the Company’s 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; To determine the parenting policies 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 business) of Telkom Group; - To determine the policy, governance, and mechanisms of the management of corporate segment marketing function (enterprise and business); - To determine the policy, governance, and mechanisms of the management of the corporate segment sales and/or account management function (enterprise and business); - Determine the policy, governance, and mechanism of customer relationship management for corporate segment (enterprise and business); 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES - Ensuring the effectiveness of risk management in all business processes of the entire units under the Directorate of Enterprise Service. 6. Director of Network, IT& Solution (“NITS”) - Determining the business plan and strategy in order to leverage the capability of company’s resources to develop/exploit the established business/ services by utilizing infrastructure, IT and solution to support Telkom Group business portfolio synergistically; - Determining the policy, governance, and mechanism for the utilization of infrastructure/ network to support the growth of Telkom Group business portfolio; - Determining the policy, governance, and mechanism for the utilization of IT to support the growth of Telkom Group business portfolio; - - Determining the policy, governance, and mechanism for the conditioning of excellent performance of services/solutions to support sustainable competitive growth of Telkom Group; To manage and to control the parenting 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; Ensuring the effectiveness of risk management in all business processes in all units under the Directorate of NITS. - - 7. Director of Human Capital Management (“HCM”) - - - - To determine the concept and formula for Human Capital Long Term Plan and Human Capital Master Plan in Group; To facilitate the process of formulating corporate level strategy, particularly on aspects related to the development of center of excellent, organization behavior, corporate culture, and leadership architecture; To determine the strategy and policies for human capital function, including but is not limited to human capital policy, organisation development, and industrial relation; To determine the governance policy and the management mechanism and planning of resources related to the development, utilization and management of human resource; - To determine the policy, governance, and mechanism for the development and interrelation of the entities/institutions related to human resources management, including but is not limited to the pension fund management institutions, employee and retire health care institutions, skill and competence development institution or educational institution, and labour union; To conduct the advisory role in determining corporate level strategy, especially for matters related to Telkom Group’s human resources development. - 8. Director of Wholesale & International Service (“WINS”) - To define the strategy and business planning to leverage the Company’s resources capability in creating competitive advantages to win thecompetition and to achieve long term growth of the Wholesale & International segment business portfolio of Telkom Group; - 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 operations for the Wholesale & International segment of Telkom Group; - Determining the policy, governance, and mechanisms of the management of Wholesale & International segment marketing functions; - Determine the policy, governance, and mechanisms of the management of the Wholesale & International segment sales and/or account management function; - Determining the policy, governance, and mechanisms of the management of customer relationship management for Wholesale & International segment; Ensuring the effectiveness of risk management in all business processes of the entire units under the Directorate of Wholesale & International segment. - 199 2014 Annual Report PT Telkom Indonesia Tbk (Persero) BoD Charter In the case of activities and actions in the Company’s management that are not governed by our Articles of Association or theprovisions of the law, procedures are followed that support the principle of accountability through consensus, agreement and/or rules between the members of the BoD. The BOD charter is aimed at expediting the decision making process, reducing bureaucracy in the administration of the Company’s management, and supporting improvements in performance. This charter also governs the working relationship between the BoD and the BoC, which is an institutional relationship in that it is based on countable management and supervisory mechanisms in accordance with the prevailing provisions. Feasibility and Proper Test of Board of Directors Member The implementation of Fit and proper test (UKK) for members of the Board of Directors is conducted based on the SOE Ministerial Regulation No.Per 01/ MBU/ 2012 on Requirements and Procedures for Appointment and Dismissal of Directors of State-Owned Enterprises as well as several changes, among which are: - Regulation of SOE Ministry No.Per-06/ MBU/ 2012 on the Amendment of Regulation od SOE Ministry No.Per 01/ MBU/ 2012 on the Requirements and Procedures for Appointment and Dismissal of Board of Directors Members of State Owned Enterprises; - Regulation of SOE Ministry No.Per-16/ MBU/ 2012 on the Second Amendment Regulation of SOE Ministry No.Per 01/ MBU/ 2012 on the Requirements and Procedures for Appointment and Dismissal of Board of Directors Members of State Owned Enterprises; - Regulation of SOE Ministry No.-09/ MBU/ 2014 on Third Amendment of Regulation of SOE Ministry No.Per 01/ MBU/ 2012 on the Requirements and Procedures for Appointment and Dismissal of Directors Member State Owned Enterprises; and - Regulation of SOE Ministry No.Per-20/ MBU/ 2014 on the Fourth Amendment of Regulation of SOE Ministry No.Per 01/ MBU/ 2012 on the Requirements and Procedures for Appointment and Dismissal of Directors Member State Owned Enterprises. In Article 8 of the Regulation of SOE Ministry No.PER- 20/ MBU/ 2014 of the Fourth Amendment of Regulation of SOE Ministry No.Per 01/ MBU / 2012 on Requirements and Procedures for Appointment and Dismissal of Directors Member State-Owned Enterprises, UKK and evaluation are conducted by a Team consisting of: a. Technical Deputy (as the team leader); b. Secretary of the Ministry of SOEs; c. Business Infrastructure Deputy and d. Two (2) special staffs of the Minister of SOEs. According to Regulation of SOE Ministry No.Per-01/ MBU/ 2012, UKK is conducted by the team as mentioned above and is assisted by the Professional Institute in accordance with Regulation of SOE Ministry No.Per SOE-01/ MBU/ 2012. BoD Remuneration Policy Each member of the Board of Director is entitled to a monthly remuneration consisting of a monthly salary and other allowances. They are also eligible for bonuses based on the Company’s performance and achiement, which amount is determined by the shareholders at the AGM. Members of the Board of Directors are also entitled to a lump sum allowance upon resignation. 1 Comissioners request NRC to provide remuneration plans. The draft is presented to the GMS 5 4 3 2 NRC* asks advices from independent party Independent party provides advices to NRC GMS 200 Procedure and Mechanism of BoC and BoD Remuneration *NRC : Nomination and Remuneration Committee 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES The remuneration for the members of the Board of Directors is calculated based on a formula prepared by the Nomination and Remuneration Committee (NRC), which is also used to determine the salary of the Board of Directors. The amount refers to the percentage of President Director’s salary approved in the AGM. In line with the Regulation of the Minister of SOEs No. PER-04/ MBU/ 2014, the GMS can specify the type of income and/ or a specific amount that is different from that which is stipulated in the Ministerial Regulation. Procedures and Mechanisms of BOD Remuneration The procedures to determine the remuneration for members of the Board of Directors are as follow: 1. The Board of Commissioners asks the NRC to draft remuneration proposals for the Board of Commissioners. 2. The Nomination and Remuneration Committee requests an independent party to develop a framework for the remuneration of the Board of Commissioners. 3. The Nomination and Remuneration Committee proposes the framework to the Board of Commissioners. 4. The Board of Commissioners proposes remuneration of the members of the Board of Commissioners to the General Meeting of Shareholders (GMS). 5. The GMS delegates the authority and power to the Board of Commissioners with the prior approval of Shareholders of Series A Dwiwarna to set the remuneration for the members of the Board of Commissioners. Total Board of Directors Remuneration in 2014 For 2014, the total remuneration of the entire Board of Directors, including bonuses but excluding other benefits, was Rp70.4 billion. The total accrued remuneration of Board of Directors for 2014 was Rp123.5 billion, including long-term incentives and allowance upon resignation. In addition, the tax on the aggregate remuneration of the Board of Directors, borne by Telkom, was Rp27.3 billion. The remuneration of the boards of directors of Telkom’s Subsidiaries in 2014 was Rp300.9 billion. Board of Directors Alex J. Sinaga Heri Sunaryadi Indra Utoyo Dian Rachmawan Muhammad Awaluddin Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir Arief Yahya* Sukardi Silalahi** Rizkan Chandra** Priyantono Rudito** Ririek Adriansyah** Description: *) until October 27,2014 **) as of EGM of December 19, 2014. Honorarium Tantiem & THR Allowance Total Value (Rp million) - - 1,782.0 - 1,782.0 - - 1,782.0 1,650.0 1,782.0 1,782.0 1,782.0 1,782.0 - - 5,822.1 - 5,822.1 - - 5,822.1 6,469.1 5,822.1 5,882.1 5,882.1 5,882.1 - - 1,138.7 - 1,138.7 - - 1,138.7 1,040.1 1,138.7 1,138.7 1,138.7 1,138.7 - - 8,742.8 - 8,742.8 - - 8,742.8 9,159.2 8,742.8 8,742.8 8,742.8 8,742.8 The Board of Directors meeting The meeting of the Board of Directors is chaired by the President Director. In the event that the President Director is unable to attend or is absent for a reason, the meeting will be chaired by a member of the BoD appointed in the meeting. The meeting of the Board of Directors may be held at any time deemed necessary at the request of one or more members of the Board of Directors or at the request of the Board of Commissioners or upon a written request from one or more shareholders representing one-tenth or more of the total number of outstanding common shares. 201 2014 Annual Report PT Telkom Indonesia Tbk (Persero) The decisions of the BoD meeting shall be reached by consensus. If this method fails, the decision shall be passed by voting based on the majority votes by BoD members cast in the meeting. A quorum is reached at a BoD meeting if more than half of the members of the Board of Directors are present or are legally represented at the meeting. Each member of the Board of Directors who is present at the meeting shall be entitled to cast one vote (and one vote for each other Director who that he/ she represents). As of December 2014, the Board of Director meetings were conducted with the following agenda: Month Agenda 1. Reports Discussion and Breakthrough Transformation Program (BTP) Discussion and Transformation of Corporate Holding, Global Human Capital Readiness Index (GMI) and Decision KM BOD 2014. 2. Report of Development and Management of Indonesia’s Digital Creative Industries and Corporate January Strategic Planning Approval System. 3. Signing of Commitment Telin-Infomedia related Australia INEX program, Telin-Sigma related program INEX Jurong Data Center, Telkomsel Telin-Telkomsel related branding, Telin-Metra related Metra Group product and service portfolio development for overseas. February 1. Reports & Breakthrough Transformation Program (BTP) Discussion. 1. Report of Handbook and Presentation Material of CRO, DPI (Interconnection Request Data), Dividend March Effect on Stocks. 2. Discussion of Telkom Cloud: Telkom Group Synergy Commitment. April 1. Approval Letter of Submission of Materials explaining on Telkom Vision for Board of Commissioners, Task Force of ROSE Program in 2014, PD Organization of Pro-business Network Application Services. May June July 1. Reports & Discussion of Breakthrough Transformation Program (BTP), Official Songs and Telkom Corporate Uniform, Entry Strategy and INEX business Plan, Follow up of IDSA (Digital City Development). 2. BoD agenda Update, Progress on PT MD Network Establishment, Content Management Report April 2014, INEX Progress KSA, Project to-buy Telkom Australia (TAU) 1. Approval of the resolution to prepare the internet gateway IP transit between Telkom and Telin, approval for the injection of capital into Telkom Metra's joint venture with Telstra Singapore 2. BoD Agenda Update, Social Security, Pension Fund Regulatory and Approval of KM VP and SGM 2014, PD Determination of Telkom’s Human Capital Management System. 1. Approval of Task Force CSO Support, PD Organizational Change of IDEC-M2M Digital Ecosystem, SBR Justification Development Services Satellite Control PSN -VI. 2. Reports of Sell First then Buy WiFi Business, Corporate Action UseeTV, CVC Formation Dico. 3. Approval To Increase in Investment (Equity Call) to PT Sigma Cipta Caraka (Telkom Sigma) in order to Devekop Capacity Data Center 100 K m2 through Telkom Metra, Report of Procurement of Telkom Satellite 3-S In Orbit Slot 118 BT. 1. Reports of IDN 2020 (Master Plan Telekomunikasi RI), BUMN Holding, Satelite Maritime Business, August Personal Service for Telkom Group, Security Operations Center. 2. BoD Agenda Update, JV NAS and Report of NKU TW 2 2014, Progress Report of TCUC utilization. 1. Reports & Discussion of Breakthrough Transformation Program (BTP) and PD Agreement on the Implementation Project Organization for Telkom 3S. 2. Report: WiFi Business (Integrator and Benchmark System), NKU TW-2 2014 and Presentation Deloitte September (Internationalization Observations). 3. Evaluation Report and Roadmap of WiFi Business, Frequency Spectrum Strategy for Telkomsel, Telkom Satellite going Global, International Data Network Regional, Launching of Telkom Macau, Business Studies on the Establishment of GM Segment Maritime & Probis MILES. 1. BoD Agenda Update, Executive Business, CSS, ReFlexi, PD Corporate Culture and Decision on Regional Division Resourses Allocation. October 2. Report of Telkom Evaluation System and Culture, Regional Division Resourses Allocation, TLT Progress, Launching InEx KSA, agreement on corporate regulation related to spirit-based Telkom Group Sinergy, Corporate regulation on “difficult people”. November 1. Decision of Tourism Segment Formation Studies at DES and the Implementation of e-tourism working Program in the Ministry of Tourism, approval of Regulations Related Spirit-based Telkom Group Synergy, Corporate Regulations regarding the handling of "difficult people” December 1. Reports and discussion of Breakthrough Transformation Program (BTP). 2. Decision on the Telkom Group Integrated Supply Chain Management 202 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESAttendance of Directors Meeting In 2014 the Company held 46 Board of Directors meetings with the level of director’s attendances as follow. Director Alex J. Sinaga Heri Sunaryadi Indra Utoyo Dian Rachmawan Muhammad Awaluddin Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir Arief Yahya(1) Rizkan Chandra(1) Sukardi Silalahi(1) Ririek Adriansyah(1) Priyantono Rudito(1) Description: (1) as of EGM of Desember 19, 2014 Attended Meeting Percentage (%) 2 of 2 2 of 2 43 of 46 1of 2 40 of 46 2 of 2 1 of 2 41 of 46 36 of 36 40 of 44 40 of 44 39 of 44 41 of 44 100 100 93.5 50 87.0 100 50 89.1 100 90.9 90.9 88.6 93.2 203 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Directors Competency Enhancement Program In 2014, the members of the Board of Directors have attended various training programs, workshops, conferences and seminars, both as participants and as a speaker, in order to increase of the competence of the Board of Directors. Table of Competence Enhancement Programmes for Directors: Board of Directors attended as a speaker in the Seminar/Workshop/Conference/Training Name Alex J. Sinaga Heri Sunaryadi Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman - - - - - Programme Venue Date - - - - - - - - - - Indra Utoyo (Speaker) at the National Seminar and Workshop on Data Center and Disaster Recovery Plan best practices for Indonesia (Telkom PDC) / Theme: Indonesia Digital Cloud Through Always on Data Center (Speaker) on SOE TRACK: SOE Outlook 2014 - Welcoming the 2015 ASEAN Economic Community / Topic: SOE Strategic Agenda 2014 and the 2015 ASEAN Economic Community (Panelist) Technopreneurship in the 21st Century Critical Issues and Challenges / Theme: NTC-SBM Technopreneurship Forum: Driving Sustainable Economic Growth - Science, Innovation and Business. (Speaker) CISCO Business Planning Workshop / Keynote Speech for Executives / Material: PINs in Telkom's Strategic Portfolio (Sources) Consumer Protection in Financial Industry Seminar 2014 / Session: Innovation Towards Implementation of Marketing 3.0 in the Financial Services Industry / Topic: Educating Marketing and Consumer Products Based Technology. Hotel Shangri-La, Jln. Jend. Sudirman Kav.1, Jakarta January 22, 2014 Hotel Borobudur, Jln. Lap. Banteng Selatan, JakPus January 29, 2014 Ballroom JS Luwansa Hotel, Rasuna Said, Jakarta February 26, 2014 JS Luwansa Hotel, Rasuna Said, Jakarta March 5, 2014 Ballroom The JS Luwansa Hotel & Convention Center, Jln. H.R. Rasuna Said Kav. C.22, JakSel April 14, 2014 Honesti Basyir (Participants) Forum Yakes Investment Management and Evaluation of Q4 Hotel Hyatt, Jl. Kaliurang Jogjakarta (Keynote Speaker) Workshop ISCM & Telkom Group Procurement Synergy Ruang Rapat Delima, Jakarta January 18, 2014 March 26, 2014 (Speaker) Non-Deal Roadshow (NDR) with Bahana and Bahana's Clients Financial Hall, 27th Floor, Grah Niaga, Jakarta April 16, 2014 (Speaker) seminar on national committee governance policy - GCG: Towards Well Governed Society/theme: Implementation of GCG to the Well-Governed Societe Ball Room Dua Mutiara I, Hotel JW Marriot May 6, 2014 (Speaker) Workshop on Implementation of IFRS in SOEs Hotel Aston Orimera Bandung May 9, 2014 (Participants, Speakers) 5th Annual DB Access Asia Conference (Keynote Speaker) Opening SUSPIM International (Keynote Speaker) Technical Cooperation Jointly held by Auditor Telkom Group and BPKP Marina Bay Sands Singapore May 21, 2014 Corpu, Bandung June 9, 2014 Corpu Telkom Gerlong June 9, 2014 204 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESName Programme Venue Date (Speaker, Participant) Meeting with Credit Suisse Analyst and Banker ECM Team Credit Suisse Office, One Rafles Link, South Tower June 18, 2014 (Participants) Global Bond Update by Credit Suisse Rr. Dirkeu Jkt June 18, 2014 (Participant) Global Bond Update by ANZ Rr. Dirkeu Jkt June 19, 2014 (Speaker) Debriefing EGM Regional Division (Speaker) In the talk show "Inspiration Movement For Indonesia" OSKM ITB 2014 (Participant) CFO Forum, hosted by Singtel (Participant) Macquarie ASEAN Conference (Speaker) In Andalas University Seminar theme "Participation of Industrial Engineering Program in Industrial Engineering Profession Forming In Anticipation to the Law of Engineering" (Participant) Presentation and Press Conference on Investors Investor Summit and Capital Market Expo 2014 Hotel Padma, Bandung July 2, 2014 Gedung Sasana Budaya Ganesa (Sabuga) ITB, Bandung Intercontinental Hotel Sydney, Australia August 22, 2014 August 25-26 2014 Fullerton Hotel, Singapura August 28-29, 2014 The Hills Bukit Tinggi, Padang September 3, 2014 Ritz Carlton, Pacific Place, Jakarta September 17, 2014 (Participant) Daiwa Capital Markets Conference 2014 The Imperial Hotel, Tokyo, Jepang November 5-7, 2014 Muhammad Awaluddin (Speaker) ISCLO 2014, "2nd International Seminar & Conference on Learning Organization" Ritz Carlton PP, Jakarta November 5, 2014 (Participant) Business Leader Forum “Fewer, Bigger, Bolder” (Speaker) CEO goes to Campus “Technopreneurship” Ritz Carlton PP, Jakarta October 16, 2014 UNJ, Jakarta October 1, 2014 (Speaker) ICISS 2014, “2014 International Conference on ICT for Smart Society” Grand Royal Panghegar Bandung, September 25, 2014 (Speakers) Briefing Participants SUSPIM 3 Regular Batch 5 " GMP Jakarta – CorpU Gerlong (Vicon) September 17, 2014 (Speaker) Session BoD SUSPIM BOD-2 International Batch # 2 INSEAD Fontainebleau, Perancis September 9, 2014 (Participant) FGD Global Leading Public Transport Practice - PwC Belanda September 8, 2014 (Speaker) FTU Telematics Cluster "Improving Interwoven Partnership Cooperation Between Employers Large and Small Entrepreneurs" (Speaker) Indonesia’s Top 100 Most Valuable Brand (Speaker) Media Gathering STAR Data Center Services Cimahi, Jawa Barat September 4, 2014 Shangri La, Jakarta August 16, 2014 Resto Nine, Surabaya July 14, 2014 (Speaker) Media Gathering IndiCampus Amaroosa, Bandung June 26, 2014 (Speaker) Fire Briefing Suspim International NUS Batch #3 (Speaker) Conference e-Health 2014, “E-Indonesia Initiative Forum X” NUS, Singapore June 20, 2014 Mega Kuningan, Jakarta June 5, 2014 (Speaker) International Seminar “The Role of Academia, Business Government and Community toward Sustainable City” Universitas Padjadjaran, Bandung June 4, 2014 205 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Name Programme Venue Date (Speaker) Conference: Corporate Secretary, the Secret Journey to Success Merchantile, WTC, Jakata April 2, 2014 Arief Yahya (Speaker) Stadium Generale (Telkom University) Telkom University, Bandung March 7, 2014 (Speaker) Seminar MM UNPAD; Theme: "Collaboration with Industry in Supporting World Class University Universitas Padjadjaran, Bandung March 26, 2014 (Speaker) Talkshow Indonesian Leaders Talk 2014 Jakarta Convention Center, Jakarta September 3, 2014 (Speaker) Briefing Suspim International BOD-1 Telkom Corporate University, Bandung September 22, 2014 (Speaker) National Seminar / Theme: Building Indonesia Global Competitiveness through Digital Creative Industry Development with Triple Helix Concept Aula Graha Sanusi Hardjadinata, Kampus UNPAD, Bandung (Participants) SOE Executive Club / Event: SOE Executive and Commissioner / Supervisory Workshop Mutiara Ballroom Lower Ground Floor, The Ritz Carlton Jakarta, Jakarta May 9, 2014 May 14, 2014 (Speaker) Seminar: Indonesian Maritime Telecommunication Ballroom Mutiara 1, Hotel Gran Melia, Jakarta May 20, 2014 (Speaker) Talk Show di MNC News TV / Topik: Pengembangan Bisnis Kreatif Digital di ICT for Indonesia (Speaker) FUSECO Forum ASIA 2014 / Theme: Future Telco Ecosystems within the Smart Cities and Beyond / Topic: Enabling a Converged World Through Ecosystem Solution (Participants) Executive Programme INSEAD Business School / Theme: Merger & Acquisition and Coporate Strategy (Panelist) Panel Discussion on RAPIMDIT EBIS / Theme: Winning the Future - Creating a Dominant Market Share in ICT Transportation & Logistic Ecosystem MNC News TV, Kebonsirih, Jakarta May 22, 2014 Ayodia, Nusa Dua, Bali June 9, 2014 INSEAD Business School Fountainebleu, Perancis July 1, 2014 JS Luwansa Hotel, Jln. HR Rasuna Said, JakSel July 24, 2014 (Sources) INDOTELKO / Theme: Encouraging ICT to Grow State Economy Kembang Goela Resto, Plaza Sentral, Annex Building, Jakarta September 10, 2014 (Participants) IBM Leaders 'Dialogue / panelist in the "Client Speaker Panel: What Clients Value in a Partnership with IBM - Leaders' Dialogue (Sources) National Seminar on "Indonesian Cyber Crime Summit 2014" / Topic: Indonesia Digital Network and Hubber as qn Alternative National Information Security Solutions (Participants) Committee on National Economy / Theme: Indonesian Economic Prospect 2015 - Opportunities and Challenges (Speaker) National Broadband Symposium / Topic: Embracing the Roadmap Toward Broadband Implementation in Indonesia Tapis Room, The Four Seasons Hotel, Jakarta September 11, 2014 Aula Barat ITB, Jln. Ganesha No.10, Bandung October 9, 2014 Grand Ballroom Hotel Grand Hyatt, Jakarta October 17, 2014 Assembly Hall, JCC November 5, 2014 Priyantono Rudito (Speaker) Forum Human Capital Indonesia SOE Pertamina, Palembang March 5, 2014 (Speaker) Sharing Session management of Human Capital (Welcome Speech & Participants) Forum Human Capital Indonesia SOE Ministry of SOE April 25, 2014 Jasa Tirta – Malang May 14, 2014 206 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Name Programme Venue Date (Speaker) SUSPIM International at INSEAD & Orange Campus Perancis May 27, 2014 (Participants) Q-Journal paper award (TESCA) 2014 (Welcome Speech & Participant) Forum Human Capital Indonesia BUMN (Participant) Aerotropolis Seminar with John Kasarda (Participants) Workshop B20 focus on Human Capital (Speaker) Public Lecture on the topic of Leadership & Human Resources (Speaker) One day seminar on TPCC - Role of Certification Bodies in improving the competitiveness of Indonesian workers (Speaker) Indonesia Leadership and Human Capital Summit 2014 (Speaker) Indonesia Leadership and Human Capital Summit 2014 (Speaker) International Conference on Management, Hospitality & Tourism Accounting (IMHA) (Speaker) Co-Teach with Professor Mathew Hayward in the course on Strategy Management Hotel JW Luwansa June 17, 2014 Headquarter of BNI June 23, 2014 SBM ITB Sydney UNPAD June 25, 2014 July 16-17, 2014 August 27, 2014 Telkom CorpU August 28, 2014 Hotel Pullman Jakarta October 16, 2014 Hotel Pullman Jakarta October 16, 2014 Hotel Grand Royal Panghegar September 3, 2014 Monash University September 18, 2014 (Speaker) National Business Case Competition (NBCC) Universitas Padjadaran (Speaker) 1st Indonesia Digital & Social Learning Conference (IDSL) Hotel Ritz Carlton SCBD Jakarta (Speaker dan Participant ) “2nd International Seminar Conference Learning Organization (ISCLO)” Hotel Ritz Carlton Mega Kuningan Jakarta September 22, 2014 September 24, 2014 November 5, 2014 (Speaker) Winning best talent through greta human capital system alignment (Speaker) Talent Management world class SOE Balai Kartini, Jakarta November 27, 2014 Hotel Haris Bali November 28, 2014 Sukardi Silalahi (Speaker) Speedy Instant Malaysia Kuala Lumpur Malaysia January 18, 2014 (Participant) SOE Marketeer Club in Semen Indonesia The East Tower Lt.18, Jl Dr Ide AA Gde Agung Jakarta February 27, 2014 (Speaker) Chief Editor Meeting. Ritz Carlton Jakarta March 18, 2014 (Participant) Seminar on "Malaysia - Indonesia: Past, Now and Forever" together with Dr.Mahathir Mohamad Auditorium Menara Bank Mega Lt.3 Jl. Kapten Tendean Jakarta April 14, 2014 (Speaker) INDIHome Woman Award 2014 Metro TV Jakarta April 25, 2014 (Participant) Jakarta Marketing Week 2014 Grand Atrium Kota Casablanca Jakarta May 7, 2014 (Participant) Benchmark on Best Practise Telco Consumer Business at Detecon and British Telecom (Speaker) IDSA program at Metro with Aceh Mayor. Germany May 11-17, 2014 Metro TV Jakarta May 22, 2014 (Speaker) Indonesia Digital Learning Novotel Jogjakarta (Speaker) UseeTV Brasil Pacific Place Jakarta May 30, 2014 June 5, 2014 (Speaker) International Leadership Program (ILP) BoD-3 Bacth#2 Orange, France June 16, 2014 207 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Name Programme Venue Date (Participant) Benchmark Broadband Business in ORANGE (Speaker) Kick Off the Implementation of 100 Mbps WiFi.id Corner (Speaker) MURI record breaking 1000 100 Mbps WiFi.id Corners (Speaker) Industrial Understanding of Financial Aspects for Non-Financial Senior Leaders Paris France June 17-18, 2014 STIMIK Jayakarta, Jakarta July 16, 2014 GMP Telkom Jakarta August 17, 2014 CorPU Bandung August 18, 2014 (Speaker) Public Lecture at the Institute of Technology DEL. IT DEL Pematang Siantar Sumut August 30, 2014 (Speaker) Student Public Lecture on the theme of "Building Broadband, Advancing the Nation" (Speaker) International Leadership Program (ILP) BoD-3 (Participant) Benchmark Broadband Business at Telstra Australia. Uninversitas Santo Thomas Medan September 25, 2014 MBS Melbourne Australia October 27, 2014 Melbourne Australia October 28-29, 2014 November 10, 2014 January 17–23, 2014 (Speaker) Press Conference Mark Plus Conference 2014 MarkPlus Main Campus, Casablanca Jakarta Ririek Adriansyah (Speaker) Pacific Telecomunication Conference – 2014 Honolulu, Hawaii (Participant) BUMN Marketer Graha Merah Putih Jakarta January 29, 2014 (Speaker) Open Senate on Corporate University & SUSPIM Telkom Corporate University, Bandung February 5, 2014 (Speaker) Workshop For Possible Acquisition of 2Degrees Share Graha Merah Putih Jakarta February 7, 2014 (Participant) Chief Editor Meeting Summit The Ritz Carlton Pacific Place Jakarta March 18, 2014 (Speaker) Public Lecture Malaysia- Indonesia: Past, Present And Forever Together Dr.Mahathir Tun Mohamad (Participant) Program Exevutive Education For BOD: Building The Business: Strategies For Asia Pacific (Participant) SOE Marketing Day (Speaker) Telkom International Leadership Program, National University of Singapore (NUS) (Participant) South-East Asia Summit 2014: From Neighborhood to Community (Speaker) Leader as a Father "Merger & Acquisition Strategy & Planning for Global Telco Business Development" Auditorium Menara Bank Mega, Jakarta April 14, 2014 INSEAD, Singapore May 5-9, 2014 MarkPlus & Kementrian BUMN, JS Luwansa Hotel Jl. Rasuna Said Kav.C-22 JKT August 21, 2014 Graha Merah Putih, Jakarta August 22, 2014 The Ritz - Carlton Jakarta August 27, 2014 Hotel Salak, Bogor September 1, 2014 (Speaker) Opening Workshop Updating Valution with Deloitte Sigma Room Graha Merah Putih, Jakarta September 25, 2014 (Speaker) Berita Satu TV Graha Merah Putih, Jakarta September 29, 2014 (Participant) MarkPlus Business Leader Forum The Ritz Carlton Hotel, Jakarta October 16, 2014 (Speaker) Firebriefing Telkom International Leadership Program, National University of Singapore (NUS) NUS, Singapore October 17, 2014 208 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESName Programme Venue Date Rizkan Chandra (Courtesy visit) Juniper Exe Brief Center Melbourne (Speaker) YLi satellite “Lead Change in Indonesia” Lt 6 Graha Merah Putih Jakarta (Participant) Talent review (career day) IDeC Bandung (Participant) National Discussion ASTI Melbourne February 17–20, 2014 January 13, 2014 February 13, 2014 February 17–20, 2014 (Participant ) CTO Council Kampus ITB Bandung March 8, 2014 (Speaker) Indo Telco Forums "Sharing infrastructure to reduce the trade balance deficit" (Interviewer) for IT & Operations award team (Participant ) NBN Co Australia Sharing Session Hotel Pullman d/a Niko Hotel Thamrin March 13, 2014 Balai Kartini Jakarta March 18, 2014 Hotel Santika Jakarta March 19, 2014 (Participant) Technical Workshop Telstra WTC Jend Sudirman Jakarta May 5, 2014 (Speaker) Seminar on Indonesia WiFI Sydney May 14–15, 2014 (Participant) Seminar FUSECO Melbourne May 16, 2014 (Speaker) Seminar on Satellite APSAT CorpU Bandung May 19, 2014 (Speaker) Closure SUSPIM Int'l MBS Australia (Speaker) Lemhanas Discussion “Anticipating the World Cyber Crime" (Participant) Workshop on JV NAS coordination Ayodia Bali May 22, 2014 Grand Hyatt Jakarta June 11, 2014 Melbourne June 19–20, 2014 (Speaker) Telkom Sigma Training Hotel Padma Bandung July 2, 2014 (Speaker) Telkom University “ Toward Asean Economy Community 2015” Gedung Astragatra, jl. Merdeka selatan Jakarta July 23, 2014 (Participant) Signing Ceremony SEA-US C&MA dan Supply Contract Graha Merah Putih Jakarta August 7, 2014 (Speaker) SL Forum ITSS Mojopia, CorpU, Gerlong, Bandung August 28, 2014 (Speaker) Closure of Wifi Forums Hotel Kempinski Jakarta August 28, 2014 (Participant) Exe Education The University Melbourne CorpU Bandung August 29, 2014 (Participant) Seminar on 2nd Indonesia Wifi Hotel Mercure Jakarta September 4, 2014 (Speaker) Connect Expo Comm Indonesia 2014 ag. Realizing the Nusantara Super Highway/TelkomTrue Broadband (Participant) National Conference ASTI (award recipient) IDC - Asia Pacific Telecom Summit Hotel Inna Yogyakarta September 5, 2014 Melbourne October 5-10, 2014 (Participant )seminar 2nd Indonesia Wifi Menara IDeC Bandung October 16, 2014 (Speaker) Connect Expo Comm Indonesia 2014 ag. Realizing the Nusantara Super Highway/TelkomTrue Broadband (Participant) National Conference ASTI (award recipient) IDC - Asia Pacific Telecom Summit JCC Jakarta November 5, 2014 Amara Sanctuary Resort, Sentosa, Singapore November 11, 2014 209 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Assessment on the Performance of the Board of Directors Process for the Assessment on the Performance of the Board of Directors The assessment on the performance of the members of BoD is performed by the BoC as well as by GMS, which makes reference to the achievement of key performance indicator (“KPI”) of the BoD in the discharge of its duties and responsibilities as stipulated by the Articles of Association, and the achievement of RKAP. The achievement of the directors’ KPI as a basis for the evaluation by the BoC is determined through internal processes. The assessment process is initiated by filing the realization of Management Contract (“KM”) online which is followed up by a face to face meeting for clarification and the determination of the final performance scores. This will then be presented to the Performance Committee and the President Director for final determination which will be subsequently submitted to the Board of Commissioners. In 2014, the Board of Directors’ performance was also evaluated by a team designated by the State Ministry of SOEs to assess the company’s superior performance on the basis of the Superior Performance Assessment Criteria (“KPKU”) of SOEs. The KPKU is an adaptation from the Malcom Baldrige Criteria for Performance Excellence (MBCFPE). Criteria Used in the Assessment on the Performance of the Board of Directors The criteria used in the assessment of the performance of the Board of Directors is based on the balanced scorecard method to measure four main aspects, namely financial, customer, internal business process and learning and growth. This method is translated into three types of KPIs, namely shared KPI, common KPI and specific KPI. Shared KPI refers to KPI with the nomination, target, realization and achievement of the same for the entire Board of Directors. Common KPI refers to KPI with the same nomination and target, but the realization and achievement are different for each member of Board of Directors. Specific KPI refers to KPI used differently for each of the Directors with specific program that focuses on the main duties and priorities for the respective Director and Directorate. Parties Performing the Assessment The internal parties performing the assessment of Director Management Contract is the Performance Committee 210 and the President Director. Overall, assessment of the performance of the Board of Directors is conducted by the Board of Commissioners through the GMS mechanism in accordance with established regulations. GCG Assessment for the Board of Directors We also conduct an assessment on the Board of Director as well as the Board of Director’s implementation of GCG. The assessment process was conducted by IICG as an independent party who perform a CGPI rating on Telkom. There are 12 aspects being assessed in the implementation of GCG towards an ethical, honourable and responsible and fair business, namely the aspects of commitment, transparency, accountability, responsibility, independence, fairness, competence, leadership, strategy, ethics, vision, mission, values, culture and implementation of a learning organization. In this GCG assessment, Telkom was rated “Indonesia Most Trusted Company”. In addition to the above-mentioned assessment, we are also assessed by BPKP in the programme “BUMN Bersih”. The programme is launched by the Minister of State- owned Enterprises (SOE), marked by the signing of a commitment by the entire President Director of SOEs. The assessment of “SOE Clean is intended to ensure all SOEs implement the GCG both administratively and in substance as well as to make state-owned enterprises formidable (professional), superior (prioritizing systems, quality and innovation) and honourable (no irregularities and fraud, including corruption). The assessment is done in stages and gradually. The first stage is the assessment to theBoard of Directors and the Board of Commissioners on the third month of the signing of commitment “BUMN Bersih”. The criteria “Bersih”, which is used in the program “BUMN Bersih”, includes the principles of good corporate governance, namely transparency, accountability, responsibility, independence and fairness. These five principles are the cornerstone of management systems ranging from planning to accountability, a commitment not to take any action that is fraudulent/ cheating, including all forms of corruption, receiving and/ or providing gratuities associated with the position. After BPKP conducted an assessment of the entire Board of Directors and Commissioners, the survey results show that Telkom is given a rating of 8.3 (range 10). This rating means that the program of “BUMN Bersih” has been implemented in the Good Corporate Governance (GCG). 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTable of Affiliated Relationships between the Members of of the Board Of Commissioners, the Board of Directors And Major And/ Or Controlling Shareholders. The affiliateed relationships between the members of the Board of Commissioners, the Board of Directors and Major Shareholders and/ or controlling shareholder is shown in the following table. Board of Commissioners Board of Directors Shareholder Affiliate Relationsship with m a S j i d n a w S y n n h o J n o i t u s a N i z a G o n a r i V o t p a r p u S t i s e k i r a P o t n a y d a H i a g a n S i . J x e A l i d a y r a n u S i r e H o y o t U a r d n I n a w a m h c a R n a D i t i l a P c i r d e r F l i e n h t O e i f l o D x i n i r a p a S i r d n e H x o r t u P o t n a y i r p A m a m I x i l n d d u a w A d a m m a h u M x x x x x x x x x Name Hendri Saparini Dolfie Othniel Fredric Palit Imam Apriyanto Putro Hadiyanto Parikesit Suprapto Johnny Swandi Sjam Virano Gazi Nasution Alex J. Sinaga Heri Sunaryadi Indra Utoyo Dian Rachmawan Muhammad Awaluddin Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir Jusman Syafii Djamal(1) Gatot Trihargo(1) Arief Yahya(1) Sukardi Silalahi(1) Rizkan Chandra(1) Priyantono Rudito(1) Ririek Adriansyah(1) PSU/ Pengendali Description : (1) as of EGM of December 19, 2014. n a m r a H i d a s o R y d r e H f e i r A d a m o S s u d b A r i y s a B i t s e n o H * l a m a D j i i f a y S n a m s u J * o g r a h i r T t o t a G * a y h a Y f e i r A * i h a a l l i S i d r a k u S * a r d n a h C n a k z R i * 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 x x x x x x x x x x j y t i r o a M / g n i l l o r t n o C √ √ √ x 211 2014 Annual Report PT Telkom Indonesia Tbk (Persero) COMMITTEE UNDER THE BOARD OF COMMISSIONERS In performing their duties the Board of Commissioners is assisted by three committees under its supervision, namely Nomination and Remuneration Committee, Audit Committee, and Evaluation and Monitoring Committee Planning & Risk (“KEMPR”). Profiles of Committee under the Board of Commissioners 1. Nomination and Remuneration Committee The composition of the Nomination and Remuneration Committee based on the decision of the Board of Commissioners No.13/ KEP/ DK/ 2014 dated August 19, 2014 is as follow: Chairman/Member Secretary Members : : : Jusman Syafii Djamal / President Commissioner Ario Guntoro / Secretary of Board of Commissioners Hadiyanto / Commissioner Parikesit Suprapto / Commissioner Imam Apriyanto Putro / Commissioner Johnny Swandi Sjam / Independent Commissioner Virano Gazi Nasution / Independent Commissioner On February 2, 2015, the composition of the Nomination and Remuneration Committee was amended in accordance with the decision of the Board of Commissioners 1/ KEP/ DK/ 2015 as follow: Chairman/Member Secretary Members : : : Hendri Saparini / Komisaris Utama Ario Guntoro / Sekretaris Dewan Komisaris Hadiyanto / Komisaris Imam Apriyanto Putro / Komisaris Dolfie Othniel Fredric Palit / Komisaris Parikesit Suprapto / Komisaris Independen Johnny Swandi Sjam / Komisaris Independen Virano Gazi Nasution / Komisaris Independen Hendri Saparini – Chairman / Commissioner Hendri Saparini is the chairman of Nomination and Remuneration Committee. He is responsible for giving the direction and coordination of the implementation of the Committee’s tasks. Hadiyanto, Imam Apriyanto Putro, Dolfie Othniel Fredric Palit - Komisaris Parikesit Suprapto, Johnny Swandi Sjam, dan Virano Gazi Nasution – Independent Commissioners are members of the Committee and are responsible for coordinating input from parties related to the controlling shareholder concerning nomination and remuneration issues. Ario Guntoro – Secretary of the Board of Commissioners Ario Guntoro is the secretary of the Committee who is not a member of the Committee. He is responsible for preparing and managing the Committee’s administration and documentation. 2. Audit Committee The composition of the Audit Committee as determined by the Board of Commissioners decision No. 05/KEP/ DK/2014 dated March 25, 2014 is as follow. Chairman Secretary Members : : : Johnny Swandi Sjam Tjatur Purwadi Virano Gazi Nasution Parikesit Suprapto AgusYulianto On February 2015, Telkom has changed the composition of the Audit Committee. The new composition of the Audit Committee as determined by the Board of Commissioners No. 02/ KEP/ DK/ 2015 dated February 2, 2015 is as follow: Chairman Secretary Members : : : Johnny Swandi Sjam Tjatur Purwadi Parikesit Suprapto Dolfie Othniel Fredic Palit Virano Gazi Nasution AgusYulianto In accordance with the applicable regulations concerning independence in the capital market, Mr. Othniel Dolfie Palit Fredric is appointed as a non-voting member. 212 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Johnny Swandi Sjam- Independent Commissioner As Chairman of the Audit Committee, Johnny Swandi Sjam is responsible for directing, coordinating and monitoring the implementation of the duties of each member of the Audit Committee. Tjatur Purwadi - Secretary / Member Tjatur Purwadi became a member of the Audit Committee since 1 March 2014 and was tasked to facilitate the operations of the Audit Committee, take charge of correspondence, prepare documents, report changes in the Audit Committee Charter, as well as coordinate the independent auditor selection process. Before becoming secretary of the Telkom Audit Committee, Tjatur Purwadi worked at Telkom from 1979 to 2012. During his time at Telkom Tjatur Purwadi held several strategic positions such as Vice President (“VP”) - Financial and Logistic Policy and Head of Internal Audit. After retiring from Telkom, he served as Director - Assurance Team Tanudiredja, Wibisana & Partners / PwC. He holds a degree in accounting from the University of Gadjah Mada University and holds a Master degree in Management from Padjadjaran University. Parikesit Suprapto and Virano Gazi Nasution – Independent Commissioner Dolfie Othniel Fredric Palit – Commissioner In charge of supervising and monitoring corporate governance, capital market regulations and other laws relating to the Company’s operations, supervising and monitoring the Company’s information technology. Agus Yulianto-Member AgusYulianto’s duty is to supervise and monitor the integrated audit process, the consolidated financial statements, the application of accounting standards, and the effectiveness of internal control over financial reporting (“ICOFR”) as well as the effectiveness of risk management (especially financial reporting risks) implemented by the Board of Directors. Agus is a certified accountant and has experience in auditing, accounting and finance. Between the years of 1983 and 1999, he was an officer of the Agency for Financial Supervision and Development. He also worked as a senior consultant in Jakarta Initiative Task Force as an audit procurement specialist for projects funded by the World Bank. Before he was appointed as a member of the Audit Committee, he worked in the Office of the Public Accountant HLB Hadori Keswick Adiand Partners as Chairman of the Financial Management Specialist for a project in Aceh, which is managed and funded by the World Bank Multi Donor Fund. He holds a bachelor’s degree in accounting from the State College of Accountancy, Jakarta and holds a Master in Accountancy from Case Western Reserve University, Cleveland, Ohio, United States. Fit and proper test for Committees under the Board of Commissioners Based on the Audit Committee Charter, the requirements for a member of the Audit Committee are as follow: Independent Commissioner 1. Not a person who works or has the authority and responsibility for planning, directing, controlling or supervising the activities of the Company within the last six (6) months; 2. Does not have stock, either directly or indirectly to the Company 3. Is not affiliated with the Company, the Board of Commissioners, members of the Board of Directors, or the Shareholders of the Company 4. Does not have a business relationship that is directly or indirectly related to the Company’s business activities. Independence Requirements 1. Not a person in a public accounting firm, law firm, Office Services Public appraiser, or other parties who give assurance services, non-assurance services, appraisal services and / or other consulting services to the Company for a minimum of six (6) months before being appointed by the Board of Commissioners; 2. Not a person who works or has the authority and responsibility for planning, directing, controlling or supervising the activities of the Company within the six (6) months prior to appointment by the Board of Commissioners; 3. Does not have stock, either directly or indirectly to the Company. In the case of members of the Audit Committee acquire the Company’s shares either directly or indirectly as a result of a legal event, the shares shall be transferred to the other party within a maximum period of 6 (six) months after the shares acquired. 4. Does not have a business relationship, directly or indirectly related to the use within the Company’s business activities; 5. Is not affiliated with members of the Board of Commissioners, members of the Board of Directors or main Shareholders of the Company. 213 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Integrity and Competence Requirements 1. Has high integrity, ability, knowledge, experience according to the field of work and be able to communicate well; 2. Complies with the code of conduct established by 2. May not have been our Telkom executive officer within six months prior to his appointment as a member of the Audit Committee; 3. May not to be affiliated with our majority shareholder; 4. May not be a family member of the Board of Commissioners or Board of Directors; 5. May not own, directly or indirectly, shares of the Company; and 6. May not have any business relationship that relates to the Company’s business. Excemption from the Registration Standard in The United States Regulation No. 40 Year 2007 on Limited Liability Company does not make it compulsory for a public companies to form an audit committee as required under the Standard Recording of the New York Stock Exchange (“NYSE”). However, regulation of the Financial Services Authority (“OJK”) No. IX.I.5 and Regulation of Indonesia Stock Exchange (“IDX”) No. 1-A requires the Board of Commissioners of public companies listed on the Stock Exchange to establish an Audit Committee consisting of at least three members. One of these three members must be an independent commissioner who acts as chairman of the Audit Committee while the other two members must be independent and a minimum of one of the members must have expertise in accounting and/ or finance. NYSE Listing Standards established under Rule 10A-3 of the Exchange Act requires foreign private issuers whose shares are listed on the NYSE to have an audit committee which consists of independent directors. However, pursuant to Rule 10A-3 (c) (3), foreign private issuers may be exempt from the independence requirements if (i) the Government or the home country stock exchanges requires public companies to have an audit committee; (ii) a separate Audit Committee of the Board of Directors, which has members from both inside and outside the Board of Commissioners; (iii) the Audit Committee members are not elected by the management and no executive officer of the company who are members of the audit committee; (iv) the Government or the home country stock exchanges requires that the audit committee must be independent of the management company; and (v) the Audit Committee is responsible for the appointment, retention and oversight of the work of the external auditors. the Company; 3. At least one member of the Audit Committee shall have the educational background and experience in finance, accounting and auditing in which the concerned or one of them is declared as a financial expert and accounting (finance and accounting expert). 4. Must have the knowledge to read and understand financial statements and the audit process; 5. Mandatory to understand the company’s business, especially related to the services or business activities of the issuer or Public Company, auditing process, risk management and regulations in the capital market as well as legislation related; 6. Improves continuous competence through education and training; 7. Knows and understands the function of the Audit Committee. Financial and Accounting Expert Requirement 1. Understands Financial Accounting Standards in Indonesia and in the US; 2. Has experience in applying accounting standards primarily that relates with judgments and accounting estimates, Accrued and establishment of reserves; 3. Has experience in preparing and implementing a general audit of the financial statements; 4. Knows and understands internal control over financial reporting, including the audit process. Independence of the Audit Committee OJK Regulations on Audit Committee require that the Audit Committee consists of at least three members, one of whom must be an independent commissioner who acts as chairman, while the other two members must be independent. At least one of these two members must have the expertise (in the context of Item 16A of Form 20 F) in the field of accountancy and/ or finance. To be considered independent under the prevailing applicable regulations in Indonesia, an external member of the Audit Committee: 1. May not be an executive officer of a public accounting firm that has provided audit services and/ or non- audit services to the Company within six months prior to his appointment as a member of the Audit Committee; 214 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Telkom has an Audit Committee consisting of six (6) members: three (3) Independent Commissioners, one Commissioner, and two (2) independent external members who are not affiliated with Telkom. Not all members of Telkom Audit Committee are independent directors as required in Rule 10A-3 of the Exchange Act. Telkom refers to the general exemption under Rule 10A-3 (c) (3) regarding the composition of the Audit Committee. We believe that our reliance on this exemption will not materially adversely affect the ability of the Audit Committee to act independently. We also believe that the intent of the restriction that each member of the Audit Committee are independent directors is to ensure that the Audit Committee is independent from the influence of management and provides a forum separate from management in which auditors and other interested parties can perform a straightforward discussion of the problem. Regulations issued by the Audit Committee of the OJK require that each member of the Audit Committee must be independent. Regulations issued by the OJK Audit Committee also require that at least two members of the Audit Committee are external independent members who are not only independent of the management but also independent of the Board of Commissioners and Board of Directors and the Company as a whole. Therefore, we believe that the standards set out in the regulations issued by the Audit Committee of the OJK is effective in ensuring the ability of the Audit Committee to act independently. Aside from the above matters, unlike the requirements set forth in the NYSE listing standards, based on the provisions applicable to the Audit Committee in Indonesia, Telkom Audit Committee does not have direct responsibility for the appointment, compensation and retention of the external auditors. Telkom Audit Committee can only recommend the appointment of external auditors to the Board of Commissioners and Board of Commissioner’s decision must be approved by shareholders. Audit Committee Financial Expert The Board of Commissioners has determined that Agus Yulianto, as a member of the Audit Committee, qualifies as an Audit Committee Financial Expert as described in Item 16A of Form 20-F, and as an “independent” member in accordance with Rule 10A-3 of the Exchange Act. Agus Yulianto has been a member of the Audit Committee since November 2010. Audit Committee Pre-Approval Policies and Procedures Telkom adopted pre-approval policies and procedures which requires that all non-audit services provided by the public accounting firm must be pre-approved by our Audit Committee, as set forth in the Audit Committee Charter. Pursuant to the charter, permissible non-audit services may be carried out by our independent auditors provided that: (i) the Board of Directors must deliver to the Audit Committee (through the Board of Commissioners) a detailed description of non-audit services that is to be performed by the independent public accounting firm; and (ii) the Audit Committee shall determinewhether the proposed non-audit servicewill affect the independence of the independent public accounting firm or would give rise to any conflict of interest. Pursuant to Section 10 (i) (1) (B) of the Exchange Act paragraph (c) (7) (i) (C) of Regulation S-X Rule 2-01 issued pursuant to the Act, the Audit Committee Charter waives the pre-approval requirement for permissible non-audit services where (i) the total cost of the non- audit services constitutes no more than five per cent of the total amount of audit fees paid by Telkom to the independent auditors for the fiscal year in which the services are provided or (ii )the proposed services are not regarded as non-audit services at the time the agreement was signed. In addition to these two requirements, the performance of non-audit services must be approved prior to the completion of the audit by a member of the Audit Committee who has been delegated pre-approval authority by the full Audit Committee or by the full Audit Committee itself. 3. The Planning and Risk Evaluation and Monitoring Committee (“KEMPR”) In 2014, the Company amended the membership composition KEMPR through BoC Decree No.02/ KEP/ DK/ 2014, so that the membership PREMC as of January 10, 2014 is as follow: Chairman : Parikesit Suprapto Secretary : Widuri Meintari Kusumawati Members : Hadiyanto Johnny Swandi Sjam Virano Gazi Nasution Gatot Trihargo Adam Wirahadi Agus Yulianto Rustanto Hadimartono 215 2014 Annual Report PT Telkom Indonesia Tbk (Persero) On April 30, 2014, the Company amended the composition of KEMPR in accordance with the Decision of Board of Commissioners No.09/KEP/DK/2014, so that the composition of KEMPR is as follow: Chairman Secretary Members : Parikesit Suprapto : Widuri Meintari Kusumawati : Hadiyanto Johnny Swandi Sjam Virano Gazi Nasution Imam Apriyanto Putro Rustanto Hadimartono On February 2, 2015, the company amended the composition of KEMPR again in accordance with BoC Decree No.03/KEP/DK/2015, so that the membership KEMPR is as follows: Chairman Members : : Hadiyanto Dolfie Othniel Fredric Palit Imam Apriyanto Putro Parikesit Suprapto Johnny Swandi Sjam Virano Gazi Nasution Rustanto Hadimartono All members of KEMPR (except Hadiyanto, Dolfie Othniel Fredic Palit, dan Imam Apriyanto Putro) are external and independent members. Hadiyanto - Commissioner Hadiyanto is the chairman of KEMPR and is responsible for directing, coordinating and monitoring the implementation of the duties of all members of the Committee. Dolfie Othniel Fredric Palit - Commissioner Commissioner Dolfie Othniel Fredic Palit was appointed as a member of the Board of Commissioners KEMPR by Decree No. 03/ KEP/ DK/ 2014 dated February 2, 2015 regarding the composition of the Membership of the Committee of Evaluation and Monitoring of Planning and Risk. As a member of KEMPR, Gatot Trihargo is responsible for the supervision and monitoring of the implementation RJPP/ CSS, CBP implementation and implementation of enterprise risk management and implementation of business initiatives of non-organic growth. 216 Imam Apriyanto Putro - Commissioner Commissioner Imam Apriyanto Putro was appointed as a member of the Board of Commissioners PREMC by Decree No. 09/ KEP/ DK/ 2014 dated April 30, 2014 regarding the composition of the Telkom’s Membership Committee of Evaluation and Monitoring of Planning and Risk. As a member of PREMC, Imam Apriyanto Putro is responsible for the supervision and monitoring the implementation of RJPP/ CSS, the implementation of CBP and the implementation of enterprise risk management and the implementation of inorganic business initiative development. Parikesit Suprapto - Commissioner As a member of KEMPR, Parikesit Suprapto is responsible for the supervision and monitoring of the implementation of RJPP / CSS, the implementation of RKAP and the implementation of enterprise risk management and the implementation of inorganic business initiative development. Johnny Swandi Sjam - Commissioner As a member of KEMPR, Johnny Swandi Sjam is responsible for the supervision and monitoring the implementation of RJPP/ CSS, the implementation of CBP and the implementation of enterprise risk management and implementation of inorganic business initiative development. Virano Gazi Nasution - Commissioner As a member of KEMPR, Virano Gazi Nasution is responsible for the supervision and monitoring the implementation RJPP/ CSS, the implementation of CBP and the implementation of enterprise risk management and the implementation of inorganic business initiative development. Rustanto Hadimartono - Member The main task of Rustanto Hadimartono is to monitor the implementation of the Company’s risk management, monitor the implementation of the Company’s compliance with regulatory legislation and legal aspects of the evaluation of certain actions that require the approval of the Board of Directors Board of Commissioners. Prior to joining KEMPR in early 2014, Rustanto Hadimartono worked as a civil servant in the Investment Coordinating Board (1983-1992). He then moved to private sector tot Marathon Petroleum Indonesia, Ltd. (1992), PT Rothmans of Pall Mall Indonesia (1992-1994), PT Anwar Sierad, Tbk (1994-1997), PT Drassindo Persada Utama (1997-1998), 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPT Satellite Palapa Indonesia (Satelindo 1998-2003) and PT Indosat , Tbk (2003-2009). He taught at several private universities for law and public policy courses since 1984. Rustanto Hadimartono earned his law degree from the University of Diponegoro (1982), Master of Laws in International Legal Studies (LL.M.) from the Washington College of Law - American University (1987) and Doctor of Law from Parahyangan Catholic University (2011). Duties and Responsibilities of the Committees under the Board of Commissioners 1. Nomination and Remuneration Committee Duties and responsibilities of the Nomination and Remuneration Committee are as follows: Nomination: - Formulate policies, criteria and selection required for strategic positions within the Company, namely positions 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 referring to the principles of good corporate governance; - Assist the Board of Commissioners who jointly or in consultation with the Board of Directors to select candidates for strategic positions in the Company’s consolidated subsidiaries (the Board of Directors and the Board of Commissioners); - Provide recommendations to the Board of Commissioners to be submitted to the shareholders of series A Dwiwarna on: a. Composition of position of the Board of Directors. b. Succession planning of the members of the Board. c. Assessment is based on a benchmark that has been prepared as an evaluation material for the purposes of developing the skills of th members of the Board of Directors. Remuneration: - Provide recommendations to the Board of Commissioners to be submitted to the General Meeting of shareholders through shareholder of series A Dwiwarna regarding policies, the amount and / or the structure of the remuneration of Directors and Board of Commissioners; - Remuneration of Board of Directors and the Board of Commissioners in the form of fixed salary or honorarium, allowances and facilities and variable incentive. 2. The Audit Committee Based on the Audit Committee Charter, in general, the Audit Committee is responsible for the following: - Oversee the process of auditing and financial reporting process; - Provide recommendations to the Board of Commissioners on the appointment of the external auditor; - Discuss with internal and external auditors all scopes of work, either audit and non-audit jobs as well as their audit plan; - Review the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting (“ICOFR”); - Hold regular meetings with internal and external auditors, without management present, each to discuss the results of the evaluation and the results of their audit and quality of Telkom’s financial statements as a whole; - Receive and handle complaints; and - Carry out other tasks given by the Board of Commissioners, especially in financial and accounting- related matters, as well as other obligations required under the capital markets regulation. To help his duties, if necessary, the Audit Committee may appoint an independent consultant or professional adviser. 3. The Planning and Risk Evaluation and Monitoring Committee (KEMPR) The scope of duties of KEMPR involves the following: - Conduct a comprehensive evaluation on the proposed Long Term Plan of the Company (“RJPP”) or CSS and Budget Action Plan proposed by the Company’s Board of Directors; Evaluate the implementation RJPP and CBP to fit the target RJPP and CBP adopted by the Board of Commissioners; and To monitor the implementation of enterprise risk management in the Company. - - 217 2014 Annual Report PT Telkom Indonesia Tbk (Persero) REPORTS OF COMMITTEES UNDER THE BOARD OF COMMISSIONERS 1. Report of the Nomination and Remuneration Committee in 2014 This report is a report on tasks that have been performed by the Nomination and Remuneration Committee in 2014. This report consists of the composition of membership, reports on nomination and report on remuneration matters that are the responsibility and under the authority of the Nomination and Remuneration Committee of the Board of Commissioners of PT Telkom Tbk. a. Membership Composition of the Committee Proposed name of candidate Director of PT Telkom The composition of the Nomination and Remuneration Committee based on the Charter of the Board of Commissioners is chaired by the President Commissioner. The Secretary of the Committee is held by the Secretary of the Board of Commissioners and members of the committee, which consists of all Members of the Board of Commissioners. To date, there has been no member from outside the Board of Commissioners. OJK has issued regulations Number 34/POJK.04/2014 dated December 8, 2014 regarding the Nomination and Remuneration Committee of a public company. Telkomplans to adopt the OJK regulation at the Annual General Meeting of Telkom in 2015, subsequent to which the BOC will observe these rules. During 2014, the number of nominations and Remuneration Committee meetings held was as many as 50 meeting, of which 15 were part of the Internal Meeting of the Board of Commissioners and 32 were held in the form of circulation of minutes for approval. b. Nomination Report In 2014, the Nomination and Renumeration Commitrtee completed four (4) processes of granting the proposed name (nomination) for each of the following: Proposed Acting officers of President Director of PT Telkom Indonesia Tbk (Persero). This is in accordance with the letter of The Board of Commissioners to the Minister of SOE No. 201/ SRT/ DK/ 2014 dated October 31, 2014 regarding Progress Report of PT Telkom Indonesia, Tbk. The position of Commissioner of PT Telkomsel is the ex-officio President Director of PT Telkom Indonesia Tbk (Persero). Indonesia Tbk (Persero). BOC after meeting of the Nomination and Remuneration Committee dated December 1, 2014 has issued a letter to the minister SOE No. 218/ SRT/ DK/ 2014 dated Desember 1, 2014 regarding: Proposed Candidate Director of PT Telkom Indonesia Tbk (Persero). Proposed name a replacement candidate of Director Director of PT Telkom Indonesia Tbk (Persero). BOC after Nomination and Remuneration Committee Meeting dated December 4, 2014 has issued a letter to the Minister of SOE No. 221/ SRT/ DK/ 2014 dated December 4, 2014 regarding the Proposed Candidate of President Director of PT Telkom Indonesia Tbk (Persero). Approval for the composition of the Board of Directors and Board of Commissioners of PT Telkomsel. After a meeting of the Nomination and Remuneration Committee on December 24, 2014, the Board of Commissioners issued a letter to the Board of Directors of Telkom through a letter No. 234/ SRT/ DK/ 2014 dated December 24, 2014 regarding the approval of the composition of the Board of Commissioners of PT Telkomsel. c. Remuneration Report In 2014, the Nomination and Remuneration Committee has conducted as many as six (6) activities of remuneration processes, namely: 1. The proposed remuneration for the Company’s management to the Shareholders of Series A for the year 2014 based on the letter of Board of Commissioners No.057/ SRT/ DK/ 2014 dated April 8, 2014 regarding the Proposed Remuneration for Board of Directors and Commissioners 2014 (for AGM) and number 075/ SRT/ DK/ 2014 dated April 8, 2014 regarding the remuneration for the Board of Directors and the 218 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Board of Commissioners for the Fiscal Year 2014 and Fiscal Year 2013. The Proposals have been studied by an independent consultant. 2. Compliance with the remuneration for the Board of Commissioners is proof that Telkom, as a state-owned enterprise, has adopted Regulation of SOE Minister No.04/2014. The adjustment is based on the result of the Nomination and Remuneration Committee meeting on April 22, 2014 and May 20, 2014. The adjustment resulted in a decline in the remuneration received by the Board of Commissioners, a condition which was also experienced by the Board of Directors. Previously, adjustment has also been made to the BOC supporting organ in a bid to follow the Regulation of the Minister of SOEs No. 12/2012. 3. The provision of operational costs to the Board of Directors and the Board of Commissioners is in accordance with the decision of the Board of Commissioners No.15/ KEP/ DK/ 2014 dated September 29, 2014. 4. The proposal of demand for Long Term Incentive for the management of Telkom. The Nomination and Remuneration Committee, assisted by an Independent Consultant, has submitted a request of Long Term Incentive to the Shareholders Serie A after, according to the Minister of SOEs number 04/2014, considering it possible to get it. The proposal was contained in a letter of the Board of Commissioners to the minister of SOE No.176/ SRT/ DK/ 2014 dated October 6, 2014 regarding LTI proposal for PT Telkom. This proposal was approved by the Shareholders of Series A through a letter to Telkom No. S-698/ MBU/ 10/2014 dated October 21, 2014 regarding the approval of Remuneration in the form of LTI (Long Term Incentive). Thus, Telkom is the first SOE to be approved to obtain long-term incentive (LTI) from holder of Series A Shares. 5. The approval of disbursement of post-job compensation to former President Director of PT Telkom. Following a circular meeting of the Nomination and Remuneration Committee, the Board of Commissioners has issued a letter of approval No.203/SRT/DK/2014 dated November 5, 2014, while for the long-term incentive (LTI) can not be processed because the Board of Commissioners have not met the requirements. 6. Approval disbursement of long-term incentive (Long Term Incentive) to former Board of Commissioners and Board of Directors of PT Telkom. As a follow up of the results of the Extraordinary General Meeting on 19 December 2014, it has issued approval of the Board of Commissioners through letter No. 286/ SRT/ DK/ 2014 dated December 31, 2014 regarding the execution of the LTI program in 2014. Jakarta, March 26, 2015 Hendri Saparini (Chairman of Nomination and Remuneration Committee) 219 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Integrated Audit 1. The Audit Committee has reviewed management’s report on its evaluation of the effectiveness of the Company’s internal control over financial reporting and EY’s report on the effectiveness of internal control over financial reporting. The Audit Committee had also discussed the significant deficiencies (“SD”) identified during the evaluation process and the audit process with management and EY as well as the management plans to remediate weaknesses of internal control over financial reporting. 2. The Audit Committee had discussed with the Company’s internal auditors and EY about the overall scopes and plans for their audits. The Audit Committee has held meetings with the internal auditors and EY, without management present, to discuss the results of the examination and the results of their evaluation of internal control over financial reporting of the Company as a whole. The Audit Committee has reviewed and discussed the audited consolidated financial statements and notes to the consolidated financial statements in the Annual Report (Form 20F) with the Company’s management. This discussion includes the quality and acceptability of financial accounting standards applied by Company, the feasibility of accounting estimation and judgement and the adequacy of disclosures in the consolidated financial statements. The management has confirmed to the Audit Committee that the consolidated financial statements: (i) are the responsibility of management and have been prepared with integrity and objective; and (ii) have been presented in accordance with financial accounting standards in Indonesia and IFRS. 2. Report of the Audit Committee in 2014 The activities that have been performed the audit committee in 2014, are as follow: Independent Auditor In 2014, Telkom has reappointed Purwantono, Suherman & Surja, a member firm of Ernst & Young Global Limited (“EY”) as an independent auditor to conduct an integrated audit for Fiscal Year 2014. The reappointment of EY as an independent auditor has been approved by the Annual General Meeting of Shareholders on April 4, 2014. The Audit Committee, jointly with EY, has reviewed the quality and acceptability of the financial accounting standards adopted by the Company. Based on the results of the integrated audit, EY is responsible to give an opinion on the fairness of the presentation of the consolidated financial statements in accordance with financial accounting standards in Indonesia and International Financial Reporting Standards (IFRS) and the opinion on the effectiveness of internal control over financial reporting (internal control over financial reporting) in accordance with criteria of the Committee of Sponsoring Organizations of Treadway Commission (COSO). The review and discussion of the Audit Committee with E&A also cover matters in accordance with auditing standards on communication with the Audit Committee, the standards of the Public Company Accounting Oversight Board (“PCAOB”), the OJK and SEC Regulations and other applicable regulations. In accordance with PCAOB rules 3526 - Communication with Audit Committees Concerning Independence, EY has submitted a letter to Audit Committee that provides explanation about the relationships between EY and Company would be regarded to bear on independence. The Audit Committee has discussed with EY about this independence and has received confirmation that EY professional consideration that Public Accounting Office are independent, considering the influence of of non- audit services from public accounting firm. 220 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESBased on the result of the discussions, the Audit Committee had recommended to the Board of Commissioners, and subsequently the Board of Commissioners has approved that the audited consolidated financial statements and notes on the consolidated financial statements and management’s evaluation of the effectiveness of internal control over financial reporting to be included in the Annual Report which will be be reported by the Company to OJK and the Annual Report on Form 20F which will be reported by the Company to the US SEC. Internal Auditor 1. The Audit Committee reviewed Annual Audit Work Program of Internal Audit (“IA”) in 2014 which is based on Risk Based Approach Audit before set by Management. 2. The Audit Committee reviewed and discussed the findings or internal consultations including its recommendation on the implementation of Annual Audit Work Program of IA in 2014 and monitor the follow up IA recommendation about management on a quarterly basis. During 2014, IA has given 424 recommendations to Management consist of 347 has completed and 67 recommendations still in process because they were given in fourth quarter of 2014. 3. The Audit Committee monitors the findings of the Audit Board of the Republic of Indonesia (“BPK”) in 2014 and follow-up that has been done by the Management. During 2014, BPK has given 41 recommendations to Management, out of which 38 recommendations has completed and 3 recommendations could not be followed. 4. Based on limited review from IA, the Audit Committee supervise and monitor the risk of fraud and financial reporting risk that may have a material effect on the Financial Statement. Partnership and Community Development Programs The Audit Committee reviewed and discussed with management and EY on PKBL Financial Statement Fiscal Year 2014 and CSR Implementation Compliance Report with regulations. Whistleblower 1. The Audit Committee has developed procedures for receiving and handling complaints regarding accounting problem, internal controls and auditing, including procedures to keep secrecy of the informan, dan anonymous accusation submitted by employees in accordance with the OJK Regulations No.IX.1.5 and Sarbanes-Oxley Act of 2002 section 301 of the Public Company Audit Committees. 2. With regard to enterprise risk management, the Audit Committee also oversees and monitors the risk of fraud and financial reporting risks that may have a material effect on the financial statements. Jakarta, March 26, 2015 Johnny Swandi Sjam (Chairman of Audit Committee) 221 2014 Annual Report PT Telkom Indonesia Tbk (Persero)3. Report of the KEMPR in 2014 Throughout 2014, KEMPR has conducted surveillance and monitoring the implementation of the current CSS, the implementation of RKAP in 2014, the implementation of the capital expenditure (capex) in RKAP 2014, the analysis of investments in subsidiaries and the implementation of enterprise risk management. In addition, KEMPR has also conducted an evaluation of the proposed CSS 2015-2019, the proposed RKAP 2015, as well as other tasks assigned by the Board of Commissioners. Activities of Planning Committee and Risk Evaluation and Monitoring in 2014: 1. Corporate Strategic Scenario (“CSS”) KEMPR has monitored the implementation of RJPP/ CSS for the period from 2014 to 2018, especially that relates to the current year and conduct evaluation of the proposed CSS for the period from 2015 to 2019 which became the basis for the development of Corporate Annual Message (“CAM”) in 2015 and RKAP in 2015. In accordance updates of RKAP strategy RJPP periodic, then the CSS period from 2015 to 2019 is an update to the CSS period from 2014 to 2018. 2. Annual Business Budget Plan In carrying RKAP 2014, the Board of Commissioners has instructed the Board of Directors to seek timely implementation of capital expenditure, particularly in supporting the achievement of the Company’s revenues. As for the RKAP 2015, the Board of Commissioners has also provided strategic directions, including: a. Synchronization of potential retail consumer demand of Telkom and its subsidiaries that cover the same service segment; b. The need for concrete steps to encourage the growth of earnings; c. Implementation of integration in the establishment, monitoring and coaching subsidiaries; d. Increased capacity of subsidiaries to explore external market in order to achieve the proportion of revenue from external market which is higher than the achievement in 2014. KEMPR focus in monitoring the implementation of RKAP in 2014 which includes monitoring the realization of RKAP in 2014 both in the achievement of revenue, expenses, and profits, as well as capital expenditures. In order to obtain more optimal monitoring results, KEMPR had performed several field visits to monitor the progress of the implementation of capital expenditure and progress towards CBP. KEMPR has conducted field visits in 2014 to the regional unit in Central Java and Yogyakarta, Sulawesi, and Surabaya. In addition, KEMPR has also conducted field visits to project sea cables Manado Sulawesi Papua Cable System (“SMPCS”) segment-Ambon-Makassar Jayapura, optical deployment by Telkom access in several locations like Aceh, Manado and the construction of hotels by Telkom Property in Makassar. 3. Enterprise Risk Management (“Enterprise Risk Management”) KEMPR is tasked to monitor the implementation of ERM in 2014, which include the handling of risks that have a significant impact on the RKAP 2014. For the first half of 2014, there were some significant issues of risk, ie the risk of the cellular business, fixed broadband, Wi-Fi, and outsourcing. As for the second half of 2014, KEMPR noted some risks that KEMPR namely, the risk impact of changes in technology and regulation, increased levels of competence in mobile and fixed broadband business, as well as the risks of mergers, acquisitions and partnerships. KEMPR specifically monitor efforts to mitigate the risks that can be classified as significant risk. 4. Measures of Directors that require approval from the Board of Commissioners In 2014, KEMPR has reviewed the following actions by the Board of Directors members which require the approval of the Board of Commissioners: a. Permits release of the capital expenditure for the first and second quarter of 2014; b. Additional capital investment in Telkom Metra for funding the joint venture (JV) Network Application Service, which is a collaboration Telkom Metra and Telstra; 222 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESc. Transfer of treasury stock, the result of the share buyback II; d. Approval of the corporate strategic scenario 2015-2019 period; e. Additional investment in Telkom Indonesia International (Telin) for some strategic projects; In carrying out their duties during 2014 KEMPR generate various reports and studies (evaluation). Details are: CSS Output 2 RKAP 12 Capex 4 Risk/Legal Certain Measure 4 17 Jakarta, March 26, 2015 Hadiyanto (Chairman of KEMPR) 223 2014 Annual Report PT Telkom Indonesia Tbk (Persero) WORK MEETING OF COMMITTEES UNDER THE BOARD OF COMMISSIONERS 1. Work Meeting of the Nomination and Remuneration Committee During 2014, the Nomination and Remuneration Committee has held 50 meeting, including 32 circulation of minutes for approval Name Meeting Number Attendance Number Attendance Percentage (%) Jusman Syafii Djamal Johnny Swandi Sjam Virano Gazi Nasution Parikesit Suprapto Hadiyanto Gatot Trihargo (1) Imam Apriyanto Putro Hendri Saparini(2) Dolfie O.F.P(2) Ario Guntoro Description : (1) As of April 4, 2014 (2) Starting from Desember 19, 2014 46 50 50 50 50 16 34 4 4 50 46 50 44 49 45 16 27 4 4 50 100 100 88 98 90 100 79 100 100 100 2. Work Meetings of the Audit Committee Throughout 2014, the Audit Committee met 38 times. This meeting was held in accordance with the requirements of the Audit Committee Charter and aims to facilitate the implementation of tasks and responsibilities for each member of the Audit Committee. The number of meetings and the attendance of the Audit Committee members are as follows. Table of Numbers of Audit Committee Meeting Name Attendance Number Attendance Percentage (%) 29 22 28 27 16 34 76 58 72 68 42 89 Johnny SwandiSjam TjaturPurwadi (1) ParikesitSuprapto Virano Gazi Nasution SahatPardede (2) AgusYulianto Description : (1) Starting from March 2014 (2) As of March 2014 224 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 3. Work Meeting KEMPR In 2014 KEMPR held 10 committee meetings. Table of Number of Risk Planning, Evaluation and Monitoring Meetings Number of Meeting CSS RKAP/Capex Certain Action Attendance Number Attendance Percentage 2 2 - - 2 1 2 2 1 1 - 1 1 1 1 1 7 3 - 3 7 4 7 7 10 6 0 4 10 6 10 9 100% 60% 0% 57% 100% 60% 100% 100% Name Parikesit Suprapto Hadiyanto Gatot Trihargo(1) Imam Apriyanto Putro (2) Johnny Swandi Sjam Virano Gazi Nasution Rustanto Hadimartono Widuri Meintari (3) Description : (1) Ending since April 4, 2014 (2) Starting from April 30, 2014 (3) Ending since April 30, 2014 225 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CORPORATE SECRETARY / INVESTOR RELATIONS (“IR”) Telkom has appointed a Vice President (“VP”) of Investor Relations under the Director of Finance who was previously under the Head of Corporate Communications and Affairs to perform the functions as Corporate Secretary in accordance with OJK Regulation Number 35/POJK.04/2014 regarding Company Secretary of Public Company. Investor Relations is responsible for preparing the provision of information on the process of interrelations between the Company and the Shareholder as well as maintaining a systematic feedback mechanism to the management to be able to respond to shareholder and capital market dynamics appropriately and effectively. Profile Corporate Secretary Andi Setiawan, 36 year-old, is the Company's VP Investor Relation. He joined with Telkom Group since January 2014 as GM Investor Relations at PT Telekomunikasi Selular. On March 4, 2015, he was appointed as Vice President, Investor Relations (Corporate Secretary) of our Company. He previously worked at PT Pemeringkat Efek Indonesia (Indonesia Credit Rating Agency) as Corporate Ratings Analyst (2004). In 2007, he joined PT Bakrieland Development Tbk., as Corporate Secretary Manager. In 2010, he joined PT Summarecon Agung Tbk, where he was responsible for leading the role of Investor Relations (IR) function, as Investor Relations Manager. He holds a Bachelor degree in Financial Management, Faculty of Economics from University of Indonesia. Duties and Roles of Corporate Secretary The duties and responsibilities of the Corporate Secretary are conducted by several units, namely: No Duties and Roles of Corporate Secretary 1 Corporate Governance a. Communication, coordination with the other divisions/ units/ subsidiaries related to the implementation, monitoring, assessment and review of corporate governance in the company. b. Build trust towards the management ability to manage the company and build long-term value for stakeholders. c. Facilitate and build effective relationships between the Board of Commissioners and the Board of Directors with a focus on (agency problems and continue to promote checks and balances. d. Ensure the management of contractual relationship between the owners and managers and the Board of Commissioners and the Board of Directors charters to ensure effective control measures on decisions that are not explicitly stated in the contract and under certain conditions as necessary to ensure the continuity of the company. e. Balancing competence and adequacy of information to the Board of Commissioners and Board of Directors to prevent the occurrence of competency gaps and asymmetric information between the Board of Commissioners and Board of Directors. f. Manage and ensure that the Company's Annual Report have included the implementation of GCG in a corporate environment. People in Charge Head of Corporate Communication & Affair Investor Relations Sub Directorate – Head of Corporate Communication & Affair CSR a. Coordinate the implementation of the company's activities related to social Public Relation Unit -CDC responsibility (CSR). Corporate philosophy b. Socialize and monitor the implementation of the Corporate Philosophy, Organizational Development Sub Directorate – DIT HCM Corporate Value, System, Business Ethics and Corporate Culture 226 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES No Duties and Roles of Corporate Secretary People in Charge GCG Policy a. Develop policy and GCG management framework including policies of GCG within the scope of the Business Group (subsidiary governance). 2 3 BOD Administration & Corporate Office Assist the Board of Directors with various activities, information and documentation, among others: a. Set up a Special Register, relating to Directors and their families as well as the Board of Commissioners and their families both in the Company and its affiliates which include stock ownership, business relations and other roles that give rise to a conflict of interest. b. Create Shareholder Register. c. Attend Meeting of the Board of Directors and make the minutes of meetings d. Hold General Meeting of Shareholders. Synergies and Coordination a. Communicate and build synergy with the Group's Company Secretary to adress information and matters relating to the vision, mission, governance and management of the Telkom Group. b. Communication and synergy programmes within the scope of the Telkom Group. 4 Legal / Regulatory Compliance a. Compliance with the financial and capital markets provisions: - Remind and provide input to the Board of Directors to ensure that the company always adhere to and execute capital market regulations and adhere to the Business Ethics and Corporate Work Ethics. - Keep updated with the development of capital markets, particularly capital market regulations as well as international practices relating to corporate governance. - As a liaison or contact person that facilitates communication between the Company and the Stock Exchange OJK, where the shares of the Company are listed and stakeholders. b. Compliance with the provisions of the regulation: Remind and provide input to the Board of Directors that the company always adhere to and comply with the appropriate regulatory provisions. Following the development of the industry, especially the regulations in force and future regulations that shall apply to the company. c. Compliance with legal provisions and the company. Subdit Risk Process Management – Head of CRMGA Corporate Office Support Administrations – Sub Unit, Corporate Communications & Affair Unit Subdit Innovation Strategy & Synergy Subdit War Room Investor Relations Sub Directorate – Head ofCorporate Communication & Affair and Legal & Compliance Sub Directorate- Head of CRMGA Subdit Regulatory Management –Head of Corporate Communication & Affair Following the development of regulations and ensure that the company always adhere to laws and regulations. Subdit Legal & Compliance Dept. of CRMGA 5 Communication/Disclosure (Liaison Officer) a. Communication with the Monetary Authority, investors and capital markets: - Manage two-way communications and maintain good relations with the OJK Subdit Investor Relations – Dept. Corporate Communication & Affair and IDX. - Prepare and communicate information that is accurate, complete and timely about the performance and prospects of the Company to the public capital markets, as well as stakeholders, in collaboration with the concerned division. - Provideng services to shareholders in terms of information relating to the condition of the company (eg information to investors, journalist gatherings, media and regular analysis of the impact of macro economy on the performance of the company). - Publicize the company's corporate action in a tactical, strategic and timely manner. b. Communication with the public, customers and internal: - Determine the criteria regarding the type and content of information that can be disclosed to stakeholders, including information that can be delivered as a public document. - Revise the display and governance of internal media and establish good relationships with stakeholders through the organization of important events. - Maintain and update information about the Company submitted to stakeholders, Subdit Public Relations – Dept. of Corporate Communication & Affai both in the website, newsletter or other information media. 227 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Competence Enhancement of Corporate Secretary In order to develop the competence of the Corporate Secretary, we have participated in various training and socialization which are organized by various institutions Training Name Executive Telecommunication MBA Program Accounting for Finance 2014 NIRI Annual Conference Venue Jakarta Jakarta NIRI Organizer Time Truscell Truscell May 6-9, 2014 May 21-23, 2014 Las Vegas, US June 8-11, 2014 Advanced Corporate Finance & Financial Analysis Jakarta Truscell June 9-12, 2014 Socialization of PSAK and FGD POJK Corporate Secretary Jakarta OJK June 17, 2014 Broadband Passport Digital 7 Social Media passport Singapore Singapore Communic Asia 2014 June 17-20, 2014 Communic Asia 2014 June 17-20, 2014 Management's Discussion & Analysis Workshop London IAS Seminars June 19-20, 2014 Management's Discussion & Analysis Workshop London, England IAS Seminars June 19-20, 2014 Certified Management Accountant Jakarta ICMA July 1, 2014 7th Annual Depository Receipts Issuers Conference Sapporo, Japan BNY Mellon July 10-13, 2014 Finance Essentials for IR & Think Like an Analyst San Fransisco, US NIRI August 12-14, 2014 228 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESINTERNAL CONTROL SYSTEM, INTERNAL AUDIT AND ExTERNAL AUDIT INTERNAL CONTROL SYSTEM Financial and Operational Control In order to control the financial and operational, management has evaluated the effectiveness of the controls and procedures of disclosure of the company. This activities have been conducted under the supervision and participation of the management, including the Company’s President or, those that is equivalent to the Chief Executive Officer / CEO) and Finance Director, which is equivalent with Chief Financial Officer (CFO), as defined in Rules 13a-15 (e) and 15 ( d) - 15 (e) of the Exchange Act. Based on this evaluation, the CEO and CFO have concluded that on December 31, 2014, the company’s controls and disclosure procedures have been effective. Management has conducted an evaluation on the effectiveness of the Company’s controls and disclosure procedures to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time prescribed in accordance with the terms and format of the SEC. The Information is collected and communicated to the management, including the President Director and the Finance Director, so that decisions making can be timely and in accordance with required disclosure. Compliance Our corporate compliance is managed by the Legal & Compliance unit under the Department of Compliance, Risk Management and General Affairs (CRMGA). This unit seeks to ensure that the policies, decisions of companies and all business activities are conducted in accordance with the provisions of applicable laws and regulations, both internal and external. Proactively, we run a compliance policy at the business unit and transactional levels. Some compliance activities carried out in 2014 include: a. Supporting business activities by providing legal advice through the delivery of legal opinion on the management action plans and problems related to conformity with applicable laws or regulations (legal advisory). b. Supports business activity/enterprise transactional by conducting review of any draft agreements/ contracts (procurement and non-procurement) to ensure in advance that the procurement or partnerships procedure hascomplied with the procurement procedures/ partnership established by the company and external regulations. c. Conducting legal review of business and policy initiatives. d. Settlement of litigation and non-litigation cases. Evaluation on the Effectiveness of Internal Control 1. Management Report On Internal Control Over Financial Reporting The Company’s Management is responsible for implementing and enforcing internal control over financial reporting adequately. It is as defined in Exchange Act Rules13a-15 (f) and 15d-15 (f). The internal control over financial reporting is a process designed by, or under the supervision of Chief Executive Officer and Chief Financial Officer, and carried out by the Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures which, (1) pertain to the maintenance of records in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of Consolidated Financial report in accordance with generally accepted accounting principles, and that the Company’s revenues and expenses received and spent only based on the authorizations of management and directors of the Company, and (3) provide reasonable assurance regarding prevention or timely detection in terms of unauthorized acquisition, use or disposition of the Company’s assets which could have a material effect on the consolidated financial statements. With the existing limitations, internal control over financial reporting may not prevent or detect all misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 229 2014 Annual Report PT Telkom Indonesia Tbk (Persero) The management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, the management used the criteria established by the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Tradeway Commission (COSO). Based on this assessment, management has concluded that as of December 31, 2014, our internal control over financial reporting was effective. 2. Attestation Report of the Registered Public Accounting Firm The effectiveness of our internal control over financial reporting as of the date of December 31, 2014 has been audited by Purwantono, Suherman & Surja, an independent and registered public accountants, as stated in their report which appears in the Consolidated Financial Statements. 3. Changes in Internal Control over Financial Reporting There were no significant changes in internal control over financial reporting throughout the most recently completed fiscal year that would greatly affect or reasonably have effect materially on the internal control over financial reporting. We are committed to continuously improving internal control processes and will continue to review and monitor the financial reporting controls and procedures to ensure compliance with the requirements of the Sarbanes-Oxley Act and related rules defined by COSO. We also will continue to devote significant resources to improve our internal control over financial reporting from time to time. INTERNAL AUDIT UNIT Unit of Internal Audit (IA) plays an active role in exercising control over the Company’s business activities.Head of Internal Audit UnitThe Internal Audit Unit is led by a Head of Internal Audit, who is appointed and dismissed by the President Director with the approval of the Board of Commissioners. As of December 31, 2014, the Head of Internal Audit is Mohammad Nuhin. A brief profile of Mohammad Nuhin Served as Head of Internal Audit since 1 May 2014 and appointed to the position based on a decree signed by the President Director. Since 1989, he has worked with Telkom and its subsidiaries and has had over 19 years of professional experience in various positions at the management level. He previously served as SVP of Internal Audit in Telkomsel from July 1, 2012 to April 30, 2014 and as VP of Internal Audit at Telkom from February 1, 2007 to June 30, 2012. Total Number of Personnel of the Internal Audit Unit At the end of 2014, the number of personnel in Internal Audit unit was 48 people. The details of the internal audit personnels which are categorized according to their education level are as follow: Latest Education Total Percentage (%) SMU D2 D3 S1 S2 Total 1 5 2 26 14 48 2,0 10,4 4,2 54,2 29,2 100 Structure and Status of Internal Audit Unit As stipulated in the applicable capital market regulations, Internal Audit is an independent unit to other units and reports directly to the President Director. 230 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Telkom’s Internal Audit organizational chart is presented below. Head of Internal Audit Mohammad Nuhin VP Infrastructure & Operations Audit Rubi Handojo VP Enterprise Management Audit Purwoto VP Support & Subsdidiary Audit Purwadi Siswana AVP Service & Delivery Audit Rahadian Khrisna S AVP Financial & Asset Management Audit Saul Rudy Nikson AVP Subsidiary Audit A. Bayu Katon AVP Service Operation Audit Yanti Iswari AVP Share Service Audit Joni Pathibang AVP IT Support Audit I Ketut Darsumantra AVP Infrastructure & Supply Audit Imam Santosa AVP ICFR & Risk Management Audit Purwoto AVP Quality Assurance & System Development Audit Edi Djoko Swasono 231 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Internal Audit Charter Telkom’s Internal Audit unit is equipped with the Internal Audit Charter as a corporate formal document, which contains a description of the vision, mission, structure, status, duties, responsibilities and authority of the Internal Unit, including personnel requirements of Internal Auditors. The preparation of Internal Audit Charter is based on the international standards for professional practice of internal auditing issued by the Institute of Internal Auditors (“IIA”) and has been approved by the President Director and Audit Committee based on the Board of Directors Decision 711 / PW000 / UTA-00/2008 regarding Internal Audit Charter of the Company. Vision, Mission, Duties and Responsibilities of the Internal Audit Vision As an integral part of the Company, IA has a vision to be a “Smart Partner” to the Management, Business Unit and Subsidiaries to achieve the objectives of the Company and to be a driving force in the creation of a disciplined cultureat all levels of the organization through the implementation of all of laws/policy/regulations/ procedures/business process. Mission 1. Providing professional internal audit services and consultation, objective also independent for management, business unit and subsidiary. 2. Providing assurance of appropriate financial reporting. 3. Guarding internal control implementing actively, supporting the enhancement of GCG Implementation and evaluating risk management. The Internal Audit’s vision and mission are implemented through systematic and measurable activities in line with prevailing standards in each phase of the audit process ranging from the preparation, implementation and monitoring of follow-up actions. For this purpose, a risk-based audit methodology is used during the preparation phase of an audit as the primary guideline to determine the auditability of units based on the level of risk, that is, the higher the risk, the higher is the need for an audit. The risk levels of an audit are based on risks that have been mapped and defined by the Company as well as the professional assessment by the Internal Audit itself. Duties and Responsibilities To facilitate the risk-based audit paradigm in carrying out its duties and responsibilities, IA has implemented the Audit Management System (“AMS”) management tool, an online application to document all of the implementations of risk based audits via online. Improvements in IA’s participation are carried out by improving the quality assurance for the company's operations through audit and non-audit activities. Audits are performed to ensure that potential business risks are mitigated by effective internal controls. If deficiencies are found in the internal control mechanism of a certain business process, or when certain risks turned out to be out of control, a substantive test is performed on the audit object as the next step to find the root cause of the problem. In addition, as consequence of our dual listing in the Indonesian Stock Exchange (IDX) and the New York Stock Exchange (NYSE), IA periodically examines and audits the effectiveness and adequacy of internal control mechanism in terms of financial reporting in line with the Internal Control over Financial Reporting ("ICOFR") standards. In order to support audit and encourage each unit’s awareness of the importance of internal control, all relevant business units perform quarterly Control Self Assessment (“CSA”) over its internal control responsibilities. Periodically, IA also reviews findings in the CSA to assess their adequacy and make recommendations for improvements in terms of design and implementation. The next step is to participate in the activities of internal consulting services. Internal consulting services, among other objectives, focus on the implementation of the Company's operations classified into infrastructure management (of production tools), as well as product and service support operations, including identification of Group Financial Reporting Risk/”GFRR”, preparation of subsidiaries’ business process and human resource management. Internal consulting activity is more of a preventative solution to secure that business operations remain in the right direction and within the corridor of prevailing regulations. 232 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES As part of a company highly committed to successful GCG, IA has an important role in the whistleblower mechanism which is the domain of the Audit Committee and the Executive Investigative Committee (“EIC”) of which Head of IA is also the secretary of EIC. Whistleblower mechanism serves to accommodate any “complaint” filed by employees and forwarded to the management. If the Audit Committee and the EIC consider that the complaint needs further investigations, IA is to prepare follow-up actions as part of the audit assignment. Findings from such activities are reported to the President Director with a copy for the Audit Committee and later distributed to the respective auditee for follow-ups and corrective measures. Further controls are necessary to ensure that an auditee has provided adequate response over the results of the audit and consulting service. Operational follow-ups are conducted by the auditee while being monitored by the IA. For this purpose, follow-ups are limited to significant business process areas with an agreed time frame of completion. The independence As set forth in the existing capital market regulations, namely Regulation No. XI.2.7, Internal Audit is an independent unit to other work units and reports directly to the President Director. The Head of Telkom’s Internal Audit is appointed and dismissed by the President Director upon the approval of the Board of Commissioners. One of the implementations of the independence of the Internal Audit Unit in Telkom is reports sent to the President Director and the Audit Committee (Member of the Board of Commissioners). Professional Qualifications/Certification To maintain and enhance the competence of auditors in order to be adequate both in quality and quantity and to be able to act in accordance with the scope of the Internal Audit in guarding the Company’s business development, the Internal Audit continues to make efforts to: 1. enroll Internal Audit’s auditors in training, seminars and workshops of a technical nature; and 2. enroll Internal Audit’s auditors in continuous learning certified, both locally and internationally. Currently the Company’s Internal Auditor Unit has nine auditors with national certification of Qualified Internal Auditor (QIA) and six auditors with international certification, consisting of one Certified Fraud Examiner, two Certified Information Systems Audit (CISA), and one Certified Management Audit (CMA). Currently the number of auditors that already have certification both nationally and internationally are as follows: Type of Certification Qualified Internal Auditor (QIA) Certified Fraud Examiner (CFE) Certified Information System Audit (CISA) Certified Risk Management Audit (CRMA) Certified Management Audit (CMA) Total 8 1 2 1 1 In 2014, the Internal Audit has actively enrolled its auditors in preparation for international certification such as certified Information System Auditor (“CISA”) and Certified Internal Auditor (“CIA”). 233 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Telkom Internal Audit’s Active Involvement in Professional Organization Telkom’s Internal Audit has been actively involved in the activities of the Forum Communication of Internal Control Unit (“FKSPI”) Indonesia. This forum was established to be a vehicle to improve the quality of supervision and to establish international standard professional auditors. FKSPI members consist of the Internal Audit Unit of state enterprises, universities and private companies. FKSPI regularly organizes seminars and workshops to improve the competency of its members. There are nine personal of Telkom’s Internal Audit who are members of the Institute of Internal Auditors (IIA). These memberships are as part of the efforts by Telkom’s Internal Audit to be continuously updated with scientific developments in the field of audit and assurance in the world. Audit and Consultation Implementation in 2014 In accordance with the Internal Audit Annual Work Plan, the Internal Audit Unit has conducted 47 object auditing and consulting for 2014. Sub Unit Q-I Q-II Q-III Q-IV Year-2014 Enterprise Management Audit Infrastructure & Operation Audit Support & Subsidiary Audit Total IA 4 3 2 9 6 3 4 13 7 3 3 12 6 3 3 12 23 12 12 47 Up to December 31, 2014, the Internal Audit has completed 47 audits/ consulting and has produced 312 recommendations as follow: Sub Unit Total Recommendation Follow-Up Status Closed Open Enterprise Management Audit Infrastructure & Operation Audit Support & Subsidiary Audit Total IA 118 218 88 424 96 193 68 357 22 25 20 67 234 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Internal Audit Training The details of the training which Internal Audit participated in 2014 are as follow: Programmes Location and Date Number of Participants Number of Days Advance Certified Behavioral Consultant (CBC) National / 25-26 March Guidance and Exam of CFE Certification National / 10-14 February Bootcamp Financial Risk Management (FRM) Certification National / 24-25 and 28-30 April Bootcamp Financial Risk Management (FRM) Certification - PART 2 National / 13-14 May CBC Advanced Company Strategic Planning National / 21-23 April National / 24-26 Sep COSO 2013 Implementing the Framework International / 7-8 Oct Digital Forensic Exam CFE National / 25 June National / 24-25 Sep Finnon 1 - Understanding Finalcial Statement National / 1-3 July Lead Auditor BCMS (ISO 22301) and PAS 99 (Batch-1) National / 16-20 Juny Lead Auditor Course (LAC) ISO 20000 Training & Workshop Evaluasi Organisasi ISO 22301 Workshop ISO 27001 Workshop ISO 27001 & ISO 22301 Workshop National / 15-19 Dec National / 19-21 May National / 23-27 June National / 21-25 April National / 14-26 April Psycologic and Communication Audit Training National / 11- 13 June Seminar of Business Valuation Conference National / 30 Sep - 1 Oct Seminar and Musyawarah Kerja National FKSPI 2014 National / 17-19 Sep Seminar National of Internal Audit 2014 ISO BCMS Certification QIA Level of Manager Certification National / 15-17 April National / 16-20 Juny National / 1-11 August Sharing Session Psycology and Communicatio Audit National / 09 Juny Spirituality in Work for Managers (Islam) Batch-35 National / 17-21 Nov Spriritual Capital Management National / 11-14 March Suspim International Thunder-Bird, Arizone International / 8-25 May Technic and Methods of Supply National / 22-23 May The European & UK Anti Corruption & Compliance Congress International / 5-6 Juny Workshop Negotiation Skill & Simulation National / 19-21 March Workshop Goods and Services Supply Workshop Drafting UBIS Profile National / 11-12 Sep National / 12-14 May 5 2 2 2 1 2 1 1 1 1 2 1 3 1 3 2 7 4 5 3 1 5 12 1 1 1 1 1 1 2 1 2 5 5 2 3 3 2 1 2 3 5 5 3 5 5 10 3 2 3 3 5 12 1 5 4 18 2 2 3 2 3 235 2014 Annual Report PT Telkom Indonesia Tbk (Persero)ExTERNAL AUDIT In line with the existing procedures and taking into consideration the independence and qualifications of the independent auditors, our AGM dated 4 April 2014 has appointed Public Accountant Office (“KAP”) Purwantono, Suherman & Surja (in collaboration with Ernst & Young Global Limited), which is registered KAP with the OJK, to conduct an audit of the Consolidated Financial Statements for the year ended December 31, 2014. The fee for the audit on the Consolidated Financial Statements for the Fiscal Year 2014 amounted to Rp31.5 billion, (excluding VAT) Purwantono, Suherman & Surja became our public accountant since 2012. The accountant who signed the Independent Auditors’ Report for Fiscal Year 2014 is Hari Purwantono. Purwantono, Suherman & Surjawas also appointed to audit the Effectiveness of Internal Control over Financial Reporting for the Fiscal Year 2014 as well as to audit the use of funds for the Partnership and Community Development (“CSR”) in the Fiscal Year 2014. The public accounting firms that has audited the Financial Statements of the Company for the last five years are listed below. Year Public Accountant Office Public Accountant 2014 2013 2012 2011 2010 Purwantono, Suherman & Surja Drs.Hari Purwantono Purwantono, Suherman & Surja Drs.Hari Purwantono Purwantono, Suherman & Surja Drs.Hari Purwantono Tanudiredja, Wibisana & Rekan Chrisna A.Wardhana, CPA Tanudiredja, Wibisana & Rekan Chrisna A.Wardhana, CPA Fee (Rp million) 31,500 28,240 26,619 40,503 41,872 External Auditor Fees and Services The following table presents a summary of the relevant bill audit services for the years 2012, 2013, 2014. Audit Fee Tax Service Fee Other Fees Years that ended on Desember 31 2012 (Rp million) 26,619 - 326 2013 (Rp million) 28,240 - - 2014 (Rp million) 31,500 Audit by Other External Audit Institutions In addition to being audited by Public Accounting Firm (KAP), the Auditor of the Supreme Audit Agency (BPK) conducted an audit of the procurement activities in Telkom in 2014. This audit further enhanced “control awareness” of Telkom’s management in the process of the procurement of goods and services. 236 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES RISK MANAGEMENT Risk management is important in the business of communication because these businesses covers a wide areawhich requires a large investment with a high level of competition. The implementation of the risk management system is strengthened with SOEs Minister Regulation No.1/2011 which requires Telkom tol apply risk management. The implementation of risk management is carried out systematically and structurally. The Company’s risk management is applied to minimize any possible risks that could negatively impact the achievement of Company goals. Development of Risk Management Milestone Since 2006, we have a risk management framework with reference to the COSO Enterprise Risk Management (ERM) as stipulated in the Board of Directors’s Decree No.16 of 2006 on Corporate Risk Management (Telkom Risk Management). Telkom’s risk management in 2006 began with the establishment of the Legal Unit of Risk Management & Compliance (RMLC) under the coordination of the Executive Vice President (EVP). Subsequently, in 2007 the Company established the Directorate of Compliance and Risk Management (CRM) under the control of the Director of CRM. In 2013, with the improving level of awareness on risk management and greater business challenges, the functions of Directorate of CRM was changed to the Directorate of Wholesale & International, while the Company formed the Compliance Department, Risk Management and General Affairs (CRMGA) under the responsibility of the Head of CRMGA to run the management of Governance, Risk & Compliance. The long journey in managing Risk Management from 2006 to2014 has led the company to a stage where risk are taken into consideration in strategic decision making, operational implementation, while overseeing compliance and in guarding the financial reporting process through the Internal Control Processes and Procedures Disclosure Controls. Looking ahead, we continue to strive to maintain and improve the maturity of the implementation of risk management (ERM Maturity Level) with some emphasis as follows: 2015: Enhancement of the mature implementation of Business Continuity Management System (BCMS) 2016: Enhancement of the the mature implementation Revenue Assurance & Fraud implementation Management System Organization of business risk management at the corporate level With reference to the Board of Directors Regulation of No.202.11 / 2013 dated June 25, 2013 on Office organization of Telkom Group, the organizational structure of the Sub-Department of Risk and Process Management is under the coordination of the Department of Compliance, Risk Management and General Affairs (CRMGA). The diagram is as follow: VP Risk & Process Management AVP Risk Strategy AVP Process Strategy VP Risk & Process System Development 237 2014 Annual Report PT Telkom Indonesia Tbk (Persero)However, in implementation, Telkom also considers and integrates the framework with references to other relevant guidelines including: 1. ISO 31000 - Enterprise Risk Management as a comparison and complementary implementation 2. ISO 27001 - Information Security Management System (ISMS) as a reference in the development of risk management to ensure information security in terms of the Confidentiality, Integrity and Availability 3. ISO 22301 - Business Continuity Management System (BCMS) as a reference in ensuring business sustainability 4. ISO 20000 - Information Technology Service Management (ITSM) as a reference in ensuring IT services 5. Safety and Health Management System (SMK3) based on Government Regulation No. 50 of 2012 on the application of SMK3 6. ISO 18001 - Occupational Health and Safety Assessment System (OHSAS) as a reference to support the implementation SMK3 Implementation of Risk Management Policy and Framework 1. Efforts to provide value added to the management of the company With regard to basic framework (COSO ERM Framework), the implementation of risk management at Telkom is expected to provide added value to the achievement of the Company’s objectives, especially in certain aspects namely Strategic, Operation, Reporting and Compliance. GIC E T A R T S S N O I T A R E P O E C N G N I T R O P E R LIA P M O C B S U U S I N E D I V S B S I D I I S I S A R U O Y N I T E N T I T Y L E N V E L Internal Environment Objective Setting Event Identification Risk Assessment Risk Response Control Activities Information & Communication Monitoring Risk Management Policy and Framework Risk Management Policy in Telkom refers to the Board of Directors Decision No. KD.16/ PW000/ PRO-IIC/ 2006 dated February 3, 2006 on Enterprise Risk Management (Telkom Risk Management) Objective: 1. Ensure that all risks that may interfere the Company in achieving goals can be anticipated. 2. Create Standard Corporate Risk Management application framework that the management is more coordinated and integrated. Scope: Enterprise Risk Management is implemented at all levels of the organization, including: 1. Work Unit in Corporate Office. 2. Business Unit (Division / Center) 3. Subsidiaries The main framework used in the implementation of risk management at Telkom (COSO ERM Framework) includes three main components: 1. The application of corporate risk management to support the company’s goals: strategic, operational, and compliance reporting. 2. Enterprise risk management is applied at all levels of the organization within the company including Enterprise-level, Division, Business unit and the Subsidiary. 3. The process of implementation of enterprise risk management consists of eight components, namely: a. Development of the internal environment process b. Objectives setting process c. Events Identification process d. Risk assessment process e. Risk response process f. Control activities process g. Information and communication process h. Monitoring process 238 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Strategic Aspect: Risk management strives to provide added value through the implementation of risk management in the corporate planning process such as during the preparation of Corporate Strategic Scenario (CSS) and in the strategic decision making process. Operational aspect: Risk management strives to provide value added through: 1. The implementation of Risk Management to protect assets, among others through: a. The Management of Physical Security for securing infrastructure b. The Management of Information Systems Security (IT Security Management System) includes the Confidentiality, Integrity and Availability c. The Management of Health and Occupational Safety Management System (K3) d. The Management of Business Continuity Management, Disaster Recovery Plan and Crisis Management Team 2. The management of Revenue Assurance and Anti- Fraud Program Compliance Aspect: Risk management strives to provide added value through: a. Management of compliance over Regulations on External and Internal Regulations b. Management of compliance on SOX provisions through the design and implementation of adequate internal control Reporting Aspects: Risk management strives to provide added value by setting the process of controlling disclosure of financial reporting through Disclosure Control Procedure (DCP). 2. Enterprise Risk Management (ERM) Telkom realizes that risk management is an integral part of the management of Good Corporate Governance (GCG) to ensure business continuity. Governance of risk management basically refers to the concept of 3 Lines of Defense, including: a. First Line: The entire Organization Unit in the Office of the Company, Divisions and Subsidiaries as Risk Owners, are responsible for risk management in the unit works ranging from the process of risk identification, risk assessment, mitigation, monitoring and continuous improvement. b. Second Line: The function of Risk Management business unit, which is under the coordination of the CRMGA department, is to ensure the effectiveness of risk management through the provision of policies, frameworks, procedures and guidelines. c. Third Line: The function of the Internal Auditor is to carry out the audit of the effectiveness of the implementation of risk management and internal control independently. 239 2014 Annual Report PT Telkom Indonesia Tbk (Persero)KEMPR / Director's Meeting Planning and Risk Evaluation and Monitoring Comittee CRMGA Department t i d u A l a n r e t n I Division Corporate Directorate Subsidiaries Enterprise Risk Management 3. Process of Constructing and Maintaining the Enterprise b. Operational Aspect that focuses on: Risk Management To be able to run the eight components of the COSO Framework process well, we build and maintain the Enterprise Risk Management through: a. Structural aspects by buildings supporting internal environments through: 1. Building Commitment and Tone at the Top 2. Laying the foundation of risk management within the framework of GCG 3. Establishing a Risk Management Unit Management Organization, 4. Developing Policies, Guidelines for Risk Acceptance Criteria (RAC), Guidelines for Risk Assessment (Risk & Control Self Assessment / RCSA) and Governance, 5. Developing Competence in Risk Management, 6. Providing adequate tools and system 1. Guarding the implementation of the risk assessment at the Corporate, Business Unit and Subsidiary as well as the preparation of adequate mitigation plan. 2. Developing risk assessment methodologies for specific functions by combining the implementation of the COSO ERM Framework with reference standards or other guidelines 3. Treatment aspect, which is focused on aspects of information processing, communicating, reviewing and continuous improvement include: - Guarding the implementation of the review, monitoring and reporting system risk - Coordinating the implementation of Risk Management Audit Implementation Enteprise - Maintaining Continuity Competency Development - Maintaining Consistency Communication and Dissemination - Developing effective implementation of the assessment mechanism Risk Management. 240 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES 4. Risk Management Competency Development In 2014, we carried out the development of risk management competencies, including: No. Type of Training Governance, Risk & Compliance Conference SOA for PO-DC Division Portofolio & Investment Evaluation Business Process Management (BPM) for Division Business Continuity Management System (BCMS) ISO 22301 integrated with ISMS ISO 27001 February2014 Enterprise Risk Management & Aplikasi ERM Online Revenue Assurance & Anti Fraud Management Collaboration SOA dan Aplikasi ICCA untuk Divisi PO-DC Creation of Implementation Documentation of BCMS - ISMS (ISO 22301 & ISO 27001) 1 2 3 4 5 6 7 8 9 10 Business Financial Analysis 11 12 SOA for Manager Unit of Supply Management Lead Auditor ISO 22301 Business Continuity Management System 13 Business Process Management (BPM) for Wholesale & International Business 14 Revenue Assurance & Anti Fraud Management Collaboration 15 Catastrope Insurance in Asia Conference 16 New COSO Framework 2013 Internal Control 17 Expert of Occupational Health and Safety (AK3) electricity 18 Expert of Occupational Health and Safety (AK3) Firefighter 19 Flood Emergency Evacuation Simulation 20 Financial Modelling 21 Lead Auditor ISO 20000 IT Service Management Time January 2014 January 2014 February2014 February2014 February2014 March 2014 April 2014 April 2014 April 2014 June2014 June2014 September 2014 September 2014 September 2014 October 2014 October 2014 October 2014 October 2014 November 2014 December 2014 In addition to undergoing Classical Training, competency development is also achieved through socialization and related workshop on Risk Management in the Office of the Division and its subsidiaries. 5. The Use of Tools / Information System To perform the function of Risk Management, Telkom has equipped the supporting infrastructure by using applications (tools) / information systems, among others: a. Generic Tools Enterprise Risk Management Online (ERM Online) used by all the units for the management of Risk Assessment b. Specific Tools for managing specific risk, example: 1. Application Fraud Management System (FRAMES) for the early detection of potential Customer Fraud. 2. i-Library applications which are managed by the Division of Broadband Network and used for an Integrated Management System documentation. 3. SMK 3 Online Application managed by the Security and Safety Unit for the management of Occupational Health and Safety documentation. 4. Security & Safety Application is managed by the Security & Safety Unit to monitor the management of Physical Security. 5. Telkomcare Application for coordinating the Crisis Management Team. 241 2014 Annual Report PT Telkom Indonesia Tbk (Persero)6. Effectiveness Assessment of Risk Management Implementation The assessment of the effectiveness of the Risk Management Implementation is performed through the evaluation process that includes: 1. one-on-one discussion/ evaluation with business units as needed. 2. ERM implementation and development workshop sharing with subsidiaries as needed. 3. the Implementation of Risk Management Audit program as needed. 4. the evaluation with Risk, Compliance and Revenue Assurance Committee at BoD level as needed. 5. the evaluation with Planning and Risk Evaluation and Monitoring (KEMPR) as needed. 7. Sharing Session and recognition from External Parties In 2014, Telkom was visited by external parties for a sharing session on the implementation of Risk Management, Internal Control, Process Management, Good Corporate Governance and Management of insurance from Alfamart, PT. Tin Indonesia, PT. Pertamina, PT. PLN, BPK and PT. Wijaya Karya. In addition, Telkom has received recognition or awards from external parties in relation its implementation of Risk Management in 2014, such as : No External Institution Type of Award 1 PT. SGS Indonesia Integrated Management System to manage Infrastructure, including: • • • ISO 9001:2008 Certificate - Quality Management System ISO 27001:2013 Certificate - Information Security Management System ISO 22301:2012 Certificate - Business Continuity Management System 2 The Indonesia Institute for The Most Trusted Company Corporate Governance 242 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESRISK FACTORS A. Risks Related to Indonesia 1. Political and Social Risks Current political and social events in Indonesia may adversely affect our business Since 1998, Indonesia has 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 1999, Indonesia conducted its first free elections for parliament and president. Indonesia also has many political parties, without any one party holding a clear majority. Due to these factors, Indonesia has, from time to time, experienced political instability, as well as general social and civil unrest. For example, since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against former President Abdurahman Wahid, former President Megawati, and former President Susilo Bambang Yudhoyono as well as in response to specific issues, including fuel subsidy reductions, privatization of state assets, anti-corruption measures, decentralization and provincial autonomy and the American-led military campaigns in Afghanistan and Iraq. Although these demonstrations were generally peaceful, some turned violent. Indonesia announced in November 2014, and has implemented with effect from January 1, 2015, a fixed diesel subsidy of Rp1,000 per liter and scrapped the gasoline subsidy. Although the implementation did not result in any significant violence or political instability, the announcement and implementation also coincided with a period where crude oil prices had dropped very significantly in 2014. There can be no assurance that future increases in crude oil and fuel prices will not result in political and social instability. Separatist movements and clashes between religious and ethnic groups have also resulted in social and civil unrest in parts of Indonesia, such as in Papua, where there have been clashes between supporters of those separatist movements and the Indonesian military.. There have also been inter-ethnic conflicts, for example in Kalimantan, as well as inter-religious conflict such as in Maluku and Poso. Labor issues have also come to the fore in Indonesia. In 2003, the Government enacted a new labor law that gave employees greater protections. Occasional efforts to reduce these protections have prompted an upsurge in public protests as workers responded to policies that they deemed unfavorable. There can be no assurance that social and civil disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, materially and adversely affect our business, financial condition, results of operations and prospects. Terrorist activities in Indonesia could destabilize Indonesia, which would adversely affect our business, financial condition and results of operations, and the market price of our securities There have been a number of terrorist incidents in Indonesia, including the May 2005 bombing in Central Sulawesi, the Bali bombings in October 2002 and 2005 and the bombings at the JW Marriot and Ritz Carlton hotels in Jakarta in July 2009. Although the Government has successfully countered some terrorist activities in recent years and arrested several of those suspected of being involved in these incidents, terrorist incidents may continue and, if serious or widespread, might have a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy and may also have a material adverse effect on our business, financial condition, results of operations and prospects and the market price of our securities. 2. Macro Economic Risks 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 significant events in the past 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 by, among others, currency 243 2014 Annual Report PT Telkom Indonesia Tbk (Persero)depreciation, a significant decline in real gross domestic product, high interest rates, social unrest and extraordinary political developments. While the global economic crisis that arose from the subprime mortgage crisis in the US did not affect Indonesia's economy as severely as in 1997, it still put Indonesia’s economy under pressure. The global financial markets have also experienced volatility as a result of the downgrade of US sovereign debt in 2012 and concerns over the debt crisis in the Eurozone. Uncertainty over the outcome of the Eurozone governments’ financial support programs and worries about sovereign finances generally are ongoing. If the crisis becomes protracted, or extends to Asia and Indonesia, we can provide no assurance that it will not have a material and adverse effect on Indonesia’s economic growth and consequently on our business. Adverse economic conditions could result in less business activity, less disposable income available for consumers to spend and reduced consumer purchasing power, which may reduce demand for communication services, including our services, which in turn would have an adverse effect on our business, financial condition, results of operations and prospects. There is no assurance that there will not be a recurrence of economic instability in future, or that, should it occur, it will not have an impact on the performance of our business. Fluctuations in the value of the Indonesian Rupiah may materially and adversely affect us Our functional currency is the Rupiah. One of the most important effects of the Asian economic crisis that affected Indonesia was the depreciation and volatility in the value of the Indonesian Rupiah as measured against other currencies, such as the US Dollar. The Rupiah continues to experience significant volatility. From 2010 to 2014, the Indonesian Rupiah per US Dollar exchange rate ranged from a high of Rp8,508 per US Dollar to a low of Rp12,440 per US Dollar. As a result, we recorded foreign exchange losses of Rp189 billion in 2012, Rp249billion in 2013 and Rp14 billion in 2014. As of December 31, 2014, the Indonesian Rupiah per US Dollar exchange rate stood at Rp 12,440 per US Dollar compared to Rp12,189 per US Dollar as of December 31, 2013. To the extent that the Indonesian Rupiah depreciates further from the exchange rate as of December 2014, our US Dollar-denominated obligations under our accounts payable and procurements payable, as well as payments for foreign currency-denominated loans payable and 244 bonds payable, would increase in Indonesian Rupiah terms. A depreciation of the Rupiah would also increase the Rupiah cost of our capital expenditures as most of our capital expenditures are priced in or with reference to foreign currencies, mainly US Dollars and Euros, while a substantial majority of our revenues are in Rupiah. Such depreciation of the Indonesian Rupiah would result in losses on foreign exchange translation, significantly affect our total expenses and net income and reduce the US Dollar amounts of dividends received by holders of our ADSs. We can give no assurances that we will be able to control or manage our exchange rate risk successfully in the future or that we will not be adversely affected by our exposure to exchange rate risk. In addition, while the Indonesian Rupiah has generally been freely convertible and transferable, from time to time, Bank Indonesia has intervened in the currency exchange markets in furtherance of its policies, either by selling Indonesian Rupiah or by using its foreign currency reserves to purchase Indonesian Rupiah. We can give no assurances that the current floating exchange rate policy of Bank Indonesia will not be modified or that the Government will take additional action to stabilize, maintain or increase the Indonesian Rupiah’s value, or that any of these actions, if taken, will be successful. Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economic recession, loan defaults or declining subscriber usage of our services, and as a result, we may also face difficulties in funding our capital expenditures and in implementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial condition, results of operations and prospects. Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our business As of the date of this Annual Report, Indonesia’s sovereign foreign currency long-term debt was rated “Baa3” by Moody’s, “BB+” by Standard & Poor’s and “BBB” by Fitch Ratings. Indonesia's short-term foreign currency debt is rated “B” by Standard & Poor’s and “F3” by Fitch Ratings. We can give no assurances that Moody’s, Standard & Poor’s or Fitch Ratings, will not change or downgrade 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESthe credit ratings of Indonesia. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. Interest rates on our floating rate Rupiah-denominated debt would also likely increase. Such events could have material adverse effects on our business, financial condition, results of operations prospects and/or the market price of our securities. 3. Disaster Risks Indonesia is vulnerable to natural disasters and events beyond our control, which could adversely affect our business and operating results Many parts of Indonesia, including areas where we operate, are prone to natural disasters such as floods, lightning strikes, typhoons, earthquakes, tsunamis, volcanic eruptions, fires, droughts, power outages and other events beyond our control. The Indonesian archipelago is one of the most volcanically active regions in the world as it is located in the convergence zone of three major lithospheric plates. It is subject to significant seismic activity that can lead to destructive earthquakes, tsunamis or tidal waves. Flash floods and more widespread flooding also occur regularly during the rainy season from November to April. Cities, especially Jakarta, are frequently subject to severe localized flooding which can result in major disruption and occasionally, fatalities. Landslides regularly occur in rural areas during the wet season. From time to time, natural disasters have killed, affected or displaced large numbers of people and damaged our equipment. These events in the past, and may in the future, disrupt our business activities, cause damage to equipment and adversely affect our financial performance and profit. test these regularly and we have insured our assets to protect from any losses attributable to natural disasters or other phenomena beyond our control, there is no assurance that the insurance coverage will be sufficient to cover the potential losses, that the premium payable for these insurance policies upon renewal will not increase substantially in the future, or that natural disasters would not significantly disrupt our operations. We cannot assure you that future natural disaster will not have a significant impact on us,or Indonesiaor its economy. A significant earthquake, other geological disturbance or weather-related natural disaster in any of Indonesia’s more populated cities and financial centers could severely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our business, financial condition, results of operations and prospects. Our operations may be adversely affected by an outbreak of an infectious disease, such as avian influenza, Influenza A (H1N1) virus or other epidemics An outbreak of an infectious disease such as avian influenza, Influenza A (H1N1) or a similar epidemic, or the measures taken by the Governments of affected countries, including Indonesia, against such an outbreak, could severely disrupt the Indonesian and other economies and undermine investor confidence, thereby materially and adversely affecting our financial condition or results of operations and the market value of its securities. Moreover, our operations could be materially disrupted if our employees remained at home and away from our principal places of business for extended period of time, which would have a material and adverse effect on our financial condition or results of operations and the market value of its securities. 4. Other Risks For example, 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 was able to restore services quickly, the earthquake caused severe damage to our assets. Although we have implemented a Business Continuity Plan (“BCP”) and a Disaster Recovery Plan (“DRP”), and Indonesian Corporate Disclosure Standards differ in significant respects from those applicable in other countries, including the United States As an IDX and NYSE listed company, we are subject to regulatory and exchange corporate governance and reporting requirements in multiple jurisdictions. There may be less publicly-available information about Indonesian public companies, including us, than is regularly disclosed by public companies in countries with more mature securities markets. As a result, investors may not have 245 2014 Annual Report PT Telkom Indonesia Tbk (Persero)access to the same level and type of disclosure as that available in other countries, and comparisons with other companies in other countries may not be possible in all respects. Our financial results are reported to OJK (as the successor to Bapepam-LK) in conformity with IFAS, which differs in certain significant respects from IFRS, and we distribute dividends based on profit for the year attributable to owners of the parent company and net income per share determined in reliance on IFAS In accordance with the regulations of OJK and the IDX, we are required to report our financial results to OJK in conformity with IFAS. We have provided to OJK our financial result for the financial year ended December 31, 2014, and to the SEC on a Form 6-K, which contains our audited Consolidated Financial Statements as of December 31, 2014 and for the year then ended and prepared in conformity with IFAS. IFAS differs in certain significant respects from IFRS, and, as a result, there are differences between our financial results as reported under IFAS and IFRS, including profit for the year attributable to owners of the parent company and net income per share. We distribute dividends based on profit for the year attributable to owners of the parent company and net income per share determined in reliance on IFAS. Using IFAS results, our profit for the year attributable to owners of the parent company would be Rp14,205 billion and Rp14,638 billion for 2013 and 2014, respectively and our net income per share would be Rp147.42 and Rp149.83 billion for 2013 and 2014, respectively. Dividends declared per share were Rp102,401 for fiscal year 2013. The dividends per share for the year 2014 will be decided at the 2015 AGMS, scheduled for April 17, 2015. We are incorporated in Indonesia and it may not be possible for investors to effect service of process or enforce judgments, on us within the United States or to enforce judgments of a foreign court against us in Indonesia United States. As a result, it may be difficult for investors to effect service of process, or enforce judgments on us or such persons within the US, or to enforce against us or such persons in the US, judgments obtained in US courts. We have been advised by Hadiputranto, Hadinoto & Partners, our Indonesian legal advisor, that judgments of US courts, including judgments predicated upon the civil liability provisions of the US federal securities laws or the securities laws of any state within the US, are not enforceable in Indonesian courts, although such judgments could be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. They have also advised that there is doubt as to whether Indonesian courts will enter judgments in original actions brought in Indonesian courts predicated solely upon the civil liability provisions of the US federal securities laws or the securities laws of any state within the US. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian courts. Our controlling shareholder’s interest may differ from those of our other shareholders The Government has a controlling stake of 52.56% of our issued and outstanding shares of common stock and the ability to determine the outcome of all actions requiring the approval of the shareholders. The Government also holds our one Series A Dwiwarna share, which has special voting rights and veto rights over certain matters, including the election and removal of our Directors and Commissioners. It may also use its powers as majority shareholder or under the Dwiwarna share to cause us to issue new shares, amend our Articles of Association or bring about actions to merge or dissolve us, increase or decrease our authorized capital or reduce our issued capital, or veto any of these actions. One or more of these may result in the delisting of our securities from certain exchanges. Further, through the MoCI, the Government exercises regulatory power over the Indonesian telecommunications industry. We are a limited liability company incorporated in Indonesia, operating within the framework of Indonesian laws relating to Indonesian companies with limited liability, and all of our significant assets are located in Indonesia. In addition, our Commissioners and our Directors reside in Indonesia and a substantial portion of the assets of such persons are located outside the As of December 31, 2013, the Government had a 14.3% equity stake in PT Indosat Tbk. ("Indosat"), which compete with us, in fixed IDD telecommunications services, and competes in cellular services of our majority owned subsidiary, Telkomsel. The Government's stake includes the Series A Dwiwarna share which has special voting rights and veto rights over certain strategic matters 246 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESunder Indosat's Articles of Association, including decisions on dissolution, liquidation and bankruptcy, and also permits the Government to nominate one Director to its Board of Directors and one Commissioner to its Board of Commissioners. There may thus be instances where the Government’s interests will conflict with ours. There is no assurance that the Government will not direct opportunities to Indosat or favor Indosat when exercising regulatory power over the Indonesian telecommunications industry. If the Government were to give priority to Indosat’s business over ours or to expand its stake in Indosat, our business, financial condition, and results of operations and prospects could be materially and adversely affected. including earthquake, fire, flood, power loss, equipment failure, network software flaws, transmission cable disruption or similar events. Although we have a comprehensive business continuity plan and disaster recovery plan which we test and strive to improve, we cannot guarantee that the implementation of such plans will be completely or partially successful should any portion of network be severely damaged or interrupted. Any failure that results in an interruption of our operations or of the provision of any service, whether from operational disruption, natural disaster or otherwise, could adversely affect our business, financial condition, results of operations and prospects. B. Risks Related to Our Business 1. Operational Risks 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 business, financial condition, results of operations and prospects We depend to a significant degree on the uninterrupted operation of our network to provide our services. For example, we depend on access to our fixed wireline network (“PSTN”) for the operation of our fixed line network and the termination and origination of cellular telephone calls to and from fixed line telephones, and a significant portion of our cellular and international long-distance call traffic is routed through the PSTN. We also depend on access to an internet and broadband network and a cellular network. Our integrated network includes a copper access network, fiber optic access network, BTSs, switching equipment, optical and radio transmission equipment, an IP core network, satellite and application servers. Our networks, face both potential physical and cyber security threats, such as theft, vandalism and acts intended to disrupt operations, which could adversely affect our operating results Our networks and equipment, particularly our wireline access network, face both potential physical and cyber security threats. Physical threats include theft and vandalism of our equipment and organized attacks against key infrastructure intended to disrupt operations. In addition, telecommunications companies worldwide face increasing cyber security threats as businesses become increasingly dependent on telecommunications and computer networks and adopt cloud computing technologies. Cyber security threats include gaining unauthorized access to our systems or inserting computer viruses or malicious software in our systems to misappropriate consumer data and other sensitive information, corrupt our data or disrupt our operations. Unauthorized access may also be gained through traditional means such as the theft of laptop computers, portable data devices and mobile phones and intelligence gathering on employees with access. In addition, we also rely on interconnection to the networks of other telecommunications operators to carry calls and data from our subscribers to the subscribers of operators both within Indonesia and overseas. We also depend on certain technologically sophisticated management information systems and other systems, such as our customer billing system, to enable us to conduct our operations. Our network, including our information systems, IT and infrastructure and the networks of other operators with whom our subscribers are interconnected, are vulnerable to damage or interruptions in operation from a variety of sources Although we have not experienced any material successful cyber attacks to date that have affected our operations, our network and our website are frequently targeted by cyber attacks. A successful cyber attack may lead us to incur substantial costs to repair damage or restore data, implement substantial organizational changes and training to prevent future similar attacks and lost revenues and litigation costs due to misused sensitive information, and cause substantial reputational damage. We take preventive and remedial measures, including enhanced cooperation with the police, particularly in areas prone to criminal activity and regular upgrades of our data 247 2014 Annual Report PT Telkom Indonesia Tbk (Persero)security measures. However, there is no assurance that our physical and cyber security measures will be successful. Damage to our network, equipment or data and the need to repair such damage resulting from a physical or cyber attack may materially and adversely affect our business, financial condition and operating results. Our networks face potential security threats, such as theft or vandalism, which could adversely affect our operating results. We face a number of risks relating to our internet-related services In addition to cyber security threats, because we provide connections to the internet and host websites for customers and develop internet content and applications, we may be perceived as being associated with the content carried over our network or displayed on websites that we host. We cannot and do not screen all of this content and may face litigation claims due to a perceived association with this content. These types of claims can be costly to defend, divert management resources and attention, and may damage our reputation. A revenue leakage might occur due to internal weaknesses or external factors and if this happened, it could have an adverse effect on our operating results A revenue leakage is a generic risk for all telecommunications operators. We may face revenue leakage problems or problems with collecting all the revenues to which we may be entitled, due to the possibility of weaknesses at the transactional level, delay in transaction processing, dishonest customers or other factors. face increasing competition due to technologies currently under development or which may be developed in the future. Future development or application of new or alternative technologies, services or standards could require significant changes to our business model, the development of new products, the provision of additional services and substantial new investments by us. New products and services may be expensive to develop and may result in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technological changes will affect our operations or the competitiveness of our services. Furthermore, we cannot guarantee that we will be able to effectively integrate new technologies into our existing business model. For example, due to competition and the increasing popularity of mobile cellular platforms, our fixed wireless revenues and ARPU has been declining in recent years. Our fixed wireless business was transferred to our subsidiary Telkomsel, and the business transferred to Telkomsel with effect from October 1, 2014. On June 27, 2014, we entered into a Conditional Business Transfer Agreement with Telkomsel to transfer the Flexi business and migrated Flexi subscribers to Telkomsel. We plan to continue to operate the Flexi service until the end of 2015 or until our remaining Flexi customers have migrated to Telkomsel, if earlier. In the meantime, we continue to encourage our fixed wireless customers to enter into plans operated by Telkomsel. We cannot assure you that we will be successful in migrate our fixed wireless subscribers onto Telkomsel's mobile cellular platform, as competition from other mobile cellular providers is intense. We have taken some preventive measures against the possibility of revenue leakage by increasing control functions in all of our existing business process, implementing revenue assurance methods, employing adequate policies and procedures as well as implementing information systems applications to minimize revenue leakages. Nonetheless, there is no assurance that in the future there will be no significant revenue leakages or that any such leakages will not have a material adverse affect on our operating results. New technologies may adversely affect our ability to remain competitive The telecommunications industry is characterized by rapid and significant changes in technology. We may As part of our continuing development of our TIMES business, we continue to seek to develop businesses through which we also provide content to our telecommunications subscribers. We do not yet have substantial experience as a content provider therefore we cannot assure you that we will be able to effectively manage the growth of this business. We cannot assure you that our technologies will not become obsolete, or be subjected to competition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed circumstances on commercially acceptable terms. Our failure to react to rapid technological changes could adversely affect our business, financial condition, results of operations and prospects. 248 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESOur satellites have limited operational life they may be damaged or destroyed during in-orbit operation or suffer launch delays or failures. The loss or reduced performance of our satellites, whether caused by equipment failure or its license being revoked, may adversely affect our financial condition, results of operations and ability to provide certain services Our Telkom-1 and 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 quality of their construction, the durability of their systems, subsystems and component parts, on-board fuel reserves, accuracy of their launch into orbit, exposure to micrometeorite storms, or other natural events in space, collision with orbital debris, or the manner in which the satellite is monitored and operated. We currently use satellite transponder capacity on our satellites in connection with many aspects of our business, including direct leasing of such capacity and routing for our international long-distance and cellular services. Moreover, International Telecommunication Union (“ITU”) regulations specify that a designated satellite 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, in the event our Telkom-1 and Telkom-2 satellites experience technical problems or failure, the Government may determine that we have failed to optimize the existing slot under our license, which may result in the Government withdrawing our license. We cannot assure you that we will be able to maintain use of the designated satellite slot in a manner deemed satisfactory by the Government. 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 2009 for the procurement of the Telkom-3 Satellite System. However, due to a launch failure in August 2012, the Telkom-3 satellite ended up in an unusable orbit. Although we had fully insured the cost of the satellite, the loss of the Telkom-3 satellite will require us to lease transponder capacity from a thirdparty provider to fulfill our commitments to our satellite operations customers, with likely lower margins than we would have received from the use of Telkom-3 had it been successfully launched. We are currently in the initial phases for the procurement of a replacement satellite, the Telkom-3S, which is currently planned for launch in late 2016. Although the Telkom-1 satellite may still be operational for several years after the end of its currently estimated operational lifespan in 2015, if there is any delay in the development and launch of the Telkom-3S, or if the operational life of the Telkom-1 satellite ends before the Telkom-3S is successfully launched, or damage or failure renders our existing satellites unfit for use, we would need to lease additional transponder capacity from a third party, which would likely increase our costs of operations. Failure to lease adequate satellite capacity from a thirdparty provider may also result in service interruptions and/or a cessation of our satellite operations. The termination of our satellite business could increase expenses associated with our provision of other telecommunications services, particularly in the eastern parts of Indonesia which currently rely largely on satellite coverage for telecommunications services and could adversely affect our business, financial condition and results of operations. 2. Financial Risks We are exposed to interest rate risk Our debt includes bank borrowings to finance our operations. Where appropriate, we seek to minimize our interest rate risk exposure by entering into interest rate swap contracts to swap floating interest rates for fixed interest rates over the duration of certain borrowings. However, our hedging policy may not adequately cover our exposure to interest rate fluctuations and this may result in a large interest expense and an adverse effect on our business, financial condition and results of operations. Changes in the economic situation in the United States, including improvement or expectations of improvement in the U.S. economy, may also have an impact on Southeast Asia and Indonesia. Expectations of the United States Federal Reserve tapering its bond buying program on an improving economy resulted in, among other things, the weakening of equity and bond markets around the world and a number of Asian currencies including the Rupiah since May 2013. In part, in an effort to support the Rupiah, in June 2013, Bank Indonesia began raising its benchmark reference rate from a record low of 5.75% which was set in February 2012. The benchmark reference rate has risen six times between June 2013 and November 2014 to 7.75% before decreasing to 7.50% on February 2015. The increases of Bank Indonesia reference rate in 2013 and 2014were followed by increases in the JIBOR and Bank Indonesia Certificate (“SBI”) interest rates. 249 2014 Annual Report PT Telkom Indonesia Tbk (Persero)There can be no assurance that the Bank Indonesia reference rate, JIBOR or SBI rate will not rise again in the future. We may not be able to successfully manage our foreign currency exchange risk Changes in exchange rates have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations are denominated in Indonesian Rupiah and a majority of our capital expenditures are denominated in US Dollars. Most of our revenues are denominated in Indonesian Rupiah and a portion is denominated in US Dollars (for example from international services). We may also incur additional long-term indebtedness in currencies other than the Indonesian Rupiah, including the US Dollars, to finance further capital expenditures. Overall, our financial risk management program aims to minimize losses on the financial assets and financial liabilities arising from fluctuation of foreign currency exchange rates. We have a written policy for foreign currency risk management, which mainly covers time deposits placements and hedging to cover foreign currency risk exposure for periods ranging from three to twelve months. The exchange rate of Indonesian Rupiah relatively fluctuative to the US Dollar and in the future, we can give no assurance that we will be able to manage our exchange rate risk successfully or that our business, financial condition or results of operations will not be adversely affected by our exposure to exchange rate risk. We may be unable to fund the capital expenditures needed for us to remain competitive in the telecommunications industry in Indonesia The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our telecommunications infrastructure technology, which involves substantial capital investment. For the years ended December 31, 2012, 2013 and 2014, our actual consolidated capital expenditures totaled Rp17,272 billion, Rp24,898 billion, and Rp24,661 billion (US$1,991 million), respectively. Our ability to fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailing economic conditions, levels of 250 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 to us on commercially acceptable terms, or at all. In addition, we can only incur additional financing in compliance with the terms of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capital resources to improve or expand our telecommunications infrastructure technology or update our other technologies to the extent necessary to remain competitive in the Indonesian telecommunications market. Our failure to do so could have a material adverse effect on our business, financial condition, results of operations and prospects. 3. Legal and Compliance Risks If we are found liable for price fixing by the Indonesian Anti-Monopoly Committee and for class action allegations, we may be subject to substantial liability which could lead to a decrease in our revenue and affect our business, reputation and profitability 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. (“Mobile-8”) and PT Smart Telecom (“Smart Telecom” now “Smartfren” had jointly breached Article 5 of Law No.5/1999 and changed our Company and Telkomsel a penalty amount Rp18 billions and Rp25 billions. We and Telkomsel filled on appealed with the Bandung District Court and the South Jakarta District Court, respectively. On April 12, 2011, the Supreme Court appointed Central Jakarta District Court to handle the appeals. Neither we nor Telkomsel has received any notification from the court with respect to the resolution of this case. as of the date of approval and authorization for the issuance of the consolidated financial statements, there has not been any notification on the case from the court. Amount of which will be subject to the discretion of the District Court, which could have an adverse effect on our business, reputation and profitability. The Company is a defendant in a case filed in Makassar District Court by Andi Jindar Pakki and his affiliates over a land property at 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. In the event the Company loses the case, the Company will pay compensation to the plaintiffs amounting to Rp57.6 billion. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESOn 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 was favorable to the plaintiffs and the Company filed an appeal to the Supreme Court. On January 9, 2015, the Company received a Notice from the Supreme Court of the Republic of Indonesia, on its Decision Letter No. 226/Pdt.G/2012/PN.Mks and the Supreme Court has rejected the Company’s appeal. On February 5, 2015, the Company requested for a judicial review of the case by the Supreme Court. There can be no assurance that other subscribers, people, or partners will not file similar cases in the future, or that we would be subject to adverse verdicts which could have an adverse effect on our business, reputation and profitability. Forward-looking statements may not be accurate This Annual Report incorporates forward-looking statements that include announcements regarding our current goals and projections of our operational performance and future business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking statements. In addition, all statements, other than statements that contain historical facts, are forward-looking statements. While we believe that the expectations contained in these statements are reasonable, we cannot give an assurance that they will be realized. These forward- looking statements are subjected to a number of risks and uncertainties, including changes in the economic, social and political situation in Indonesia and other risks described in "Risk Factors". All forward-looking statements, written or verbal, made by us or by persons on behalf of us are deemed to be subject to those risks. 4. Regulation Risks We operate in a legal and regulatory environment that is undergoing significant change. These changes may result in increased competition, which may result in reduced margins and operating revenue, among other things. These changes may also directly reduce our margins or reduce the costs of our competitors. These adverse changes resulting from regulation may have a material adverse effect on us. Reformation in Indonesian telecommunications regulation initiated by the Government in 1999 have, to a certain extent, resulted in the industry’s liberalization, including removal of barriers to entry and the promotion of competition. However, in recent years, the volume and complexity of regulatory changes has created an environment of considerable regulatory uncertainty. In addition, as the legal and regulatory environment of the Indonesian telecommunications sector continue to change, competitors, potentially with greater resources than us, may enter the Indonesian telecommunications sector and compete with us in providing telecommunications services. Furthermore, it is impossible to anticipate the regulatory policies that will be applied to new technologies. We derive substantial revenue from interconnection services because we have the largest network in Indonesia and our competitors must pay tariffs to connect to our network. As regulated by the MoCI, interconnection rates have decreased in recent years. The current interconnection rates, effective from April 24, 2015, rose rates from Rp23 to Rp24 compared to the previous rates effective in 2011. There is no significant impact to our interconnection business. The termination of Telkomsel’s premium SMS services from October 2011 as a result of MoCI Regulation No.1/ PER/M.KOMINFO/01/2009 resulted in a substantial reduction in our revenues from these services. These services were resumed by Telkomsel from August 6, 2013 as allowed under MoCI Regulation No.21 year of 2013 dated July 26, 2013, regarding the Operation of Content Provider Services on Mobile Cellular Network and Local Fixed Wireless Network with Limited Mobility, as last amended by MoCI Regulation No.6 of 2015, which replaced MoCI Regulation No.1/PER/M.KOMINFO/01/2009. However, pursuant to the new decree, premium SMS service providers are required to meet stricter requirements that are more difficult to comply with. Accordingly we do not expect revenues from premium SMS services to return to levels seen prior to October 2011. In the future, the Government may announce or implement other regulatory changes which may adversely affect our business or our existing licenses. We cannot assure you that we will be able to compete successfully with other domestic and foreign telecommunications operators, that regulatory changes will not disproportionately reduce our competitors’ costs or disproportionately reduce our revenues, or that regulatory changes, 251 2014 Annual Report PT Telkom Indonesia Tbk (Persero)amendments or interpretations of current or future laws and regulations promulgated by the Government will not have a material adverse effect on our business and operating results. The entry of additional Indonesian telecommunications operators as providers of international direct dialing services could adversely affect our international telecommunications services operating margins, market share and results of operations We obtained a license and entered the international long-distance service market in 2004 and acquired a significant market share for IDD services by the end of 2006. Indosat, one of our primary competitors, entered this 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 distance service using the “009” access code. There is a possibility that other operators will be granted IDD licenses in the future. The operations of incumbents and the entrance of new operators into the international long-distance market, including the VoIP services provided by such operators, continue to pose a significant competitive threat to us. We cannot assure you that such adverse effects will not continue or that such increased competition will not continue to erode our market share or adversely affect our fixed telecommunications services operating margins and results of operations. We face risks related to the opening of new long distance access codes In an attempt to liberalize DLD services, the Government issued regulations assigning each provider of DLD services a three-digit access code to be dialed by customers making DLD calls. In 2005, the MoCI announced that a three-digit access code for DLD calls will be implemented gradually within five years and that it would assign us the “017” DLD access code for five major cities, including Jakarta, and allow us to progressively extend it to all other area codes. Indosat was assigned “011” as its DLD access code. We were required to open DLD access codes in all remaining areas on September 27, 2011, by which date our network was ready to be opened up to the three-digit DLD access code in all coded areas throughout Indonesia. However, we believe that the cost for operators who have not upgraded their network infrastructure to open their networks to the three-digit access code to do so is significant. To date, other than for Balikpapan, neither of the OLOs have made a request to us to connect their networks to enable their DLD access codes to be accessible. As such, we believe that other than 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 competition by offering our subscribers more options for DLD services. In addition, the opening of new DLD access codes is expected to result in increased competition and less cooperation among industry incumbents, which may result in reduced margins and revenues, among other things, all of which may have a material adverse effect on us. Regulations for the configuration of BTS towers may delay the set up of new BTS towers or changes in the placement of existing towers, and may erode our leadership position by requiring us to share our towers with our competitors In 2008 and 2009, the Government issued regulations relating to the construction, utilization and sharing of BTS towers. Pursuant to the regulations, the construction of BTS towers requires permits from the local government. The local government has a right to determine the placement of the towers, the location in which the towers can be constructed, and also to determine a license fees to build tower infrastructure. These regulations also oblige us to allow other telecommunication operators to lease space and utilize our telecommunications towers without any discrimination. These regulations may adversely affect us in the allocation, development or expansion plan of our new BTS towers as setting up of our new towers will become more complicated. They may also adversely affect our existing BTS towers if local governments require any changes in the placement of the existing towers. The requirement that we share space on our telecommunications towers may also disadvantage us by requiring that we allow our competitors to expand quickly, particularly in urban areas where new space for additional towers may be difficult to obtain. Effective 252 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES2011, local Governments are permitted to assess fees of up to 2.0% of the tax assessed value of towers. Although we do not expect the amount of these fees to be material in 2014, there can be no assurance that they will not be substantial in the future. 5. Risks Related to Our Fixed Telecommunication Business We may further lose wireline telephone subscribers and revenues derived from our wireline voice services may continue to decline, which may materially adversely affect our results of operations, financial condition and prospects Revenues derived from our wireline voiceservices have declined during the past several years mainly due to the increasing popularity of mobile voice services and other alternative means of communication, such as VoIP. Tariffs for mobile services have declined in recent years which has further accelerated substitution of mobile for wireline voice services. While the number of our fixed wireline subscribers increased by 4.5% in 2013 and increased by 3.7% at the end of 2014, revenues from our wireline voice services decreased by 8.3% in 2013 and by 2.2% in 2014. The percentage of revenues derived from our wireline voice services out of our total revenues continued to decrease from 10.4% in 2013 to 9.4% in 2014. We have been taking various measures in order to stabilize our revenues from wireline voice services. However, we cannot assure you that we will be successful in mitigating the adverse impact of the substitution of mobile voice services and other alternative means of communication for wireline voice services or in reducing the rate of decline in our revenues generated from wireline voice services. Migration from wireline voice services to mobile services and other alternative means of communication may further intensify in the future, which may affect the financial performance of our wireline voice services and thus materially and adversely affect our results of operations, financial condition and prospects as a whole. Our data and internet services are facing increasing competition, and we may experience declining margins from such services as such competition intensifies Our data and internet services are facing increase competition from other data and internet operators as well as mobile operators. The number of mobile broadband subscribers have increased with the increasing popularity of smart phones in Indonesia, which adversely affects our market share and revenues from our fixed line data and internet services. In 2013, the regulator permitted the Wi-Max operators to deploy the long term evolution (“LTE”) technology which will further intensify competition in the broadband internet space. We have been taking various measures in order to mitigate the impact of intense competition in our data and internet businesses. However, we cannot assure you that we will be successful in mitigating such adverse impact. Competition may further intensify in the future, which may affect the financial performance of our data and internet services and thus materially and adversely affect our results of operations, financial condition and prospects as a whole. 6. Competition Risks Related to Our Cellular Business (Telkomsel) Competition from existing service providers and new market entrants may adversely affect our cellular services business The Indonesian cellular services business is highly competitive. Competition among cellular services providers in Indonesia is based on various factors, including pricing, network quality and coverage, the range of services, features offered and customer service. Our cellular services business, operated through our majority-owned subsidiary, Telkomsel, competes primarily against Indosat and XL. Several other smaller GSM and CDMA operators also provide cellular services in Indonesia, including PT Hutchison CP Telecommunications (“Hutchison”), Smart Telecom and Bakrie Telecom. In addition to current cellular service providers, the MoCI may license additional cellular service providers in the future, and such new entrants may compete with us. A number of consolidations among Indonesian operators have taken place in recent years. 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 "smartfren". On January 18, 2011, Mobile-8 acquired a significant number of shares in Smart Telecom, and on April 12, 2011 PT Mobile-8 Telecom Tbk. changed its name to PT Smartfren Telecom Tbk. XL-Axiata completed the acquisition of a majority interest 253 2014 Annual Report PT Telkom Indonesia Tbk (Persero)in PT Axis Telekom in March 2014 and merged in April 2014. The merger resulted in XL-Axiata becoming one of the three largest operators and also acquiring additional frequency allocations to facilitate its plans to implement LTE (4G) technology. Further operator consolidation is likely in order to ensure that each operator can remain competitive, reduce operational costs and also to “rebalance” the broadband mobile frequency spectrum that require wider frequency bandwidth. The MoCI also supports operator consolidation, as it has been reluctant to issue new licenses for cellular players in recent years. While operator consolidation may lead to improved conditions in the cellular telecommunication industry, it also present challenges for Telkomsel in maintaining its market position. 7. Risks Related to Development of New Businesses We believe that efforts to develop new businesses other than the telecommunication business as well as international expansion are necessary to ensure continuing business growth. This is undertaken through the activities of our subsidiaries, primarily Metra and Telin. Risks related to new business development include competition from established players, suitability of business model, the need to acquire new expertise in the new areas of operation, and risks related to online media which include intellectual property, consumer protectionand confidentiality of customer data. Focusing on international expansion is one of our strategic business intiatives. In particular, we have started expansion into seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan, and the United States of America. Expanding our operations internationally exposes us to a number of risks associated with operating in new jurisdictions for example, 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 local operators, difference in consumer preferences and a lack of expertise in the local markets in which we will be in operation. Any of these factors could cause our expected returns from our expansion to be limited and could have a material and adverse effect on our business, results of operations and financial condition. C. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risks that arise from changes in exchange rates, interest rates, credit risk and liquidity risk, each of which will have an impact on us. We do not generally hedge our long-term liabilities in foreign currencies but hedge our obligations for the current year. As of December 31, 2014, assets in foreign currencies reached 83% against our liabilities denominated in foreign currencies. Our exposure to interest rate risk is managed through a mix of fixed and variable rate liabilities and assets, including short-term fixed rate assets. Our exposure to such market risks fluctuated during 2012, 2013 and 2014 as the Indonesian economy was affected by changes in the US Dollar-Rupiah exchange rate and interest rates themselves. We are not able to predict whether such conditions will continue during 2014 or thereafter. 254 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES1. Exchange Rate Information The following table shows the exchange rate of Indonesia 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. Calendar Year at Period End Average Low High (Rp/US$1) 2010 (1) 2011 (1) 2012 (1) 2013 (1) 2014 (1) September(2) October(2) November(2) December(2) 2015 (1) January(2) February(2) March (25)(2) Source: Bank Indonesia 8,991 9,068 9,670 12,189 12,440 12,212 12,082 12,196 12,440 12,932 12,625 12,863 12,932 9,078 8,773 9,419 10,563 11,880 11,891 12,145 12,156 12,438 12,807 12,578 12,750 13,069 9,365 9,170 9,670 12,189 12,440 12,212 12,241 12,206 12,900 12,932 12,732 12,887 13,237 8,924 8,508 9,000 9,667 11,404 11,710 11,993 12,092 12,264 12,625 12,444 12,609 12,932 (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 market, reflecting the interaction of supply and demand in the market. However, Bank Indonesia may take measures to maintain a stable exchange rate. For the year 2014, the average rate of Rupiah to the US Dollar was Rp11,880, with the lowest and highest rates being Rp12,440 and Rp 11,404, respectively. The exchange rates used for conversion of monetary assets and liabilities denominated in foreign currencies are the buy and sell rates published by Reuters in 2012, 2013 and 2014. The Reuters buy and sell rates, applied respectively to monetary assets and liabilities, were, Rp9,630 and Rp9,645 to US$1.00 as of December 31, 2012, Rp12,160 and Rp12,180 to US$1.00 as of December 31, 2013 and Rp12,380 and Rp12,390 to US$1.00 as of December 31, 2014. The Consolidated Financial Statements are stated in Rupiah. The conversion of Rupiah amounts into US Dollar are included solely for the convenience of the readers and have been made using the average of the market buy and sell rates of Rp12,385 to US$1.00 published by Reuters on December 31, 2014. On March 25, 2015, the Reuters bid and ask rates were Rp12,982 and Rp12,990 to US$1.00. 2. Foreign Exchange Controls Indonesia operates a liberal foreign exchange system that permits the free flow of foreign exchange. Capital transactions, including remittances of capital, profits, dividends and interest, are free of exchange controls. A number of regulations, however, have an impact on the exchange system. For example, only banks are authorized to deal in foreign exchange and execute exchange transactions related to the import and export of goods. In addition, Indonesian banks (including branches of foreign banks in Indonesia) are required to report to Bank Indonesia any fund transfers exceeding US$10,000. As a State-Owned Company, and based on the decree of the Head of Pinjaman Komersial Luar Negeri ("PKLN"), we are required to obtain an approval from PKLN prior to acquiring foreign commercial loans and must submit periodical reports to PKLN during the term of the loans. 255 2014 Annual Report PT Telkom Indonesia Tbk (Persero)3. Exchange Rate Risk We are exposed to foreign exchange risk on 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, 2014 and applied respectively to monetary assets and liabilities. The buying and selling rates as of December 31, 2014 were Rp12,380 and Rp12,390 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, 2014 Foreign Currency (million) Rp Equiv. (Rp million) Expected Maturity Date Fair value 2015 2016 2017 2018 2019 Thereafter (Rp million) ASSETS Cash and cash Equivalents US Dollar 364 4,526,838 4,526,838 Japanese Yen 8 875 875 Other(1) 16 193,242 193,242 Other Current Financial Assets US Dollar 16 191,607 191,607 Trade Receivables Related Parties US Dollar Third Parties US Dollar Other(1) Other Receivables US Dollar Other(1) 2 25,442 25,442 73 903,403 903,403 3 0 0 35,384 35,384 4,876 4,876 1,381 1,381 Advances and Other Non-current Assets - - - - - - - - - 50,535 49,654 881 610 610 - US Dollar Other(1) LIABILITIES Trade Payables Related Parties US Dollar Other(1) Third Parties US Dollar 4 0 0 0 2,560 2,560 2,001 2,001 - - - - 216 2,680,998 2,680,998 Japanese Yen 19 2,162 2,162 256 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,526,838 875 193,242 - 191,607 - - - - - - - - - - - 25,442 903,403 35,384 4,876 1,381 50,535 610 2,560 2,001 2,680,998 2,162 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Outstanding Balance as of December 31, 2014 Foreign Currency (million) Rp Equiv. (Rp million) Expected Maturity Date Fair value 2015 2016 2017 2018 2019 Thereafter (Rp million) Other(1) Other Payables US Dollar Other(1) Accrued Expenses US Dollar Japanese Yen Other(1) 3 3 1 66 27 1 42,406 42,406 42,548 42,548 14,327 14,327 819,711 819,711 2,839 2,839 12,666 12,666 Advances from Customer and Suppliers US Dollar Other(1) 2 0 29,884 29,884 825 825 Short term bank loan US Dollar 100 1,244,000 1,244,000 Current Maturities of Long-Term Liabilities US Dollar Japanese Yen Promissory Notes 35 768 429,510 429,510 79,585 79,585 - - - - - - - - - - - - - - - - - - - - - - US Dollar 7 88,665 64,008 23,371 1,286 Long-term liabilites(2) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 42,406 42,548 14,327 819,711 2,839 12,666 29,884 825 - 1,244,000 - - - 451,194 102,045 88,191 US Dollar 71 880,772 Japanese Yen 6,911 716,264 - - 317,305 231,678 131,237 93,559 106,993 868,178 79,585 79,585 79,585 79,585 397,924 727,034 (1) Assets and liabilities denominated in other foreign currencies are presented as U.S. dollar equivalents using the Reuters buy and sell rates prevailing at 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. 4. 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 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, 2014 by the banks where such deposits were located; (ii) variable interest rates on Rupiah denominated long- term liabilities are calculated as of December 31, 2014 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 257 2014 Annual Report PT Telkom Indonesia Tbk (Persero) 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, 2014 and (iv) the value of marketable securities is based on the value of such securities on December 31, 2014. 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. Outstanding Balance as of December 31, 2014 Original Currency (million) Rp Equiv. (Rp million) Rate (%) Expected Maturity Date Fair value 2015 2016 2017 2018 2019 Thereafter (Rp million) ASSETS Fixed Rate Cash and Cash Equivalents Time deposit Rupiah 11,531,450 11,531,450 4 - 11.5 11,531,450 U.S Dollar 279 3,460,434 0.03 - 3 3,460,434 Other Current Financial Assets Time deposit U.S Dollar 9 110,472 0.85 - 1.00 110,472 Available-for-sale-securities Rupiah 120,360 120,360 6.88 - 7.25 120,360 U.S Dollar 7 82,135 10.40 - 11.8 82,135 LIABILITIES Short-term Bank Loans Variable Rate Rupiah Principal 480,983 480,983 480,983 Interest U.S. Dollar Principal Interest Fixed Rate Rupiah 100 1,244,000 1,244,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,531,450 3,460,434 - 110,472 - - 120,360 82,135 - 480,983 - 1,244,000 Principal 85,000 85,000 85,000 - - - - - 85,000 Interest Long Term Liabilities(1) Variable Rate Rupiah Principal 10,921,317 10,921,317 3,751,311 2,281,449 1,962,849 1,759,891 610,134 555,683 10,770,905 Interest 2,316,162 2,316,162 8 - 15 905,120 624,331 413,806 236,611 85,450 50,843 56 692,552 299,676 219,813 127,168 30,407 15,488 1 13,495 1.14 - 6 6,441 4,382 1,946 604 122 687,484 - - US Dollar Principal Interest Fixed Rate 258 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES Outstanding Balance as of December 31, 2014 Original Currency (million) Rp Equiv. (Rp million) Rate (%) Expected Maturity Date Fair value 2015 2016 2017 2018 2019 Thereafter (Rp million) Rupiah Principal 3,789,068 3,789,068 1,026,059 44,034 44,225 43,678 261,042 2,370,030 3,836,942 Interest 1,821,871 1,821,871 5 - 11 357,768 282,238 277,654 273,217 268,862 362,132 US Dollar Principal Interest Japanese Yen Principal Interest Finance Leases Rupiah 53 653,820 170,866 98,192 99,282 100,417 78,070 106,993 667,505 6 71,266 2 - 5 20,999 16,076 12,780 9,526 6,271 5,614 7,679 795,849 79,585 79,585 79,585 79,585 79,585 397,924 829,079 1,250 129,575 3.10 24,049 21,643 19,115 16,648 14,181 33,939 Principal 4,736,901 4,736,901 548,582 551,500 594,832 591,140 571,047 1,879,800 4,736,901 Interest 1,739,038 1,739,038 2.75 - 11.76 400,739 349,747 295,854 238,693 186,713 267,292 US Dollar Principal Interest 4 1 52,574 22,977 22,671 6,514 6,453 4 - 5.8 2,832 2,757 819 412 45 - - 52,574 - - (1) Long-term liabilities consist of loans which are subject to interest; namely two-step loans, bonds and notes and long-term bank loans, which in each case include their maturities. 259 2014 Annual Report PT Telkom Indonesia Tbk (Persero) LEGAL MATTERS In the ordinary course of business, we continuously pay attention to compliance aspects with capital markets regulations, as well as regulations that are relevant to the scope of our business. Nevertheless, there are certain differences in the interpretation and implications in operations and our business and subsidiaries, especially on legal issues relating to land disputes, monopolistic practices and unfair business competition and SMS cartel practices. With regard to the legal proceedings described below, we do not believe that subsequent investigations or court decisions regarding those cases will have a significant financial impact on us or our subsidiariesBased on management’s estimate on the probable outcomes of these cases, we have made provisions of Rp25 billion at December 31, 2014. The following described ceretain current significant legal proceedings involving us, our Board of Commissioners, Board of Directors and subsidiaries. Legal Matters Faced by the Board of Commissioners and Board of Directors In 2014, there were no legal issues faced by the Members of the Board of Commissioners and Board of Directors. Legal Proceedings that involve Members of Board of Commissioners and Board of Directors Year Name of Case Status 2014 2013 2012 Nil Nil Nil Nil Nil Nil Case brief Summary Nil Nil Nil Number of Suits Impact of Company Nil Nil Nil Nil Nil Nil Legal Matters Faced By the Company Out of the legal issues faced by Company and subsidiaries in 2014, there were two(2) cases and one (1) case has final judgement (in-kracht van gewijsde). Details are as below: Telkom Legal Issues Status 2012 2013 2014 Criminal Law Civil Law Criminal Law Civil Law Criminal Law Civil Law In Progress Final Judgement (in-kracht van gewijsde) Sub Total Total - - - 1 - 1 1 - 1 4 - 4 - 1 1 2 - 2 1 5 3 260 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESAs a form of disclosure of information, a summary of thelegal problems faced by the Company in 2014, are as follow: Principal lawsuit Type of Court Suit Status Financial Impact We are the defendant with KPPU as plaintiff in the case of allegation of violation of Article 5 of Law No.5 of 1999 on Prohibition of Monopolistic and Unfair Business Competition Practices. The Commission for the Supervision of Business Competition (KPPU) Rp18 billion The Company is currently waiting for a call from the Central Jakarta District Court in relation to the commencement of the merged trial. Telkom, the Provincial Government of South Sulawesi, the Regional Government of Gowa Regency, the National Land Agency collectively as Defendants with Andi Jindar Pakki et al. as Plaintiff in the land right dispute at Telkom Makassar’s land General Court Judicial Review to the Supreme Court Rp57.6 billion Legal Matters Faced By Subsidiary There was only one legal issues faced by the subsidiaries in 2014. Lawsuit Type of Court Suit Status Financial Impact Telkomsel and certain other operators were were investigated by KPPU in relation to the allegation of SMS cartel practices by the said Operators. KPPU has issued a decision which sentenced Telkomsel to pay a fine of Rp25 billion, for which Telkomsel has appealed to the District Court. Commission for the Supervision of Business Competition (“KPPU”) Rp25 million Telkomsel is currently waiting for the notification from the Central Jakarta District Court regarding the start of the Joint Proceedings at the court. 261 2014 Annual Report PT Telkom Indonesia Tbk (Persero)ACCESS AND TRANSPARENCY INFORMATION We regularly disseminate material information about the activities and performance of the Company. Disclosure of such information meets the provisions of the mandate and authority to financial institutions. Telkom disseminated information throughout 2014 which included activities where the Company issued press releases, published the Company’s performance and operating results regularly every quarter in the national mass media and held a press conference. Telkom also publishes the Annual Report which is distributed to shareholders and other stakeholders. Submission of periodic reports and publication of information materials and the timeliness and accuracy of the financial statements, and various other information disclosures have been our primary concern. Based on regulation of Bapepam-LK No.X.K.1 and regulations of BEI No IDX No. 1-E VI as well as to increase transparency, Telkom is trying to ensure that material information is always published and reported to Bapepam-LK and IDX. In line with the disclosure obligations set by the regulator, our information disclosure are as follow: Development of Information Disclosure Forms of Disclosure Advertising Publication Announcements Advertising Publications Quarterly Financial Statements Annual Report Exposure Telkom Performance Press Release Pers Conference Media Visit Media Gathering 2014 7 1 1 4 87 3 5 5 Advertising Announcements In 2014, Telkom advertised nine (9) announcements in the print media. Belowis a list of advertising publications through the mass media in 2014: Telkom Advertising Publication in 2014 No Description Newspaper Date of View Notice Annual General Meeting of Shareholder 2014 Audited Financial Statements for Fiscal Year 2013 Invitation Annual General Meeting of Shareholder Announcement Resolution of Annual General Meeting of Shareholder and Schedules and Rulers for the Distribution of 2013 Financial Year Dividend Investor Daily Bisnis Indonesia Jakarta Post Investor Daily Bisnis Indonesia Investor Daily Bisnis Indonesia Jakarta Post Investor Daily Bisnis Indonesia Jakarta Post Consolidated Financial Statements (unaudited) Quarter II of Fiscal Year 2014 Investor Daily Bisnis Indonesia March 5, 2014 March 7, 2014 March 20, 2014 April 8, 2014 July 23, 2014 Notice Extraordinary General Meeting of Shareholders Investor Daily Bisnis Indonesia Jakarta Post November 19, 2014 1 2 3 4 5 6 262 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESNo Description Newspaper Date of View 7 8 9 Invitation Extraordinary General Meeting of Shareholders Announcement Resolution of Extraordinary General Meeting of Shareholders 2014 Correction for Announcement of Resolution of Extraordinary General Meeting of Shareholder Investor Daily Bisnis Indonesia Jakarta Post Investor Daily Bisnis Indonesia Jakarta Post Investor Daily Bisnis Indonesia Jakarta Post December 4, 2014 December 23, 2014 December 29, 2014 Press Release As a form of disclosure, Telkom continues to provide nformation through the mass media, one of them through the form of press releases. In 2014, Telkom published 87 press releases as a form of transparency to the public. Below is a list of press releases submitted by Telkom to the media throughout 2014: No Date Title List of Telkom Press Release 2014 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 6-Jan-14 Telkom Launches INDONESIA BISA, Realizing Modernization of Indonesian SMEs 10-Jan-14 Telkom Enhances ICT Services at the Halim Perdanakusuma 10-Jan-14 Speedy NBL Supports Basketball Performance, Telkom Speedy card present NBL Instant Edition 10-Jan-14 Builds Data Center, Telkom Cooperates with IBM 13-Jan-14 Telkom Generates Innovation and Entrepreneurial Spirit through SME Indonesia Bisa 16-Jan-14 Telkom Restores Telecommunications Services in Manado 17-Jan-14 Telkom To Monetize Tower Business in 2015 19-Jan-14 Telkom Speedy Card Instant Starts Selling Malaysia 21-Jan-14 Telkom Group Establishes Command Post for victims of Jakarta Flood Disaster 22-Jan-14 Prepare 11 Point of Command Center and Five Tankers Water 23-Jan-14 Telkom Succeeds Selection of Higher Education 29-Jan-14 UseeTV Presents Exclusive Concert Serving 40 Years Erros Djarot work 5-Feb-14 Strengthening International Business, Telkom International Shaping Capability Center 14-Feb-14 Concert Erros Djarot: UseeTV Delivers Outstanding Serving in the Special Day 6-Mar-14 Smart step in creating efficiencies through Smart Building Management System 11-Mar-14 Telin Builds Mega Project of Submarine Cable Network, Connecting Southeast Asia - Europe through SEA-ME-WE 5Consortium 19-Mar-14 Ventura PBMT cooperation with PT. Finnet Indonesia Working on e-Payment 20-Mar-14 Telkom Generates Innovation and Entrepreneurial Spirit Through SMEs Indonesia Bisa 21-Mar-14 Telkom Participates to Succeed the SBMPTN 2014 20 26-Mar-14 Telkom Strengthens the Support To Digital Creative Industry 21 22 23 24 25 26 27 28 29 27-Mar-14 Telkom Smart Campus Announces Award Winners (TeSCA 2014) 1-Apr-14 Telkom Launching IndiHome Movie Mania Card 2-Apr-14 Telkom Achieves 3 Awards of Fortune Indonesia's Most Admired Companies 2014 4-Apr-14 Telkom shares the Rp9.9 Trillions Dividends Rose 19% 16-Apr-14 Telkom gets rank "idAAA" back for Company and Obligations 25-Apr-14 Telkom IndiHome Woman Award 2014 30-Apr-14 Indonesia Most Admired CEO dan Companies 2014 30-Apr-14 Telkom Successfully Achieved Kartini SOE Award 2014 8-May-14 Telkom Held Delima International and Domestic Remittance in Hong Kong, Pekalongan and Malang 30 11-May-14 Telkom Improving Speedy Instan Services 263 2014 Annual Report PT Telkom Indonesia Tbk (Persero)No Date Title List of Telkom Press Release 2014 31 14-May-14 IT Utilizations Successfully of Implementations, Telkom Group Achieves TOP IT & TOP Telco Award 2014 32 14-May-14 Capital Market Award 2014 Work Well, Telkom as The Best Share Emiten 2014 33 20-May-14 Telkom and Thamrin City Prepares Developments & Services Center of SMEs Based on Information and Communication Technology 34 22-May-14 Telkom Indonesia Achives ICP International Technology Certification (Interroperability Compliance Program) 35 36 37 38 39 23-May-14 World Cup on Your Hand with Speedy Instan and UseeTV 28-May-14 Indonesia Creative Digital of CSR Program 30-May-14 Telkom achieves "The grand Stevie Awards" on 1st Asia-Pacific Stevie Award in Seoul, South Korea 5-Jun-14 UseeTV presents Streaming Services of World Cup 2014 with Car Prize 5-Jun-14 Telkom achieves More Awards back 40 13-Jun-14 Director of Telkom, Arief Yahya, Earn Doctoral degree at the University of Padjadjaran 41 42 43 44 45 46 47 48 17-Jun-14 Telkom Announces the Winner of Telkom Smart Campus Award (TeSCA 2014) 20-Jun-14 Telkom Achieves International Awards back 2-Jul-14 Telkom cooparates with Bank Sumut on CO- Branding Elektronik Money of T-Money Services 14-Jul-14 Present World Cup, UseeTV get 1Million Active Users 14-Jul-14 Gas Explotions in Jalan Sudirman Culvert was not caused by Telkom’s Project 18-Jul-14 Telkom get into Indonesia's Top 100 Most Valuable Brands 23-Jul-14 Telkom Enters into Remittance Business in Taiwan 24-Jul-14 Telkom Performance First Quarter 2014 Records Positive Growth 49 3-Aug-14 Telkom Wins 4 International Award at the event CMO Asia Awards for Excellence in Branding & Marketing 2014 50 13-Aug-14 Telkom expands to Silicon Valley: Accelerating Creative Digital Industry Growth with Silicon Valley Partner 51 17-Aug-14 To Realize Golden Generation Indonesian Gold Generation, Telkom Held CSR "IndiLearning Bagimu Guru Kupersembahkan” 52 53 54 55 17-Aug-14 Liven Independence Day of the Republic of Indonesia, Telkom Held WiFi.ID Corner One Day Free 28-Aug-14 Telkom Ready to Achieve "Indonesia Global Networks" 4-Sep-14 At the National Customer Day, Telkom Held One Day Service Fulfillment 30-Aug-14 Telkom and Telstra Australia join business on Network & Application Services 56 17-Sep-14 To Realize Golden Generation Indonesian Gold Generation, Telkom Held CSR "IndiLearning Bagimu Guru Kupersembahkan” 57 58 59 17-Sep-14 Investor Summit 2014 20-Sep-14 Expansion to the United States of America, Telkom Open Telkom USA Office 24-Sep-14 Telkom Group achieved 8 Frost & Sullivan Indonesian Excellence Awards 2014 60 29-Sep-14 Telkom Increase Cooperation with Alfamart, Alfamidi, AND + AND 2-Oct-14 BUMN Synergy: Telkom and BTN are Ready develop Integrated Banking Services 8-Oct-14 Telkom Ready to Support Jatim Bumi Broadband through Digital Innovation Lounge (Dilo) ITS 13-Oct-14 Telkom Launches Kartu As 2in1 Macau 10-Oct-14 Telkom and Tower Bersama Deal on Strategic Partnership 22-Oct-14 Telkom Achieves International Business Award 2014 The International Stevies 26-Oct-14 Telkom Proud of Appointment Arief Yahya As Minister of Tourism 28-Oct-14 Telkom Performance Growth Positive on Third Quarter 2014 29-Oct-14 Indra Utoyo Appointed as Acting President Director of Telkom 31-Oct-14 Telkom Remittance Delima Services Now Available in Malaysia 3-Nov-14 Realizing 1 million SMEs Hebat, Telkom Launches ZAPA 61 62 63 64 65 66 67 68 69 70 264 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESNo Date Title 71 5-Nov-14 The Strategies to not left behind in the ASEAN Free Market List of Telkom Press Release 2014 72 10-Nov-14 Supporting 1000 Kampung Nelayan Programs : Telkom Integrate Digital Ecosystems at Kampung Nelayan Muara Angke 73 10-Nov-14 Kick Off Broadband Port and Launching Inaportnet Digital Lounge, Telkom Support Indonesian Maritime Sector 74 10-Nov-14 Telkom and Telstra Earn IDC Telecom Service Provider Innovation (TSPI) Award 2014 on Innovative Partnership Category 75 76 77 19-Nov-14 Telkom Penetrating Remittance Services in Japan 25-Nov-14 Developing Creative Industries, Telkom Launches Jakarta Digital Valley 29-Nov-14 Telkom Indonesian Held Event BestAppsID As The Largest Hackathon Event in Indonesian 78 29-Nov-14 Synergy Between Telkom and Indonesian Navy within Preparing Telecomunication Facilities in the Outer Island 79 80 81 82 83 84 85 86 87 1-Dec-14 Telkom Support Jokowi E-blusukan with TKIs in 8 countries 1-Dec-14 Hundreds Apps "Made in Indonesian" Ready to Launched After Indigo BestAppsID Event 12-Dec-14 Speedy Instan 2nd Anniversary: Telkom Launching The New Products of Speedy Instan 12-Dec-14 "New Digital Experience with Speedy Instan Exciting Features" 16-Dec-14 Launching SHOPBOX, Telkom Simplify SME Develop Business 17-Dec-14 Telkom Launch 10 Fisherman Villages 19-Dec-14 Telkom Announces the Nomenclature of Board of Directors 29-Dec-14 Telkom Group Support the Media Center and Search Command Center of Air Asia QZ 8501 Aircraft 29-Dec-14 "Dream Team" The New Board Directors and Commissioners of Telkomsel 265 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Website Telkom continuously ensures compliance with the provisions of disclosure of information to external audiences. This is especially in the delivery of a number of reports and other important information that are published on the company’s website. Telkom manages a website with the address: www.telkom.co.id The reports and other information that must be submitted on the website, are as follows: 1. Quarterly Financial Report 2. Annual Financial Report 3. Annual Report 4. Report on Corporate Governance 5. Publication of products and services Telkom continues to develop and to add features on our website. Providing updated information is a priority for Telkom’s website. Telkom also has sufficient intranet network so that it is able to communicate more actively. The number of visitors to the website of Telkom in 2014 are as follow: Month January February March April May June July August September October November December Total Average/month Unique Visitor Number of Visit 619,356 567,791 614,100 581,038 576,553 566,876 476,345 518,051 486,610 470,527 463,078 442,793 6,383,118 531,927 1,281,987 1,165,441 1,251,366 1,194,118 1,172,908 1,135,310 939,510 994,132 911,115 878,140 884,849 844,674 12,653,550 1,054,463 Hits 1,613,031 1,494,906 1,628,448 1,562,995 1,534,853 1,467,090 1,217,752 1,321,653 1,221,654 1,186,413 1,187,448 1,147,389 16,583,632 1,381,969 Telkom Social Media Along with the development of communication technology through social networking media, Telkom has also penetrated the media like Facebook and Twitter. Telkom expects to improve two-way communication to the customers and the public in general. Since 6 October 2009, Telkom has a twitter account @TelkomIndonesia with 39,700 followers and has launched a Facebook account Telkom Indonesia since 20 August 2014 with 48 friends and 81,250 likes. Telkom views the media as not only a campaign media, but also an opportunity to obtain feedback and suggestions from consumers both for the development of product features and services needed by Telkom customers and the community at large as well as to improve the quality of Telkom’s service to customers. Exposure of Telkom Performance As a form of disclosure, particularly regarding financial performance and other important performance, as well as the latest information, Telkom continuously deliver performance report to regulators, government agencies, as well as to its stakeholders, as well as others to those who want to do a comparative study against Telkom. 266 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPerformance Exposure in 2014 No Subjects of Performance Exposure Date Institution 1 2 3 4 5 Performance exposure in 2013 March 14 Analysts, Investor, Media Performance exposure Quarter I 2014 Performance exposure Quarter II 2014 April 29 July 24 Analyst, Investor, Media Analyst, Investor, Media Investor Summit 2014 September 17 Bursa Efek Indonesia, Analyst, Investor, Media Performance exposure Quarter III 2014 October 28 Analyst, Investor, Media In addition to routinely delivering performance exposure, we also present our material performance in conference and non-deal road shows as many as eight times and four times respectively throughout2014 as seen in the table below. No Conference Date Location Institution 1 2 3 4 5 6 7 8 5th Annual Hong Kong Investor Summit March 14 Hong Kong Morgan Stanley Asia Telecom Conference 5th Annual DB Access Conference Macquarie Asean Conference April 29 July 24 August 28 Hong Kong UBS Singapore Singapore Deutsche Bank Macquarie Indonesia / London Corporate Day September 2 London Mandiri Sekuritas & Barclays New York Corporate Day September 4-5 New York Mandiri Sekuritas & Barclays Real Indonesia Conference November 10-11 Makassar Macquarie DB Access Indonesia Conference 2014 November 19 Jakarta Deutsche Bank No Non Deal Roadshow Date Non Deal Roadshow with BAML August 24 Location Singapore Institution Bank of America Merril Lynch Non Deal Roadshow with BAML September 1 London Bank of America Merril Lynch Non Deal Roadshow with Deutsche Bank July 24 Boston & Chicago Deutsche Bank Non Deal Roadshow with BNY Mellon October 28 San Francisco Bank of New York Mellon 1 2 3 4 Disclosure in Internal Communications In order to create a conducive climate for internal communications to support the achievement of greater performance, Telkom continuously create a two-way communication through a variety of communication media, which are as follows: portal.telkom.co.id and Kampiun. Management face to face meeting with employees To develop a positive communication climate between management and employees, a number of face to face activities between the management and employees are implemented through various visits to the office by the Division Directors and Regional Telecommunications on various occasions internal events. 267 2014 Annual Report PT Telkom Indonesia Tbk (Persero) RELATIONSHIP WITH STAKEHOLDERS Comprehending and understanding the needs and expectations of stakeholders are important parts of the GCG management. Through our corporate culture of “The Telkom Way”, the management strives to foster the Company’s values and culture by leading all employees to a shared understanding of values that should always be informed to all stakeholdres to ensure such values including inherent norms and principles of governance are at the center of their inspiration. The following are some of the identified stakeholders’ values: Stakeholders Interest Stakeholders Value Costumer Accuracy and transparency of billing and operations Satisfaction levels of products and services Guarantee continuity of products and services Continuously provide dividends to shareholders The trend of stock prices continue to rise Always adapt to the new environment Shareholders Win the market and are ready to compete Employees Government Competitor Investor & Financial Community Public Continuous growth of financial performance Guarantee of business governance expansion World-class management practices Employee Welfare Good career place Compliance with government regulations Transparency and tax compliance An example for SOEs Participate and increase GDP Fair business competition Build mutual business partnership Sharing of resources to reduce costs Transparency Reporting Company Company's financial statements are reliable Community Employment Economic Multiplier effect A positive impact on society at large 268 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES BUSINESS ETHICS AND CORPORATE CULTURE We continuously adhere to morals and ethics which are the Company’s foundation for the implementation of GCG. Over time in managing GCG, we learn that the implementation of GCG implementation has nourished law awareness and has produced employees who have a sense of social responsibility to the community and win customers love. of Commissioners, Directors and other key officers and employees that can be found on our website: http: // www.telkom .co.id/ hubungan-investor/tata-kelola- perusahaan/kode-etik/ We will inform any changes in the code of ethics and waiver towards our ethic code via our website. Code of Conduct As a Code of Conduct for the entire Company, we have published the Decision Direction No. KD.201.01/2014 concerning Business Ethics within the scope of the Telkom Group. We own tools of business ethic, which concerns the standard of employees behavior in dealing with customers, suppliers, contractors, co-workers and other parties that relate to the Company. Implementation of the Code of Ethic For the Board of Commissioners, Directors and Employees According to section 406 of the Sarbanes Oxley Act (“SOA”) 2002, we implement the code of ethics which is applicable to all levels of the organization, the Board Socialization And Business Ethics Enforcement Efforts Enabling employees to understand and remember the values and ethics of business are done through the dissemination of material and an assessment every year. The materials relate to the understanding of corporate governance, business ethics, integrity pact, fraud, risk management, internal control (“SOA”), whistleblowing, banning gratuities, IT governance, ensuring the security of information and other matters relating to the Company’s integrated governance practices. The efforts are done through a survey of the business ethics program involving all employees. The survey was conducted online, through the media portal/ intranet, which concluded with a question on the willingness of employees to run the business ethics. The understanding and application of business ethics together with the results of the survey 269 2014 Annual Report PT Telkom Indonesia Tbk (Persero)annually audited internally and externally through the SOA 404 audit process is associated with the application of appropriate control environment COSO internal control framework at the level of the entity’s internal control audit. Corporate Culture The Company has continued developing systems and culture in accordance with the demands and changes in the business to realize our aspirations tocontinue developing, be loved by customers, be competitive in this industry and be a role model for the Company. Since 2009, a new cultural transformation company called “The New Telkom Way”. Further cultural development, conducted in 2013 with the enactment of Architecture Leadership and Corporate Culture (“AKBP”) Telkom Group. A complete Corporate Culture is described as follows: Philosophy to be the Best: Always The Best ‘Always the Best’ is the basic belief to always provide the best in every job. ‘Always the Best’ conceptualizes the essence of “Ihsan” which can be translated into “the best”. Employees who embody this Ihsan essence will always deliver better work than normal until a charitable attitude will be automatically guided by a sincere heart, and when each activity is conducted as a form of worship to God Almighty. Philosophy to Be the Best: Integrity, Enthusiasm, Totality ‘Always the Best’ requires every member of Telkom to have integrity, enthusiasm, and totality. Principles to be the Star: Solid, Speed, Smart The ‘Principles to be the Star’ from The Telkom Way is 3S, namely Solid, Speed, Smart which also became our core values or great spirits. Practices to be the Winner: Imagine - Focus - Action The practices to be the Winner of The New Telkom Way is IFA, namely ‘Imagine, Focus, Action’ as well as the Key Behaviors. Explanation from ‘Imagine, Focus and Action’ can be described as follow. Evaluation of Business Ethics and Corporate Culture Implementation Every year we conduct an internal survey to determine the effectiveness of our corporate culture and business ethics. We label this survey the Family Business Ethics Survey. Some of the questions addressed to employees were conducted online so that the survey can reach all employees quickly including: GCG, Business Ethics, Value of The New Telkom Way, anti-fraud, internal controls, integrity pact, whistleblowing systems, and others. The results of the survey in 2011, 2012, 2013 and 2014 is 74.87 points, 79.07 points, 75.80 and 89.35 points out of a scale of 100 points. The results of the survey for 2014 increased 13.55 points from the previous year. This illustrates that the level of understanding of employees concerning business ethics is increasing from year to year. 270 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES WHISTLEBLOWING SYSTEM Since 2006, as part of the entity level controls, we have implemented a whistleblowing program that is designed to receive, review and follow up on complaints from Telkom Group employees and from third parties. The application of whistleblower program which is managed by the Audit Committee is established by the decision of the Board of Commissioners and ratified by the Decree of the Board of Directors. Submission and Violations Reporting Telkom Group employees or third parties may submit complaints regarding accounting and auditing issues, policy violations, suspected fraud and / or corruption, and violations of the code of conduct directly to the President Commissioner or to the Chairman of the Audit Committee of Telkom by email, fax or mail to the address: Email Fax : : ka301@telkom.co.id (62-21) 527 1800 Website : www.whistleblower.telkom.co.id Surat : Audit Committee PT Telkom Indonesia Tbk (Persero) Graha Merah Putih, 5th floor, Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 To get immediate response, complaints must meet the following requirements: 1. Delivered via website, email, fax or letter. 2. Provide information on issues of internal control, accounting, auditing, regulatory violations, suspected fraud and/ or corruption, and violations of the code of ethics. 3. The information reported must be supported by sufficient and reliable evidence as a baseline for further examination. Protection for Reporter We stipulate in Decree No.KD.48/2009 to ensure the confidentiality of the complaint, whether they are employees or third parties who submit complaints or reports of alleged violations. Whistleblower Protection Officer Whistleblower Protection Officer (WPO) is a member of the Audit Committee who received an assignment to handle complaints by: a. Receiving complaints b. Administering complaints c. Verifying whether the complaint is in accordance with the criteria d. Monitoring the follow up of the complaints Through meetings, the Audit Committee makes determination by: a. providing approval on whether the incoming complaint will be followed up. b. providing approval on whether the complaint will be brought to the Internal or External parties. c. providing a follow-up assessment on whether the complaint is sufficient The Internal Auditor plays a role in: a. performing preliminary investigation upon receiving the complaints. b. making Preliminary Examination Report and submit it to the President Director and the Audit Committee. An investigation committee is instrumental in: - conducting an investigation of the complaints that have been received creating reports of the results of investigation and delivering it to the President Director and to the Audit Committee. - Number of Violations Complaints and Follow-up In 2014, the Audit Committee has followed up on eight (8) complaints that were received and met the requirements to be included in the category of complaints relating to accounting, internal control, regulatory violations, suspected fraud and violations of the code of ethics. The use and results of the whistleblowing system: Description Total Description Number of Complaint Qualified Complaint Category of Complaint Progress of Complaint 8 8 8 5 3 Complaints that were received Complaints which qualified to be followed up Other Complaints Complaints after being followed up In the process of following up 271 2014 Annual Report PT Telkom Indonesia Tbk (Persero) Complaint Handling The process of handling complaints to meet the requirements of the OJK Rules No.IX.1.5 and Sarbanes- Oxley Act of 2002 Section 301 of the Public Company Audit Committees are undertaken within the framework of improving our corporate governance. Therefore, the requirements for a complaint is designed to ensure that the complainant filed his/ her complaints responsibly and does not defame someone’s reputation. The Audit Committee will follow up on complaints of third parties including and especially those from Telkom Group employees that relates to: a. Accounting and Auditing Issues of accounting and internal control over financial reporting which could potentially result in material misstatements in the financial statements and audit issues, especially those concerning the independence of Public Accountants. b. Regulation Violation Violation of capital market regulation and legislation related to Companyoperations as well as violations of internal rules that potentially result in losses. c. Cheating and/or allegations of corruption Cheating and/or allegations of corruption by officials and/or our employees. d. Code of Conduct The behavior of the Board of Directors and Management which are not commendable and could potentially tarnish the reputation of Telkom or result in losses for the Company. Examples of the behavior of the Board of Directors and Management which are not commendable include, among others, dishonesty, conflict of interest with Telkom, or providing misleading information to the public. We have also built a working mechanism between the Internal Audit and Committee Audit and Investigation Committee, including its Subsidiaries to follow up on complaints that were received. In addition, the whistleblower program has also been disseminated and understood by our employees. TELKOM SUBSIDIARIES WHISTLEBLOWING SYSTEM AND PROCEDURES INVESTIGATION PROCESS W HISTLEBLOWING AND FOLLOW UP Subtance Evaluation Archives Agreement of Follow up Case Review Subsidiaries? Yes No Letter of President Director toSubsidiary Cc. 1. President Director of Telkom 2. Audit Committee 3. Subsidiary IA The Appointment of Expert Expert Follow up? Cc Follow up Report Yes Need Expert? The Investigation The Result of Investigation Yes No No TPTA? Yes Investigation Team Note of TL Note of TL Documentation End Yes Subsidiary Discussion TL Combined? No Follow Up? Yes No Letter of Answers Investigative by Subsidaries The Audit Report TPTA Subsidiary TPTA Report No Team Combined? Yes TPTA Combined TPTA Report LIBIS Follow up Follow up Report t i d u A e e t t i m m o C i t n e d s e r P r o t c e r i D n o i t a g i t s e v n I e e t t i m m o C I Y R A D S B U S I R H I S B U 272 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES CORPORATE GOVERNANCE SOCIALIZATION On an ongoing basis, the company has always stressed the importance of implementation of good corporate governance across all levels in the Company. Several activities as a form of actualization are: a. The implementation of e-learning and assessment of Business Ethics are conducted online and followed by all employees of Telkom Group, which focuses on corporate governance, business ethics, culture, SOA, and Spiritual Capital Managemet, Fraud Management, Control Gratification and others. b. Spiritual Capital Management In an effort to increase the culture of clean, honesty at work and transparency in the Company, Telkom management has implemented Spiritual Capital Management (SCM) for all employees and officials of the Telkom Group, so that each work activity is based on the principle of charity as a manifestation of the work is worship. c. Gratuity Control To demonstrate the seriousness of Telkom’s commitment to control gratuities, all leaders of Telkoom Group signed the Commitment Control Application Gratification (PPG) at a meeting of Telkom Group which was attended by Vice-Chairman of the Commission, Zulkarnaen. The entire Board of Directors, accompanied by their wives, also signed the Integrity Pact as an embodiment of good governance. This signing is a testament to the Telkom’s commitment to control gratification. The Vice Chairman of the Commission, Zulkarnaen, voiced his appreciatiation for Telkom and expressed his hopes that Telkom can be an inspiration for other companies, especially for state-owned enterprises. The company and its employees are required to manage gratification which tends to be in the form of a bribe. If the employees have already received the gratuities, they must immediately report it within a maximum of 30 days from they received the gratuities. 273 2014 Annual Report PT Telkom Indonesia Tbk (Persero) The Director of Gratuities of KPK Giri Suprapdiono was also present to provide insights of gratification to Telkom’s Board of Directors, directors of subsidiary companies, as well as senior leaders Telkom Group. In his presentation entitled Gratification Roots of Corruption, he explained how corruption, and in this case graft, can be detrimental to the company and to the nation of Indonesia. d. Internal Control The implementation of Internal Control to fulfil SOX compliance have strict requirements to ensure and support good corporate governance. The purpose SOX is to be in line with the implementation of GCG and ethics, namely: 1) To improve the effectiveness and efficiency of the management of the Company 2) To improve the quality of corporate financial reporting 3) To ensure compliance with laws and or regulations which must be met by the Company 4) To grow investor confidence and in the long term to ensure the survival of the company. e. External Sharing In addition to socialization within the internal scope, the Company is often invited as a guest speaker in a capacity relating to the implementation of GCG externally. For example, there is a sharing of GCG in the presence of the Company, the issuer, and other institutions as a venue for sharing, for example, presentation by the Acting Managing Director in the GCG award. 274 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCONSISTENCY IN IMPLEMENTING GCG Our understanding of good corporate governance is improving in line with our experience and lessons learnt for managing GCG. We believe that good corporate governance is a dynamic system and should be strengthened from time to time and updated in line with the business and changes to the business environment. With continuously being updated, the GCG implementation is expected to contribute significantly to support the growth of the business and not otherwise considered to hinder organizational agility. The implementation of GCG is integrated with compliance management, risk management and internal control. This practice requires us to be able to manage corporate governance in line with business performance management. The application of risk management is not easy and takes time to be able to master the competencies, gain accuracy in recognizing industrial and organizational risks, and be able to incorporate risk culture as part of the employee culture. Finally, thanks to the commitment, consistency and patience of the management, our results has positively contributed to the process of planning, decision-making and strengthening the implementation of GCG in the Telkom Group. Some of our key activities to maintain our consistency in supporting the GCG practices are in line with business management, including: Performance Management System To embody the principles of GCG particularly the principle of accountability, we place the accountability employee’s performance in an Employee Performance Management System based on the Company’s policies No.PD.208.00/ 2011. According to this policy, the principle of fair and transparent refers to the guidelines measurement and the evaluation of performance in the mechanism of contract management through the establishment of performance indicators according to the scope of duties and role of the units and individuals in the organization as well as the establishment of agreed targets referring to the Company’s performance targets set out in the Company’s annual plan. Performance target is gradually lowered in lower level units and sub-units for employees concerning the principle Specific, Measurable, Achievable, Realistic, and Time Related (“SMART”). Meanwhile, the evaluation is performance on a regular basis (daily, weekly, monthly, quarterly, yearly) in accordance with the performance indicators measured in the management’s evaluation mechanism, which is supported by several applications of online information systems. Implementation of the Integrity Pact and Stronger Anti Gratification The implementation of the Integrity Pact has started since the publication of the policy in 2009. The Integrity Pact has sharpened the implementation of GCG, especially in areas concerning the implementation of the code of integrity, business ethics, avoiding conflict of interest, gratuities ban, ban on transactions with insiders, maintenance of the confidentiality of information, prevention of actions that enrich themselves or others but which adversely affect the Company’s financials in the field of procurement and partnership, service integrity and integrity in the Company’s financial reporting. Initiatives to sharpen/ strengthen corporate governance through the policy Integrity Pact are deemed necessary to give special attention to the specific areas relating to the prevention of potential financial loss and for the establishment of “island of integrity” as one instrument of bureaucratic reform and prevention of corruption, collusion and Nepotism (“KKN”) with the concentration of efforts on the creation of transparency, accountability and participation. In a general sense, integrity is consistency and unwavering firmness in upholding the noble values and beliefs. A leader who has integrity will gain confidence (trust) from its ranks. According to some references, integrity can be simply interpreted as the faith (belief) to values adopted by the mind and action. People with integrity would have beliefs, thoughts and actions which are intact and have compatibility with each other. Telkom’s Corporate Philosophy explains that to achieve ‘Always The Best’ in the essence of Ihsan, we should have three main elements, namely integrity, enthusiasm and totality. Integrity is the realization of one heart (pure heart), one mind and one action that can lead to true friends who love each other, protect each other, and defend each other. Three things are needed to build cohesion and trust between employees, namely the shared vision (same goal), the shared values (consistently referring to the values as a guide in decision making), and the culture of trust (which would speed up the decision making processes and adapting to change easily). 275 2014 Annual Report PT Telkom Indonesia Tbk (Persero) BUMN Bersih The movement of BUMN Bersih was declared by the Minister of State-owned Company on September 25, 2013, a moment marked by the signing of a commitment by the whole Director of SOEs. Assessment “BUMN Bersih” is done with the aim to ensure the whole SOEs implement good corporate governance (GCG) both administratively and substantively as well as to realize a SOE which is robust (professional), superior (priority system, quality, and innovation) and dignified (net of all forms of irregularities and fraud, including corruption). In order to realize the “BUMN Bersih”, the Ministry of SOEs through BPK has conducted an assessment of all SOEs. The assessment conducted in stages and gradually. At first, BPK assessed the board of directors and commissioners in the third month since the signing of the commitment of “BUMN Bersih”. “BUMN Bersih” is closely related to integrity. This emphasizes that a great leader must meet the basic requirements, namely having high integrity and enthusiasm. “BUMN Bersih” is determined by the Minister of SOEs in an effort to turn all SOEs to become enterprises that are not only able to implement good corporate governance administratively, but also to be “BUMN Bersih” in substance. The criteria of “BUMN Bersih” that is used in the program “BUMN Bersih” essentially meant that SOE must implement the principles of good corporate governance of transparency, accountability, responsibility, independence and fairness. These five principles are the foundation for management systems ranging from planning to accountability, commitment not to commit any fraud/ cheating, including all forms of corruption, receiving and/ or giving gratification associated with his/ her position. Below are several factors which indicate that the “BUMN Bersih” is a planned program and the full commitment of the Ministry of SOEs: a. First, to run this program, the Ministry of SOEs have recourse to the Financial and Development Supervisory Agency (BPK) to periodically conduct an assessment “BUMN Bersih” through a survey of the perception of all stakeholders (stakeholders) consisting of employees, customers, partners (suppliers and contractors) and the relevant community. b. Secondly, the assessment is carried out in stages. In the first stage, an assessment of the Board of Directors and Board of Trustees/ Board of Commissioners is carried out as detailed below. 276 c. Thirdly, there are 13 criteria assessed which include: 1) A commitment to implement the Board Manual for the Board of Commissioners/ Board of Directors and the Board of Trustees as well as the Code of Conduct for all persons in SOEs to be BUMN Bersihand free of graft, fraud and KKN. 2) A commitment to provide exemplary and create a conducives working environment for the implementation of “BUMN Bersih”. 3) A commitment to control of gratification effectively. 4) A commitment to carry out transactions based on the principles of good corporate governance without gratuities. 5) A commitment to carry out the recruitment, placement, promotion and transfers of employees fairly. 6) A commitment to implement a system of remuneration based on and objective and measurable assessment of performance. 7) A commitment to carry out procurement fairly, efficiently and without gratuities. 8) A commitment to implement the transparency and accuracy of financial statements and management reports as well as other transparency obligations in accordance with the legislation. 9) A commitment to apply strict sanctions against any infringement. 10) A commitment to implement minimum standards for state-owned public service obligations (public service obligation) and state-owned company that manage infrastructure business. 11) A commitment to streamline the reporting system on the alleged violation (whistle blowing system). 12) A commitment to perform compliance monitoring of SOE ranks in three (3) hierarchies in submitting LHKPN to the KPK. 13) Other commitmentst to realize the BUMN Bersih (example: a policy not to support political parties). For Telkom, the declaration of “BUMN Bersih” program increased our confidence to continue improving the quality of the implementation of Good Corporate Governance (GCG) consistently in which all levels of the Company have committed to. This commitment has been done structurally and systematically, namely by using the method of ADLI, which stands for Approach, Deployment, Learning and Integration, which is similar to the assessment process in the Malcolm Baldrige Approach that refers to the approach, methods and ways in which to respond to the requirements of the criteria. Deployment (D) refers 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESto the extent to which the approach, methods, and how they are applied consistently. Learning (L) refers to the extent to which the benefits of the method used, and Integration (I) refers to the use of the method in all organizational units. For example, we already have a policy of integrity pact (2009) and business ethics (updated in 2014) and consistently utilize them every year. Since 2013, the CEO has requested that every submission of SK Band Position 1 (BP.1) must be immediately followed by the signing of the Integrity Pact by the employees concerned. This is also a reminder to the employees concerned that she/ he is a role model for the implementation of GCG in the company. When BPKP assessed the entire Board of Directors and Commissioners, the results of the survey showed thatTelkom received a value of 8.3 (range 10). This means that the program of “BUMN Bersih” has been implemented in the Good Corporate Governance (GCG) ISO Standardized Management Process Since 1996, we have been consistently implementing an ISO based quality management system and in 2001, its application was integrated with the criteria of excellent performance based on Malcolm Baldrige. The application of both quality management systems (ISO and Malcolm Baldrige) were to establish the governance and performance accountability processes through the implementation of ISO based discipline process and document’s process and improved the company’s superior performance in accordance with the Malcolm Baldrige’s performance excellence assessment. In 2013, the Company’s performance was assessed by KPKU assessment team from the Ministry of SOEs and the internal assessment (self-assessment) was conducted at Business Unit/ Division level. Corporate Planning Governance Implementation The consistency in executing proper planning is one of the main concerns of the management in implementing GCG. At the discretion of the Company, the management seeks to ensure that the Company’s planning is carried out more systematically, uncomplicated, organized, integrated, aligned with the vision and mission of the Company, and may be compatible with previous plans which also makes it easy to evaluate and control during the later execution. Model of corporate planning generally consists of three stages. They are: 1 Aligning stakeholder expectations 2 The Company’s strategic formulation 3 The implementation of business strategy The role of GCG is to guarantee and ensure that the whole process and planning activities may take place soundly, with accountability, transparency and able to add sustainable value to the Company, and not in conflict with the interests of all stakeholders. To consistently update the development and business dynamics and operational, the Company updates its planning policy in line with the Corporate Strategic Planning System No.PD.105.00/ r.00/ HK.200/ COP-D0030000/ 2014 dated January 28, 2014. IT Governance As a company engaged in the business of distributing information and data/ customer information that must be secured, we constantly seek to take advantage of the widest possible use of technology in managing the company because this directly improves the quality of the implementation of corporate governance. Almost all of the points in the value chain of the company, which includes the operation of the entire network of production infrastructure, all important aspects of management such as finance, logistics, human resources as well as services to employees, customers, suppliers and other stakeholders, have been integrated into our IT network. Framework for the management of IT governance refers to Control Objectives for Information and related Technology (“COBIT”) set forth as the Information Systems Security Policy (No.KD.57 / 2007) including: 1. Information, data / information processing system, networking and supporting infrastructure are very important asset for the company. 2. The application of information security systems to ensure the integrity of assets and information, so as to maintain the competitive value, cash flow, profitability, legal compliance and commercial image of the company. 3. Implementation of information security systems includes risk assessment, security assessment, compliance with laws and regulations, and business needs. 4. The success in implementing information security systems can be achieved by applying the same understanding, controlling, monitoring and evaluation of policy implementation. 277 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Some examples of IT governance practices w the Company’s operates is the management of user access review, password management, management of audit log/ audit trail, and management of end user computing. To consistently update the development, business dynamics and operations, the Company updates its planning policy through PD 404.00/r.00/HK-200/ COP-C0300000/2014 dated July 15, 2014 on Public Policy Guidelines and Information Technology Governance Telkom Group. One of goals of this decision is to provide clear direction that the governance of Information Technology (IT) is solely based on the formation of values (value creation) which is based on the needs of the Company’s stakeholders (stakeholder needs) by way of realizing the business benefits (benefits realization), optimizing the risk management (risk optimization) and optimizing the management of resources (resource optimization). The other purpose of this decision is to increase the effectiveness and efficiency process of IT business, IT productivity, availability of complete, comprehensive, accurate and timely information to support decision making for management, in order to meet business needs, improve the sustainable performance and growth of the Company. The strategy unit and IT Governance Units are the Company’s structural work unit which are responsible for formulating the Company’s IT strategy and the plans and establishment of the Company’s IT Corporate Governance, starting from the policies, standards, along with the socialization process and implementation in the field and mechanisms for monitoring and evaluating the effectiveness of its implementations. Implementation of E-Procurement As a manifestation of commitment to implement good corporate governance and the Integrity Pact, we have consistently managed the procurement process and partnership with the use of e-auction system applications that minimize physical contact between the supplier/ partner because the tender and negotiations processes are computer-based that are conducted fairly and transparently. We conduct our selection of supplier through three main stages, namely the Supplier Registration where suppliers register online through the Supply Management and 278 Logistics Enhancement (“SMILE”) application, followed by the Supplier Selection in which we conduct an assessment of the suppliers in accordance with the classification of business and several other criteria from which we short-list to determine the Eligible Bidder, which is the entitled bidder who will be involved to follow the procurement process. Some of the benefits that have been obtained, among others, are the speed of the tender process, the determination of the would-be Participant tenders electronically according to the specified requirements, electronically selection of the winner, and other benefits associated with the improved quality of the process, reasonable prices, fairness, transparency and prevention of any interruption. HR Competency Development Changes in the business portfolio of Infocom to TIMES have given rise to an implication to shift the required competence. The competence and the ability of human resources is one of the important elements that must be considered to achieve good corporate governance practices. In its implementation, knowledge management is focused on creating business value that generates sustainable competitive advantage by optimizing the process of creation (acquisition), sharing and utilization of knowledge needed by the company. In order to support the knowledge management process, we have provided a Knowledge Management System, named KAMPIUN, which is a data bank (repository) as a means for every employee to improve his/ her knowledge by uploading or downloading through the system, which is expected to be a solution to the diverse work problems faced by them, which in turn encourages the growth of productivity and improvement of the quality of work. The ultimate goal of knowledge management is the creation of a learning organization, which is a condition in which the organization will be able to move forward without being dependent on certain employees by projecting itself into a knowledge-based enterprise through transforming Learning Center as a unit of learning with conventional methods into a Corporate University (“CorpU” ) which is a vehicle for improving the competence that can support the business needs of the Company in order to form a center of excellence in international human capital in TIMES industry that can support the improvement of the business performance and the 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESimplementation of a new culture with the tagline “from competence to commerce” which has the meaning that a competent employee would be to create a business. See Management’s Discussion and Analysis section “Telkom Top Performance - Functional Overview - Human Resources” for more detailed information on the development of HR competencies. Management of Information and Intangible Asset Ownership The information and all intangible assets, including the results of research, technology, and intellectual property rights acquired on assignment and/ or at the expense of the company is to be owned by the Company. We have the Regulation on the Management of Intellectual Knowledge and Intellectual Property Rights in the form of No.PD.605/ 2011. In protecting intellectual property, we expect to increase the income generated and to maintain our competitive advantage. Creativity and innovation on new products and services or existing products are the Company’s asset. We manage a database which includes creations, trademark, industrial designs, inventions, trade secrets, copyrights, trademark rights, industrial design rights, patents, and trade secret rights. Companies routinely manage various activities which then become intangible assets such as innovation through http://inovasi.telkom.co.id portal which may be accessed by all employees. Following up on complaints from the customer and community In conditions where the telecommunications business has reached a saturated point, the expectations of various stakeholders presents a challenge in implementing GCG. From time to time, customers and the general public have expressed their criticisms or complaints regarding industrial and telecommunication services, among others, the tariff war which contributed to the decline in ARPU and the decrease in the quality of service, complaints in invoice and billing services, the phenomenon of pulses suction and others. We use this feedback to evaluate and improve the quality of our services and immediately respond to and follow up on any complaints of the customers and the public because we commit to consistently prioritize ethical business practices and provide customer service satisfaction to our customers and other stakeholders. 279 2014 Annual Report PT Telkom Indonesia Tbk (Persero)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 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. 280 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 be adopted by the Government 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. 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 by the IDX (“IDX Regulation 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. The Indonesian Company Law states that the Board of Directors has the authority to manage the daily operation of the company and must have at least two members, each of whom must meet the minimum qualification requirements set forth in the Indonesian Company Law. In addition, based on IDX Regulation I-A, the Board of Directors of the listed company must consist of at least one unaffiliated director. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES C. Committees NYSE listing standards require that a US listed company must have an Audit Committee, a nominating/corporate governance committee and a compensation committee. Each of these committees must consist solely of Independent Directors and must have a written charter that addresses certain matters specified in the listing standards. The Indonesian Company Law does not require Indonesian public companies to form any of the committees described in the NYSE listing standards. However, OJK Rule No. IX.1.5 and the IDX Regulation I-A require the Board of Commissioners of an IDX- listed company (such as our Company) to establish an Audit Committee, which must consist of at least three members, one of whom must be an Independent Commissioner and serve as chair of the Audit Committee, while the other two members must be independent parties of whom at least one such party must have accounting and/or finance expertise. The NYSE Listing Standards as required by Rule 10A-3(c) (3) of the Exchange Act require foreign private issuers whose shares are listed on the NYSE to have an Audit Committee comprised of Independent Directors. However, such foreign private issuers may be exempted from the independence requirement if (i) the home country government or stock exchange requires the company to have an Audit Committee; (ii) the Audit Committee is separate from the Board of Directors and includes non-board members as in our case, members from the Board of Commissioners; (iii) the Audit Committee members are not selected by management and no executive officers of the company is a member of the Audit Committee; (iv) the home country government or stock exchange requires the Audit Committee to be independent of the company’s management and (v) the Audit Committee is responsible for appointment, retention and oversight the work of the external auditor. Not all members of our Audit Committee are Independent Directors as required by Rule 10A-3 of the Exchange Act. We rely on the general exemption pursuant to Rule 10A-3(c)(3) regarding the composition of the Audit Committee. We believe that our reliance on this exemption does not materially and adversely affect the ability of the Audit Committee to act independently. D. Disclosure Regarding Corporate Governance The NYSE listing standards require US companies to adopt, and post on their websites, a set of corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession, and an annual performance evaluation itself. In addition, the CEO of a US company must certify to the NYSE annually that he or she is not aware of any violations by the company of the NYSE’s corporate governance listing standards. The certification must be disclosed in our Annual Report to shareholders. Indonesian law does not have disclosure requirements similar to NYSE listing standards. However, the Capital Markets Law generally requires Indonesian public companies to disclose certain types of information to shareholders and to OJK, particularly information relating to changes in the public company’s shareholdings and material facts that may affect the decision of shareholders to maintain their share ownership in such public company. E. Code of Business Conduct and Ethics NYSE listing standards require each US listed company to adopt, and post on its website, a code of business conduct and ethics for its Directors, officers and employees. There is no similar requirement under Indonesian law. However, companies that are required to file or furnish reports to the SEC must disclose in their Annual Reports whether they have adopted a code of ethics for their senior financial officers. 281 2014 Annual Report PT Telkom Indonesia Tbk (Persero)07 SOCIAL & ENVIRONMENTAL RESPONSIBILITY 284 Telkom Commitment to Social Responsibility 288 Corporate Social Responsibility Awards 2014 289 Achievement of Performance Based on ISO 26000 CSR 290 CSR Activities and Programs TELKOM COMMITMENT TO SOCIAL RESPONSIBILITY Companies with legal status of Limited Liability company, according to the rules, are required to implement Corporate Social Responsibility. As a corporate citizen , we can't be separated that obligation. And to implement these obligations we have formulate a policy and operational guidelines, namely the Board of Directors regulation No.PD.701.00 / 2014 on the Management of Telkom Corporate Social Responsibility (CSR Telkom). According to the Board of Directors Regulations, Telkom CSR program consists of a Partnership Program (PK), Community Development (BL) and CSR Public Relations (PR CSR), or activities beside partnerships and community development programs. Telkom CSR are based on GCG and GCC (Good Corporate Citizenship) have principle of what is generally known as TARIF, standing for Transparency, Accountability, responsibility, independence, and Fairness. In addition, we also have principle on the ISO 26000 principles, namely accountability, transparency, ethical behavior, respect for the interests of shareholders, legal compliance, salute to the norms of international behavior and enforcement of human rights. One of our commitments to implementing CSR is participating in developing the quality of community life sustainably. Therefore, we consider it necessary to create a good and harmonious relationship with the community. Our efforts to continuously meet our CSR commitments prove to have acknowledge from various parties. One of acknowledgement from independent parties is the Grand Platinum award in the event of Indonesian Corporate Social Responsibility Award (ICA) in 2014. This award is not only a proof of acknowledge from independent parties but it is also evidence that our CSR performance achievement accordance with CSR based on ISO 26000. VISION AND MISSION In of CSR we have developed a vision, which is to be the leader in implementing CSR programs in Asia. To achieve this vision, we have developed several strategic concepts as follows: Cause promotion. Increasing public awareness and concern to donate time, money or material for a particular social purpose. Cause related marketing. Inviting the public to use 284 Telkom products, and eventually the company’s profits will be donated to help overcome or prevent a particular social problems. Corporate social marketing. Changing the people's behavior in certain issues, such as health, safety and the environment. Corporate philanthropy. Contributing / donating directly to the needy. Community volunteering. Encouraging and supporting employees to contribute their time and energy to engage in CSR activities, and Socially responsible business practice. Accepting and abiding the social norms in doing business. TELKOM CSR PURPOSE The purpose of Telkom CSR is to support the Company's business continuity by implementing sustainable development in the economic, social, and environmental involving Telkom Group employees and society on the base of three main pillars (triple bottom lines), namely the planet, the people and the profit. Planet. Companies take into account and preserve the nature and the environment in each activity of operating company. People. The company creates reliable human resources in empowering the community through community development, Profit. The company is not only pursuing profit, but is expected to also empower the local community economies. Overall, the three main pillars of our CSR is then realized in various program activities in seven areas, namely: (i) the partnership, (ii) public service, (iii) education, (iv) health, (v) culture and civilization, (vi ) environmental conservation, and (vii) natural disaster relief/humanitarian. STRATEGY TELKOM CSR We align our CSR strategies with our vision and mission as well as business portfolio. In conducting CSR we take the theme of "Telkom Indonesia for Indonesian", in which we seek to achieve an "Enlightening Society", namely people who obtains welfare through acting based on three main pillars of CSR. And to achieve enlightening the society we developed the following three things, namely: Digital Environment We realize the concern for the environment by providing and managing telecommunications infrastructure and various Information and Communication Technology 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES("ICT") facilities to support and connect all the activities of society, including in the context of environmental conservation in the area concerned or emergency care during natural disasters. Supporting the preservation of national culture and civilization. Supporting the improvement of public health degree. Digital Society We also empower the community in accordance with the current global trends in line with the progress in the ICT field, i.e. by educating on optimal use of ICT to facilitate the activities in the daily life. Digital Economy We actively synergize with other parties to provide ICT facilities in various public services, and to support micro, small and medium enterprises, especially in the creative industries sector, which is associated with the optimization of the ICT use. LEGAL BASIS AND POLICY OF TELKOM CSR In Indonesia, the Corporate Social Responsibility implementation is regulated by Government Regulation (PP") No.47/2012 on Social and Environmental Responsibility Company Limited, which is the implementing regulation of the provision of Article 74 of Law No.40/2007 on Limited Liability Company. Thus, PP 47/2012 is the legal basis for us in the development and implementation of CSR programs, both inside and outside of the Company. Besides being a State Owned Enterprises (SOE), we are also obliged to implement the Partnership and Community Development Programs, as set out in the Regulation of the Minister of SOEs No.Per-05/MBU/2007 dated April 27, 2007 on the Partnership Program between SOEs and Small Business and Community Development Program, as amended last time by the Regulation of Minister of SOEs No.Per-08 / MBU / 2013 dated September 10, 2013. We interpret these rules in the Policy of Board of Directors on the management of partnerships and community development programs (CSR) through Regulation of the Board of Directors No.KD.21/2014 dated October 14, 2014. SCOPE OF TELKOM CSR Telkom CSR activities are prioritized in three scopes, namely social, environmental, and economic. a. The scope of activities in the field of social Improving the quality of public education and providing educational facilities. Preserving and fostering religion, culture, art, and sports. b. The Scope of Activities in the Field of Environment Active in the humanitarian assistance and natural disaster programs. Active in environmental conservation activities. c. The Scope of Activities in the field of Economy Empowering Communities; increasing their skills, knowledge, attitude that brings impacts on the Company’s Business. Providing value added for stakeholders (customers, suppliers, shareholders, government, employees and family, community or society) that aligned with the Company’s programs. Active in providing facilities and infrastructure of information and communication (ICT) for general public; providing facilities and infrastructures for easy access to Information and Communication. Active in improving the ability of SMEs to become strong and independent. Active in supporting the development of digital creative industries. The scope of activities of Telkom CSR programs is not limited to the activities referred to in the letters, a, b, and c but can also be used for other activities that support the Company’s business by remaining referring to the laws and regulations in force. ORGANIZING GOVERNANCE Telkom CSR governance is classified into two categories, namely Partnership program, Community Development and CSR PR. CSR PR strategies and policies are under the authority of the Sub Department of Corporate Communications . While strategy and policy of Community Development programs are under the authority of unit of Community Development Center (“CDC”). Sub Department of Corporate Communication along with CDC unit at beginning of each year can coordinate to prepare Telkom CSR program, in order to create a synergy between Telkom CSR and a business unit or subsidiary. Furthermore, we organize the implementation of policy and operational functions Telkom CSR as follows: - Determination of Telkom CSR policy is the responsibility of incumbent Telkom President Director, while execution of the police is undertaken by the CDC Unit and the Sub Department of Corporate Communication. 285 2014 Annual Report PT Telkom Indonesia Tbk (Persero) - In implementing the Telkom CSR, the CDC Unit and sub Department of Corporate Communication can be coordinated with the Unit of Work and related subsidiaries. As the implementers of Telkom CSR policy, Sub Department of Corporate Communication and CDC Unit have their own duties and power. Duties and authority of Sub Department of Corporate Communication and the CDC Unit in the Management of CSR are as follows: Duties and authority of Sub Department of Corporate Communication Formulating and proposing Telkom CSR’s grand strategy policies, Annual Themes and evaluation of work program. Communicated entire Telkom CSR programs, both the Partnership, Community Development, and CSR PR. Aligning CSR Telkom program with Corporate Image Campaign, sponsorship activities, and Community Development. Controlling and evaluating the implementation of Telkom CSR program conducted by the Unit of Work. Receiving report from Working Unit, Subsidiary, and or those who execute Telkom CSR program. Reporting control and evaluation the implementation of telkom CSR Program to President Director. Duties and Authorities of CDC Unit Designing Partnership and Community Development Program referring to Government Regulation, grand strategy and annual theme set by the President Director. Managing activities related to the environment and social empowerment of the community conducted sds Organizational Structure of Telkom CSR President Director Corporate Secretary Department Sub Departemen Corporate Communication Human Capital Management Directorate Unit Community Development Center 286 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTELKOM CSR BUDGET ALLOCATION According to the Board of Directors Regulations No.PD.701.00/2014 dated October 14, 2014, the funding for Telkom CSR comes from two categories, namely: Funding for the Partnership and Community Development Program is budgeted from the Company’s operating expenses or other sources listed as PK and B budget sources in line with the laws and regulations. Funding for CSR PR derives from the company’s operating expenses written down as CSR budget. Budget for PK and BL is wholy used for all PK and BL activities and, is managed and under the responsibility of the CDC Unit as required by the existing regulations. While CSR PR budget is entirely used for program activities of CSR PR, and Telkom CSR’s communications programs (PK, BL and CSR PR) are under the responsibility of the CCA Department. Budget Allocation Source of Fund (Rp billion) 2014 2013 2012 Partnership Program Loan for Partnership Fostering Community Development Telkom CSR (PR) 396.42 15.30 82.80 23.31 118.19 6.25 55.76 38.24 343.87 9.99 94.31 32,7 In line with our vision and mission to become a TIMES major player regionally and globally, we recognize the importance of promoting the ICT use for the advancement and improvement of people's welfare. These commitments underlie CSR policies and programs that we perform. Utilization of our competence can bring Indonesia towards better direction. Our products and services should be able to push the lofty ideals of the nation in educating our nation life. As a corporation serving millions of customers, with the services touching throughout Indonesia, we participate actively in corporate social responsibility program. 287 2014 Annual Report PT Telkom Indonesia Tbk (Persero) CSR AWARDS 2014 In 2014, we had conducted a number of appreciation-winning CSR activities, which provide us with awards for nine areas and programs of the Corporate Forum for Community Development in the Indonesian CSR Award 2014. The details of the award are shown in the following table. No 1 2 Field/Program Category Program Title/Level Unit/Name Position Award Human Rights Freedom of Association and Human Capital SGM HC Center Platinum Gathering Center Environmental Conservation Telkom Go Green Action: Risk & Process VP Risk & Process Gold Mitigating carbon dioxide Management Management emissions & Stimulating environtmentally friendly business activities 3 Consumer Protection Customer Satisfaction Based Enterprise Service VP Enterprise Platinum Global Customer Satisfaction Sub-Directorate Service Standard (GCSS) 4 5 Education and Culture Broadband Learning Center Kandatel Klaten/ Kakandatel Klaten/ Platinum (BLC) Telkom Go Go ONLINE CDSA Solo SGM Solo Job Creation and Skills Empowerment of Telkom CDSA Solo SGM CDC Gold Improvement Program Partnership Program with Small and Medium Enterprises through "Raising Catfish Boyolali" 6 Income and Wealth Telkom Partnership CDSA Pekalongan SGM CDC Platinum Improvement Program Improvement Program In Increasing Sustainable Community Income "Batik Ozzy" Typical Pekalongan 7 Development and Digital School Telkom Indonesia Trading & Business GM Trading & Platinum Access Program to through the provision of Service (TBS) Business Service Technology i low-cost Internet access to the (TBS) school community 8 Health Program Infokes Telkom Through Operation "ePuskesmas" in Information Acceleration Off 1 MVP Management Platinum Technology solutions provider Online and Integrated Health in Indonesia 9 Social Investment Indigo (Indonesian Digital Innovation & Design SGM Innovation & Platinum Program (Infrastructure) Community) – BDV Center Design Center 288 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESACHIEVEMENT OF PERFORMANCE BASED ISO 26000 CSR Our continuous effort to fulfill our commitment to conducting CSR has gained recognition from various parties. This shows that our CSR performance has run in line with the concepts and strategies that we have set. Among the recognitions from independent parties of our CSR performance is a Grand Platinum award in the event of Indonesian Corporate Social Responsibility Award ("ICA") in 2014. This award is not only a proof of recognition from the outside but it is also evidence of the achievement of our performance in line with the foundation of ISO 26000-driven CSR. Telkom Wins Grand Award Platinum in Indonesia CSR Award Corporate Forum for Community Development (CFCD) for the fourth time has held its Three-Year Event Awards (Triennial Awards) with the title "Indonesian CSR Award 2014 (ICA 2014)". This event was about Corporate Social Responsibility (CSR) based on ISO 26000 Social Responsibility in cooperation the National Standardization Agency (BSN) and supported by the Coordinating Ministry for People's Welfare and other Ministries on Friday (28/11) at Balai Kartini. The Indonesian CSR Awards 2014 was opened by the Vice President of the Republic of Indonesia, represented by the Minister of Social Affairs of the Republic of Indonesia Dra. Khofifah Indar Parawansa. Seven Platinum awards and two Gold awards were achieved by PT Telkom Indonesia, Tbk. for Telematics company category. This award was given directly by the Deputy VII Poverty Eradication Wahnarno. He said the awards have put PT Telkom as the company that won the largest number platinum awards so that PT Telkom was confirmed to get the Grand Platinum Award, which was received by Indra Utoyo as Acting CEO of PT Telkom. PT Telkom received nine awards for its participations in several Sectors or Programs, namely "Freedom of Association and Gathering" (human rights category), "Telkom GO GREEN ACTION: Mitigating carbon dioxide emissions and stimulating activities in Environmentally Friendly Business" (Environment category), "Telkom customer Satisfaction-Based on Global Customer Satisfacftion Standard (GCSS) in the form of CSI and CLI Measurement" (Consumer category). Telkom has also won six program in the category of Community Involvement and Development (CID), namely "Broadband Learning Center (BLC) Telkom towards Klaten GO ONLINE", "Telkom partnership program of empowerment of Small and Medium Enterprises through 'catfish Aquaculture Boyolali'", "Telkom partnership Program in Sustainable Community Income Generation 'Batik OZZY' Typical Pekalongan", "Digital school Telkom Indonesia through the provision of low-cost Internet access to the school community", "INFOKES Telkom through ePuskesmas in Information Technology solutions provider Online and Integrated Health in Indonesia", "INDIGO (Indonesian Digital Community)". On the occasion, Innovation & Design Center (IDEC) contributed two Platinum awards in the category of Community Involvement and Development (CID) namely program INFOKES Telkom through ePuskesmas and INDIGO. (Source: www.telkomsolution.com). 289 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CSR ACTIVITIES AND PROGRAMS We implement our CSR program by relying on our corporate responsibility in four areas, namely: (1) social responsibility towards the environment; (2) responsibility for employment, work safety, and health; (3) social responsibility towards social development; and (4) responsibility toward customers. TELKOM RESPONSIBILITY TOWARD THE ENVIRONMENT We are aware of the importance of maintaining environmental sustainability. Therefore, we constantly strive to minimize the negative impact on the environment caused by our operational activities and the activities of the community and society at large. We also actively support national programs related to environmental conservation. POLICY Our commitment to taking responsibilities on environment is outlined in Circular No.ED.130/PS000/HR-20/2008 concerning efficiency measures in the framework of savings in PT Telekomunikasi Indonesia Tbk, which is implemented through a variety of programs, both in internal environment and in the society. Environmental impacts arising from the company's operations must be reduced as low as possible and we are responsible for this effect. TYPE OF PROGRAM We try to conduct a variety of programs related to environmental preservation, which are summarized in Telkom Go Green Action program. This includes efforts to mitigate carbon emissions, energy efficiency of office buildings, BTS energy efficiency, utilization of renewable energy, the concept of paperless office, waste management, water management and recycling, movement of cycle to work (bike to work), and earth hour. Carbon Emissions Mitigation Efforts We have not specifically performed the calculation of carbon footprint from our operations. However, since 2009 we have conducted a series of consistent and targeted initiatives to reduce electrical energy consumption in our operations. Thus, we have contributed to mitigate carbon dioxide (CO2) emissions, considering the electricity is generated by power plants using conventional fossil 290 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESfuels (coal and oil), which is a source of carbon emissions into the atmosphere. In practice, these efforts are realized through the implementation of the strategy of using high efficiency equipment and new technologies that are more environmentally friendly, among others: Using AC inverter technology, retrofit system fluid and thermodynamic air-conditioning system with Articmaster, and replacing the use of Freon in AC with a hydrocarbon refrigerant. Replacing fluorescent lights with LED lights with high levels of electrical efficiency of up to 90%. Installing capacitor bank at our STOs to reduce energy waste due to reactive power. Changing the switching device from the TDM switch to a soft-switch device that consume less electricity, less dissipate heat, and occupies less physical space. Replacing the rectifier device of the linear-mode type to the switch-mode type that requires less energy and higher conversion efficiency level. Constructing and operating green data center that puts ahead zero depletion refrigrant (no-CFC), zero depletion FAP (N2 100% natural gas), environmental friendly material (unleaded), and energy efficient LED lamp and cooling system management. In addition to supporting efforts to mitigate carbon emissions, various initiatives to conserve electrical energy consumption has also impacts on the operating cost and maintenance expenses savings, and reduce down time due to failure of the air conditioning system Office Building Energy Efficiency We have made energy systems in our office buildings become more efficient. Various strategic steps that we have implemented include: Using capacitor banks to improve power factor, to comply with PLN stipulation about the KVAR limitations, and reduce wasteful use of electricity due to the magnitude of the pseudo power of load capacity. In 2014, we have carried out a series of try outs in collaboration with PT Excelindo Chandra Mulia (brand holder of Top Saver 2000), and have implemented the use of top-saver on non-inverter device to suppress the loss of the use of electric current, and this will continue in the years to come. Installing a 6 mm reflective glass reduce heat input, so that the use of air conditioning will be more economical and efficient. A series of tests have been carried out in collaboration with PT Sadean Energi Indonesia as the brand holder of Reflecto Coating for Building regarding the use of coatings, namely coatings outer glass wall/window of the building, which serves to pass on the light, but no/very little heat. Replacing conventional lighting with LED lighting that can save energy and environmentally friendly, because it no longer uses mercury. Replacing retrofit AC chiller with modern technology and energy saving based on building automation system (BAS), so the operator find it efficient operationally and also using environmentally friendly refrigerants. Implementation of this program commenced in mid-2013. Applying strictly and precisely, without disturbing the comfort and safety of building occupants, the schedule of lighting and tools operation in order to reduce wastage of electricity consumption. Providing all building occupants with continuity and sustainable socialization on energy savings, including the placement of warning signs and stickers in various strategic locations to remind employees to save electricity and water. Utilizing scheme zoning of lighting to improve the utilization of energy efficient, namely by differentiating the lighting areas in needs, so as to save energy. Installing timer on the lighting outside the building. BTS Energy Efficiency Significant energy savings also derives from the use of outdoor BTS at all locations of Telkom Flexi and Telkomsel BTS. Outdoor BTSs are than indoor BTSs, which do not require housing and cooling. Use of Renewable Energy Significant carbon emission mitigation has been done through changing patterns of energy consumption of non-renewable energy to renewable energy, among others, the use of solar, water and wind energies. Alhough in small scale, we have started implementing the concept of "carbon free" for some operating activities. By using solar cells as energy for BTS, we can reduce carbon emissions by 961.39 tons of CO2 annually. Telkomsel became a pioneer in the use of renewable energy from solar energy, microhidro, and low power consumption for BTS. Telkom has operated thousands environmentally friendly BTSs. 291 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Renewable energy is also implemented for locations in remote islands and other urban areas, which are still using generator power source 7x24 hours, among others through the use of a hybrid power plant that combines solar cells and wind power. The use of renewable energy in the form of a hybrid power plant is expected to save electricity usage charges, maintenance expenses and burden of fuel consumption up to 98%, while 2% of fuel is still required for generator maintaining purpose. Paperless Office Concept Other effort in mitigating carbon emission is by applying the concept of the paperless office. We have applied this concept through applying online memos since 1998 in some units and now have been implemented nationally. Since the implementation of this concept, management has a policy of cutting budget of paper purchasing significantly. With the use of paper as a minimum as possible, we have reduced the amount of paper waste. Currently, all of our working units have used the applications of online memos for delivering our internal memos. During 2014, the number of letter memos made by the whole unit through online application is 294.563 memos. Assuming that an average of memos composed of 2 (two) pages and addressed to three (3) receivers and then each memo is forwarded to 3 (three) people, then by using online memos we have saved as many paper as 10.604 reams or equivalent to Rp424.170.720 (based on the average price of a paper in 2014). We have also educated our employees and customers to apply this concept, among others, in the case of the issuance of electronic invoice, bill payments centrally through teller, Automated Teller Machine ("ATM"), phone banking, internet banking, mobile banking, and auto debit. Garbage and Hazardous/Toxic Waste Management Garbage management is carried out jointly with the local Health Department. Routine surveillance is applied in order to reduce the amount of scattered garbages. We also conduct waste management and disposal responsibly in all of our operational offices. Management and Use of Recycled Water Water is vital for human life and plays an important role in the preservation of the ecosystem. In this regard, we have a strong commitment to be responsible for the management and use of water. Our water consumption is relatively low. We use water, which is supplied by the Regional Water Company (PDAM), for building operations and drinking purposes of majority of our employees. We have carried out a strategic step in the management of water by installing biopori and reservoir around the office building to collect rain water and recycle the water and the simple way by using a charcoal filtration. We use the recycled water for washing operational vehicles and watering plants in the office yard. Bike to Work In order to live a healthy life and simultaneously mitigate carbon emissions, we urge our employees to cycle to work every Friday. This appeal was issued in 2009 and its implementation responded well by most of the employees until 2014. We expect this will become a habit that is part of a national movement "Bike to Work" and entrenched among employees. Earth Hour Regularly every year we participate in the "Earth Hour" which is promoted by WWF that aims to preserve the environment by reducing consumption of electricity energy. This activity is carried out by a power outage during one hour on Saturday, the fourth week of March each year at 20:30 to 21:30. Jakarta River Fest Telkom participate in the event of Jakarta River Fest in river clean action in Jakarta with a total contribution of Rp50 million. CERTIFICATION IN ENVIRONMENT By carrying out the mission to be the provider of high- quality TIMES services at competitive prices as well as becoming a model of the best corporate management, we must also consider the environmental control, and good work safety and health. To meet government regulations in terms of applying SMK3, in 2013 Telkom and its property subsidiary have obtained certification of SMK3. 292 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTELKOM RESPONSIBILITY TOWARD LABOR, WORK HEALTH AND SAFETY lack competence, as well as recruiting fresh graduates to fill positions left by employees due to retirement, improve the employee composition in terms of education, age and streams (corporate functions). EMPLOYMENT Policy Policy in human resource management is aimed at achieving the vision, mission and goals of the company (sustainable competitive growth) as well as human resource management objectives. The objective of HR management is forming great leaders and great people with employee productivity being above the standard of productivity in the telecommunications industry and the high level of engagement in running our business portfolio, which is increasingly focused on TIMES. We also seek to improve the synergy and efficiency among companies in the Telkom Group by continuously emphasizing on the application of previously-set corporate values. The Law No.13 of 2003 on Employment and Joint Labor Agreement (PKB) between management and employees union becomes a reference throughout the employment policies to ensure compliance with applicable legislation and minimize the occurrence of violations of human rights in the employment relationship. Type of Program Management of Industrial Relations Referring to the Presidential Decree No.83 of 1998 on the Ratification of ILO Convention No.87 of 1948 concerning Freedom of Association and Protection of the Rights to form Organization, some employees of Telkom have established "Telkom Employees Union" or "Sekar". Until December 31, 2013, Sekar has had 16.283 members or 91.1% of the total employees working with Telkom and employed by the JVC. To avoid potential conflicts that occur in the next PKB negotiation, management have improved the LKS Bipartite role held once a month. HR Recruitment Our HR Recruitment is conducted internally and externally. Internal recruitment is done by optimizing the existing employees through synergy in the Telkom Group ranks in order to achieve efficiency in employee turnover costs and obtained the best candidates as needed and at the same time facilitating career development for existing employees. External recruitment is focused on hiring professionals to fill positions in which existing employees HR Recruitment 2014 2013 2012 2011 2010 Number (person) 224 206 30 53 127 Competence Development HR competency development is conducted through training and education, which is a change of competence and competence development in nature, both directly and indirectly related to the Company’s business strategy and operations. In addition, we have also organized various training programs and competency enhancement for our employees, which are currently managed through the establishment of CorpU. One of Telkom CorpU programs is the international certification and GTP which provide the company’s best talent with an opportunity to have global exposure and global experience by sending them to various countries. Here is the amount of training conducted in the last five years. In 2014, Telkom CorpU has graduated 539 person for international certification and 2,468 person for the National Certification. To develop the competence of employees, SUSPIM Program dan Predeparture Program, GTP program preparation, has been implemented through 19 and 11 batches. Telkomsel 2.0 Program, as Telkom main program, has graduated 539 agents in 22 batches. TICC program has graduated 411 people in 16 batches. Meanwhile regular training programs have been conducted in 1,123 program with 23,750 participants. Competence development 2014 2013 2012 2011 2010 Total Training 1.191 1.261 774 650 826 Employee Remuneration We provide our employees with competitive remuneration packages consisting of a monthly salary, various allowances and facilities such as housing, health and pension according to the existing law and are routinely evaluated the employee’s salaries in order to keep pace with the movement of the market. The amount of remuneration that we spend in the last five years is as follows: Remuneration of Employees Amount Paid (Rp billion) 2014 2013 2012 2011 2010 9,616 9,733 9,786 8,555 7,516 293 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Health Services We cover health services managed by Yakes for employees and his/her nuclear families’ dependents. This health services is expected to have an impact on improving the productivity of the company. To determine the health of employees, each year we organize medical check-up, which results in health statuses (stakes). In addition we have also issued a policy paradigm of healthy living. Health insurance is also provided to all employees who have retired, including their dependent relatives. There are two types of funding, namely: employees who are appointed as an employee prior to November 1, 1995 and have a service life of more than 20 years are eligible to enjoy health care services managed by Yakes Telkom; and for all other permanent employees, they obtain health services in the form of insurance benefits. While employees of subsidiaries are given health benefits through a health insurance program sponsored by the government, known as BPJS Kesehatan dan BPJS Ketenagakerjaan. Total expenses we spend on health insurance program for employees in the last five years can be seen in the following table. Employee Health Care Expenses 2014 2013 2012 2011 2010 Amount (Rp billion) 153 162 150 121 136 Pension Plan We had two pension schemes, namely the Defined Benefit Pension Plan ("PPMP"), which are intended for permanent employees hired before July 1, 2002 and Defined Contribution Pension Plan ("PPIP") that apply to other employees. Here is the amount of expenditure for pension programs in the past five years: Pension Plan 2014 2013 2012 2011 2010 PPMP (Rp billion) PPIP (Rp billion) Nil 6 182 180 187 485 6 5 5 4 Employee Appreciation Routinely, we give appreciation to employees and units with certain accomplishments in supporting the achievement of the company's business. The award is to motivate employees to contribute more in the coming period. The following table contains best-performing employees who receive appreciation in 2014. Type of Reward Number of Employees Description Individual reward Individual reward Individual reward Individual reward Group Individual reward Individual reward Reward Unit Reward Unit Reward Unit External Reward Religious (Umroh, Ziarah, Tirtayatra) 64 employees 2 employees 12 employees 6 employees 44 employees 5 employees 5 employees 4 Witel 18 Witel and Datel 6 Witel 9 employees The Healthiest Family Best Staff Kampiun Award Best Innovator Special Innovation Digital E-Learning Best Witel Best Rose Prime-Character Fostering Satyalancana Presiden RI 294 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESEmployees Turnover The level of employees Turnover represents the number of employees who left the company for various reasons, among others, voluntary resignation, appointment as officials within the company, its subsidiaries or the government, death, normal retirement and early retirement, which is a program that is offered openly and voluntarily for employees that meet certain criteria. Number of Telkom Employees Number of Employees Turnover On Their Request Becoming staff of political party Becoming SOE’s Director/Government Officer Violating Discipline Marrying to Telkom Employees 2014 17,279 2013 17,881 2012 19,185 2011 19,780 2010 21,138 20 17 - - 1 2 14 14 - - - - 22 10 - 12 - - 12 12 - - - - 10 10 - - - - Percentage 0.12% 0.08% 0.11% 0.06% 0.05% Gender Equality and Employment We do not have internal policies regarding labor that distinguishes its application by gender. All regulations are applied consistently and equally to all employees regardless of gender. Similarly, the employment opportunities offered applies to all employees, where the existing positions do not specify qualifications that differentiate by gender. Position requirements) only requires education and competencies (soft skills and hard skills). Rights (compensation, benefits, career development opportunities and competence, working time, working facilities) and all obligations apply to all employees regardless of gender. 295 2014 Annual Report PT Telkom Indonesia Tbk (Persero)WORK HEALTH AND SAFETY (K3) Policy Since 2009, the K3 management is focused on achieving a zero accident rate. This program is organized on the base of the labor laws and rules of K3 by local Department of Labor and evaluated and assessed each year. Our commitment to realize the security and safety in the work environment is manifested in the company's policy set out in the Directors' Decision on the Establishment of Enterprise Security Management Policy and Safety Governance No.KD.37 / 2010 dated October 26, 2010. Type of Program Various activities carried out related to the K3 program for 2013-2014 include: Training on Work Safety: Fire Disaster Emergency Response Simulation in Witel North Jakarta, Bogor, Palembang, Medan, GMP Building Gatot Subroto, Jakarta. Seminar Jointly held with Jaring K3 Telco Training in Basic Life Support (BLS) Training in K3 Electrical Expert Training K3 Type C Fire Expert First Aid Training (P3K) Training and Simulation of Flood Evacuation Telkom Group Jabodetabek in Sunter, North Jakarta in cooperation with the Marines. Socialization of Occupational Safety and Health Management System (SMK3) Zero Accident Programs Zero accident programs are organized on the base of labor laws and rules of K3 local Department of Labor and evaluated and assessed each year. Our commitment to realize the security and safety in the work environment is manifested in the company's policy set out in the Directors' Decision on Establishment of Security and Safety Management Company. Location Telkom Area Bekasi Telkom Area Bogor Telkom Area Jakarta Barat Telkom Area Jakarta Selatan Telkom Area Jakarta Timur Telkom Area Jakarta Utara Telkom Area Tangerang Telkom Regional Sumatera Telkom Regional Jawa Barat Telkom Regional Jawa Tengah Telkom Regional Jawa Timur Telkom Regional Kalimantan Telkom Regional KTI Telkom GMP Bandung Telkom GMP Jakarta Telkom Area Jakarta Pusat 296 Safe Working Hour 2014 3,148,888 2,181,146 2,458,200 1,704,260 1,738,720 2,207,095 2,683,906 8,884,232 5,160,189 1,589,177 9,152,000 4,471,856 8,186,134 3,740,736 3,679,508 3,809,288 2013 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 2012 1,639,416 3,617,629 1,940,008 3,650,688 3,650,688 2,087,478 3,763,452 9,939,368 3,624,569 7,759,884 6,365,912 4,745,153 10,273,934 4,050,202 3,566,679 2,502,112 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESOnline SMK3 Application and Safety Care The development of online SMK3 application, which according to Government Regulation 50 of 2012 can be accessed by all employees, contains SMK3 measurement criteria. This application can be used for online monitoring, evaluating, and analyzing so as to simplify and expedite the process of implementing and updating information nationally. Online safety care applications is a means to raise employee awareness on K3 aspects related to their work place, for example, to inform working conditions with potential risk for K3 continuity so that solution can be immediately found. The solution is the performance in the number of findings and close mitigation. SAS portal application is aimed at publishing activities of K3 that can be accessed nationally by contributors, consisting of the person in charge in SAS nationally. Awards Received in the field of K3 (Zero accident) Awards in the field K3 (Zero Accident) from the Ministry of Labor and Transmigration since January 1, 2009 through December 31, 2013 for 13 of our office locations. Awards in the field K3 (Zero Accident) from Banten Governor since 1 January 2009 through December 31, 2013 for Telkom Tangerang area. Award from Manpower Directorate General of Labor Inspection on K3 management system audit results, which is recommended for Telkom to get a "Level Assessment Satisfactory" for the Advanced category. Internal and External Audit SMK3 To ensure that the company has set goals, objectives and programs K3 to fulfill the K3 policy that has been set, the SMK3 Internal Audit has been done internally one in a year. This internal audit have been conducted on the entire area of the West Jakarta, South Jakarta, Central Jakarta, East Jakarta, North Jakarta, Bekasi, Bogor, Tangerang and regionally through sampling in West Java / Lembang, East Java / Malang, Central Java / Semarang, Sumatra / Medan, KTI / Bali. To ensure that the criteria in SMK3 have been implemented in the field and gained recognition from relevant external agencies, then the external audit SMK3 has been conducted in five locations, namely Witel Southern East Java (Malang), North Sumatra (Medan), South Sumatra (Palembang), North Jakarta and Bogor. Extracurricular Activities Grant We provide grant of Rp5 billion to support extracurricular activities related to sport, art, freedom of association and assembly. Financial Impact Of Activities In the last three years, the costs we spent on activities related to K3 were as follows: 2014 2013 2012 Cost of K3 Activities (Rp billion) 8 2 0.9 297 2014 Annual Report PT Telkom Indonesia Tbk (Persero)TELKOM RESPONSIBILITY FOR SOCIAL AND COMMUNITY DEVELOPMENT As one of the largest state-owned enterprises in Indonesia, we have two big responsibilities. The first is to increase profits in order to improve the welfare of the State. The second is carrying out the responsibility of social and community development. We embody our role and social responsibility through the Partnership Program and Community Development Program, known as PKBL. The program is set forth in the Regulation of the Minister of State Enterprises No.PER-05/MBU/2007, which is updated by PER-08/MBU/2013 regarding the Fourth Amendment of the SOE Partnership Program with Small Business and Community Development Program. Our spirit in implementing PKBL is a form of commitment to conduct corporate social responsibility to the community. We have conducted PKBL since 2001, and the number of funds spent for this program had increased every year. Many of our fostered partners have become independent and resilient. This can be evidenced by the rapid growth of their businesses. Currently the fostered partners have done a lot of marketing activities not only in the domestic, but also overseas markets. The success of PKBL in managing fostered partners is also seen from a variety of awards that the Company has earned. The awards have shown that the seriousness and the existence of our PKBL have been widely recognized. By utilizing the entire sectors, PKBL has attracted many excellent and successful partners so as to provide maximum results and make people become more creative in meeting their needs. More than that, they are also able to produce products or services that benefit the wider community. POLICY Referring to the decision of the Directors No.KD.21/ PR000/COP-B0030000/2010, we implement the Partnership Program and Community Development Program and various CSR initiatives related to the development of social life (community development). The objective of these programs is the communities’ economic activities, either directly or indirectly related to our core business, with the aim of building harmonious relationship with the community and at the same time making a real contribution to a prosperous society. 298 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTYPE OF PROGRAM Telkom’s Social and community development programs consist of the Partnership and Community Development Program. Partnership program Partnership Program is a program to empower and improve the community economy, through the provision of partnership loans for working capital and investment. In addition, through the Partnership Program, the Company also provides development grant in the form of training activities with a hope of improving the ability of the partners in various aspects, promotional activities and exhibitions to introduce the partners’ products in order to be more known by general public, as well as apprenticeship activities to provide our partners with opportunities to exchange information and experiences with other partners who have similar business. Partnership Program aims to improve the competence of micro and small enterprises (MSEs) so that they can be strong and independent businesses. Through this program, each of established SME is expected to absorb labor from the local community, so that the labors can earn incomes. Thus the surrounding community who can not work in the company is remain get the benefit from the presence of the Company. of social responsibility is involved in efforts to improve the welfare of society, especially who live around the offices of the Company. It is manifested in the form of implementation of Corporate Community Development Program, namely program to empower social conditions and to improve quality of life. Telkom has implemented Community Development Program since 2003. This program is intended to provide assistance to communities around the operation areas of the Company. The scope of the Community Development Program includes the provision of assistances to victims of natural disasters, education and training, public health, public infrastructures, religious facilities, nature conservation and poverty reduction. Activities that we do during those periods cover activities which can be categorized in initiative program and responsive program in the form of provision of incidental grant to meet immediate need and emergency response. Community Development assistance has contributed greatly to the improvement of people's lives as well as advances in the field of education. In addition, the Community Development program has also shown its presence in the areas of health, religious, public infrastructure and environmental conservation, disaster relief and poverty reduction. Community Development Program Community Development Program is a grant empowerment program of social conditions in the area around the company's operations. The company's commitment to fulfill the social aspects related to the implementation Currently Telkom has allocated 50% of the Community Development budget to support activities related to ICT, which includes training assistance programs and bolster internet facilities for schools, particularly in disadvantaged and remote areas. 299 2014 Annual Report PT Telkom Indonesia Tbk (Persero)REALIZATION OF PARTNERSHIP PROGRAM Telkom partnership program realization in the form of partnership loans that have been disbursed until 2014 was Rp2.4 billion, which was given to 105 thousand of fostered partners. The partnership loan disbursement activities have been running since 2001. The mechanism of distribution is based on evaluation of the requirements and installments which fit to their business ability. The number of Telkom’s fostered partners until the end of 2014 was amounted to 12,163 enterprises of various business sectors, including: manufacture, trade, agriculture, animal husbandry, agriculture, fisheries, services, and others. Total of funds which has been distributed in 2014 was amounted to Rp396,42 billion. The number of fostered partners and distributed funds has increased from year to year, as outlined in the table below: Number of Fostered Partners and Fund Distribution by Business Sector in 2014 No. Business Sector 1 2 3 4 5 6 7 8 Manufacture Trade Agriculture Livestock Plantation Fishery Services Others Total Number of Fostered Partner Total Distribution (Rp Billion) 2014 2,183 6,675 222 428 203 296 2,116 40 2013 694 2,140 96 153 81 112 688 11 12,163 3,975 2012 1,602 4,972 171 366 212 295 1,690 38 9,346 2014 70.50 206.22 6.72 14.83 6.36 9.75 70.27 11.77 396.42 2013 20.99 62.85 2.43 4.90 2.05 3.48 20.99 0.52 118.19 2012 52.56 148.85 58.41 12.11 4.97 8.61 55.77 2.59 343.87 The number of Telkom’s fostered partners is spread in 34 provinces in Indonesia with the largest number in the Province of West Java, given that the province is the closest region with the center of Telkom operations. The next sequence is East Java, Central Java and Jakarta. Below are the number of the fostered partners and the actual distribution of funds by region. Number of Fostered Partners and Realization of Fund Distribution by Region No Region 1 2 3 4 5 6 7 8 9 10 11 12 Aceh North Sumatera West Sumatera Mainland Riau Riau Islands South Sumatera Jambi Bengkulu Lampung Bangka Belitung DKI Jakarta Banten 13 West Java 300 Total Actual Distribution Fostered Partners (Rp Thousand) 267 545 259 302 270 405 222 187 191 181 678 300 2.810 5,777 15,874 5,463 9,678 8,734 10,891 8,264 6,351 5,548 6,692 25,663 10,331 74,013 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESNo Region 14 15 16 17 Central Java Special Region Yogyakarta East Java/Madura East Kalimantan 18 West Kalimantan 19 20 21 22 Central Kalimantan South Kalimantan North Kalimantan Bali 23 West Nusa Tenggara 24 25 26 27 28 East Nusa Tenggara South Sulawesi Central Sulawesi Southeast Sulawesi North Sulawesi 29 West Sulawesi 30 31 31 32 Gorontalo Maluku Maluku North Maluku 33 West Papua 34 East Papua Total Actual Distribution Fostered Partners (Rp Thousand) 914 191 1.734 563 387 281 228 44 183 115 87 199 111 80 123 8 97 26 26 93 0 82 34,244 7,029 70,872 17,879 11,582 8,532 7,479 1,565 8,375 4,648 3,319 4,379 4,050 3,290 4,837 275 3,804 857 857 3,278 0 2,852 Total Number 12,163 396,423 In 2014 a series of activities have been carried out in the framework of the Partnership Program implementation such as training, promotion and marketing assistance, as well as apprenticeship and comparative study, as described below: Mentoring activities Fostering partners is done in the form of grant assistance (knowledge capital). Education and training programs provided to the fostered partners are carried out in collaboration with universities and other institutions that have competence in developing the science of entrepreneurship and entrepreneurship motivation. Mentoring funds disbursed to fostering activities as of 2014 amounted Rp7.45 billion. Whereas in 2013 the amount of funds disbursed was Rp6.25 billion and in 2012 was as much as Rp9.99 billion. Promotion and Marketing Activities The company has also provided assistance in the form of promotion and marketing guidance, by enrolling fostered partners in various exhibitions at home and abroad. In addition to participating in exhibitions, we also help promote the fostered partners’ product by holding exhibition held at our potential offices, such as in Graha Merah Putih, our head office in Bandung. Development activities Development activities of the fostered partners include various efforts to improve the productivity of the partners as well as for studies/research related to the partnership program. 301 2014 Annual Report PT Telkom Indonesia Tbk (Persero)REALIZATION OF COMMUNITY DEVELOPMENT PROGRAM Especially for 2014, all of grants for the Community Development Program, the Company gives priority to distribute grants in the areas of education and health and creative camp development to cultivate the digital creative industries. However, Company does not rule out environmental development programs in other fields. Total disbursements of fund for Community Development Program in 2014 was amounted to Rp82.8 billion, which represented a significant increased compared to that of Rp55.8 billion in 2013. The following data shows the total funds disbursed for the Community Development Program in the past three years. Distribution of funds for Community Development Program During 2012 - 2014 (Rp Million) No. Type of Grant 1 2 3 4 5 6 7 8 Victims of Natural Disasters Development of Education and Training Development of public health facilities Development of Public Facilities Construction & Repair of Worship Facilities Environmental Conservation Aid of SOEs Care * Poverty Eradication Sub Total Operating Costs 2014 4,367.9 40,826.9 8,488.05 9,432.3 16,232.1 795.9 - 1,043.7 81,186.8 1,618 2013 1,466.2 20,957.6 5,371.8 5,544.1 13,282.1 498.4 - 6,631.3 53,751.5 2,013 Community Development Total Distribution 82,804.8 55,764.5 2012 1,406.5 19,962.8 7,797.9 6,194.4 7,206.6 956.7 48,620 - 92,144.9 2,169.4 94,314.2 In 2014 a series of activities have been carried out in the framework of the implementation of the Community Development Program such as grant for the victim of natural disasters, grant for education and training, grant for public health, grant for public facilities, grant for worship facilities, grant for environmental concervation and poverty eradication. Relief of Natural Disasters Victims Assistance to victims of natural disasters is intended to ease the burden of the victims. In 2014, the Company provides relief to victims of natural disasters, among others hazardous smoke in the province of Mainland Riau and Mount Kelud. Total relief for natural disaster in 2014 was Rp4,367.9 million. In addition to fund aid in the location of a natural disaster, Telkom has also provided in nature aid of telecommunications prime card, reload (MKIOS), mobile phone charger, internet access via Wi-Fi or modem, and voice communications services (telephone), where one can come directly to the command post to obtain free telecommunications services. Education and Training Support The improvement in the quality of public education is the Company’s major concern in the implementation of the Community Development Program. This is based on the consideration that education is one of the foundations for improving the welfare of society. Throughout 2014, the Company has distributed funds for education and training of Rp40.8 billion. Grant is provided, among others, in the form of the establishment of the Digital Valley in Bandung, Yogyakarta and Jakarta; Broadband Learning Center in several cities, and Programs of "Certification for the Nation" for graduates of senior vocational school and Teacher Training "To you I dedicate". Grant for Public Health Aid in the health sector during 2014 is prioritized on activities that could support the improvement of the quality of public health. Assistance provision is embodied in the form of free medical, mass circumcision, health facilities, improvement of physical building of health institution, improvement of public facilities for health, and so on. In 2014, the realization of the health sector program was Rp8.5 billion. 302 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESPKBL MANAGEMENT INFORMATION SYSTEM DEVELOPMENT In 2014, we have developed a Management Information System (MIS) version 2.0-based on information technology and integrated with other Telkom Management Information System. This Program is intended to help process of administration, evaluation and reporting of PKBL and presenting PKBL data accurately. On the application side, we have implemented two applications that will ensure certainty of business process that have been made previously. Both of these applications are: SIM PKBL is a standard operating tool of PKBL management according to common business processes. Utilization of this application provides the user with real-time information so as to increase the speed of the information flow for decision making. Besides SIM PKBL also has a data control system to maintain the accuracy of management report, plan and control based on accurate and comprehensive information. SAP Finance is an application with best practice in managing CDC's financial business in accordance with world standards. Telkom CDC has used SAP as an application for managing finances. Data integration of both applications is the most important thing in the use of management information systems. Grant for Public Facilities Other direct benefits that can be felt by the public from the existence of the Company is the implementation of infrastructure and facilities development that is intended for the public. In practice, these activities are run through the Community Development Program. In 2014 the activities of the development of infrastructure and public facilities have consumed a total fund of Rp9.4 billion. Aid is available in the form of the provision of tourist buses Bandung Tour on the Bus (Bandros), and Semarang, as well as the provision of wifi.id corner in various cities. Grant for Worship Facilities In addition to the construction of public facilities and infrastructure, the Company has also provided assistance for the development and improvement of existing religious facilities. The total allocation for this activity reached Rp16.2 billion and was used for various forms of repair and construction of places of worship in the working area of the company. Grant for environment conservation In an effort to realize eco-friendly environment, we have also carried out tree planting activities, especially in critical and barren land. The amount of aid disbursed was as much as Rp795.9 million. These efforts not only make the environment around the Company’s working area greener, but the existence of trees can also provide the existing capacity of the soil around the working area of the Company and increase the ability of the land as water catchment areas. Poverty Alleviation In 2014, we have been delivering a total grant of Rp1 billion to alleviate poverty. This assistance is expected to raise the welfare of the poor in both urban and rural. Assistance is distributed to poor people in Bandung and Malang Regency, and to empower women in South Jakarta. 303 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL IMPACT OF ACTIVITIES The financial impact of the activities of the Company's responsibility towards the social and community development that we implemented in 2014 amounted to Rp513 billion. The funds will be realized in the field of Rp412 billion worth Partnership Program, Community Development Program worth Rp83 billion and CSR programs outside the Partnership and Community Development Program worth Rp18 billion. The CSR is implemented by considering the principle of utility, fairness, efficiency, and effectiveness as well as the source of the funds available. Creative Center Creative Center is a forum for the development/ incubation process for the talents or the talent pool in the form of start-ups digital creative with a variety of product creativity to be developed in such a way that in the future they can be tough entrepreneurs. Its weight is 50% Creativity and Commerce 50%. Incubation facilities provided at the Creative Center include Working Facility, Funding, Mentoring, and Market Access. Creative Camp Creative Camp is a facility that was built as centers of interaction for young people who have interests to enter into areas of digital creative and grow more digitalpreneur seeds in Indonesia. Creative Camps are built in various cities in Indonesia as an early knot to nurture digital creative seeds throughout Indonesia. Its weight is creativity 80% and Commerce 20%. Facilities provided at Creative Camps include Working Facility, and Mentoring Program as a preparation for entry into the incubation process. Digital Valley Digital Valley: is the name of the place where Creative Centers are built. Currently there are 3 Creative Centers: Bandung Digital Valley, Jogja Digital Valley, and Jakarta Digital Valley. DiLo DiLo (Digital Innovation Lounge) is the name of the place where Creative Camps are built. Currently there are 10 DiLo, namely Jakarta, Surabaya, Solo, Malang, Balikpapan, Medan, Makassar, Bogor, Tangerang, and Bandung. Telkom’s initiatives in Developing Digital Creative Industry We have declared 2014 as the year for creative industries development. This step deems necessary because the potential of the digital creative industry in Indonesia is very large. As a company with a portfolio of TIMES (Telecommunication, Information, Edutainment & Services), we are in the forefront in the development of the digital creative industries. This effort is part of our commitment to fulfill our social responsibility in the areas of social and economic development of society. In order to accelerate the realization of the strong, creative and innovative digital creative industries, we, through CDC unit, incorporate digital creative industry development in the Community Development Program. In order to sharpen the Company's assistance and to ensure that the company’s participation in the development of the digital creative industries is right on tracks, we have set up four groups of programs, namely the Creative Center, Creative Camp, Digital Valley and Digital Innovation Lounge (DiLo). 304 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESTELKOM RESPONSIBILITY TO CUSTOMERS In line with our mission to provide products and services with the best quality at competitive prices, as well as part of the practice of good corporate governance (GCG) related to our responsibility towards our customers and communities as stakeholders, we continue to maintain communication with the customer. The implementation of efficient and proactive communication is a prerequisite for ensuring the rights of consumers and customers, which will eventually play an important role for the survival and growth of our business in a sustainable manner. POLICY We are committed to always safeguarding the interests of consumers and customers of our products and services. The commitment is tailored to the needs and demands of the market, as set out in a series of management policies related aspects of product development, product safety, after-sales warranty and consumer complaint service. TYPE OF PROGRAM Throughout 2014, we continued carrying out various initiatives in order to ensure the protection of the interests of consumers in obtaining quality products and convenient services. Product/Service Development To make sure that a newly developed product can be the right product as a commercial product which is well received in the market, we apply a standard guideline for the implementation of the incubation process of innovation product. The incubation process is needed to support the creation of innovative new products through the stages of idea submission, customer and idea validation, product validation, business model validation, and market validation. Thus, we can ensure that the development of new product/service with the best results and optimal effort, while customers will benefit from the quality, reliability, availability, billing and payment, service area, compatibility, product features, and readiness of product supporting factors . 305 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Telkom Integrated Quality Assurance Program (TIQA) Orientation on customer service satisfaction through TIQA in the framework of ROSE (Raise on Service Excellence), includes: Holding the principle to ensure that the resulting products and services have high value and are able to create benefits as greatest as possible and able to stimulate the economy of the community and the state. Always complying with the code of conduct in the products sale (direct sales), promotion and advertising. Applying ethical advertising practices with regard to the provisions of code of ethics of advertising in Indonesia. Ensuring that the after-sales products and services are easily available to the public. Supporting the implementation of the principles and practice of healthy competition. After Sales Warranty In order to ensure compliance with after-sale service standard, we apply fair compensation through the implementation of after-sales warranty (service level guarantee/SLG). Center Services and Consumer Complaints Mechanism We provide customer service centers that can be directly approached in each regional office and our branch offices. We also provide online complaint center on our website (www.telkom.co.id) and 147 contact center services for retail customers and "500 250" for business customers. Telkom Indonesia offerings for Intelligent To improve the convenience, Telkom build thousands Wifi.id point Corner super fast Internet at strategic locations, such as campuses, parks, airports, and café. Wi-Fi is expected to provide ease of people who want to use the internet service. Moreover, the ease of access is still a problem for Internet users. The existence Wifi.id Corner is expected also adds to the ease communities to broadband Internet access. In addition to the Warung Park, thousands of points Wifi. id Corner also deployed in various major cities of Pontianak, Papua, Banjarmasin, and Pekanbaru. Up to 2015, we are targeting no less than 1 million Wi-Fi will be installed in Indonesia. With the super-speed Internet service, the public will be satisfied to surf in cyberspace and perform a variety of productive activities. FINANCIAL IMPACT PROGRAM Throughout 2014 we incurred a total of Rp370 million for programs related to education customers. 306 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICES08 APPENDICES 310 Definitions 316 Cross Reference to Bapepam-LK Regulation No.X.K.6 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. 4G/LTE A fourth generation super fast internet network technology based on Internet Protocol (IP) that makes the process of data transfer much faster and stable. 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 represents 200 of our Series B shares. 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 instruments, a payment instrument in the form of credit cards, Automated Teller Machine (“ATM”) and/ or debit cards. ARPU Average Revenue per User, a measure used primarily by telecommunications and networking companies which states how much money we make from the average user. It is defined as the total revenue from specified services divided by the number of consumers for those services. 310 Backbone The main telecommunications network consisting of transmission and switching facilities connecting several network access nodes. The transmission links between nodes and switching facilities include 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 Agency, the predecessor to the OJK. Broadband A signaling method that includes or handles a relatively wide range (or band) of frequencies. BSC Base Station Controller, an equipment responsible for radio resource allocation to mobile station, frequency administration and handover between BTSs controlled by the BSC. BSS Base Station Subsystem, the section of a cellular telephone network responsible for handling traffic and signaling between a mobile phone and the network switching subsystem. A BSS is composed of two parts: the BTS and the BSC. BTS Base Transceiver Station, equipment that transmits and receives radio telephony signals to and from other telecommunication systems. BWA Broadband Wireless Access, a technology that provides high speed wireless internet access or computer networking access over a wide area. 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. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCPE Customer Premises Equipment, any handset, receiver, set-top box or other equipment used by the consumer of wireless, fixed line or broadband services, which is the property of the network operator and located on the customer premises. e-Business Electronic Business solutions, including electronic payment services, internet data centers and content and application solutions. Refer to “New Economy Business (“NEB”) and Strategic Business Opportunities Portfolio” under Business Overview. DCS Digital Communication System, a mobile cellular system using GSM technology operating in the 1.8 GHz frequency band. e-Commerce Electronic Commerce, the buying and selling of products or services over electronic systems such as the internet and other computer networks. Defined Benefit Pension Plan A type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending on investment returns. It is considered ‘defined’ in the sense that the formula for computing the employer’s contribution is known in advance. Defined Contribution Pension Plan A type of retirement plan in which the amount of the employer’s annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employer contributions and, if applicable, employee contributions) plus any investment earnings on the money in the account. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. DLD Domestic Long Distance, a long distance call service designed for customers who live in different areas but still within one country. These areas normally have different area codes. DSL Digital Subscriber Line, a technology that allows combinations of services including voice, data and one way full motion video to be delivered over existing copper feeder distribution and subscriber lines. DTH Direct-to-Home satellite broadcasting, the distribution of television signals from high-powered geostationary satellites to small dish antennas and satellite receivers in homes across the country. e-Money Electronic Money, money or script that is only exchanged electronically. e-Payment Also known as electronic funds transfer, the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. E1 The backbone transmission unit which operates over two separate sets of wires, usually twisted pair cable. E1 data rate is 2,048 Mbps (full duplex), which is divided into 32 timeslots. Earth Station The antenna and associated equipment used to receive or transmit telecommunication signals via satellite. EDGE Enhanced Data rates for GSM Evolution, a digital mobile phone technology that allows improved data transmission rates as a backward-compatible extension of GSM. Edutainment Education and Entertainment. Fixed Line Fixed wireline and fixed wireless. 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. 311 2014 Annual Report PT Telkom Indonesia Tbk (Persero)Fixed Wireline A fixed wire or cable path linking a subscriber at a fixed location to a local exchange, usually with an individual phone number. Homepass A connection with access to fixed line voice, IPTV and broadband services. FTTH Fiber To The Home are the implementation of fiber optic network that reaches up to customer point or known as customer premise. IDD International Direct Dialing, a service that allows a subscriber to make an international call without the assistance or intervention of an operator from any telephone terminal. Gateway A peripheral that bridges a packet based network (IP) and a circuit based network (PSTN). IME Information, Media and Edutainment. Gb Gigabyte, a unit of information used, for example, to quantify computer memory or storage capacity. Gbps Gigabyte per second, the average number of bits, characters, or blocks per unit time passing between equipment in a data transmission system. This is typically measured in multiples of the unit bit per second or byte per second. GHz Gigahertz. The hertz (symbol Hz), the international standard unit of frequency defined as the number of cycles per second of a periodic phenomenon. GMS General Meeting of Shareholders, which may be an Annual General Meeting of Shareholders (“AGMS”) or an Extraordinary General Meeting of Shareholders (“EGMS”). GPON Gigabyte-Passive Optical Network, the most widely deployed type of passive optical network system that brings optical fiber cabling and signals all or most of the way to end users. GPRS General Packet Radio Service, a data packet switching technology that allows information to be sent and received across a mobile network and only utilizes the network when there is data to be sent. GSM Global System for Mobile Telecommunication, a European standard for digital cellular telephone. 312 IMT-2000 International Mobile Telecommunications-2000, a body of specifications provided by the International Telecommunication Union. Application services include wide area wireless voice telephone, mobile internet access, video calls and mobile TV, all in a mobile environment. Installed Lines Complete lines fully built-out to the distribution point and ready to be connected to subscribers. Intelligent Network A service-independent telecommunications network where the logic functions are taken out of the switch and placed in computer nodes distributed throughout the network. This provides the means to develop and control services 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 protocol by which data is sent from one computer to another on the internet. 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 Line Access Multiplexer, a network 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. 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESIPO Initial Public Offering, the first sale of stock by a company to the public. Metro Ethernet Bridge or relationship between locations that are apart geographically, this network connects LAN customers at several different locations. IP VPN A data communication service using IP Multi Protocol Label Switching (“MPLS”) and based on any to any connection. This service is connected to the data security systems, L2TP and IPSec. The speed depends on the customer’s needs and ranges from 64 Kbps to 2 Mbps. IPTV Internet Protocol Television, a system through which television services are delivered using the Internet Protocol suite over a packet-switched network such as the internet, instead of being delivered through traditional terrestrial, satellite signal, and cable television formats. ISP Internet Services Provider, an organization that provides access to the internet. Kbps Kilobyte per second, a measure of speed for digital signal transmission expressed in thousands of bits per second. KSO Kerjasama Operasi, a form of joint operation agreement that includes build, operate and transfer that previously used by Telkom, in which the consortium partners to invest and operate facilities owned by Telkom in regional divisions. The consortium partners are owned by international operators and national private companies or Telkom. Lambda Lambda indicates the wavelength of any wave, especially in physics, electronics engineering and mathematics. Leased Line A dedicated telecommunications transmissions line linking one fixed point to another, rented from an operator for exclusive uses. Mbps Megabyte per second, a measure of speed for digital signal transmission expressed in millions of bits per second. MHz Megahertz, a unit of measure of frequency equal to one million cycles per second. Mobile Broadband The marketing term for wireless internet access through a portable modem, mobile phone, USB Wireless Modem or other mobile devices. MoCI The Ministry of Communication and Information, to which regulatory responsibility over telecommunications was transferred from the Ministry of Communication (“MoC”) in February 2005. MSAN Multi Service Access Node, represent the third generation of optical access network technology and are single platforms capable of supporting traditional, widely deployed, access technologies and services as well as emerging ones, while simultaneously providing a gateway to a NGN core. MSAN will enable us to provide triple play services that distribute high speed internet access, voice packet services and IPTV services simultaneously through the same infrastructure. Network Access Point A public network exchange facility where ISPs connected with one another in peering arrangements. NGN Next Generation Network, a general term that refers to a packet-based network able to provide services, including telecommunication services, and able to make use of multiple broadband, quality of service enabled transport technologies and in which service-related functions are independent from underlying transport related technologies. A NGN is intended to be able to, with one network, transport various services (voice, data, and various media such as video) by encapsulating these into packets, similar to how such packets are transmitted on the internet. NGNs are commonly built around the Internet Protocol. Node B A BTS for a 3G W-CDMA/UMTS network. 313 2014 Annual Report PT Telkom Indonesia Tbk (Persero)OJK Otoritas Jasa Keuangan, or the Indonesian Financial Services Authority, the successor of Bapepam-LK, is an independent institution with authority to regulate and supervise financial services activities in the banking sector, capital market sector as well as non-bank financial industry sector. OLO Other Licensed Operators, i.e. operators other than our Company. Optical Fiber Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted through thin filaments of glass. Outside Plant The equipment and facilities used to connect subscriber premises to the local exchange. Pay TV Pay Television, premium television, or premium channels, subscription-based television services, usually provided by both analog and digital cable and satellite, but also increasingly via digital terrestrial and internet television. PDN Packet Data Network, a digital communications network which breaks a group data to be transmitted into segments called packets, which are then routed independently. PKLN Tim Pinjaman Komersial Luar Negeri, or Foreign Commercial Loan Coordinating Team, an inter-agency team of the Government charged with, among others, considering requests of Indonesian State-Owned Enterprises such as us for consent to obtain foreign commercial loans. POWL Public Offering Without Listing. Premium SMS Premium Short Message Service, a text messaging service component of phone, web, or mobile communication systems, using standardized communications protocols that allow the exchange of short text messages between fixed line or mobile phone devices. PSTN Public Switched Telephone Network, a telephone network operated and maintained by us and the KSO Units for us and on our behalf. Pulse The unit in the calculation of telephone charge. Radio Frequency Spectrum The part of the electromagnetic spectrum corresponding to radio frequencies, i.e. frequencies lower than around 300 GHz (or, equivalently, wavelengths longer than about 1 mm). RIO Reference Interconnection Offer, a regulatory term covering all facilities, including interconnection tariffs, technical facilities and administrative issues offered by one telecommunications operator to other telecommunications operator for interconnection access. RMJ Regional Metro Junction, an inter-city cable network installation service in one regional (region/province). Roaming A general term referring to the extension of connectivity service in a location that is different from the home location where the service was registered. RUIM card Removable User Identity Module, a smart card designed to be inserted into a fixed wireless telephone that uniquely identifies a CDMA network subscription and that contains subscriber-related data such as phone numbers, service details and memory for storing messages. Satellite Transponder Radio relay equipment embedded in a satellite that receives signals from earth and amplifies and transmits the signal back to the earth. SCCS Submarine Communications Cable System, a cable laid on the sea bed between land-based stations to carry telecommunication signals across stretches of ocean. 314 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESSIM card Subscriber Identity Module, a “smart” card designed to be inserted into cellular phone that uniquely identifies a GSM network subscription and contains subscriber- related data such as phone numbers, service details and memory for storing messages. SME Small and Medium Enterprise. UMTS Universal Mobile Telephone System, one of the 3G mobile systems being developed within the ITU’s IMT-2000 framework. USO Universal Service Obligation, the service obligation imposed by the Government on all telecommunications services providers for the purpose of providing public services in Indonesia. SMS Short Messaging Service, a technology allowing the exchange of text messages between mobile phones and between fixed wireless phones. VoIP Voice over Internet Protocol, a means of sending voice information using the IP. SOE State-Owned Enterprise, a Government-owned corporation, state-owned company, state-owned entity, state enterprise, publicly owned corporation, Government business enterprise, or parastatal, a legal entity created by a Government to undertake commercial activities on behalf of an owner Government. Softswitch A central device in a telephone network that connects calls from one phone line to another, entirely by means of software running on a computer system. This work was formerly carried out by hardware, with physical switchboards to route the calls. STM-1 Synchronous Transport Module level-1, the SDH ITU-T fiber optic network transmission standard with a bit rate of 155.52 Mbps. The other standards are STM-4, STM-16 and STM-64. Switch A mechanical, electrical or electronic device that opens or closes circuits, completes or breaks an electrical path, or selects paths or circuits, used to route traffic in a telecommunications network. Terra Router Terra Router or terabit router on the theory allows the network capacity on a scale of terabits (1 terabit = 1 million gigabits). VPN Virtual Private Network, a secure private network connection, built on top of publicly-accessible infrastructure, such as the internet or the public telephone network. VPNs typically employ some combination of encryption, digital certificates, strong user authentication and access control to secure the traffic they carry. These provide connectivity to many machines behind a gateway or firewall. VSAT Very Small Aperture Terminal, a relatively small antenna, typically 1.5 to 3.0 meters in diameter, placed in the user’s premises and used for two-way communications by satellite. WiMAx Worldwide Interoperability for Microwave Access, a telecommunications technology that provides wireless transmission of data using a variety of transmission modes, from point-to-point links to portable internet access. Wireless Access Network Any type of computer network that is not connected by cables of any kind. It is a method by which homes, telecommunications networks and enterprise (business) installations avoid the costly process of introducing cables into a building, or as a connection between various equipment locations. TIMES Telecommunication, Information, Media, Edutainment and Service. Wireless Broadband Technology that provides high speed wireless internet access or computer networking access over a wide area. 315 2014 Annual Report PT Telkom Indonesia Tbk (Persero)cRoss RefeRence To bAPePAM-lK ReGUlATIon no.X.K.6 CRITERIA DESCRIPTION PAGE I. General 1 Annual Report is to be presented in good and proper Indonesian Language and also presented in English Language 2 Annual report is printed with good quality and use the same type and size of the font that easy to read 3 The annual report containts the clear identity of the company The company name and the year of the annual report display in: 1. Cover; 2.Side of cover; 3. Back cover; and 4. Each page 4 The annual report is displayed in the company's website Includes the latest annual report and previous years II. Summary of Key Financial nformation 1 Summary of Financial Result presented in comparison with previous 3 (three) fiscal years or since commencement of business of the company The information at least contain: 1. Sales/Revenue; 2. Income (loss); 3. Comprehensive income loss); and 4. Earning (loss) per share 2 Summary of Financial Position presented in comparison with previous 3 (three) fiscal years or since commencement of business of the company The information at least contain: 1. Total investment to associate entity; 2. Total asset; 3. Total liability; and 4. Total equity. 3 Summary of Financial Ratios presented in comparison with previous 3 (three) fiscal years or since commencement of business of the company 4 Summary of price share in table and graphic 5 Summary of outstanding bond/sukuk/ convertible bond in 2(two) last financial years The information containts five (5) common and relevant to industrial company financial ratios. 1. The information containts the table of: a. Number of outstanding shares; b. Market capitalization; c. The highest,lowest and of closing price; and d. Trade volume. 2. The information containts at least the graphic of closing price and trade volume for each quarters in last 2 (two) financial years. The information contents: 1. Number of bond/sukuk/convertible bond outstanding; 2. Interest rate; 3. Maturity date; and 4. Bond/sukuk rating.     14-15 14-15 14-15 18-19 20 316 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION PAGE III Report of the Board of Commissioners and Director 1 The Board of Commissioners Report The Board of Commissioners Reportshould at least contain the following items: 1. Assessment on the performance of the Board of Directors in managing the company; 2. View on the prospects of the company’s business as established by the Board of Directors; 3. Assessment on the performance of the committee under the board of commissioners; and 4. Changes in the composition of the Board of Commissioners (if any). 2 The Director Report The Director Report should at least contain the following items 1. The company’s performance, i.e. strategic policies,comparison between achievement of results and targets, and challenges faced by the company 2. Business prospects; 3. Implementation of Good Corporate Governance by the company; and 4. Changes in the composition of the Board of Directors (if any) At least contain the following items 1. Signature stated on a separate sheet; 2. A statement that the Board of Commissioners and Board of Directors are fully responsible for the accuracy of the content of the annual report; 3. Signed by all members of the Board of Commissioners and Board of Directors members by name and position;and 4. Written explanation in a separate letter from the person concerned in the event of a member of the Board of Commissioners or Board of Directors who do not sign the annual report or a written explanation in a separate letter from the other members in case there is no written description of the relevant. The Company Profile should at least contain the following:name, address, post code, telephone, facsimile, email and website Including: date / year of establishment, name and change of the company name (if any). Note: if the company never did change the name, please disclose 3 Signature of The Board of Commissioners and The Director IV Company Profile 1 Name and the address of the company 2 Brief history of the company 24-29 30-37 328 42-43 44-45 317 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION 3 Line of business Including : 1. Line of business according to the latest Articles of Association; 2. Business operation; and 3. Types of products and/or services produced. PAGE 42, 112-115 4 Organizational Structure In chart form, at least one level below the Board of Directors, with the names and titles 64-65 5 Vision and Mission of the company: 6 The Board of Commissioners profiles 7 The Board of Directors profile Including: 1. Vision; 2. Mission; and 3. Approval of vision and mission statement by the Board of Directors / Board of Commissioners. The Board of Commissioners profiles including: 1. Name; 2. Position (including the position in other company or institution if any); 3. Age; 4. Histiry of education(); 5. Working experience (position, institution and time periode); and 6. History of the appointment as a commissioner of the company The Board of Directors profiles include: 1. Name; 2. Position (including the position in other company or institution if any); 3. Age; 4. History of education; 5. Working experience (position, institution and time periode); and 6. History of the appointment as a director of the company. 55 66-69 70-73 8 Number of employees and description of competence building during 2 (two) comparative year (education and training ) The information including: 1. Number of employees for each level of organization; 2. Number of employees for each level of education; 3. Number of employees by its employee status; 4. Description and data of employee 16, 159-163 165-169 competency development regarding to equality opportunity for each level of organization; and 5. Amount of spending for competency development. The information including: 1. Names of top 20 shareholders 2. Information on names of shareholders and ownership percentage, including: a. Shareholders having 5% (five percent) or more shares of Issuer or Public Company; b. Commissioners and Directors who own shares of the Issuers or Public Company; and c. Groups of public shareholders or groups of shareholders, each with less than 5% ownership shares of the Issuers or Public Company. 84-86, 87 9 Shareholder Composition 318 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION 10 Name of subsidiaries and/or associated companies The information include: 1. Name of subsidiaries and/or associated 11 Business Group Structure 12 Chronology of share listing 13 Chronology of securities listing 14 Name and address of capital market supporting institutions and/or professionals. companies 2. Percentage ownership; 3. Business of subsidiaries and/or associated companies; and 4. Business status of subsidiaries and/or associated companies Business group structure in the form of a chart that illustrates the subsidiaries, associates, joint ventures, and special purpose vehicle (SPV), Including: 1. Chronology of share listing; 2. Type of corporate action that cause the change of number of shares 3. Changes in the number of shares from the beginning of listing up to the end of the financial year 4. Name of Stock Exchange where the company shares are listed. Including: 1. Chronology of securities listing; 2. Type of corporate action that cause the change of number of securities; 3. Changes in the number of securities from the beginning of listing up to the end of the financial year; 4. Name of Stock Exchange where the company securities are listed; and 5. Rating of the securities. Including: 1. Name and address of BAE 2. Name and address of Public Accountant, and 3. Name and address of Rating Institution. PAGE 76-82 76-77 43, 88 42-43 43, 91 15 Awards and certifications of national and international scale bestowed on the company during the last fiscal year Including: 1. Name of awards and certifications; 2. Year; and 3. Issuer of awards and certifications 4. Validity 46-49, 177, 288-289 period. 16 Name and address of subsidiaries and/or branch office or representative office (if any) Including : 1. Name and address of subsidiaries 2. Name and subsidiaries of branch office Note: disclose if the company does not have the subsidiary/branch/representative office V Management Discussion and Analysis on Company's Performance 1 Operational review per business At least contains: segment 1. Desription for each segment 2. Performance for each segment, including: a. Production b. Inreasing/decreasing in production capacity c. Sales/Revenue; and d. Profitability. 94-97 107-111 319 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION PAGE 2 Financial Performance Analysis 3 The capacity to pay debts by including the computation of relevant ratios; 4 Capital structure and management policies concerning capital structure Comprehensive financial performance analysis which includes a comparison betweenthe financial performance of the last 2 (two) fiscal years, and explanation on the causes and effects of such changes, among others concerning: 1. Current assets, non-current assets, and total assets; 2. Short term liabilities, long term liabilities, total liabilities; 3. Equity; 4. Sales/operating revenues, expenses and profit (loss), other comprehensive revenues, and total comprehensive profit(loss); and 5. Cash flows. The explanation contains : 1. The capacity to pay long term and short term debt, and 2. Receivable collectability rate. The explanation contains : 1. Capital structure ; and 2. Management policies concerning capital structure. 5 Discussion on material ties for the The explanation contains: investment of capital goods 1. The purpose of the ties; 2. Source of funds expected to fulfill the ties; 3. Currency of denomination; and 4. Steps taken by the company to protect the position of a related foreign currency against risks. Note: disclose if the company does not have the materialities 119-131 131, 132 134 134-137 6 Discussion on realization of capital The explanation contains: goods investment 1. Type of capital goods investment 2. Purpose of capital good investment ; and 3. The value of capital good investment 134-136 Note: Disclose if there is no capital good investment realization The explanation contains: 1. Comparison between target/projection at beginning of year and result (realization); and 2. Target/projection to achieve for the next one year. Description of significant events after the date of the accountant’s report, including its impact on performance and business risks in the future. Note: Disclose if thereare no siginificant events after the accountant’s report Information on company prospects in connection with industry,economy in general, accompanied with supporting quantitative data if there is a reliable data source; N/A 137 N/A 7 Comparison between target/ projection at beginning of year and result (realization), concerning income, profit, capital structure, or others that deemed necessary for the company; 8 Material Information and facts that occurring after the date of the accountant’s report (subsequent events) 9 Information on company prospects 320 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION 10 Information on marketing aspect 11 Description regarding the dividend policy and the date and amount of cash dividend per share and amount of dividend per year as announced or paid during the past two (2) years; Marketing aspects of the company’s products and services, among others marketing strategy and market share. Contain the following informations : 1. Dividend policy; 2. Amount of dividend payout; 3. Cash dividend per share; 4. Payout ratio; and 5. Dividend announcement and payment date for each year. Note: Disclose the reason if there is no dividend distribution 12 Employee/management stock ownership program (ESOP/MSOP) Contains the following information: 1. Number of shares for ESOP/MSOP and its 13 Use of proceeds from public offerings: 14 Material information, among others concerning investment, expansion, divestment, acquisition, debt/capital restructuring 15 Material information contains transactions with related parties and transactions with conflict of interest realization; 2. Period; 3. The requirement for employee/management 4. Exercise price Note: Disclose if there is no ESOP/MSOP Contains the following information: 1. Total proceed fund 2. Planning for fund utilization 3. The detail of fund utilization ; 4. Fund balance; and 5. The date of approval of AGM / Bondholders upon a change of use of funds (if any). The explanation contains: 1. Transaction purpose; 2. Value of the transaction and amount of debt/ capital restructured; and 3. Source of funds Note: disclose if does not have the intended transaction The explanation contains: 1. names of transacting parties and nature of related parties; 2. description of the fairness of the transaction; 3. Purpose of transaction; 4. Realization of transcation for the last financial PAGE 116-118 21 86, 89 N/A 136-137 year; 136-137 5. Company policy related the review mechanism of the transaction; and 6. Compliance with related rules and regulations. Note: disclose if does not have the intended transaction 16 Changes in regulation which have a significant effect on the company The explanation contains: changes in regulation which have a significant effect on the company. Note: Disclose if there is no changes in regulation which have a significant effect on the company 144-149 321 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION 17 Changes in the accounting policy implementation for the last financial year The explanation contains: ) changes in the accounting policy, reason and impact on the financial statement. PAGE 137-139 VI Good Corporate Governance 1 Description of Board of Commissioners Note: Disclose if there is no changes in the accounting policy The description shall consist of: 1. A description of the responsibility of the Board of Commissioners; 2. A disclosure of the procedure and basis determining remuneration; 3. Remuneration structure shows the components and the amount of remuneration for members of the Board of Commissioners; 4. Frequency of Board of Commissioners 189-195 meetings and attendance of the members of Board of Commissioners in the meetings; 5. Board of Commissioners Training and Competency Enhancement Programmes or the orientation program for the new Commissioners; and 6. Board Charter Disclosure (guidance and rules of Board of Commissioners). 2 Information Related to Independent Commissioners The description shall consist of: 1. Determination of Independent Commissioner Criteria; and 2. Independency statement from Independent Commissioners. 189, 191 3 Description of Directors 4 Assessment Assessment of Board of Commissioners and Directors Performance 5 A description of Director’s remuneration policy The description shall consist of: 1. Scope of duties and responsibilities of each member of the Board of Directors; 2. Frequency of Board of Directors meetings and attendance of the members of Board of Directors in the meetings; 3. Directors’ training and competency enhancement programmes or the orientation program for the new Directors; dan 4. Board Charter Disclosure (guidance and rules of Board of Directors). The description shall consist of: 1. Implementation procedures of performance assessment; 2. Implementation of the assessment criterias; and 3. The parties who conducts the assessment The description shall consist of: 1. A disclosure of the procedure and basis determining remuneration; 2. Remuneration structure shows the components and the amount of remuneration including long-term incentives and allowance upon resignation for members of the Board of Directors; and 3. A disclosure of the indicators on determining remuneration. 196-210 191, 195, 200, 210 200-201 322 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION 6 Information of the majority and controlling shareholder, either direct or indirect, and the individual owner 7 Disclosure of affiliated Relationship between Board of Directors members, Board of Commissiones members and/or Majority/Controlling Shareholders 8 Audit Committee 9 Nomination and Remuneration Committee Presented in the form of scheme or diagram, except for SoE. Includes following item: 1. Affiliated relationship between Board of Directors and Board of Commissioners members 2. Affiliated relationship between Board of Directors members with Majority and/or Controlling Shareholders 3. Affiliated relationship between Borad of Commissioners members 4. Affiliated relationship between Board of Commissioners memebrs with Majority/ Controlling Shareholders Note: if do not have respective affiliated relationship, shall be disclosed Includes following item: 1. Name and position of Audit Committee members. 2. Educational qualification and employment history of Audit Committee members 3. Audit committee members independency 4. Duties and responsibilities description 5. Audit committee meeting frequency and attendance level Includes following items: 1. Name, position and brief profile of Nomination and Remuneration Committee members 2. Nomination and remuneration committee PAGE 76-77, 84 211 212-214, 217, 220-221, 224 members independency 212, 217-219 3. Duties and responsibilities description 4. Nomination and remuneration committee duties implementation report 5. Nomination and remuneration committee meeting frequency and attendance level 10 Other committees under the Board of Commissioners Includes following items: 1. Name, level, and brief profile of the members 11 Description of tasks and function of the Corporate Secretary of the committees 2. Other committees members independency 3. Duties and responsibilities description 4. Other committees duties implementation report 5. Other committees meeting frequency of meetings and the attendance level. The description shall consist of: 1. Name and a brief of history of position title; 2. A brief of activities; and 3. Competence Enhancement of Corporate Secretary. 12 Information of the General Meeting of Shareholders (AGM) in the previous year Presented in the form of table which consists of: 1. Previous AGM results; 2. Realization of the previous GMS; and 3. Reason of unrealized GMS decisions. 215, 217, 222-223 226-228 181-188 323 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION PAGE 13 Description of Internal Auditing Unit 14 Public Accountant 15 Description of Risk management system 16 Description of internal control system 17 Description of corporate social responsibility toward the environtment 18 Description of corporate social responsibility toward Labor, Work Health And Safety The description shall consist of: 1. Name of Head of Internal Audit Unit; 2. Numbers of employees; 3. Qualification/certification as an Internal Audit; 4. Structure and position of Internal Auditing Unit; 5. Brief description of tasks implementation of Internal Auditing Unit; and 6. Parties who is appointed and dismissed of Head of Internal Audit. The description shall consist of: 1. The number of public accounting period has audited the annual financial statements; 2. The number of public accounting firm period has audited the annual financial statements; 3. Numbers of audit fees and other audit fees; and 4. Other services that provided by public accountant beside annual financial statement. Note: if there are no other services mentioned, should be disclosed. The description shall consist of: 1. General description of risk management system of the company; 230-235 236 2. Review on effectiveness of the company’s risk 237-254 management system; 3. Types of risks description; and 4. Efforts to manage such risks. The description shall consist of: 1. Operational and financial control, along with compliance with other prevailing rules and regulations; 2. Description appropriateness of internal control systems with the internationally recognized framework (COSO – internal control framework); and 3. Review on effectiveness of internal control system The description shall consist of: 1. Management policies; 2. Types of programs, related with the environmental programs of the operational company activities, such as the use of environmentally friendly and recyclable material and energy, the company’s waste management system; and 3. Certification in the field of environment. The description shall consist of: 1. Management policies; 2. Types of programs, related with labor, work health and safety such as equality in gender and work opportunity, work facility and safety, employees turnover, level work accident, training, etc. 229-230 290-292 293-297 324 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION PAGE 19 Description of corporate social responsibility toward Social and Community Development The description shall consist of: 1. Management policies; 2. Types of programs; and 3. Cost. related with social and community development such as the use of local work force, empowerment of the company’s surrounding community, improvement of social facilities and infrastructure, other forms of donations, etc. 20 Description of corporate social responsibility toward customers The description shall consist of: 1. Management policies; and 2. Types of programs 21 Legal matters faced by the company, subsidiaries, Board of Commissioners and Board of Directors in the period of annual report 22 Access to corporate information and data 23 Information on code of ethics related with product responsibility, such consumers’ health and safety, product information, facilities for customers complaints, number of complaints and complaints handling, etc. The description shall consist of: 1. Name of case/claim; 2. Status of settlement of case/claim; 3. Impacts of the company; and 4. Administrative penalties charged to entities, the Board of Commissioners and Board of Directors, after the relevant authorities (capital markets, banking and others) in the last fiscal year (or the statements that are no subject to administrative penalties). Note: If there is no matter, please be disclosed A description of the access availability of information and corporate data to the public, such as website (in Indonesian and English), mass media, mailing lists, newsletters, meetings with the analysts, and etc. The description shall consist of: 1. Main points of code of ethics; 2. The disclosure of the applicable of code of conduct in all level of the organization; 3. socialization of the code of conduct; 4. Enforcement and sanctions in violations of the code of conduct; and 5. Statement on company’s corporate culture. 24 Description of whistleblowing system The description shall consist of whistleblowing system mechanism: 1. Mechanism for violation reporting; 2. Protection for the whistleblower; 3. Handling of violation reports; 4. Unit responsible for handling of violation report; and 5. The numbers of violation reports received and processed in the fiscal year and follow-up. 298-304 305-306 260-261 262-267 269-270 271-272 325 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION 25 The diversity of composition of the Board of Commissioners and Board of Directors VII. Financial Information 1 Statement of the Member of Board of Commissioners and Directors Regarding Responsibility for Financial Statement 2 Opinion of Independent Auditor of Financial Statements 3 Description of Independent Auditor’s opinion Description of the Company's policy on diversity composition of the Board of Commissioners and Board of Directors in the education, working experience, age, and gender. Catatan: Note: if there are no company’s policies mentioned, the reason should be disclosed. Compliance with the relevant regulations of the Responsibility for Financial Statements Description includes: 1. Name & signature; 2. Audit report date; and 3. License number of the Public Accountant Firm and license number of the Public Accountant. 4 Full Financial Statements Includes all elements of the Financial Statements: 1. Balance sheet; 2. Comprehensive income statement; 3. Report on changes in equity; 4. Cash flow statement; 5. Notes to the financial statement; and 6. Financial position at the beginning of the comparative periods presented if the company implemented an accounting policy retrospectively or restated an account in the financial statement, or if the company reclassified financial statement accounts (if relevan). Comparison of profit (loss) in the current and previous years. 5 Comparison of profitability ratio 6 Cash flow report Description of cash flow report should fulfill the following provisions: 1. Classification of activities into three categories: operating, investing and financing; 2. Use of the direct method to report cash flow from operating activities; 3. Separate presentation of cash income and/or expenditure in the current year from operating, investing and financing activities; 4. Disclosure of non-cash activities in the notes to the financial statement. 7 Summary of accounting policy Summary of accounting policy includes at least the following: 1. Statement of compliance with FAS; 2. Basis of measurement and presentation of the financial statement; 3. Recognition of income and expense; 4. Fixed assets; and 5. Financial instruments. PAGE 66-69 Attachment Financial Attachment Financial Attachment Financial Attachment Page 7 Financial Attachment Page 20 326 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESCRITERIA DESCRIPTION PAGE 8 Disclosure of related party transactions 9 Disclosures related to Taxation 10 Disclosure of Fixed Assets Items that must be disclosed: 1. Name(s) of related parties and nature of relationship with related parties; 2. Value of transactions and percentage of total related income and expense; 3. Balance and percentage of total assets or liabilities; and 4. Terms and conditions of related party transactions. Items that must be disclosed: 1. Explanation of the relationship between tax expense (income) and accounting profit 2. Reconciliation between fiscal and current tax assessment 3. Statement that the reconciled taxable profit is the basis for the annual corporate income tax return 4. Breakdown of deferred tax assets and liabilities recognized in the balance sheet for each period presented, and total deferred tax expense (income) recognized in the income statement if such amount is not shown in the total deferred tax assets or liabilities recognized in the financial statement 5. Disclosure of whether or not there are any taxes disputes. Items that must be disclosed: 1. Depreciation method used; 2. Explanation of whether fair value model or cost model have been adopted as accounting policy; 3. Method and significant assumptions used in estimating the fair value of fixed assets (revaluation model) or disclosing the fair value of fixed assets (cost model); 4. Reconciliation of recorded gross amount and cumulative depreciation of fixed assets at the beginning and end of the period by showing addition, reduction and reclassification. 11 Disclosure related to operating segments Items that must be disclosed: 1. General information which consists of factors that are used in identifying reportable segment; 2. Information of profit or loss, assets, and liabilities reportable segment; 3. Reconciliation of total segment revenues, reported segment profit or loss, segment assets, segment liabilities, and other material elements of the segments corresponding with the number in the entities; and 4. Disclosure at the level of the entity, which includes of information of products and / or services, geographical area and main customers. Financial Attachment Page 100 Financial Attachment Page 78-86 Financial Attachment Page 27, 54-55 Financial Attachment Page 105-107 327 2014 Annual Report PT Telkom Indonesia Tbk (Persero)CRITERIA DESCRIPTION PAGE 12 Disclosure related to the Financial Instrument Items that must be disclosed: 1. Requirements, conditions and policies for each group of financial instruments 2. Classification of financial instruments 3. Fair value of each group of financial instruments 4. Explanation of the risks related to the financial instruments: market risk, credit risk and liquidity risk 5. Purpose and policy on financial risk management Financial Attachment Page 118-124 13 Publication of the Financial Statements Items to be disclosed include: 1. Date of authorization for the publication of the Financial Statements; and 2. Party responsible for authorizing the Financial Sheet of Statement Letter of Directors Statements. 328 2014 Annual Report PT Telkom Indonesia Tbk (Persero)FINANCIAL AND PERFORMANCE HIGHLIGHTMANAGEMENT REPORTPREFACEGENERAL INFORMATION OF TELKOM INDONESIAMANAGEMENT’S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCESOCIAL AND ENVIRONMENTAL RESPONSIBILITYAPPENDICESStatement of the Member of Board of Commissioners and Directors Regarding Responsibility for Annual Reporting 2014 Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk We hereby state that all information has been fully disclosed in Annual Report 2014 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 26, 2015 Board of Commissioners Hendri Saparini President Commissioner Imam Apriyanto Putro Commissioner Hadiyanto Commissioner Dolfie Othniel Fredric Palit Commissioner Parikesit Suprapto Independent Commissioner Johnny Swandi Sjam Independent Commissioner Virano G Nasution Independent Commissioner Direksi Alex J. Sinaga President Director Heri Sunaryadi Director of Finance Muhammad Awaluddin Director of Enterprise & Business Indra Utoyo Director of Innovation & Strategic Service Portfolio Dian Rachmawan Director of Consumer Abdus Somad Arief Director of Network IT & Solution Herdy Rosadi Harman Director of Human Capital Honesti Basyir Director of Wholesale & Management International Service 329 2014 Annual Report PT Telkom Indonesia Tbk (Persero)

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