2005
A n n u a l R e p o r t
Mission
Providing one-stop telecommunication services of quality products and
network with competitive pricing.
Managing our business through best practices, optimizing reliable
human resources, exploiting competitive advantages in technology and
building mutual benefit relationships and synergies.
Vision
To become a leading InfoCom player in the region.
Objective
TELKOM has determined nine strategic objectives that are
encapsulated in three main categories: (i) achieving growth and
profit margin that are sustainable, (ii) creating increasing value for
stakeholders, and (iii) attaining excellence in product and service
quality.
Vision, Mission and Objective Statements
1 TELKOM at a Glance
3 Financial Highlights 6 Operational Highlights
7 Stock Highlights
10 Company Milestones 12 The Year in Pictures and
Highlights
14 Awards and Ratings 2005
15 The TELKOM Group
16 Message from the Chairman 18 Profile of the
Commissioners 20 Directors’ Report 24 Profile of the Directors 26 SOA Compliance 28 Providing End-to-End
Telecommunications Coverage
30 Awakening the Giant Within
32 Aiming for 135-3010 Goal
34 Governance
44 Differences in Governance Practices and Standards 46 Audit Committee Report
48 Risk Management
52 Organization: Realigning the Organization Structure 54 Operations
62 Our People 66 Corporate Social
Responsibility
72 Management’s Discussion and Analysis
89 Corporate Data 99 Financial Report
CONTENTS
PT TELEKOMUNIKASI INDONESIA Tbk.
Head Office: Jl. Japati No. 1 Bandung 40133
Tel. : (62-22) 452 1108 Fax. : (62-22) 720 3247
JSX : TLKM NYSE : TLK
TELKOM AT A GLANCE
PT Telekomunikasi Indonesia Tbk. (TELKOM) is the
largest publicly listed InfoCom service provider in
Indonesia. TELKOM is owned by the government of
Indonesia (51.2%) and public shareholders (48.8%).
As at year-end 2005, TELKOM’s public shareholders
comprised of foreign investors (46.2%) and local
investors (2.6%). In 2005, TELKOM marked its tenth
anniversary of its listing on the Jakarta Stock Exchange
and New York Stock Exchange with a Closing Bell
ceremony at the NYSE.
To realize its vision of becoming a leading InfoCom player in the region,
TELKOM is in the process of transforming itself into a customer-centric
organization capable of competing in the market. TELKOM understands that it
needs to adapt with the changing environment and deliver superior customer
service to lead the market.
TELKOM’s fixed wireline network serves residential, business and institutional customers. Fixed wireline services encompass local and domestic long-distance telephony, and international direct dialing through the
TELKOM’s fixed wireless network complements that of fixed wireline, and is provided through TELKOMFlexi service comprising of post-paid customers (Classy) and prepaid customers (Trendy). Fixed users can utilize FLEXIHome
TELKOM provides cellular services through its 65%-owned subsidiary, Telkomsel, whose cellular network currently covers more than 90% of Indonesia’s 240 million plus population. The service reaches more than 650 cities nationwide, throughout Java and Bali, and is also available at the district level.
Telkomsel offers a post-paid subscriber service (kartuHALO) and two prepaid card services (simPATI and kartuAs). Joint overseas roaming operations are also carried out by Telkomsel through partnerships with 244 international roaming partners in 148 countries.
TELKOM provides the short-message-service (SMS) feature on its fixed wireless and cellular services. In addition, TELKOM also provides dial up (TELKOMNet Instan) and broadband internet access, data network services, VoIP services for international calls (TELKOMGlobal-017, TELKOMSave), ISDN lines,
and other multimedia services. TELKOMNet Instan provides dial-up internet access without having to be a subscriber and is specifically designed for accessibility and ease of use. To optimize the use of the fixed wireline network and enhance its value, TELKOM has developed a broadband internet access called TELKOMSpeedy.
TELKOM’s and Telkomsel’s network and interconnection services provide businesses with satellite transponder leasing, satellite broadcasting, VSAT, audio distribution, satellite-based leased lines and
terrestrial-based leased line services and other licensed telecommunications operators with fixed-line and cellular interconnection services to TELKOM’s and Telkomsel’s network.
TELKOM IDD 007 service. TELKOM has also developed a regional fiber optic network with several telecommunications operators in Malaysia,
Singapore, Thailand and other countries.
which is accessible by Fixed Wireless Terminal (FWT). Users may also choose FLEXICombo that allows them having two to three Flexi numbers in one card. TELKOMFlexi is currently accessible in 231 cities of Indonesia.
Network &
Interconnection
Data & Internet
Cellular
Fixed Wireline
PERUSAHAAN PERSEROAN (PERSERO)
PT TELEKOMUNIKASI INDONESIA Tbk. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001, 2002, 2003, 2004, AND 2005
(in billions of Rupiah)
FINANCIAL HIGHLIGHTS
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
2001 2002 2003 2004 2005
(As restated)*
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,644 5,699 5,094 4,856 5,375
Temporary investments 349 573 4 20 22
Trade accounts receivable - net 2,444 2,807 2,833 3,319 3,578
Other accounts receivable - net 197 198 170 56 153
Inventories - net 191 140 154 203 220
Other current assets 475 1,130 687 750 957
TOTAL CURRENT ASSETS 7,300 10,547 8,942 9,204 10,305
NON-CURRENT ASSETS
Long-term investments - net 191 183 65 83 101
Property, plant and equipment - net 23,344 28,826 35,080 40,071 46,193
Other non-current assets 2,201 4,751 6,196 6,821 5,572
TOTAL NON-CURRENT ASSETS 25,736 33,760 41,341 46,975 51,866
TOTAL ASSETS 33,036 44,307 50,283 56,179 62,171
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES
Trade accounts payable 1,760 3,063 3,767 4,255 5,295
Taxes payable 1,878 1,110 1,513 1,592 2,470
Accrued expenses 920 1,950 1,185 1,051 1,521
Other current liabilities 536 956 1,223 1,376 1,826
Current maturities of long-term liabilities and short-term bank loans 2,043 2,629 3,482 3,403 2,401
Liability for cross-ownership transactions 2,406 - - -
-TOTAL CURRENT LIABILITIES 9,543 9,708 11,170 11,677 13,513
NON-CURRENT LIABILITIES
Deferred tax liabilities - net 1,818 3,083 3,547 2,928 2,392
Accrued employee benefits 1,321 2,092 2,568 4,913 4,903
Long-term liabilities - net of current maturities:
Two step loans-related party 8,637 7,734 6,859 5,363 4,760
Notes and bonds - 2,314 2,102 2,331 1,457
Bank loans 73 85 2,116 1,776 1,752
Liabilities of business acquisitions 261 1,619 747 3,743 3,128
Obligations under capital leases - - - - 236
Other non-current liabilities 1,067 462 153 382 433
TOTAL NON-CURRENT LIABILITIES 13,177 17,389 18,092 21,436 19,061
Minority interest 1,235 2,596 3,708 4,938 6,305
EQUITY 9,081 14,614 17,313 18,128 23,292
PERUSAHAAN PERSEROAN (PERSERO)
PT TELEKOMUNIKASI INDONESIA Tbk. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002, 2003, 2004, AND 2005
(in billions of Rupiah, except per share and per ADS data)
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
2001 2002 2003 2004 2005 (As restated)*
OPERATING REVENUES
Fixed lines 6,415 7,264 8,897 10,645 10,781
Cellular 4,708 6,227 8,459 10,421 14,571
Interconnection 1,424 2,831 4,162 6,188 7,742
Joint Operation Schemes 2,220 2,128 1,486 657 589
Data and Internet 673 1,552 3,109 4,809 6,934
Network 415 316 518 654 587
Revenue-Sharing Arrangements 264 264 258 281 302
Other telecommunications services 165 221 227 293 301
Total Operating Revenues 16,284 20,803 27,116 33,948 41,807
OPERATING EXPENSES
Personnel 2,281 4,388 4,440 4,910 6,563
Depreciation 2,870 3,474 4,779 6,438 7,571
Write-down of Assets - - - - 617
Loss on Procurement Commitments - - - - 79
Operations, Maintenance and Telecommunication Services 2,150 2,290 3,339 4,530 5,916
General and Administrative 1,343 1,146 2,079 2,600 2,764
Marketing 220 375 503 882 1,126
Total Operating Expenses 8,864 11,673 15,140 19,360 24,636
OPERATING INCOME 7,420 9,130 11,976 14,588 17,171
OTHER INCOME (EXPENSES)
Gain on sale of long-term investment in Telkomsel - 3,196 - -
-Interest income 572 480 366 318 345
Interest expense (1,330) (1,583) (1,383) (1,270) (1,177)
Gain (loss) on foreign exchange - net (379) 557 126 (1,221) (517)
Equity in net income (loss) of associated companies (86) 5 3 3 11
Others - net 353 (36) 364 331 409
Total Other Income (Expenses) - net (870) 2,619 (524) (1,839) (929)
INCOME BEFORE TAX 6,550 11,749 11,452 12,749 16,242
TAX EXPENSE (2,007) (2,899) (3,861) (4,178) (5,184)
INCOME BEFORE MINORITY INTERESTIN
NET INCOME OF SUBSIDIARIES 4,543 8,850 7,591 8,571 11,058
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES - net (475) (810) (1,504) (1,956) (3,064)
NET INCOME 4,068 8,040 6,087 6,615 7,994
Net income per share - in full Rupiah amount 201.81 398.80 301.95 328.10 396.51 Net income per ADS - in full Rupiah amount
FINANCIAL HIGHLIGHTS
COnsOlidaTed FinanCial RaTiOs (%)
2001 2002 2003 2004 2005
(As restated)*
Return on Assets (ROA) 12.3 18.1 12.1 11.8 12.9
Return on Equity (ROE) 44.8 55.0 35.2 36.5 34.3
Current Ratio 76.5 108.6 80.1 78.8 76.3
Total Liabilities to Total Assets 68.8 61.2 58.2 58.9 52.4
Operating Margin 45.6 43.9 44.2 43.0 41.1
EBITDA Margin 63.5 61.5 64.5 64.5 61.4
Net Income Margin 25.0 38.6 22.4 19.5 19.1
Debt to Equity (%) 156.2 100.2 88.5 91.7 57.9
Debt to EBITDA (%) 137.1 114.4 87.6 75.9 52.5
EBITDA to Interest Expense (times) 7.9 8.1 12.6 17.2 21.8
EBITDA to Net Debt (%) 103.3 158.6 180.4 187.1 322.7
PROduCTiviTy RaTiOs:
Total Revenue/Employee (Rp Billion) 0.4 0.5 0.9 1.2 1.5
LIS/Employee 192.9 223.5 275.1 340.3 452.0
OPeRaTiOnal RaTiOs:
Productivity per average LIS
Wireline (pulse/line) 11.364 10.726 10.093 9.697 9.355
Wireless (second/line) - - 1.618 81.322 78.703
Flexi PeRFORmanCe:
Customer base:
Classy/Postpaid (‘000) - - 228 654 727
Trendy/Prepaid (‘000) - - 37 745 3.241
FlexiHome (‘000) - - 30 94
Total (‘000) - - 265 1.429 4.062
Sales:
Classy/Postpaid (‘000) - - 228 565 411
Trendy/Prepaid (‘000) - - 38 889 3.558
FlexiHome (‘000) - - 30 64
Total (‘000) - - 264 1.484 4.034
ARPU (12 months avrg):
Postpaid (Rp ‘000) - - 154 94 123
Prepaid (Rp ‘000) - - 24 20 19
Blended (Rp ‘000) - - 141 60 47
Network:
BTS (unit) - - 396 1.136 1.448
2001 2002 2003 2004 2005
FIXED LINE (INCLUDING FIXED WIRELESS)
Installed Lines 8,041,674 8,400,662 9,558,752 11,667,927 13,169,617
Subscriber Lines 6,836,274 7,347,166 8,071,325 9,565,185 12,333,541
Public Telephone Lines (including Public Phone Kiosk) 382,664 402,869 407,790 423,533 414,457
Lines in Service 7,218,938 7,750,035 8,479,115 9,988,718 12,747,998
Fixed Wireline 7,218,938 7,741,508 8,214,328 8,559,350 8,686,131
Fixed Wireless - 8,527 264,787 1,429,368 4,061,867
Density (Line in Service per 100 inhabitants) 3.3 3.5 3.5 4.1 5.2
Productivity (Line in Service per Employee) 192.9 223.5 275.1 340.3 452.4
Average Revenue per User / ARPU
Fixed Line (Rp ‘000) 164 157 164 178 153
CELLULAR
Base Transceiver Station / BTS (units) 1,995 3,483 4,820 6,205 9,895
Network Capacity (in million subscriber) 3.3 7.0 10.8 17.9 26.2
Customer Base: 3,252,032 6,010,772 9,588,807 16,291,000 24,269,000
Post-paid (kartuHALO) 865,211 923,005 1,007,034 1,327,549 1,470,755
Pre-paid (simPATI) 2,386,821 5,087,767 8,581,773 11,557,758 16,004,631
Pre-paid (kartuAs) - - - 3,405,201 6,793,967
Average Revenue per User / ARPU - blended (Rp ‘000) 170 145 123 102 87
Post-paid (kartuHALO) (Rp ‘000) 287 298 314 304 291
Pre-paid (simPATI) (Rp ‘000) 111 103 95 84 84
Pre-paid (kartuAs) (Rp ‘000) - - - 48 45
STOCK HIGHLIGHTS
Date Corporate Actions Shares Ownership Composition
Government of RI % Public %
11/13/1995 Pre Initial Public Offering (Pre-IPO) 8,400,000,000 100.0 - -
11/14/1995 IPO
Sale of Government’s shares (933,334,000) 933,334,000
New shares issued by TELKOM 933,333,000
Share Ownership Composition 7,466,666,000 80.0 1,866,667,000 20.0
12/11/1996 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
05/15/1997 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
05/07/1999 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
08/02/1999 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
12/07/2001 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
07/16/2002 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
07/30/2004 Stock Split (1:2)
Share Ownership Composition 10,320,470,712 51.2 9,839,528,568 48.8
CHROnOlOgy OF TelkOm sHaRe OwneRsHiP COmPOsiTiOn
CHROnOlOgy OF TelkOm dividend PaymenTs
Dividend Year Dates of AGMS
Pay-Out Ratio (%)
Amount of Dividends (Rp millions)
Dividend per Share1 (Rp)
2001 03/10/2004 52.2 2,125,055 210.8
2002 05/09/2003 41.5 3,338,109 331.2
2003 07/30/2004 50.0 3,043,614 301.9
sHaRe PeRFORmanCe and TRade vOlume OF TelkOm 2005
QuaRTeRly sTOCk PRiCes in 2004 and 2005
JSX (Rp) / Share
Highest Lowest Highest Lowest Highest Lowest
2004
Q1 4,025 3,300 19.45 15.13 18.97 15.29
Q2 4,350 3,300 19.91 14.13 20.27 14.08
Q3 4,225 3,650 18.55 15.81 19.00 15.73
Q4 5,200 4,175 23.33 18.30 23.21 19.37
2005
Q1 5,125 4,300 21.96 18.11 21.86 18.17
Q2 5,350 4,175 21.96 16.85 21.99 16.88
Q3 5,800 4,775 23.66 18.10 29.76 17.97
Q4 6,150 4,925 25.50 19.81 25.47 19.71
NYSE (US$) / ADS STOCK HIGHLIGHTS
Period
TelkOm sHaRes in JakaRTa sTOCk exCHange TelkOm ads in new yORk sTOCk exCHange
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Volume Price
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Weekly Volume
(million share)
250
200
150
100
50
0
Close Price (Rp)
6,500
6,000
5,500
5,000
4,500
4,000
Weekly Volume (100 ADS)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Close Price (US$)
26.0
25.0
24.0
23.0
22.0
21.0
20.0
19.0
18.0
17.0
STOCK HIGHLIGHTS
COmPOsiTiOn OF sHaRe OwneRsHiP
Nominal value of common share is Rp 250 per share
• The Government holds Series A Dwiwarna Share, which has special voting rights. The material rights and restrictions which are applicable to the Common Stock are also applicable to the Dwiwarna Share, except that the Government may not transfer the Dwiwarna Share and it has a veto with respect to election and removal of Directors and Commissioners, and amendments to the Articles of Association, including amendments to merge or dissolve the Company prior to the expiration of its term of existence, increase or decrease its authorized capital and reduce its subscribed capital.
sHaReHOldeRs wiTH OwneRsHiP OF mORe THan 5% as OF deCemBeR 31, 2005
Title of Class identity of Person or group amount Owned Percent of Class
series a Government 1 100.00%
series B Government 10,320,470,711 51.19%
series B JPMCB US Resident (Norbax Inc.) 1,992,333,765 9.88%
series B The Bank of New York (BoNY) 1,291,002,696 6.41%
authorized Capital:
1 Series A Dwiwarna share and 79,999,999,999 Series B shares (common shares)
The Company’s shareholders as of december 31, 2005
Series A Dwiwarna share Series B shares (common shares) % Government of The Republic of Indonesia 1 10,320,470,711 51.19 Public:
• Domestic Investors 526,002,911 2.61
Individual 62,844,208
Enterprises 463,158,703
• Foreign Investors 9,313,525,657 46.20
Individual 5,146,388
Enterprises 9,308,379,269
Number of shares
COMPANY MILESTONES
1842
The Company was established during the colonial era as a postal and telegraph services company.1906
The Dutch Colonial Administration formed PTT (Post, Telegraaf en Telefoon Dienst), as a centralized post and telecommunications office.1948
PTT was eventually nationalized after Indonesia’s independence in 1945.1961
The Company became a State-owned Post and Telecommunications Company (PN Postel).1965
PN Postel was segregated into the National Post and Giro Company (PN Pos & Giro) and the National Telecommunications Company (PN Telekomunikasi).1974
PN Telekomunikasi was further segregated into the National Telephone and Telegraph Company (Perumtel), which serves domestic and international telecommunications services, and PT INTI, which produced telephone and telecommunications equipment.1976
The Palapa A1 Satellite was launched in July 1976 and placed into service until 1983.1977
The Palapa A2 Satellite was launched in March 1977 and put to service until 1987.1980
PT Indonesian Satellite Corporation (Indosat), which was formed to provide international telecommunications services, separated from Perumtel.1983
The Palapa B1 Satellite was launched on June 16, 1983 and was operational until 1990.1984
The Palapa B2 Satellite was launched on February 26, 1984 but failed to orbit.1987
On March 21, 1987, the Palapa B2P Satellite was launched and served until 1996.1989
Law number 3 of 1989 on telecommunications services opened up the telecommunications sector to the private sector.1990
The Palapa B2R Satellite was launched on April 14, 1990, and was operational until 2000.1991
Perumtel became a state-owned corporation (Persero) under the name of PT Telekomunikasi Indonesia (Persero), or TELKOM, pursuant to the Government Decree No. 25 of 1991.1992
The Palapa B4 Satellite was launched on May 14, 1992 was operational until 2005.1995
TELKOM undertook an Initial Public Offering of shares on November 14, 1995; listing its shares on the stock exchanges of Jakarta (JSX), Surabaya (SSX), New York (NYSE) and London (LSE). TELKOM also made a Public Offering Without Listing (POWL) on the Tokyo Stock Exchange.Telkomsel was established on May 26, 1995, its ownership comprising of TELKOM (51%) and Indosat (49%).
1996
Joint Operations or Kerja Sama Operasi (KSO) with private companies were implemented for the first time on January 1, 1996, in Sumatra (Regional Division I) with PT Pramindo Ikat Nusantara (Pramindo); in West Java and Banten (Regional Division III) with PT AriaWest International (AriaWest); in Central Java and Jogjakarta (Regional Division IV) with PT Mitra Global Telekomunikasi Indonesia Top: The first Presidentof the Republic of Indonesia, Soekarno, and first lady, Fatmawati, tried out a conversation using radio telephone during the launch of the Java-Sumatera Radio Telephone service on August 12, 1946.
(MGTI); in Kalimantan (Regional Division VI) with PT Dayamitra Telekomunikasi (Dayamitra); and in Eastern Indonesia (Regional Division VII) with PT Bukaka SingTel International.
KPN and Sedco acquired shares in Telkomsel changing the shareholding composition to be TELKOM 42.72%, Indosat 35%, KPN 17.28%, and Sedco 5%.
1999
Law number 36 of 1999 on telecommunications was issued which, among other things, regulated the removal of monopolies within the telecommunications sector. This Law took effect on September 8, 2000.TELKOM-1 Satellite was launched on August 13, 1999, with an expected service life span until 2016.
2001
TELKOM acquired a 35% stake in Telkomsel from Indosat as part of the restructuring of the telecommunications sector by the removal of all joint- or cross-ownership between TELKOM and Indosat. Through this transaction, TELKOM effectively controlled 77.72% of Telkomsel.TELKOM acquired a 90.32% stake in Dayamitra and consolidated Dayamitra’s financial statements into TELKOM’s.
2002
TELKOM acquired the entire shares of Pramindo over a three-stage transfer of: 30% of the shares at the time of the signing of the Sales and Purchase Agreement on September 15, 2002, another 15% on September 30, 2003, and the remaining 55% stake on December 31, 2004.TELKOM divested 12.72% of its shares in Telkomsel to Singapore Telecom Mobile Pte. Ltd. (SingTel), whereby TELKOM retained ownership of approximately 65% stake in Telkomsel.
A duopoly existed in the Indonesian telecommunications sector as of August 2002.
2003
TELKOM acquired the entire shares of AriaWest. TELKOM divested its shareholdings in PT Telekomindo Selular Raya, PT Komunikasi Selular Indonesia, PT Menara Jakarta, and PT Metro Selular Nusantara, but increased its shareholdings inPT Multimedia Nusantara, PT Indonusa Telemedia and PT Pasifik Satelit Nusantara.
2004
TELKOM launched its international direct dialing service, the TELKOM International Call (TIC) 007, through three international gateways in Jakarta, Surabaya and Batam. The service complements TELKOM’s other international telephony service, the VoIP-based TELKOMGlobal-017, which had been put to service earlier.TELKOM launched a high-speed internet access service, TELKOMSpeedy, in Jakarta and Surabaya. TELKOMSpeedy uses the Asymmetric Digital Subscriber Line (ADSL) technology which combines data services and voice in one telephone line, enabling customers to use the telephone and internet simultaneously, and providing fast internet or telephony connections.
In its Annual General Meeting of Shareholders on July 30, 2004, TELKOM announced changes to the nominal price of the Company’s share from Rp 500 to Rp 250 per share, and simultaneously amended article 4 paragraph 1 and 2 of the Company’s Articles of Association. TELKOM also undertook a one-for-two stock split which was approved by the AGMS on July 30, 2004, and accordingly adjusted the share equivalency ratio of its American Depository Share (ADS) from 20 common shares per one ADS, to 40 common shares.
2005
TELKOM commemorated its 10th anniversary as a publicly listed company and emphasized its commitment towards dual listings on the Jakarta Stock Exchange and New York Stock Exchange.TELKOM launched the TELKOM-2 satellite, augmenting the TELKOM-1 satellite service, and providing a much broader footprint coverage of Asia Pacific, including the Asian subcontinent.
JAN
FEB
MAR
APR
JuN
AuG
Nov
dEc
Post-earthquake and tsunami relief efforts undertaken in Aceh.
TELKOM Launches the Fix2Fix & e-Flexi Campaign.
Telkomsel’s AGMS appoints Kiskenda Suriahardja as the new President Director of Telkomsel replacing Bajoe Narbito.
TELKOM Split Charging is Officially Launched.
TELKOM e-auction leads to CAPEX efficiency.
Appointment of the new Board of Directors of TELKOM.
TELKOM-2 satellite is successfully launched.
TELKOM’s share buyback plan was approved by shareholders through the EGMS. 50-Year Commemoration of
the Asia-Africa Conference.
03
01
24
24
Commemoration of 10 years as a publicly listed Company.
14
17
21
SEP
TELKOM and Indosat sign an Agreement on the use of SLJJ access code. Implementation of the agreed “01X” access code will commence on April 1, 2010.
25
THE YEAR
IN PICTURES
AND HIGHLIGHTS
2005 was not an easy year for the Indonesian economy
and businesses in general. Amidst challenging
macro-economic conditions, however, the telecommunications
sector has shown its resilience.
JuL
Filing of Annual Report on Form 20-F for the year 2004.
January:
Post earthquake and Tsunami Relief.
TELKOM provided humanitarian relief aids and reconstructed vital telecommunications infrastructure which was destroyed in Aceh and other affected areas.
February:
TelkOm split Charging is Officially launched. A new product in the field of call center known as TELKOM Split Charging was officially launched. On February 25, 2005, TELKOM marked the completion of the Revenue Sharing Agreement for the second-phase fixed wireline development project amounting to Rp 295 billion. This project has a capacity for 125 thousand telephone lines with a joint cooperation spanning 11 years.
march:
TelkOm launches the Fix2Fix & e-Flexi Campaign. To enhance and increase the use of fixed-line telephony, TELKOM launched the Fix2Fix promotional campaign, highlighting the positive features of using a fixedline telephone which includes No Blank Spot and No Airtime. To enhance access to TELKOM Flexi, TELKOM also launched a promotional campaign for e-Flexi, highlighting the convenience of topping up TELKOM Flexi through electronic means.
TelkOm Ties up with intel for the ig2s Program. TELKOM and Intel cooperated to accelerate internet use within schools and campuses through the Internet Goes to School (IG2S) Program and the ‘Aku punya PC’ (I have a PC) program.
Telkomsel’s AGMS appoints Kiskenda Suriahardja as the new President Director of Telkomsel, replacing Bajoe Narbito.
april:
TELKOM provided telecommunications facilities in support of the 50th Anniversary Commemoration’ of the Asia-Africa Conference.
implementation of the slJJ access Code.On April 1, 2005, in accordance with the directive of the Minister of Communications and Information no. 92/M.Kominfo 2005, the government announced the implementation of SLJJ (domestic long-distance)access code “011” for PT Indosat for areas with area codes of 021, 031, 0361, 0778 and 061, and an SLJJ access code of “017” for TELKOM, whereas the SLJJ access code of “0” for TELKOM was retained in all other area codes. These access codes will be implemented gradually, starting in areas which are technically feasible, and should apply to all areas within a maximum period of five years beginning April 1, 2005.
June:
arwin Rasyid is appointed as the new President director of TelkOm.
At TELKOM’s Annual General Shareholders Meeting of June 24, 2005, the shareholders appointed Arwin Rasyid as the President Director of TELKOM for the period of 2005-2010, replacing Kristiono. TELKOM’s AGSM was held at Gedung TELKOM, in Jalan Gatot Subroto, and was attended by the entire members of the Board of Directors and Commissioners as well as the majority of shareholders of the Company.
July:
Filing of annual Report on Form 20-F for the year 2004.On July 14, 2005, TELKOM filed its Annual Report on Form 20-F for the year ended December 31, 2004 with the United States Securities and Exchange Commission (SEC) in Washington DC, USA.
august:
TelkOm e-auction resulted in CaPex efficiency.The use of an e-auction for the sourcing of fixed wireless CDMA project has resulted in capex efficiency as compared to TELKOM’s initial budget. TELKOM has completed the e-auction for 2 million lines for 3 years with an option of another 1 million lines for 3 years with a rise of more than 50% reduction compared to the previous contracts. The selected vendor was Hua Wei Technologies, a telecommunication equipment manufacturer from China. This auction price was considered to be among the lowest in the region for this type of equipment at that point of time.
TelkOm signed mOu with gamTel, gambia.TELKOM and Gambia Telekomunications Campany Ltd. (Gamtel) have signed an MOU to establish a mutually beneficial partnership in several telecommunications area in international roaming, internship, Call Center business synergy and in research and development.
september:
TelkOm signed mOu with Telecom italia.TELKOM and Telecom Italia has signed a Memorandum of Understanding (MOU) in the field of voice services, Internet Protocol (IP) and technology transfer. The two carriers were completing an interconnection process in order to terminate each other’s international voice traffic on a “preferred supplier” basis and will jointly cooperate in the development of prepaid calling card services in selected countries and of international toll-free and mobile services in Indonesia.
TELKOM and Indosat sign an Agreement on the use of the SLJJ access code. Implementation of the agreed “01X” access code will commence on April 1, 2010.
‘good Performance’ award.On
September 25, 2005, TELKOM garnered the Indonesia Quality Award (IQA) for state-owned enterprises, ranking first for the category of ‘Good Performance’. This award was presented by the Minister of State-Owned Enterprises (SOE) who was accompanied by the Chairman of the SOE Executive Club and Chairman of the SOE Executive Forum and received by the TELKOM’s COO in Bali. The Good Performance category is awarded only to TELKOM and Wijaya Karya. This award is granted on the basis of the Malcolm Baldrige Criteria for Performance Excellence.
november:
Commemoration 10 years as a publicly listed company. The President Director of TELKOM participated in the Closing Bell Ceremony at the New York Stock Exchange (NYSE) and reiterated its commitment to maintain dual listing of its shares. As of the end of October 2005, the NYSE recorded a total market capitalization amounting to US$ 21 trillion with 2,800 listed companies. The commemoration of 10 years as a listed company was consecutively celebrated at the Bursa Efek Jakarta. TELKOM’s market capitalization increased 6 times compared to what it achieved at its IPO.
TELKOM-2 satellite was launched successfully at 06.46 WIB , on Thursday, November 17, 2005. The Satellite, weighing 2 tons, was launched together with the Spaceway (owned by Direct TV) satellite which weighs 6 tons and were powered by the Ariane 5 ECA rocket that weighs 780 tons and was directed to orbit at 118° above earth at a height of 36,000 km to start its operation that will last 15 years.
december:
Compensation for early Termination of exclusivity in Fixed-line service. In December 2005, TELKOM received from the government of Indonesia a partial settlement of Rp 90 billion, as compensation for the early termination of TELKOM’s fixed-line service exclusivity. Starting with this initial settlement in 2005, a full settlement of the total compensation package of Rp 478 billion is to be allocated from the state budget over the following several years.
TELKOM’s plans for a share buyback from the public amounting up to Rp 5.25 trillion was approved by the shareholders through the EGMS dated December 21, 2005.
TELKOM garnered three prestigious awards towards the end of 2005. 1. The first award is the ‘Best
SOE (BUMN) in the field of Telecommunications’ from Investor Magazine at an event to honor and award the ‘Top Financial Leaders of Indonesia for 2005’, that was held on December 13, 2005, 2. The award of ‘The Best Value
Creator Award 2005’ and ‘The Golden Value Creator Award 2005’ from SWA magazine and MarkPlus Indonesia, as the Company that has consistently created value for five consecutive years for the category of assets above Rp 1 trillion in Jakarta, on December 14, 2005, and
3. TELKOM was awarded the ‘Corporate Social Responsibility Award 2005, for the Service category as the company which possesses a high social responsibility and commitment to good corporate citizenship which was awarded by SWA magazine, PT Surindo Utama, MarkPlus, Corporate Forum Community Development (CFCD), and SWANetwork on December 20, 2005 in Jakarta.
AWARDS & RATINGS 2005
BB+/Stable/--Standard & Poor’s Ratings Services in December 2005 raised the rating of
TELKOM for local and foreign currency corporate credit rating from BB-/Stable/-- to BB+/Stable/--.
The local currency rating upgrade reflects the improved country risk factors and the business environment in which companies operate. TELKOM continues to benefit from robust business revenue growth, a pro-incumbent regulatory environment, and rational competition. The foreign currency rating upgrade reflects Standard & Poor’s recent revision of the Transfer and Convertibility (T&C) Risk Assessment for Indonesia to BB+, three notches above the foreign currency rating of Indonesia. The T&C Risk Assessment more narrowly indicates the likelihood that the sovereign government would restrict access to foreign exchange needed for debt service.
The stable outlook for TELKOM is underpinned by their solid market position and strong cash flow generations.
Analyst: yasmin wiryawan
President of the Republic of indonesia: Zero accident award.
TELKOM successfully implemented the K3 or Health and Safety program (Program Keselamatan & Kesehatan Kerja) which resulted in zero accidents at the workplace which did not result in losses for the Company within a period of 2 X 24 hours.
superbrand international: superbrand award 2005 -2006.
Awarded on the basis of Market Dominance, Longevity, Goodwill, Customer Loyalty and Overall Market Acceptance aspects for its Internet Access Services provided by TELKOMnet Instan.
Businessweek magazine: Top 100 information & Communication Technology world Companies.
Ranked 20th among the Top 100 World-Class Companies on the basis of its Return on Equity, Shareholder Return, Revenue Growth, and Total Revenue as per Dec. 31, 2004.
investor magazine: Best state-Owned Company (Bumn) for 2005 in the Field of Telecommunications.
swa magazine and markPlus indonesia: The Best value Creator award 2005 and The golden value Creator award 2005 (eva).
As the company which proved successful in value creation for 5 consecutive years for the category of company with assets above Rp 1 trillion.
swa magazine and markPlus indonesia: The Best Public Companies Based on eva Concept with asset above 1 Trillion Rupiahs Category.
swa magazine, PT surindo utama, markPlus, Corporate Forum Community development (CFCd) and swa network: Corporate social Responsibility award 2005 for the service Category.
As the company which possesses outstanding commitment to social responsibility and good corporate citizenship.
swa magazine and Frontier: indonesian Customer satisfaction award (iCsa) 2005.
As The Best in Achieving Total Customer Satisfaction for TELKOMnet Instan in the category of Internet Service Provider.
Finance asia: asia’s Best Companies 2005.
For categories: Best Managed Company (ranked 2nd),
Best Corporate Governance (ranked 3rd), Best Investor
Relations (ranked 4th) and
THE TELKOM GROUP
METRA
Metra is a pay-TV broadcasting service that offers both subscription and multimedia services.
Metra, which has been operating in the red for a number of years, has recently turned a corner and started to realize profit and positive cashflows. Metra is positioned to become the core company for TELKOM’s content business, and has embarked on providing satellite link services.
TELKOMSEL
Telkomsel is a provider of cellular telecommunications services that utilizes GSM technology.
In 2005, Telkomsel received the Golden Indonesian Customer Satisfaction Award (ICSA) for the fifth consecutive year. With a 52% market share of the cellular services in Indonesia, Telkomsel successfully constructed BTS in all regencies throughout Indonesia, and all district towns in Java and Bali. To expand its services further to customers, Telkomsel successfully tested a 3G technology network in Jakarta. It is expected that in 2006, Telkomsel customers can enjoy the benefits of 3G services provided by Telkomsel.
INFOMEDIA
Infomedia is a provider of information services and call center.
This company possesses three main of businesses: telephone directory services, contact center services, and content services. The company seeks to capitalize on multimedia application by also producing Indonesia’s yellow pages directories in CD format.
INDONUSA
Indonusa is a provider of multimedia telecommunication.
Indonusa markets HFC, SMATV, DTH and Internet services. Through its marketing strategy that involves the support of TELKOM’s entire regional divisions, as well as third parties, the company has been making encouraging progress since the first quarter of 2005.
NAPSINDO
Napsindo is a provider of Network Access Point, Voice Over Data, and other related services.
GSD
GSD is engaged in building management, building maintenance services, property development and marketing, and contracting and engineering services.
GSD is currently expanding its operations to provide a full range of services in the field of construction, property development, and building management, for TELKOM and non-TELKOM interests. GSD has formed a synergy with Telkomsel in the construction of several BTS towers for the latter. The company has also been assigned by TELKOM to construct a number of BTS towers for TELKOMFlexi.
DAYAMITRA
Dayamitra is a Joint Operation Scheme (KSO) partner in Region VI that provides telecommunication services in Kalimantan.
Throughout 2005,
Dayamitra jointly developed telecommunications infrastructure facilities comprising of 5,000 telephone line units through a 9-year profit sharing scheme within TELKOM’s Regional Division VI.
PRAMINDO
Pramindo is a Joint Operation Scheme (KSO) partner in Region I that provides telecommunication services in Sumatera.
Pramindo seeks to provide and develop telecommunication services through its Rp 28.1 billion project within TELKOM’s Regional Division I that is specifically targeted at corporate customers, whereas TELKOMFlexi will service customers outside of this category.
ARIAWEST
Ariawest is a Joint Operation Scheme (KSO) partner in Region III that provides telecommunication services in Banten and West Java.
In 2005, Ariawest invested in a public service obligation (PSO) residential phone line project with a total investment of Rp 20 billion to install 10,000 Telephone Line Units within TELKOM’s Regional Division III, construction of the TELKOM plaza and Flexi public phones.
MESSAGE FROM THE CHAIRMAN
Changes that are taking place
globally are forcing TELKOM not
only to adapt quickly to new
market realities, but also to
transform itself into a modern
business organization as well
as a highly competitive InfoCom
service provider.
Tanri Abeng
“Only by capitalizing fully on three
strengths - corporate governance,
end-to-end networks, and a customer-centric
orientation - will TELKOM be able to
unlock its vast potential...”
TELKOM faces four mission-critical areas that will define the success of this transformation process, and ensure the continuation of our dominance in the fast-growing telecommunications sector in Indonesia. These four areas include: (i) corporate governance, (ii) universal service obligation, (iii) changing mindsets, and (iv) the unlocking of TELKOM’s vast potential towards achieving our 135-3010 goal.
Allow me to elaborate further on these points.
Corporate governance has been at the center of TELKOM’s
supervisory board and management attention ever since the Sarbanes Oxley Act (SOA) came into force in 2002. As a listed company on the New York Stock Exchange ADR Board, TELKOM is obliged to comply fully with the SOA, which sets much higher standards in corporate governance and internal control policies and practices, as well as greater transparency and accountability in corporate financial accounting and reporting.
In corporate governance terms, the benefits of such compliance are immeasurable. With SOA compliance, TELKOM is expected to establish an internal governance accountability structure as well as internal control measures not only to provide reasonable assurances for the reliability of financial reporting, but also to the attestation of validity of the entire internal control process and mechanism that are relied upon to ensure the reliability of the financial reporting.
Our Commitment to universal service Obligation (usO) is in line with our mission objective to serve the entire nation equally and equitably. The USO framework, which obliges telecommunications companies to develop or fund the development of
Most private telecommunications company would tend to shy away from such a market, preferring to focus on the more lucrative and fast-growing urban telecommunications market such as the cellular service. This is entirely consistent with the profit-oriented nature of private enterprises.
TELKOM, on the other hand, cannot and will not shun its universal service obligation. Far from viewing it as an obligation, TELKOM is using the USO to develop potential captive markets of the future. With more than 60 years of legacy network to its name, TELKOM now has the opportunity to harness a customer base numbering in the tens of millions on a nationwide scale. For instance, we have used our legacy voice network, with certain adjustments and upgrades, to provide a competitive Internet service.
Investments have been made and will continue to be made by TELKOM on the development and maintenance of these legacy networks. It is only fair if TELKOM should be given the rights, through regulatory means or otherwise, to protect its investments or draw sufficient returns and compensation from others who use TELKOM’s legacy networks for their own commercial and profitable ends.
The Changing of mindsets currently constitutes the most challenging endeavour of TELKOM. As an incumbent telecommunications operator in a fast-changing market, TELKOM must be able to transform itself into a customer centric organization. This goes to the bottom of our survivability and of our ability to grow with the changing times.
The Board of Commissioners is pleased to note that TELKOM has made changes in this direction. For instance, it has restructured its management to reflect greater focus on segmental markets. And it has made a distinct separation between the product owners - those who develop and package TELKOM’s products and services - with
those who deliver these products to market and serve the customers. With this formula, the change towards being a customer-centric organization is driven from top to bottom, and from center to outlying perimeters.
On that note, I am pleased to welcome Mr. Arwin Rasyid as the new CEO of TELKOM, and the other members of the Board of Directors who were appointed in June 2005, and have since spearheaded the transformation of TELKOM into a customer-centric organization.
unlocking TelkOm’s Potential:Only by capitalizing fully on the above three strengths - corporate governance, end-to-end networks, and customer-centric orientation - will TELKOM be able to unlock its vast potential in order to increase market capitalization by three folds to USD 30 billion by the year 2010.
TELKOM has adopted the “135-3010” goal: One resolve to increase stakeholder’s value by Three in Five years, to reach USD Thirty billion by the year two thousand and Ten.
On such a premise, the Management has set a goal of the Company for the next five years, starting in 2006. It is a challenging goal, but not impossible as TELKOM has the financial resources, the manpower, the networks and the expertise to achieve this goal. It is now the task of Management to imbue this belief on our team, and to lead them in the transformation to becoming the customer-centric organization that will deliver the TELKOM promise.
Jakarta, June 8, 2006
Tanri abeng
President Commissioner
TANRI ABENG GAToT TRIHARGo
PROFILE OF
THE COMMISSIONERS
ARIF ARRYMAN
TanRi aBeng, President Commissioner
Mr. Abeng, 64, has been President Commissioner of TELKOM since March 10, 2004. From 1980 to 1998, Mr. Abeng served as President Director (1980-1991) and President Commissioner (1991-1998) of PT Multi Bintang Indonesia, Indonesia’s largest brewery. He also served as President Director of PT Bakrie & Brothers from 1991 to 1998, was President Commissioner of PT B.A.T. Indonesia from 1993 to 1998 and was a Commissioner of PT Sepatu BATA from 1989 to 1998. He was also a member of Parliament from 1993 to 1999 and was Minister of State-Owned Enterprises from 1998 to 1999. Mr. Abeng attended the University of Hasanudin, and earned a masters degree in business administration from the State University of New York, Buffalo, and completed the Advanced Management Program at the Claremont Graduate School in Los Angeles.
anggiTO aBimanyu, Commissioner
Mr. Abimanyu, 43, has been a Commissioner of TELKOM since March 10, 2004. As of the date of this Annual Report, he is the Head of Agency for Research in Economics, Finance, and International Cooperation of the Ministry of Finance and has been a member of the expert staff to the Finance Minister since 2000. Mr. Abimanyu previously served as a member of the Board of Commissioners of Bank Lippo and of Bank Internasional Indonesia. Mr. Abimanyu is also a lecturer in the Faculty of Economics of Gadjah Mada University. Mr. Abimanyu holds a bachelor degree in Economics from Gadjah Mada University, a Master of Science Degree in International Development and a Ph.D. degree in Environmental Economics from the University of Pennsylvania.
gaTOT TRiHaRgO, Commissioner
Mr. Trihargo, 45, has been a Commissioner of TELKOM since March 10, 2004. As of the date of this Annual Report, he serves as a Assistant Deputy for Information & Asset Administration of State-Owned Enterprises of the Ministry of State-Owned Enterprises. Mr. Trihargo holds a degree in accounting from Sekolah Tinggi Akuntansi Negara, Jakarta, and a masters degree in Accountancy and Financial Information Systems from Cleveland State University in Ohio.
aRiF aRRyman, Independent Commissioner
Mr. Arryman, 50, has been an Independent Commissioner of TELKOM since June 21, 2002. Previously, he served as Independent Commissioner of PT Bank BNI (2001-2004) and as an advisor to the Coordinating Minister for Economy and a member of the assistance team to the Ministry of Finance. Mr. Arryman graduated with a degree in Industrial Engineering from Bandung Institute of Technology, a masters degree in Engineering from Asia Institute of Technology, Bangkok, Diploma d’Etude Approfondie from University Paris-IX Dauphine France and a doctoral degree in Economics from University of Paris-IX Dauphine France.
P. saRTOnO, Independent Commissioner
DIRECTORS’ REPORT
Dear Shareholders,
The year 2005 was a
challenging one for the
Indonesian economy and
businesses in general.
Rising oil and domestic
fuel prices, as well as high
inflation and interest rates
have combined to deal
a considerable blow to
both the financial and real
sectors of the economy.
Amidst challenging
macroeconomic
conditions, however, the
telecommunications sector
has shown its resilience.
“We need to transform ourselves into a
customer-centric organization to be
more responsive to customer needs, be more
accountable for the quality of our services,
and be more focused on specific target
markets. TELKOM took firm steps in 2005 to
Our outstanding results for the year, were in sharp contrast to the conditions of 2005. TELKOM’s challenge was to navigate through a time of change and to assess expanding opportunities while maintaining focus on sustaining growth of our existing businesses. Through the dedicated effort of all TELKOM group employees consisting of more than 30,000-person team, and the Company’s market leaderships in almost every telecommunications product and service category. TELKOM generated a consolidated net income of Rp 8.0 trillion in 2005, an increase of 20.8% from 2004. Our total consolidated revenues from the TELKOM group of companies were also higher in 2005 than the previous year, reflecting our growing markets even in times of great challenge and change. Revenues rose 23.2% while operating expenses grew by 27.3%. Returns on equity were 36.5% and 34.3% in 2004 and 2005, respectively, and earnings per share in 2005 reached Rp 396.5.
The price of our equity rose 22.3% to reach Rp 5,900 per share as at year-end 2005, compared against the Jakarta Composite Market Index growth of 16.2% and the NYSE Dow Jones Industrial Average Index negative growth of 0.6% during the year.
in 2005, TelkOm enjoyed robust growth in all of its main business lines. Despite a slight year-on-year revenue decline of 2.6%, our fixed wireline services maintained its leading position and subscribers grew by 1.5%. Fixed wireless services grew significantly by 374% to approximately four million customers. Moving forward, we expect to see the growth in fixed wireless services compensating for any further future decline in fixed wireline revenues. Cellular services increased by 39.8% and Telkomsel maintained its position as Indonesia’s largest cellular service provider with more than 24 million customers. Data and internet services enjoyed a revenue growth of 44.2% despite intense competition from the private sector.
Challenges and opportunities go hand-in-hand in the Indonesian telecommunications sector and have come to represent both sides of the same coin. Telecommunications density factor in Indonesia, for instance, remains the lowest among the major economies of Southeast Asia, and among one of the lowest in the world. However with nine players in its market, the telecommunications industry in Indonesia has become one of the most competitive in the region. Indonesia continues to witness rapid deployment of cellular and fixed-wireless infrastructure in which TELKOM remains the dominant player.
Indonesia also experiences a shift in consumer behavior amongst its fixed wireline users resulting in declining revenues. TELKOM has taken the first strategic initiatives to upgrade its existing infrastructure and create an opportunity in expanding its service offerings. By applying ADSL technology to selective areas of our fixed wireline infrastructure, TELKOM has exclusively been able to provide broadband internet services. TELKOMSpeedy is now available in 15 major cities and continues to expand and to contribute significant revenue to our data and internet business. With this initiative, TELKOM has created a new pillar of revenues to compensate the decreasing trend in voice revenue in the fixed wireline market. This will pave the way for TELKOM to enter into a converging environment enabling the delivery of triple-play services.
The year 2005 brought several regulatory changes that have direct bearings on our business. The most significant impact may yet come from the decision by the Government of Indonesia, acting pursuant to the ruling of the International Telecommunications Union as the highest world organizing body for telecommunications services, to rearrange the frequency spectrum for the fixed wireless service, including TELKOMFlexi, from 1900 MHz to 800 MHz. TELKOM recognized a loss of Rp 0.9 trillion, mainly resulting from a write-down of assets and accelerated depreciation of several existing network components that would immediately be obsolete at the time of migration. To ensure a smooth migration and service continuation, TELKOM may need to incur additional cost to replace Flexi equipment affected by this migration process.
A further notable highlight in 2005 was the tender of 3G license, whereupon Telkomsel successfully secured a 5 MHz spectrum at a fair price. By adopting 3G technology, TELKOM Group will be able to broaden and enhance its product and service portfolio, and be in the position to preempt competition in the years to come.
winning the hearts and minds of the consumer and achieving customer satisfaction are paramount to acquiring and maintaining a dominant market share. We need to transform ourselves into a customer-centric organization to be more responsive to customer needs, be more accountable for the quality of our services, and be more focused on specific target markets. TELKOM took firm steps in 2005 to becoming a customer-centric organization. Among other things, we have realigned our organization in order to differentiate and specialize between service frontliners and product owners. TELKOM formed strategic business units to serve two main segments namely (i) the consumer market and (ii) the enterprise and wholesale market.
In the consumer segment, TELKOM shall strengthen its efforts to retain customer satisfaction and loyalty. While in the enterprise and wholesale segment, TELKOM is mobilizing and synergizing resources within the group to increase our market share in enterprise and wholesale segment.
Changes of mindset and business strategies are currently being developed and formulated to establish a strategic roadmap for TELKOM into the future. With this in mind, TELKOM shall engage a leading management consultant to assist in formulating future business strategies, product roadmap, service delivery models and action plans, going forward.
New training and human resources development programs are being implemented to improve the skill sets of our motivated team. TELKOM has begun to recruit experienced talented professionals to enhance the company’s future performance.
With these and other initiatives, we will be unlocking the vast potential of both TELKOM and the TELKOM Group of Companies. Currently, TELKOM is a market leader in fixed-wireline service (approximately 98%), fixed-wireless service (85%), cellular service (52%), and multimedia service (19%). Within these four main categories, and especially in the multimedia segment, TELKOM has a defined opportunity and will leverage on its strategic advantages.
Synergies between TELKOM and Telkomsel have been materialized through several initiatives, such as co-locating of base transceiver stations (BTS), joint promotion and marketing campaigns and joint distributions of product and services.
TELKOM can also benefit from synergizing with other subsidiaries through its dedicated forum in a more effective manner involving two or more entities within the TELKOM Group to minimize Capital Expenditures (CAPEX), Operating Expenses (OPEX), and to optimize service offerings through product bundling and resource sharing
“TELKOM has a
defined opportunity
and will leverage on
its strategic
Aside from e-Learning, TELKOM is at the centre of the blueprint and prototype development of the National Communications and Defense System that has been in development since 2004 and is close to completion. The proposed system will also act as a standardized application for e-Government in Indonesia.
To our valued customers, I would like to personally thank you for your trust in choosing TELKOM as your preferred InfoCom provider. We at TELKOM are always committed to deliver the best possible services to you.
On behalf of the Board of Directors, I would like to convey our sincere appreciation to our employees and management, for their support and dedication. We also express our gratitude to our valued stakeholders, especially The Ministry of State Owned Enterprises, The Ministry of Information and Communication and our business partners who have played a significant role in the positive development of TELKOM group.
Finally, I would like to extend my thanks to the former Board of Directors for their efforts in developing TELKOM.
Jakarta, June 8, 2006
arwin Rasyid President Director / CEO
DIRECTOR’S REPORT
The Board of Directors notes with great appreciation the major strides of TELKOM to comply with the Sarbanes Oxley Act (SOA) this year. TELKOM is amongst the first companies in Indonesia striving to achieve accountable corporate governance following international best practices of the highest standard. As such, TELKOM has recently established a dedicated unit to apply risk management processes in strategy settings across the enterprise and to identify potential events, that may effect the company.
This process allows the company to review existing policy and procedures, to map end-to-end processes for identifying risk and assessing internal controls. TELKOM believes that this is one of the most important initiatives to further improve bottom line and shareholder value.
TelkOm would like to reiterate its commitment to the community, as one of the largest corporations in Indonesia today, we contribute to the communities where we live and work. TELKOM would like to be a model to others of good corporate social responsibility and it is a core value of the Company to improve communities and assist people achieve better lives wherever we can - whether through education, micro-finance and cultural activities.
PROFILE OF THE DIRECTORS
ARWIN RASYId JoHN WELLY
GARudA SuGARdo
ARIEF YAHYA
GuNTuR SIREGAR
RINALdI FIRMANSYAH
aRwin Rasyid, President Director and CEO
Mr. Rasyid, 49, was appointed the President Director of TELKOM on June 24, 2005. He previously served as Vice President Director of PT Bank Negara Indonesia from 2003 to 2005, President Director of Bank Danamon Indonesia from 2000 to 2003, Vice Chairman of Badan Penyehatan Perbankan Nasional (the Indonesian Banks Restructuring Agency) in 2000, Vice President Director of Bank Niaga from 1998 to 1999, Assistant Vice President of Bank of America from 1986 to 1987 as well in various positions in Bank Niaga since 1987 and Bank of America since 1980. Mr. Rasyid graduated with a degree in economics from the University of Indonesia. He also holds a Master of Arts degree in International Economics and a Master of Business Administration degree in International Business from University of Hawaii, USA.
gaRuda sugaRdO, Vice President Director and Chief Operating Officer
Mr. Sugardo, 56, was appointed the Chief Operating Officer and Vice President Director of TELKOM on June 24, 2005. He joined TELKOM in 1977 and has held several positions in various departments. He previously served as Senior Consultant Marketing in the Management Consulting Center of TELKOM, Director of Telecommunication Service Business of TELKOM from 2002 to 2004, Director of Operation and Technical of Indosat as well as a number of positions in TELKOM from 1977 to 2000. Mr. Sugardo graduated with a degree in Electrical Engineering from the University of Indonesia.
Rinaldi FiRmansyaH, Director of Finance
Mr. Firmansyah, 45, has been Director of Finance of TELKOM since March 10, 2004. He previously served as the Vice President Commissioner of PT Bahana Securities from 2003 to 2004, President Director of PT Bahana Securities from 2001 to 2003, Director of Investment Banking of PT Bahana Securities from 1997 to 2001, and a Commissioner and Head of the Audit Committee of PT Semen Padang in 2003. Mr. Firmansyah graduated with a degree in electrical engineering from the Bandung Institute of Technology and a Masters degree in business administration from the Indonesian Institute of Management Development, Jakarta. Mr. Firmansyah is also a Chartered Financial Analyst (CFA). aBdul HaRis, Director of Network and Solution
Mr. Haris, 50, was appointed the Director of Network & Solution of TELKOM on June 24, 2005. He joined TELKOM in 1980 and has held several positions in various departments. He previously served as Director of Telecommunications and Network Business of TELKOM from 2004 to 2005, and as Deputy Head of TELKOM’s Regional Division II (Jakarta). Mr. Haris has a degree in Electrical Engineering from North Sumatra University and a Masters degree in Business Administration from Prasetya Mulya Management Institute.
aRieF yaHya, Director of Enterprise and Wholesale
Mr. Yahya, 44, was appointed the Director of Enterprise & Wholesale of TELKOM on June 24, 2005. He joined TELKOM in 1986 and has held several positions in various departments. Previously, he served as TELKOM’s Head of Regional Division V (East Java). Mr. Yahya graduated with a degree in Electrical Engineering from Bandung Institute of Technology and a Masters degree in Telecommunication Engineering from University of Surrey.
JOHn welly, Director of Human Resource Development
Mr. Welly, 52, was appointed the Director of Human Resources Development of TELKOM on June 24, 2005. He joined TELKOM in 1981 and has held several positions in various departments. He previously served as President Director of PT INTI, Director of Operations and Marketing of TELKOM from 1998 to 2000, Commissioner of Telkomsel in 1998, Director of Human Resources and Support Divisions/Senior Executive Vice President for Human Resources and Support of TELKOM from 1995 to 1998, and Commissioner of PT Aplikanusa Lintasarta from 1995 to 1996. Mr. Welly graduated with a degree in Electrical Engineering from the Bandung Institute of Technology and a Masters degree in telecommunication and information from Essex University, UK.
gunTuR siRegaR,Director of Consumer
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SOA Compliance
During the past three years, TELKOM exerted
tremendous efforts to comply with the
Sarbanes-Oxley Act (SOA) which was passed
by the US Congress in July 2002 in response
to major inappropriate accounting practices
found in a growing number of publicly-listed
American companies. This Act has since
As part of the requirement to comply with the SOA, TELKOM formed a dedicated SOA Team in 2003. The team was assigned to assess, develop and implement the required standards that would qualify TELKOM to comply with SOA. Since its formation, the team has grown in size to 17 personnel. To date, TELKOM’s SOA Team has spent a total of more than 67,000 man-hour in working time.
In broad terms, SOA has induced changes and adjustments towards regulatory environment, financial reporting and internal control processes, as well as governance and accountability structures within the corporation. It has also required higher disclosure standards and quality, stronger corporate governance, better oversight, broader insider accountability and sanctions, and greater independency of auditors.
There are three sections of the SOA that are of particular importance. They are Section 302 pertaining to Disclosure Controls and
Procedures, Section 404 on Internal Control Attestation, and Section 906 on Certification of Periodic Reports by the CEO and CFO of the company in question. These three sections contain main requirements that a company needs to fulfil, in order to comply with the SOA, with the objective of providing reasonable assurances that a company’s financial information and its system of disclosure control and procedures are adequate, regularlymonitored and evaluated to ensure that shortcomings are corrected, and that, furthermore, these systems and procedures grow and evolve with the business.
At a glance, the requirements of SOA are generally similar to other capital markets regulations including those of the Capital Market Supervisory Board of the Republic of Indonesia (Bapepam). A comparison between SOA-302 and a number of Bapepam regulations underscores their similarities (see following table).
However, there is one major difference in the SOA requirement that is material in every respect, and that is the need for a reliable evaluation on the effectiveness of disclosure controls. SOA calls for not only the reliability and integrity of the financial statements that are being disclosed, but also on the evaluation and verifiability of the internal control processes that are put in place to ensure the integrity of the financial statements.
In other words, in addition to the financial audit itself, intensive audit and related documentation works must be performed on the internal control processes.
In TELKOM’s experience, before it can audit the Company’s internal control processes, it first has to establish standardised and documented procedures on the internal control process which would render the entire process auditable. The laying of groundworks and foundation for the implementation of the so-called, Integrated Audit - the audits of both TELKOM’s financial statements and internal control process over financial reporting – had taken up much of TELKOM’s management time and resources in the past three years.
No Summary of SOA 302 Requirement Kep-40/ PM/ 2003 Kep-42/ PM/ 1996 Kep-41/ PM/ 1996 RI Law No. 8/ 1995
1 The report has been reviewed • • • •
2 The report does not contain any
untrue or misleading statements • • • • 3 Fair presentation of the financial
statement and other financial infor-mation included in the report
• • • •
4 Responsible for establishing and maintaining Disclosure Control and Procedure
•
4a Have designed control to ensure that material information is known to the CEO and CFO
• •
4b Have designed internal controls over financial reporting to ensure the reli-ability of the financial reporting is in accordance with GAAP
• •
4c Have evaluated the effectiveness of disclosure controls
4d Have indicated in the report any
sig-nificant changes to internal control • 5a Have disclosed to the audit
commit-tee and auditor significant controls deficiencies and material weakness
•
5b Have disclosed to the audit
Providing End-to-End
Telecommunications
Coverage
TELKOM is the leading provider of
fixed wireline and fixed wireless
telecommunications services in
Indonesia, providing over 98% of the
fixed line penetration in the Indonesian
telecommunications market today and is
the majority owner of Telkomsel, the largest
mobile cellular operator in the country,
Within Indonesia’s relatively low teledensity rates - defined as the number of telecommunications lines or lines in service per 100 population - of approximately 5.2 and 20.5 for fixed telephony and mobile cellular services, respectively, as at year-end 2005: The size and scope of TELKOM’s telecommunications network is considerable as compared to other Indonesian telecommunication’s operator. As of December 31, 2005, the number of TELKOM’s fixed lines in service, including fixed wireless access, amounts to 12.8 million lines.
TELKOM’s extensive and broad telecommunications network not only represents a powerful business and growth engine for TELKOM and its stakeholders, but also serves as a strategic asset. This network consists of transmission and switching facilities that connect several network access nodes. TELKOM’s transmission links between nodes and switching facilities to date include optical fiber cable, microwave, submarine cable and satellite systems with a total capacity of 582,840 circuits as at year-end 2005, up from 555,700 circuits in 2004.
No telecommunications services provider other than TELKOM has that much backbone transmission facilities to link Indonesia’s telecommunications infrastructure from one end of the Archipelago to another. Having acquired four of the five KSO units in TELKOM’s regional divisions I (Sumatera), III (Banten and West Java), IV (Central Java) and VI (Kalimantan) –and having consolidated these units into TELKOM’s operating structure which initially comprised only of regional divisions II (Greater Jakarta Area) and V (East Java)– TELKOM is closer than ever to providing seamless end-to-end terrestrial telecommunications network linking throughout Indonesia. The only remaining KSO that is not under the ownership control of TELKOM pertains to regional division VII covering the Eastern Indonesian Islands from Sulawesi to the Mollucas and Papua. As per current agreement, however, the termination period of KSO VII will be in 2010, at which time TELKOM will have gained ownership rights to all of the assets of the last remaining KSO.
TELKOM is fully committed to providing telecommunications coverage throughout the Indonesian Archipelago. Thus, in the effort to broaden its terrestrial network further, at a fraction of the cost of laying down digital telephone lines, TELKOM is relying on the CDMA 2000
