ITEM 4. INFORMATION ON THE COMPANY
B. BUSINESS OVERVIEW Strategy
2020
We actively took part into several initiatives in response to the COVID-19 outbreak at the level of our company, our communities and nationally. In particular, we further increased our network reliability and availability, and accessibility to our services at affordable prices as more people were asked to work from home or study from home. We also participated in the development of tracking applications, including for purposes of the Indonesian vaccination campaign.
We started building a Telkom HyperScale Data Center in July 2020. This mega-capacity data center of tier 3 and 4 class will complement 26 data centers which are already operational (five international data centers, 18 neuCentrIX and three tier 3 and 4 data centers). Telkom HyperScale Data Center is intended to support Indonesia's digital transformation by enabling global players and corporations from various sectors such as financial institutions, the Government and its agencies, manufacturers, content providers, global cloud providers to further develop access to their services and continue their digitalization efforts.
In October 2020, Telkomsel entered into a conditional sales and purchase agreement for the sale of 6,050 telecommunication towers to Mitratel. The transfer of these telecommunication towers is expected to strengthen Mitratel’s core business and increase its value, as well as help achieve its long-term plans.
In November 2020, Telkomsel entered into a new collaboration with, and made a USD150 million investment in PT Aplikasi Karya Anak Bangsa (“Gojek”).
Telkomsel added 18,937 BTS towers to its BTS network, representing a 8.9% increase compared to 2019.
The number of IndiHome subscribers increased by 1.0 million, or 14.5%, from 7.0 million subscribers in 2019 to 8.0 million subscribers.
B. BUSINESS OVERVIEW
We have been strengthening our digital capabilities and intend to further expand our leadership in connectivity- driven business and provide end-to-end digital experience to our customers. We have been enhancing our digital connectivity offering to businesses, invested in our digital platform, and diversified our digital service offering as we pursue maximizing value to our customers and stakeholders through cash flow optimization, value creation and the enhancement of synergies. To that end, we have been expanding the backbone network infrastructure and broadband network access throughout Indonesia and expanded and improved our offering of digital services. For instance, in the mobile segment, we have developed digital advertising, mobile banking and financial services and the IoT, in addition to digital lifestyle services that focus on providing cellular technology-based entertainment experiences such as music, video streaming, games, and other value-added mobile service platforms. In the Enterprise segment, we provide end-to-end digital solutions for corporate customers, small and medium business and government institutions that require digital connectivity, IT services, data center and cloud, business process outsourcing and other support services. In the Consumer segment, we offer more high-speed package options, TV/Video channels, games, and improved the monetization of digital inventory for digital advertising. In the Wholesale and International Business segment, we provide digital connectivity including data centers for service providers and digital players, both domestically and globally.
We also engage in inorganic growth to enhance our digital capabilities and strengthen our digital services ecosystem, through acquisitions and collaborations or partnerships with other parties who have superior digital capabilities.
For instance, in 2019 and 2021, our subsidiary Mitratel acquired equity interests in PT Persada Sokka Tama (resulting in PT Persada Sokka Tama becoming a wholly-owned subsidiary of Mitratel in the first quarter of 2021) and acquired 2,100 telecommunications towers from PT Indosat Tbk in Indonesia; in October 2020, Mitratel entered into a conditional sale and purchase agreement with Telkomsel for the acquisition of 6,050 telecommunications towers, 1,911 of which were transferred to Mitratel in October 2020 with the remaining balance similarly transferred in February 2021. With those acquisitions, we seek to continue to consolidate and strengthen our telecommunications tower network throughout Indonesia. Furthermore, we continue to strengthen our digital ecosystem: in 2020, we have entered into a strategic partnership with Gojek and our subsidiary Telkomsel invested US$150 million in the form of a subscription to convertible bonds in this innovative and well-recognized Indonesian technology company. We expect this strategic partnership will allow us to provide users and the community with better services and solutions through the development of an inclusive and sustainable digital ecosystem. While we expand and diversify our businesses, we intend to maintain our high corporate governance standards and enhance our risk management and compliance functions.
In pursuing our objective to create corporate value, we implement principles of good governance and guidelines and initiatives to achieve sustainable growth. There are five main components in our corporate and social responsibility initiatives that we implement to achieve such sustainable growth:
• technology and digitalization: we select and use technology that suits a sustainable business, both considering the social and environmental impacts of such technology and the use of resources it requires. We have implemented and keep developing digitalized processes internally to increase efficiency and optimize the use of resources;
• data and information: we have a strong commitment to data privacy and security, in particular in connection with our customers' information. Data security and privacy are increasingly the focus of laws and regulations and we have a responsibility to prevent the misappropriation and misuse of confidential data and information and the illegal use of our network and equipment to obtain such information and data;
• customer engagement: we regularly engage with our customers to maintain and increase their satisfaction and loyalty and better understand and anticipate their needs and concerns, including their sustainability values and aspirations;
• our people and culture: we believe in our people and invest in the development of a digitally-savvy workforce and seek to instill a culture that values professionalism and the acquisition of new skills. We respect diversity in the workplace and believe in giving equal opportunities to people of different backgrounds and gender;
and
• sustainable economy: we believe we are well placed to directly and indirectly promote sustainability by supporting and enabling the development of digitalization and promoting corporate practices which are respectful of the environment.
Business Portfolios
Our business portfolios are organized through business lines that can be categorized into three digital domains:
digital connectivity, digital platform and digital service, along with our legacy services comprising voice and SMS services. Our product portfolios are operated under the following five key segments to create, enhance and deliver value to our customers:
• mobile segment comprises mobile broadband services, mobile digital services that include financial services, video on demand (VOD), music, gaming, IoT solutions, big data analytics, digital ads, and mobile legacy services such as mobile voice and SMS;
• consumer segment comprises fixed voice services, fixed broadband services, IPTV, and related consumer digital services;
• enterprise segment mainly comprises ICT and digital platform that covers enterprise-grade connectivity services, including satellite, IT services, data center and cloud, business process outsourcing, and other adjacent services;
• wholesale and international business segment comprises wholesale telecommunications carrier services, international business, tower business, and infrastructure and network management services; and
• other segment comprises digital services offerings such as digital platform, digital content, and e-commerce for B2B to support other segments, and property management as our effort to leverage Telkom's property assets across Indonesia.
Historically, we generated the largest share of our revenue from services relating to digital connectivity. Our business has not experienced significant seasonality.
The following is a brief overview of our product portfolios.
1. Mobile Segment
Our mobile segment portfolio comprises mobile voice, SMS, mobile data services, and mobile digital services.
We provide mobile and cellular communications services with GSM, 3G and 4G/LTE technology through our subsidiary, Telkomsel. Mobile services (including mobile data services) remained the largest contributor to our consolidated revenues in 2020.
Our prepaid services, used by 96.2% of our cellular subscribers as of December 31, 2020, are marketed under the brands simPATI, Kartu As, Loop and by.U, our postpaid mobile services, used by 3.8% of our cellular subscribers as of December 31, 2020, are marketed under the brand kartuHalo.
Our total cellular subscriber base decreased by 0.9% or 1.6 million subscribers, from 171.1 million subscribers (comprising 164.7 million prepaid subscribers and 6.4 million postpaid subscribers) as of December 31, 2019, to 169.5 million subscribers (comprising 163.0 million prepaid subscribers and 6.5 million postpaid subscribers), as of December 31, 2020. The decrease in our total cellular subscriber base was mainly due to the COVID-19 pandemic which had a negative impact on the overall Indonesian economy and individuals' purchasing power. In addition, we were and are still subject to intense competition in our industry.
Our mobile broadband services for all of our customers are supported by 4G/LTE/HSDPA/3G/EDGE/GPRS technology. As of December 31, 2020, we had 115.9 million Telkomsel data users, compared to 110.3 million data users as of December 31, 2019, an increase of 5.2%, or 5.7 million data users. This increase was primarily due to the launch of our new Smart program in 2020 in an effort to customers' demand, market dynamics and affordability concerns. We took initiatives to increase our competitiveness and retain existing customers or acquire new customers with better-priced products with added value to customers and increased network capacity. In addition, we continue to explore opportunities for digitalization to meet customers' needs, increase connectivity and identify new sources of growth. We have expanded our product portfolio to offer services related to health-tech, edu-tech, gaming, video contents, fintech and services to support the B2B segment.
In addition to our digital connectivity business, we established several digital service offerings within our mobile segment with a specific focus on: financial services, video on demand, music, gaming, advertising and IoT. Our mobile segment comprises a financial payment platform, T-Cash, that pioneered digital payment when it started in 2007. In 2019, T-Cash became LinkAja under PT Fintek Karya Nusantara ("Finarya"). As at the date hereof, Telkomsel owns a 25%
equity interest in Finarya. We also offer video content on demand under MAXstream, a one-stop video portal that aggregates Over The Top video applications, linear channels, Video On Demand and other original contents from Disney+, Netflix and other Over The Top video service providers through a bundling of broadband data packages. We provide music and gaming services that offer a mobile entertainment experience by targeting various consumer segments and leveraging Telkomsel's trusted billing system. We have applications for music (e.g., Langit Musik and an application for ring back tones) and Telkomsel Dunia Games, which provides a complete gaming ecosystem combining media contents, distribution, payment facilities, e-sport and game publishing. We launched online games and started developing gaming communities to expand our customer experience in that area in 2019.
In November 2020, Telkomsel and Gojek entered into an ambitious strategic partnership. We believe this partnership with a premier and innovative technology company such as Gojek will be transformative for Telkomsel and help Telkomsel achieve its goal to become a truly digital telecommunications company. Gojek has already developed a complete and well-recognized digital ecosystem for users, drivers and merchants. Our partnership with Gojek is multi- faceted. We intend to jointly promote products and services such as SIM card promotions and advertising packages, and carry out co-branding activities to better service our respective customers and expand our addressable markets. For instance, we have offered data packages and discounts designed for Gojek drivers. We also collaborate with Gojek to better understand consumption habits and the behaviors of users and customers to improve our products and solutions offerings. We expect Telkomsel will further diversify its product offering and increase data revenue, expand its total addressable market, achieve higher data penetration, reduce customer churn and consolidate its leadership position thanks to the opportunities this partnership will create.
The Job Creation Law, passed in 2020, aims, among other things, to support the acceleration of digitalization and accessibility of broadband services in Indonesia through various means, including preventing inefficiencies through the optimization of the frequency spectrum and limiting passive infrastructure with certain network sharing obligations imposed on non-telecommunications companies (under certain conditions), and ensuring a sustainable competitive environment through price regulation. As set out in GR No.46/2021, November 2, 2022, is the deadline for the switch from analog to digital television broadcasting as analog television broadcasting will have to cease by then. Such analog switch off (ASO) will free up 112MHz in the 700MHz frequency band that can be used for mobile data.
2. Consumer Segment
Our consumer segment portfolio comprises fixed voice, fixed broadband services, and IPTV including consumer digital services. It is marketed under the retail brand "IndiHome," a product that allows customers to choose one or more of such services.
In 2020, we continued to actively promote our "more for less" program, which aims to provide customers with more relevant benefits at a competitive price through bundling services. These services consisted of broadband internet, fixed wireline phone and interactive TV services. We offered promotions for IndiHome products during festive campaigns and offered year-end and seasonal packages at a promotional price. Such offers were intended to increase revenue from upselling and cross-selling our products and services. Considering challenges faced by our customers and the public during the COVID-19 outbreak, we have also launched specifically-designed packages to assist people who had or still have to study or learn from home or involved in distance learning activities ("Paket Learning From Home" and "Paket Guru dan Dosen" packages). We have also provided special packages for places of worship to support their online activities during the COVID-19 pandemic.
In addition, we continue to develop products and technologies to meet our customers' aspirations and needs. In 2020, we launched IndiHome Gamer 2.0 with an improved speed ratio. We also partnered with game publishers to launch new games as add-on benefits, enhance our cloud storage services with new features, and expand our customers' ability to upgrade the speed of their internet.
Our IPTV service, IndiHome TV, is bundled within our IndiHome service offering, delivered via Android TV box devices connected with the Google Ecosystem. Our IPTV services include linear TV channels, TV-on-demand, video- on-demand (VOD), and are extended to add OTT services with the UseeTV Go application and UseeTV.com website for enjoying multi-screening and access to TV anywhere. We continue to enrich the variety of our IndiHome TV channels with new high-definition channels such as HGTV, CinemaWorld, Discovery, Disney Junior, Animax, and our very own news and lifestyle channel SEA Today, one of our 7 in-house channels. IndiHome TV Channel delivers 242 channels (156 SD Channels, 81 HD Channels and 5 Dolby Channels).
We also offer OTT contents from partners such as iflix, Catchplay+, Vidio and Mola TV to enhance our customers' experience. In addition, we released new VOD, and GameQoo cloud gaming services for users of IndiBox, our OTT services based on Android TV Box devices that we launched in 2019 and allow customers to access streaming TV, music, games, various applications and VOD. As of December 31, 2020, we had approximately 8 million fixed broadband IndiHome customers and we estimate this represented approximately 82.3% of the market share of fixed broadband customers in Indonesia.
We also offer wifi.id services to our IndiHome customers, an add-on service which allows such customers to enjoy unlimited internet access at all wifi.id access points in Indonesia. Wifi.id stands for Indonesia Wi-Fi, our wireless public internet network that provides user facilities to enjoy high-speed internet services and various other multimedia services.
3. Enterprise Segment
Our enterprise segment comprises mainly ICT and platform services that cover enterprise-grade connectivity services (including satellite services), data center and cloud, IT services, business process outsourcing, and other ancillary services.
For enterprise connectivity, we offer fixed broadband, Wi-Fi, Ethernet, and data communication services, including a SD-WAN ecosystem enabling higher performance of WANs, leased channels such as metro Ethernet, VPN- IP, high-capacity data network solutions giving point-to-point connection with high-capacity bandwidth, and fixed voice services, among others. We also provide satellite services as part of enterprise connectivity offering and continue to strengthen our presence in this sector through our providing of transponder capacity leasing, satellite secondary product lines and other satellite support solutions. Our satellite operations consist primarily of leasing satellite transponder capacity to broadcasters and operators of VSAT, cellular services, and ISPs, as well as providing earth station satellite up-link and down-link services for domestic and international users.
To address the significant increase in demand, we continue to enhance our data center facilities and cloud services.
Our offering includes the providing of enterprise data center, collocation, hosting, disaster recovery centers, managed operation, data center consulting, and various cloud services such as private cloud, hybrid cloud and public cloud. In December 2020, we launched Flou cloud services which provide a hybrid cloud (a mix of private and public cloud functions) targeting SME customers with affordable tier-based pricing packages. In June 2020, we launched Flou Cloud, cloud services designed to support their transition towards digitalization of Indonesian startups, small and medium businesses, companies and government agencies. Cloud services offered include cloud computing services, data storage and management, network services, data protection and access to databases.
We provide system integration and IT service management, together with related business process management, business process as-a-service and customer relationship management services. We aspire to digitalize our service offering further, therefore, we are relentlessly focusing on strengthening our IT capabilities to reinforce our offerings going forward.
We also provide smart enabler platform services to promote innovation with next-generation technology solution, integrated industry ecosystems and to foster changes in consumer behavior in Indonesia. Our adjacent services comprise diverse services relating to software, devices and hardware (including IT hardware) sales and certain related services such as IT support services. Moreover, we offer financial services which consist of bill payment aggregators, electronic payment platform services, online payment solutions, payment switching services. We also offer digital advertising solutions such as media placement services and creative solutions, integrated digital media services such as digital out-of-home, mobile advertising, online advertising, and digital printing services. Big data and data analytics in the form of platform services that generate insights for customers to analyze consumer behavior and create more efficient marketing campaigns are also included in our service portfolio. We also provide smart enablers platform services and assist with customer relationship management, among other things: IoT services which offer IoT solutions for buildings, IoT applications for smart energy monitoring and management, fleet management, unified communication and collaboration services, IT security services, and other adjacent services. Lastly, our e-Health solutions provide a simplified procedure and standardized healthcare claim process between healthcare providers, patients, and insurance providers that leverages our digital and IT service capabilities.
A number of our customers whose business and operations have been negatively affected by the COVID-19 pandemic have requested payment extensions for payments relating to projects completed in 2020, which we have been generally agreeable to. Such deferred payments, however, did not have a significant impact on our cash flows and results of operations in 2020.
4. Wholesale and International Segment
Our wholesale and international business segment includes our wholesale telecommunications carrier services business, tower business, infrastructure services business, and international business.