ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ET
We are conducting research on network infrastructure to find access technologies capable of delivering data to customers at higher speeds, with lower delays and better performance. Examples of such technologies include Fixed Mobile Convergence, Wi-Fi 6 and 5G. We consider digital connectivity as a key factor in ensuring that we will retain our leading position as a digital telecommunications player in Indonesia. We also collaborate with technology owners in activities that aim to enhance our current products and services while creating new business models to generate new streams of revenue. For example, we are actively developing and ramping up our 5G capabilities, remodeling our network for such technology and developing 5G new uses in collaboration with technology owners. In addition, to closely collaborating with our partners to ensure we have the right 5G technology, architecture, and network in place, we closely work with our sales and marketing department to assess Indonesian customers' needs and expectations in terms of 5G services and affordability.
The quality of Wi-Fi at home is very important to our customers. We research Wi-Fi technologies, to maximize customer experience and enable to access more of our products and services. Wi-Fi 6 (802.11ax) is the newest technology that is comparable to 5G technology. It has the ability to handle traffic in a crowded or noisy environment while still providing high speed throughput, capacity and performance to our customers. In addition, to improve our customer experience, we also developed an optical network terminal ("ONT") with dual band capability to solve noise issues that often occur in customers' homes. We develop our system to support many of our developing services. For example, IoT services that becoming increasingly prevalent, in particular smart home systems, and these need different solutions that guarantee communication with the platform. The growing gaming community also has specific service requirements that enhance their experience. In addition, to support the implementation of low-cost Wi-Fi enterprise services, we carry out research on Wi-Fi controllers, such as cloud-based Wi-Fi controllers that are practically open and able to integrate with specific AP (Access Point).
We conduct research on infrastructure services, such as triple play services (video, voice and internet), and service quality and experience. We are constantly trying to identify the best technology for the use and development of TV and video platforms, video conferencing platforms, voice communication platforms such as the IP Multimedia Subsystem (IMS) and Session Border Controller (SBC) for telephony services, infrastructure virtualization (edge cloud, virtual content delivery network & virtual set-top box) to provide the best quality of services and the best customer experience. Those service node technologies have been evolving with the use of cloud native virtual technology that enhances speed, flexibility of deployment and operating efficiency. Our research, among other things, aims to identify and develop network technology and service management that can improve customer experience in accessing and using media and telecommunications services in this digital era.
We believe that our assessment and testing of future technologies and the IoT will contribute to our long-term success, particularly in terms of updating our knowledge and developing our human capital. This may create opportunities for additional revenues and cost savings in the future. The Low Power Wide Area Network (LPWAN) especially LoRa, IoT platform, and 5G technology are among the technologies that we have begun to explore in relation to the IoT. Our research aims to pave the way towards a future in which smart factories, intelligent machines and networked processes are brought together to implement "Industry 4.0" initiatives. Our research has shown that the provision of space telecommunications infrastructure is increasingly important and therefore, we are studying non-geostationary orbit (NGSO) satellite technology, high altitude platform stations (HAPs), drones and balloons.
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As the main connectivity provider in the region, we are also concerned about cyber security and Distributed Denial of Service (DDoS) attacks that have been massively targeting ISPs and business customers in recent years. To mitigate the risk and to protect our valuable business customers from DDoS attacks, we have conducted research on and guided the implementation of carrier grade anti-DDoS solutions that can detect DDoS attacks and divert the traffics to a scrubbing system that will scrub the DDoS traffic and re-route clean traffic to our customers. As one of the main broadband internet service providers in Indonesia based on the number of subscribers and coverage, especially through our retail high-speed internet provider, IndiHome, we have conducted research on endpoint security, including Internet Protocol version 6 (IPv6). We are also researching security mechanisms that can be deployed within our digital factory, so that security will be inherent in our DevSecOps (Development-Security-Operation) methodology in providing our digital applications for enriching our customer's digital lifestyle securely as smartphone use increases. We have also developed our internal Data Breach Management Recommendations which offer guidance for mitigating the financial and reputational impact of data breaches and cyber incidents. A "data breach" refers to an incident resulting in exposure to potential unauthorized access of personal data within the possession of an organization or under its control. Data breaches often lead to financial losses and a loss of consumer trust. Hence, we must prevent and manage the risk of data breaches. The recommendations we have developed contain steps that should be considered and the parties that should be responsible for preventing and responding to data breaches involving our digital services.
In 2021, we set up a special task force called ITDRI (Indonesia Telecommunication and Digital Research Institute) which is embedded in our Telkom Corporate University Center (TCUC) to enhance our focus on research and innovation of digital platforms that are already demanded by our customers and technologies that have been adopted elsewhere which our CFUs believe there would be a market for in Indonesia. We want to create a pipeline of research, innovation and learning that continually delivers the latest technology to our customers and enhance our customers' experience.
Example of these technologies include artificial intelligence (AI) and blockchain. When we believe a technology is mature and there is a business case for its adoption, then we will task our research and innovation team to take things forward. In this connection, Telkom already has the Amoeba program which is an intrapreneurship program for product creation and talent development. We hope that the Amoeba program can help us to create digital products/services needed or demanded by the market.
Our research and development activities include our open innovation program where we aim to leverage the creativity of Indonesian digital technology entrepreneurs with the aim of integrating the products and services that they develop into our business. In practice, our products and services are designed and developed according to the needs of consumers in the current digital era. In connection with our efforts to develop such products and services, we continued our Digital Amoeba and Indigo programs (previously known as Indigo Creative Nation program). Digital Amoeba aims to capture and accelerate innovation internally at Telkom and its subsidiaries. Indigo is Telkom's open innovation program in collaboration with digital startups to develop Indonesia's digital creative industry while developing Telkom's digital business portfolio. Our subsidiary, PT Metra Digital Investama, also known as MDI Ventures, manages and invests venture funds in potential digital startups. We also provide office facilities for nurturing creativity such as shared meeting rooms, classrooms and common areas for entrepreneurs which are known as Digital Innovation Lounges ("DILo") and Digital Valley (“DiVa”). Through MDI Ventures, we manage 20 innovation hubs in 17 locations in Indonesia: 17 Digital Innovation Lounges (DILo), and 3 Digital Valleys (DiVa). In mid-2021, Indigo underwent rebranding and has been progressively integrating its ecosystem to provide end-to-end support for Indonesia's digital creative industry. DiLo has been rebranded to IndigoSpace and DiVa to IndigoHub. We shifted both IndigoSpace and IndigoHub from just coworking spaces that provide office facilities to becoming digital community enablers and growth partners for startups by providing practical guidance, support to validate business ideas and products, and support to connect startups to the local markets. Through this vast ecosystem, during 2021, Indigo conducted 471 community events that facilitated and engaged 273 startups throughout the nation.
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We conduct incubation and acceleration activities and provide mentorships to assist startups to develop and validate their customer, product, business model, and market validation. We occasionally provide seed financing in the form of equity to startups that we believe are commercially viable.
We also support startups to commercialize their products and services and obtain follow-on funding. As of December 31, 2021, 55 teams were actively validating new products and new processes, with 25 projects prioritized for accelerated development to potentially integrate into our business portfolio.
Since 2013, Indigo has incubated 196 startups. As of December 31, 2021, 110 startups had started commercial operations and an additional 4 startups had received funding from domestic and foreign investors. Some of startups have synergized with us in providing digital products and solutions such as:
● BIOPS: BIOPS provides IoT solutions for farmers that monitor soil fertility, rain density, temperature, and control crop irrigation with the goal of increasing farmers' productivity and harvest quality. We have combined BIOPS solutions and Tribe Agree capabilities in digitizing tens of hectares of smart farms in Malang and Lampung.
● ATOM: ATOM is a tool for developing mobile applications without the need to have programming language skills. We use ATOM as a platform for making prototyping mobile apps projects for BUMN innovations managed by ITDRI.
● Tumbasin: Tumbasin is an application platform that helps people shop at traditional markets with a vision of empowering traditional markets with technology. Tumbasin collaborates with Tribe Agree to sell agricultural products through Agree Market to traditional markets.
● Educourse: Educourse provide an e-learning education platform that has thousands of courses using STEAM (Science, Technology, Engineering, Arts, and Mathematics) blended learning approaches with AI and AR for a better learning experience. Educourse collaborates with Pijar Mahir to provide STEAM learning for pre-employment cardholders (Kartu Prakerja).
● Verihubs: Verihubs provides AI-based e-KYC solutions that utilizes face recognition and two-factor authentication technologies. We have used Verihubs solutions to complement Tribe Financial Service products such as QREN and MPS. The need for paperless KYC processes has significantly increased during the COVID-19 pandemic and is expected to become the new norm for financial institutions.
Beside synergy value, some Indigo startups have been successful in obtaining follow-on-funding in 2021. Verihubs, one of the startups from the 2020 batch has successfully secured fundings from external investors such as Insignia Venture Partners, Central Capital Ventura, and Armand Ventures.
The company has also become one of the few Indonesian startups being accepted to Y Combinator, a US-based startup accelerator which is currently considered the best accelerator program in the world. Another startup that secured fundings from external investors is Riliv, which received funding from East Ventures, one of the top-tier Indonesian VC firms. Six Indigo startups, Opsigo, IZY, Ctscope, Manpro, BIOPS, Digides, ETAB, and Fammi.ly were also selected to join HUB.ID, a startup accelerator program run by the Indonesian Kominfo, which focuses on creating synergy values between startups and Indonesian government agencies and state-owned enterprises.
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Our subsidiary PT Metra Digital Investama ("MDI Ventures") handles various corporate venture capital initiatives. It identifies investment opportunities, raises funds, aims to create synergies, in particular with Telkom Group companies and businesses, and maximize value creation, manages a significant investment portfolio and provides operational assistance and advice to startups after investing in them. Based in Jakarta, MDI Ventures has operations in Singapore and the United States. The focus of these investments is on high growth business verticals that are or will be able to deliver enhanced digital experience and best services to customers, such as financial technology, healthcare, logistic, agri-food tech, consumer, deep tech, among others. In 2021, MDI invested in more than 20 portfolio and new companies. Since 2016, MDI Ventures has invested in more than 57 startups in 12 countries. A number of these companies were the targets of mergers and acquisitions or even completed initial public offerings. MDI Ventures has collaborated with many Indonesian SOEs to build a digital ecosystem and accelerate the pace of digitalization of the Indonesian economy. MDI Ventures also collaborates with global investors to invest in global startups, and with global startup incubators and accelerators to support Telkom's Indigo Creative Nation program. As at the date hereof, MDI Ventures' fund management activities include managing the following funds (in addition to managing handling Telkom's fund management activities):
● PT Telkomsel Mitra Inovasi's TMI Fund: TMI focuses on funding startups that can create synergies and value creation for Telkomsel and typically invests in early to mid-stage startups. TMI has invested in 17 startups since 2019 with investments in various sectors, including fintech, logistics, edutech, healthcare and agriculture. In 2021, TMI successfully deployed 5 new investments to startups, such as Skor, Feedloop, Evermos, Privy.id and Klikdaily. In addition, TMI managed to close a top-up investment to its existing portfolio, Sekolahmu.
● Centauri Fund: launched in collaboration with KB Financial Group (KookMin Bank) from South Korea with a focus on growth-stage startups across Indonesia, Southeast Asia and South Korea. The fund has an initiative to provide support from their corporate backers and to bridge the border gap between the focus regions. In 2021, Centauri closed five investments into companies such as Cermati, Evermos and Cakap, raised additional funds from external limited partners and had a portfolio company (Runsystem) go public on the Indonesia Stock Exchange.
● Arise Fund: Started its operation in 2021 in collaboration with Finch Capital Netherlands and which mainly focuses on early-stage Indonesian startups developing innovative technologies. Arise successfully completed its first fundraising in August 2021 with commitments from several prominent investors, such as Metrodata Electronics Tbk. Arise successfully made its first investment in Luwjistik. This was followed by investment in other companies such as GoCement, Delos, and Agriaku. Some of Arise's portfolio companies ave received Term Sheets from new investor with valuations higher than at which Arise made its initial investment.
In 2021, MDI and TMI held its annual Nex-BE Fest 2021 (Next Billion Ecosystem Festival) in which we bring together Telkom Group companies, startups and State-Owned Enterprise companies in focused sectors such as Agriculture, Healthcare, and Fintech to collaborate in a synergistic manner. Through this event, startups and SOEs have one-on-one meetings to explore mutually beneficial business initiatives that they should pursue. The collaborative event aims to connect enterprises in related sectors with MDI and TMI startups to create new synergies or new businesses for generating new revenue.