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ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company
C. Business and Organizational Structure
Information on Subsidiaries and Associated Companies Subsidiaries
As of December 31, 2005, TELKOM had interests in nine consolidated subsidiaries and six unconsolidated associated companies. The business activities of the consolidated subsidiaries (as further described below) are described as part of TELKOM’s business in this Form 20-F, as well as in Note 1c to the consolidated financial statements. For a description of the activities of TELKOM’s unconsolidated associated companies, please see “Unconsolidated Associated Companies” below and Note 11 to the consolidated financial statements.
The following table sets forth TELKOM’s direct ownership interest in companies as of December 31, 2005. TELKOM’s ownership interests in associated companies may be increased or diluted as a result of TELKOM’s planned restructuring of its legal ownership interests in these companies to focus on phone, mobile and multimedia businesses. In January 2006, TELKOM’s subsidiary, PT Multimedia
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Description Tariff
Access Charge Rp.850/successful call
Usage Charge Rp.550/paid minute
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Nusantara (“Metra”) together with PT Mekar Prana Indah (owned by Dana Pensiun Bank Indonesia (Bank Indonesia’s Pension Fund) and Yayasan Kesejahteraan Karyawan Bank Indonesia) established a company called PT Finnet Indonesia. The new company will provide nationwide financial network services transmitting banking data throughout Indonesia.
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Legal Ownership (%)
As of December 31,
Company 2005 Notes Business Operations
Consolidated subsidiaries
Fixed Phone:
PT AriaWest International (“AriaWest”) 100 (1) Fixed-phone (KSO-III West Java & Banten)
PT Dayamitra Telekomunikasi (“Dayamitra”) 100 (2) Fixed-phone (KSO-VI Kalimantan)
PT Pramindo Ikat Nusantara (“Pramindo”) 100 (3) Fixed-phone (KSO-I Sumatera)
Cellular:
PT Telekomunikasi Selular (“Telkomsel”) 65 (4) GSM cellular phone services
Application, Content, Datacom:
PT Multimedia Nusantara (“Metra”) 100 (5) Multimedia, Pay TV
PT Infomedia Nusantara (“Infomedia”)
51 (6) Telephone directory and other information services (electronic based business, call center and data segment)
PT Indonusa Telemedia (“Indonusa”) 96 (7) Interactive multimedia, Pay TV
PT Napsindo Primatel Internasional (“Napsindo”) 60 (8) Network Access Point
Property & Construction:
PT Graha Sarana Duta (“GSD”) 100 (9) Real estate, construction and services
Where TELKOM owns between 20% to 50%:
PT Patra Telekomunikasi Indonesia (“Patrakom”) 40.00 (10) VSAT services
PT Citra Sari Makmur (“CSM”) 25.00 (11) VSAT and other telecommunications services
PT Pasifik Satelit Nusantara (“PSN”) 35.50 (12) Satellite transponder & communications
Where TELKOM owns less than 20%:
PT Mandara Selular Indonesia (“MSI”) 1.33 (13) NMT-450 cellular and CDMA services
PT Batam Bintan Telekomunikasi (“BBT”) 5.00 (14) Fixed-phone (in Batam & Bintan islands) PT Pembangunan Telekomunikasi Indonesia (“Bangtelindo”) 3.18 (15) Telco network & equipment maintenance
Bridge Mobile Pte. Ltd. 12.50 (16) Mobile services (in the Asia Pacific)
(1) TELKOM fully controlled AriaWest from July 31, 2003, after acquiring 100% of AriaWest from PT.Aria Infotek (52.50%), MediaOne International I B.V. (35%) and The Asian Infrastructure Fund (12.50%). Pursuant to the Sale and Purchase Agreement dated September 12, 2005, one share in AriaWest was transferred to Mr. John Welly in order to comply with the legal requirement that Indonesian limited liability companies should have more than one shareholder.
(2) TELKOM controlled 100% of the shares of Dayamitra from December 14, 2004, following the acquisition of 9.68% shares of Dayamitra from TM Communications (HK) Ltd., which increased TELKOM’s ownership in Dayamitra from 90.32% to 100%. One TELKOM’s share in Dayamitra was transferred to Mr. Robby Rubama Sadeli in order to comply with the legal requirement that Indonesian limited liability companies be owned by more than one shareholder.
(3) TELKOM and the shareholders of Pramindo signed a Conditional Sale and Purchase Agreement for the sale of the Pramindo shares on April 19, 2002, pursuant to which TELKOM received 30% of the shares of Pramindo in August 2002 and additional 15% in September 2003 while the remaining 55% was to be transferred to TELKOM on December 15, 2004. Although TELKOM only had 30% of the shares of Pramindo, TELKOM acquired control of Pramindo on August 15, 2002 and accordingly, TELKOM consolidated 100% of Pramindo from August 15, 2002. TELKOM signed a short-term loan agreement with ABN AMRO Bank N.V. Jakarta in the amount of approximately US$130 million on January 29, 2004 to finance the accelerated purchase of the remaining 55%. On March 15, 2004, TELKOM used the loan proceeds to repurchase the promissory notes that were due on June 15, 2004, September 15, 2004 and December 15, 2004. Following this transaction, TELKOM owned 100% of Pramindo. One of TELKOM’s shares in Pramindo was transferred to Mr. Adek Julianwar in order to comply with the legal requirement that Indonesian limited liability companies be owned by more than one shareholder.
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Patrakom was established in September 1995 and as of the date of this Annual Report is owned by TELKOM (40%), PT Elnusa (40%) and PT Tanjung Mustika (20%). Patrakom provides satellite communication (VSAT) and related services and facilities to companies in various industries.
PT Citra Sari Makmur (“CSM”)
CSM was established in February 1986 and as of the date of this Annual Report is owned by TELKOM (25%), PT Tigatra Media (38.29%) and Media Trio (L) Inc. Malaysia (36.71%). CSM is incorporated in Indonesia and provides telecommunications services relating to VSAT applications and other telecommunications technology and related facilities.
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(4) Telkomsel was established in 1995 by TELKOM (51%) and PT Indosat Tbk (49%). Following various transactions and changes in ownership, Telkomsel is currently owned by TELKOM (65%) and Singapore Telecom Mobile Pte. Ltd. (35%).
(5) TELKOM increased its ownership in Metra on April 8, 2003 to 100% by acquiring 69% of the shares of Metra from PT Indocitra Grahabawana under a share-swap transaction. TELKOM intends to use Metra to operate multimedia services in line with TELKOM’s strategy to focus on phone, mobile and multimedia services. Pursuant to a sale and purchase agreement dated September 12, 2005, one share in Metra was transferred by TELKOM to Mr. John Welly in order to comply with the legal requirement that Indonesian limited liability companies be owned by more than one shareholder.
(6) Infomedia was established in 1984 by TELKOM (51%) and PT Elnusa (49%), a subsidiary of PERTAMINA — an Indonesian state-owned oil company.
(7) On August 8, 2003, TELKOM and PT Centralindo Pancasakti Cellular (“CPSC”) signed a share-swap agreement pursuant to which TELKOM received an additional 31%
of the shares of Indonusa from CPSC. Following this transaction, TELKOM’s ownership in Indonusa increased from 57% to 88%. Pursuant to an extraordinary general meeting of the shareholders of Indonusa on October 29, 2003, all of the stockholders agreed to convert an additional Rp.13,500 million of debt owed by Indonusa to TELKOM into newly issued shares of Indonusa. Following such conversion, TELKOM’s ownership in Indonusa increased from 88% to 90%. As of December 31, 2005, CPSC did not hold any shares in Indonusa. CPSC is not a major customer of TELKOM. In November 2005, TELKOM increased its ownership in Indonusa from 90% to 96% by acquiring 5.29% of the shares in Indonusa, owned by PT Megacell Media.
(8) TELKOM increased its ownership in Napsindo from 32% to 60% by acquiring 28% of the shares of Napsindo from PT Info Asia Sukses Mandiri (“InfoAsia”) on January 28, 2003.
(9) TELKOM acquired 100% of GSD in April 2001 from Koperasi Mitra Duta and Dana Pensiun Bank Duta. TELKOM transferred one of such shares to Mr. Martono in order to comply with the legal requirement that Indonesian limited liability companies should be owned by more than one shareholder.
(10) On August 26, 2005 TELKOM purchased a 10% stake in PT Patra Telekomunikasi Indonesia (“Patrakom”) from Indosat. As a result, TELKOM’s ownership in Patrakom increased from 30% to 40%.
(11) CSM was established in 1986 by Mr. Subagio Wirjoatmodjo and Bell Atlantic Indonesia Inc. Currently, CSM is owned by PT Tigatra Media (38.29%), Media Trio (L) Inc.
Malaysia (36.71%), and TELKOM (25%).
(12) As part of the agreement signed on August 8, 2003 between TELKOM and CPSC, TELKOM was entitled to receive CPSC’s 21.12% interest in PSN within a period of one year from the date the agreement was signed. During this period, all of CPSC’s rights in respect of the shares were granted to TELKOM. TELKOM received the shares of CPSC in PSN on August 9, 2004, increasing its legal ownership interest in PSN to 43.69%. PSN and its creditors have consummated a debt-to-equity conversion, pursuant to which PSN issued 18,180,660 new shares to the creditors. The conversion has the effect of diluting the shareholding percentage of the existing shareholders of PSN, including TELKOM. In 2005, TELKOM’s ownership interest in PSN was diluted to 35.5% as a result of the debt-to-equity conversion.
(13) In July 2003 and January 2004, MSI carried out a series of debt to equity conversions, resulting in a dilution of TELKOM’s ownership interest from 25% to 6.4%. In December 2004 and May 2005, MSI issued new shares to MSI’s other shareholders, resulting in a further dilution of TELKOM’s ownership interest to 1.33%. On January 13, 2006, TELKOM sold its entire ownership interest in MSI to a third party, namely, Twinwood Venture Limited.
(14) BBT was established in 1996 by PT Batamindo Investment Co (95%) and TELKOM (5%). BBT provides fixed line services at Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan Beach International Resort and Bintan Industrial Estate in Bintan Island. There are special economic and tourist development zones on those islands.
(15) Bangtelindo was established in 1993 by TELKOM (15%), PT Indosat (15%), PT Inti (15%) and other shareholders (55%). Bangtelindo is currently owned by Dana Pensiun TELKOM (82%), TELKOM (3.18%) and other shareholders (14.82%).
(16) Bridge Mobile Pte. Ltd. (Singapore) was established in 2004 by Telkomsel (14.286%) and six other international mobile operators in the Asia-Pacific region. On April 14, 2005, Telkomsel’s ownership interest was diluted to 12.5% following the issuance of new shares by Bridge Mobile Pte. Ltd. to a new shareholder, namely, Hong Kong CSL Limited.
Unconsolidated Associated Companies
PT Patra Telekomunikasi Indonesia (“Patrakom”)
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PT Pasifik Satelit Nusantara (“PSN”)
PSN was established in July 1991 and as of the date of this Annual Report, PSN is legally owned by TELKOM (35.50%), Skaisnetindo Teknotama (2.90%), Hughes Space and Communications International (5.88%), Telesat Canada (5.88%), Bank of New York (15.81%) and others (34.03%) (including holders of American Depositary Shares of PSN who own 19.46% of PSN). PSN provides satellite leasing and satellite-based communication services to countries within the Asia Pacific region. PSN conducted an initial public offering of its common stock and listing on NASDAQ in June 1996, but was delisted on November 6, 2001 due to its failure to meet certain NASDAQ National Market Listing requirements.
As of December 31, 2001, TELKOM’s share of losses in PSN has exceeded the carrying amount of the investment. Accordingly, the investment has been reduced to zero.
As part of the agreement signed on August 8, 2003 between TELKOM and CPSC, TELKOM was entitled to receive CPSC’s 21.12%
interest in PSN within a period of one year from the date the agreement was signed. During this period, all of CPSC’s rights in respect of the shares were granted to TELKOM. TELKOM received the shares of CPSC in PSN on August 9, 2004, increasing its legal ownership interest in PSN to 43.69%. In 2005, TELKOM’s ownership interest in PSN was diluted to 35.5% as a result of the debt-to-equity conversion by PSN.
As of the date of this Annual Report, TELKOM is evaluating the costs and benefits associated with an increase of its ownership in PSN to develop a retail satellite based service such as cellular via satellite and to support the government program for providing telecommunications lines to remote areas.
MSI was established on November 30, 1995 by TELKOM, TELKOM’s Pension Fund and PT Rajasa Hazanah Perkasa (“Rajasa”).
As of December 31, 2002, the value of investment has been reduced to zero because TELKOM’s share of loss exceeded the carrying amount of the investment in MSI.
As of the date of this Annual Report, MSI provides NMT-450 services formerly provided by TELKOM and Rajasa pursuant to a PBH in Java, Bali, Lombok, Sumatera and Lampung. Currently, there is no plan to expand NMT-450 services as it is considered to be obsolete.
Mobisel also launched a CDMA-based network in Lampung in mid-February 2004. In July 2003 and January 2004, MSI carried out a series of debt to equity conversions, resulting in a dilution of TELKOM’s ownership interest from 25% to 6.4%. In December 2004 and May 2005, MSI issued new shares to MSI’s other shareholders, resulting in a further dilution of TELKOM’s ownership interest to 1.33%. On January 13, 2006, TELKOM sold its entire ownership interest in MSI to a third party, namely, Twinwood Venture Limited. The resulting gain was not significant to TELKOM’s consolidated statement of income.
PT Batam Bintan Telekomunikasi (“BBT”)
BBT was established in June 1996 and as of the date of this Annual Report is owned by TELKOM (5%) and Batamindo Investment (95%).
BBT provides fixed line telecommunications services at Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan Beach International Resort and Bintan Industrial Estate in Bintan Island which are special economic and tourist development zones on those islands.
As at December 31, 2005, BBT had approximately 2,715 subscribers.
PT Pembangunan Telekomunikasi Indonesia (“Bangtelindo”)
Bangtelindo was established in December 1993 in Indonesia. The shareholders of Bangtelindo are TELKOM (3.18%), TELKOM’s Pension Fund (82%) and others (14.82%). Bangtelindo’s primary
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PT Mandara Selular Indonesia (“MSI”), (previously referred to as PT Mobile Selular Indonesia (“Mobisel”)
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business is providing telecommunications network maintenance services and consultancy services on the installation and maintenance of telecommunications facilities.
Bridge Mobile Pte. Ltd.
On November 3, 2004, Telkomsel together with six other international mobile operators in the Asia Pacific established Bridge Mobile Pte.
Ltd. (Singapore), a company that is engaged in providing regional mobile services in the Asia Pacific.
Telkomsel contributed US$1.0 million (Rp.9.3 billion) which represented a 14.286% ownership interest. In 2005, TELKOM’s ownership interest in Bridge Mobile Pte. Ltd. was diluted to 12.5% as a result of the issuance of shares by Bridge Mobile Pte. Ltd. to a new shareholder, namely, Hong Kong CSL Limited.