Annual Report Telkom Indonesia 2001

Vision : to become a leading History in brief: 1882

1974

A private entity was established by the Dutch Colonial Administration to provide postal and telegraph services to the public.

PN Telekomunikasi was changed into a semi profit-making company called Perusahaan Umum Telekomunikasi (“Perumtel”) providing domestic and international telecommunications services.

1906 1980

The Dutch Administration formed an agency to assume control of post and telegraph services referred to as Post, Telegraph en Telephone Dienst (“PTT”).

PT Indonesian Satellite Corporation (“Indosat”) was established as a new separate company to operate international telecommunications services.

1945 1991

Indonesia proclaimed her independence as a free and sovereign state from the Dutch Colonial Administration.

Perumtel’s status was changed to a profit-making company called Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia (“Telkom”).

1961 The agency (PTT) status was changed to a state-owned and fully controlled company (Perusahaan Negara Pos dan Telekomunikasi (“PN Postel”).

1995 Telkom successfully completed its initial public offering (IPO). Ever since TELKOM shares are listed at the Jakarta Stock Exchange (JSX), Surabaya Stock Exchange (SSX), New York Stock Exchange (NYSE) and London Stock Exchange (LSE). TELKOM also offered its shares through a Public Offering Without Listing (POWL) at Tokyo Stock Exchange.

1965 PN Postel was split into two companies: Perusahaan Negara Pos dan Giro (“PN Pos dan Giro”) to manage postal services, and Perusahaan Negara Telekomunikasi (“PN Telekomunikasi”) to manage telecommunications services.

TA B L E O F C O N T E N T S Telkom at a Glance

1

Financial and Operational Highlights

2

Stock Highlights

4

Message from the Chairman of the Board

6

Message from the President Director to Shareholders

8

Business Overview

10

Steps toward Success

18

Human Resource

24

Society Development

26

Corporate Information

28

Management Discussion and Analysis

33

Financial Statements

48

InfoCom company in the region

Telkom at a glance

PT Telekomunikasi Indonesia, Tbk. (“Telkom”) is the most prominent telecommunications service provider in Indonesia providing information and communication (InfoCom) services and network. Telkom directly and through its associated companies provides a wide range of information and communications (“InfoCom”) services and network including fixed wire-lines), mobile (cellular), view (pay TV and cable TV), internet and multimedia services as well as other related services. Telkom currently holds majority interests in PT Telekomunikasi Selular (“Telkomsel”), PT Dayamitra Telekomunikasi (“Dayamitra”), PT Indonusa Telemedia (“Indonusa”), PT Infomedia Nusantara (“Infomedia”), and PT Graha Sarana Duta (“GSD”). Telkom also holds minority interests in other associated companies. Its consolidated total assets as of December 31, 2001 was Rp 32.47 trillion.

F I N A N C I A L A N D O P E R AT I O N A L H I G H L I G H T S

Financial Highlights These selected financial data for the year ended December 31, 2001 is restated from the company’s consolidated financial statements, and for the years ended December 31, 2000, 1999, 1998 and 1997 are restated from the company’s consolidated financial statements. Consolidated Statements of Income (In Millions of Rupiah and Thousands of U.S. Dollar, except shares and American Depositary Shares/ADS data) Under Indonesian GAAP

2001 Rp

OPERATING REVENUES Fixed-lines Cellular Revenue under Joint Operation Scheme Interconnection Revenues Other Telecommunications Services Total Operating Revenues

1997

5,177,864 2,914,514 2.267,154 1,008,424 744,040 12,111,996

4,528,902 1,755,222 1,677,217 732,510 691,863 9,385,720

3,805,207 1,091,982 1,591,537 453,212 647,738 7,589,676

3,205,876 586,800 1,646,292 477,000 484,084 6,400,052

278,269 211,502 199,588 126,684 21,643 837,686

2,419,069 1,385,735 1,610,196 871,683 147,160 6,433,843

2,626,484 1,146,419 1,224,474 570,864 76,245 5,644,485

2,467,818 725,477 903,898 675,328 51,411 4,823,932

1,801,686 551,294 891,182 625,079 81,414 3,950,655

OPERATING INCOME

7,615,700

749,208

5,678,153

3,741,234

2,765,744

2,449,397

OTHER INCOME (CHARGES) - NET INCOME BEFORE TAX

(928,411) 6,687,289

(91,334) 657,874

(888,953) 4,789,200

(166,527) 3,574,707

(1,339,876) 1,425,868

(803,629) 1,645,768

(2,070,654)

(203,704)

(1,466,267)

(1,008,880)

(258,258)

(459.074)

4,616,635

454,170

3,322,933

2,565,827

1,167,610

1,186,964

108,080

10,633

-

-

-

-

MINORITY INTERESTS IN NET INCOME OF SUBSIDIARY

(474,605)

(46,690)

(312,930)

(162,115)

(15,205)

(9,134)

NET INCOME

4,250,110

418,113

3,010,003

2,403,712

1,152,405

1,177,560

10,079,999 421.64 8,432.76 -

0.04 0.83 88.16 1,706.20

10,079,999 298.61 5,972.23 107.75 2,155.00

9,644.274 249.23 4,984.64 50.99 1,019.80

9,333.333 123.47 2,469.44 48.47 969.40

9,333.333 126.17 2,523.34 48.47 969.40

4,036,641 400.46 8,009.21

397,112 0.04 0.79

2,952,133 292.87 5,857.41

2,621,235 271.79 5,435.72

814,928 87.31 1,746.27

841,745 90.19 1,803.74

PRE ACQUISITION LOSS

Weighted Average Outstanding and Fully Paid Shares (in Millions) (2) Net Income per Share (Rp) Net Income per ADS (Rp) Declared Dividends per Share (3) (Rp) Declared Dividends per ADS (3) (Rp) Under US GAAP Net Income (millions of Rupiah) Net Income per Share (Rp) Net Income per ADS (Rp)

03

1998

As restated

2,828,603 2,149,921 2,028,812 1,287,747 220,006 8,515,089

INCOME BEFORE MINORITY INTERESTS IN NET INCOME OF SUBSIDIARY

•

6,415,156 631,102 5,052,598 497,058 2,219,586 218,356 1,422,170 139,908 1,021,279 100,470 16,130,789 1,586,894

1999

OPERATING EXPENSES Depreciation Operation and Maintenance Personnel General and Administrative Marketing Total Operating Expenses

TAX EXPENSE

02

2000 U.S.$(1)

(1) Stated in US Dollar based on Bridge Telerate on February 28, 2002 of Rp 10,165 per US$ 1.00 (2) Prior to IPO on November 14, 1995 TELKOM shares were 8,400,000,000 and post IPO were 9,333,333,000 In August 1999, TELKOM issued bonus shares of 746,666,640 resulted in total shares of 10,079,999,640. Weighted average for 1999 was 213/365 x total shares pre-distribution of bonus shares plus 152/365 x total shares post-distribution of bonus shares. (3) Dividends for the financial year concerned, based on the outcome of the General Meeting of Shareholders held in the early following year.

Consolidated Balance Sheets (In Millions of Rupiah and Thousands of U.S. Dollar) As of December 31 Under Indonesian GAAP ASSETS: CURRENT ASSETS NONCURRENT ASSETS Long-term investments - net Property, plant, and equipment - net Property, plant, and equipment under revenue-sharing agreements - net Other noncurrent assets TOTAL NON CURRENT ASSETS TOTAL ASSETS LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES NONCURRENT LIABILITIES Deferred tax liabilities Unearned income on revenue sharing Agreements Unearned initial investor payments under joint operation scheme Long-term debt TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES MINORITY INTERESTS IN NET ASSETS OF SUBSIDIARY EQUITY TOTAL LIABILITIES AND EQUITY Operating Ratio (%) Net Income to Equity Net Income to Total Assets Operating Income to Total Assets Financial Ratio (%) Current Assets to Current Liabilities (Current Ratio) Total Liabilities to Total Stockholders’ Equity Total Liabilities to Total Assets

2001 Rp

2000

7,308,519

10,299,704

191,382 22,288,766

1999 As restated

1998

1997

7,572,719

4,324,548

2,539,234

277,135 20,019,464

518,025 19,300,965

452,380 20,216,867

288,647 17,258,582

452,733 2,228,880 25,161,761 32,470,280

533,509 889,128 21,719,236 32,018,940

630,890 550,996 21,000,876 28,573,595

662,814 383,571 21,715,632 26,040,180

838,667 679,762 19,065,658 21,604,892

10,075,323

4,509,355

4,331,222

3,940,196

3,240,577

1,767,759 225,714

1,787,214 299,409

1,546,122 437,641

1,357,924 586,062

1,193,207 774,095

111,834 9,730,741 11,836,048 21,911,371

153,493 9,546,259 11,786,375 16,295,730

168,842 8,540,515 10,693,120 15,024,342

184,191 8,537,124 10,665,301 14,605,497

199,541 5,658,331 7,825,174 11,065,751

1,235,334 9,323,575 32,470,280

814,034 14,909,176 32,018,940

533,642 13,015,611 28,573,595

359,407 11,075,276 26,040,180

337,632 10,201,509 21,604,892

45.58 13.09 23.45

20.19 9.40 17.73

18.47 8.41 13.09

10.41 4.43 10.62

11.54 5.45 11.34

72.54 235.01 67.48

228.41 109.30 50.89

174.63 115.53 52.60

109.75 131.87 56.09

78.36 108.47 51.22

Operational Highlights Fixed-Lines Installed lines Subscriber lines Public Phones (including Kiosk phones) Lines in Service (LIS) Pulse production (LIS) (billion) Density (LIS per 100 Inhabitants) Number of Employees Productivity (LIS per employee) Call Completion Ratio (%) Local Domestic Long Distance Direct Dialing Mobile (Telkomsel): Base Transceiver Station (BTS) Transmitt-Receive Exchange Mobile Switching Center Base Switching Center Home Location Register (HLR) capacity Customer base: Post-paid (KartuHALO) Pre-paid (SimPATI) Average Revenue per User (ARPU) Post-paid (KartuHALO) Pre-paid (SimPATI)

2001

2000

1999

1998

1997

8,055,306 6,836,274 382,664 7,218,938 78.87 3.25 37,422 192.91

7,668,077 6,317,298 345,307 6,662,605 71.52 3.07 37,705 176.70

7,429,262 5,810,951 269,242 6,080,193 62.43 2.93 37,983 160.1

7,197,099 5,354,993 216,651 5,571,644 58.71 2.73 38,117 146.2

6,523,724 4,815,742 166,724 4,982,466 50.72 2,50 37,974 131.2

73.92 65.67

72.97 65.82

70.63 62.98

68.1 62.1

60.4 56.5

1,995 14,981 26 88 3,970,000 3,252,032 865,211 2,386,821 171,000 287,000 111,000

1,411 8,795 23 80 2,785,000 1,687,339 657,436 1,029,903 179,000 281,000 103,000

1,169 5,919 23 77 1,435,000 1,025,221 437,197 588,024 191,000 276,000 102,000

1,050 5,284 22 75 800,000 492,624 329,384 163,240 236,000 236,000 Na

982 4,926 22 73 725,000 393,493 364,587 28,906 Na Na Na

STOCK HIGHLIGHTS

TELKOM’s authorized capital:

1 series-A Dwiwarna share and 39,999,999,999 series-B shares

Issued and fully-paid:

1 series-A Dwiwarna share and 10,079, 999,639 series-B shares (common stock) at par Rp 500.00

Holders (as of December 31, 2001): The State of the Republic of Indonesia Represented by the Government: Public:

5,472,235,356 shares

54.29%

717,008,877 shares

7.11%

Local investors Foreign investors

Total

3,890,755,407 shares

38.60%

10,079,999,640 shares

100.00%

The Government holds the 1 series-A Dwiwarna share, a special and non-transferable share, which entitles the Government a veto power with respect to nomination, election and removal of Commissioners and Directors and amendments to the Company’s Article of Association. The Government’s rights with respect to the Dwiwarna Share will not terminate unless the Article of Association of the Company is amended, which requires the consent of the Government as the holder of the Dwiwarna Share.

TELKOM share price at the Jakarta Stock Exchange in 2001

Rp

4,000

3,000

2,000

1,000

0 Jan

Dec

TELKOM share price at the New York Stock Exchange in 2001

US$

8.00

6.00

4.00

04

2.00

• 05

0 Jan

Dec

The continuous improvement of the Company performance has made over Telkom share one of the blue chips in the stock market.

TELKOM share closing price in each quarter of 2000 and 2001. JSX (Rp)/share High Low

NYSE (US$)/ADS*) High Low

LSE (US$)/ADS*) High Low

4,350 3,775 3,325 2,890

3,325 2,675 2,600 2,025

12.0000 9.6875 8.0000 6.3125

9.0625 6.4375 5.8750 4.1250

12.150 9.625 7.875 6.425

9.1875 6.4500 6.1000 4.2750

3,125 3,200 3,400 3,200

1,825 2,225 2,650 2,425

6.6500 5.6000 7.0600 5.8000

4.0000 3.6500 5.5000 4.6500

6.5000 5.5500 7.0500 6.1250

3.8500 3.8000 5.5000 4.7500

2 0 0 0 First quarter Second quarter Third quarter Fourth quarter

2 0 0 1 First quarter Second quarter Third quarter Fourth quarter

* ADS = American Depositary Share, 1 ADS representing 20 shares of Common Stock.

M E S S A G E T H E

F R O M

C H A I R M A N

O F

T H E

B O A R D

A fundamental change in the telecommunications industry is taking place in Indonesia following the enactment of the Law No.36/ 1999 on Telecommunications. The settlement of joint and cross ownership transaction between Telkom and Indosat in 2001 has sparked off the beginning of a new era of competition. The Board of Commissioners perceive that a true reform in the industry that provides users and customers with more choices of wide range of information and communication (“InfoCom”) services as well as operators - will turn out to be true. The onus is on us to reach a common understanding and vision as to what we want ‘Telkom to be’ in anticipation of being a front runner in these changing times. Meanwhile many players in this fast-faced telecommunications industry seem to be impatient to see the impact of the reforms. The Board of Commissioners, however, believe that Telkom’s management will be capable of preserving and strengthening Telkom’s credibility as incumbent operator through utilization of its superb infrastructure, network, and human resource. The Board warmly support the management policy to adopt a smart approach in designing a new strategy to materialize the Company vision.

Strategic changes undertaken by the management would not only be a matter of survival but a synergic strategy as well in efforts to win competition by working hand in hand with all partners. Such changes, indeed, require extraordinary foresight and audacity amidst the unpredictable environment. The Board would like to encourage all Telkom’s people to actively and constructively participate in the on-going transformation.

The joint and cross ownership settlement transactions with Indosat and the buy out of Dayamitra have reflected Telkom’s strong determination to reengineer its business port-folio in order to strengthen its position as a full service and network provider. The transactions, indeed, would increase Telkom’s consolidated revenues, for one reason or another, that mobile cellular business provided by Telkomsel shows a very good prospect.

We thank God for the significant progress achieved in the settlement of KSO issues. The Company has started to settle the KSO issues by acquiring 90.32% shares of PT Dayamitra Telekomunikasi - the KSO partner for KSO-VI Kalimantan. The Company has also reached an agreement to acquire PT Pramindo Ikat Nusantara - the

06 • 07

Strategic changes undertaken by the management would not only be a matter of survival but a synergic strategy as well in efforts to win competition by working hand in hand with all partners.

KSO partner for KSO-I Sumatera. The Company’s achievement was the long awaited solution for KSO-III West Java and Banten.

We earnestly hope that the settlement of KSO problems could make up a great momentum for the development of telecommunications in the country and convey a positive contribution to the Company’s growth.

In terms of regulatory perspective, the release of the Minister of Communications Decree No. KM.20/2001 on Telecommunications Network Provision and No. KM.21/2001 on Telecommunications Services Provision have strongly suggested a clear indication of the implementation of the Law No.36/1999 on Telecommunications. We look forward to having comprehensive regulations that cover licensing, tariff, interconnection scheme as well as compensation. We also envisage the need of the telecommunications industry for a forum where telecommunications operators and regulatory authorities can sit together to discuss key issues and obtain input from those affected by the regulations.

In the unprecedented telecommunications business environment, a general notion prevails that Telkom’s prospect in the future will depend on its aptness and capability to add value or enhance the quality of network and services to the public, inter alia, by improving service focus and system integration, sharpening business portfolio, as well as maintaining its high potential employees.

A new age of full globalization and free competition in 2003 is on the threshold, so it is high time for the company to get ready for take off.

Bandung, May 10, 2002

Bacelius Ruru Chairman of the Board of Commissioners

MESSAGE FROM THE PRESIDENT DIRECTOR TO SHAREHOLDERS

Dear shareholders, I am delighted to deliver to you Telkom’s Annual Report 2001 that was flourished by a number of significant momentums, which gave birth to several strategic steps by Telkom. There have been the abrogation of joint and cross ownership in some associated companies with Indosat, the buy-out of Dayamitra (KSO partner for Telkom’s Regional Division VI - Kalimantan) as well as the provision of Voice over Internet Protocol (VoIP) services.

Through the settlement of joint and cross ownership with PT Indosat, the company has now become the majority shareholder of PT Telkomsel with 77,72% of shares. Telkomsel is a dominant cellular operator in Indonesia with almost 50% market share. In addition to Telkomsel, the Company also holds majority interest in other associated companies such as PT Dayamitra Telekomunikasi (90,32%), PT Indonusa Telemedia (57,5%), PT Infomedia Nusantara (51%) and PT Graha Sarana Duta (99.99%). It is encouraging and at the same time challenging to see that the transaction has been awarded as Most Innovative M&A Deal by the Finance Asia Achievement Award as a result of their survey to investors/analysts, and as Best Telecom Restructuring M&A by The Asset.

On top of that, Telkom is now engaged in consolidating resources including restructuring the organization and personnel, accelerating the settlement of joint operation scheme (KSO), and mapping out value chain business. The implementation of competence-based human resource management (CBHRM), retention plan, and voluntary retirement program, for example, would constitute strategic steps to streamline the chubby company so as to make it more agile and efficient.

The strategic actions which have been taken during the last two years have brought the company closer to its vision for entering the InfoCom business with core services covering fixed-phone, mobile, view, internet and total solution services.

The strategic actions which have been taken during the last two years have steadfastly brought the company closer to its vision for entering into the overall InfoCom business with core services covering fixed-phone, mobile, view, internet and total solution services. Through strategic business projects established two years ago, for instance, the company has been reaping benefits from the integration of systems and services. The improvement of products has generated more revenues as well as providing customers and users with telephony and internet based services, internet protocol, cellular and value-added services.

These improvements have been reflected to some extent in the company’s financial performance. In 2001 the company recorded consolidated net income of Rp 4.25 trillions or increased by 41.20 % compared to the previous year, and EBITDA of Rp 10.44 trillion, an increase of 28.89% compared to the previous year.

Inspite of the improvements achieved, we are well aware that there are problems which have yet to be resolved such as the low penetration of fixed telephone density, and the deterioriation of service quality in certain areas. We are convinced, however, these problems could gradually be overcome through mutual understanding and team-work, which eventually offers greater benefits to customers, users, partners and shareholders.

It is our belief that the excellent performance in the past, especially in 2001, could not have been achieved without cooperation and support from parties which have been rendering their valuable contribution to the company. For those reasons, therefore, I have no slightest hesitation to represent the management to thank all the customers, employees, shareholders, and partners for their immeasurable contribution to the company.

We look forward to enjoying equal or even stronger support for the years to come so as to enable the company to get better off and excel to the best in all its business ventures in the interest of the stakeholders.

Bandung, May 10, 2002

Muhammad Nazif President Director and CEO

B U S I N E S S O V E R V I E W

Several predominant factors that have significantly affected the company’s business in the year 2001 were the regulatory environment, technology development, customer needs, and the company ability to adapt to the ongoing changes of environment. Regulatory environment

and Telecommunications Decree No.KM.79/PR.301/

Telecommunications sector regulations (Law No.36/

MPPT-95 on the Adjustment Procedures for Domestic

1999) that came into effect since September 8, 2000

Telecommunications Services Basic Tariff, which was

has opened up business opportunities for network and

completed with a letter No.PK.304/1/3 PHB-2002

services provision in Indonesia as well as liberalized

concerning the increase of domestic fixed-line basic

the market. The Law also omits the organizing body,

telephone services for the year 2002. Based on the letter,

by which releases private companies from the

the increase in tariff for fixed-line basic telephone

obligation to cooperate with Telkom in providing

services in the next three years would be 45.49% and

telecommunication services.

for the year 2002 was 15% on average.

In 2001, the Minister of Communications issued decrees

Policy and strategy

No. KM.20/2001 on Telecommunications Network

The implementation of the Law No.36/1999 has driven

Provision and No. KM21/2001 on Telecommunications

the company to adapt to the changing business

Services Provision as a follow-up of Law No.36/1999 on

environment. It is in this perspective that infrastructure,

Telecommunications which have underlined that

customer based service and human resource are to be

network or services provision could be possessed by

consolidated in order to maintain the company’s market

state owned company (BUMN), municipal government

share as well as acquiring and retaining new customers.

owned company (BUMD), private company or

The new era of competition in 2003 is on the threshold.

cooperative.

Telkom, by all means, has to accelerate the transformation process both in organisational area and

Regulatory regime in tariff also constitutes a significant

business portfolio.

instrument affecting the company business. In addition to incentives for investors to enter the business, an

The company has prudently prepared for the imminent

adequate tariff regime would encourage Telkom and its

competition era by the deployment of strategic policies

10

KSO investors to develop services and infrastructures

in 2000 and has adopted strategic actions afterward such

•

plan. On January 29, 2002, the Ministry of

as: (i) continuously upgrades and expands the

Communications (MoC) issued Decree No.KM.12/2002

network in terms of bandwidth, features, and

concerning the adjustment of Ministry of Tourism, Post

penetration; (ii) utilizes benefits from the high growth

11

netwo

“Thanks to the excellent diversity of TELKOM services, I can enjoy the optimal benefit of business opportunities in the ever increasing competitive environment”

rk improvement

of mobile and data/internet business, by aggressively

Along with the trend, Telkom is focusing its

develops mobile and internet infrastructure and

development program on three main areas of technology

services; (iii) focuses on corporate customers; (iv)

deployment: transport, access and customer premise

rationalizing assets and restructuring associated

equipment.

companies; (v) maintains its main revenue sources from fixed telephone; (vi) global connectivity; and (vii)

In transport technology, Telkom is working out the

strategic partnerships.

backbone network and sets priorities on the development of Internet Protocol (IP) and optimizes the

The company is currently in the process of

nodes of Asynchronous Transfer Mode (ATM). Telkom

transformation to become a full service and network

collaborates with Cisco-Datacraft to develop IP backbone

provider in InfoCom business which is supported by

nodes in 68 cities throughout the country. In addition,

five basic business pillars covering Phone, Mobile, View,

Telkom also collaborates with Nortel-Astel to optimize

Internet and Service. To manage these businesses, the

ATM nodes in 10 sites in Java, Sumatra (Medan and

company runs the business on its own as well as through

Pekanbaru), and Kalimantan.

its associated companies or under partnership scheme. Telkom is setting on transmission network By applying the transformation process, Telkom expects

(High Performance Backbone) to support the

to be able to realize its main goals throughout to 2004

development of packet backbone by, among

in terms of compound annual growth rate (CAGR) of

others, collaborating with Pirelli-Siemens to

operating revenues of 25% and market share of the

deploy fiber optic transmission in Sumatra

business in Phone of 85%, Mobile of 45%, View of 43%,

using DWDM-8λ laying between Medan and

and Internet of 44%.

Bandarlampung. Telkom also plans to deploy fiber optic cable in Sulawesi and

Development of information and communication

Kalimantan islands, which is currently in the

technology

evaluation stage of the bidders’ proposal.

The dynamic telecommunications technology

Besides, Telkom is in the process to procure

development is partly shown by a paradigm shift from

Telkom-2 satellite with 24 transponders C-band

voice-based toward data-based technology platform.

covering from India to Australia to replace Palapa-

Likewise, the development of telecommunications

B4 satellite, which will expire in 2004.

technology is moving toward the convergence of voice, data, and image.

12 • 13

InfoCom superb services have significantly enhanced business partnership efficiency.

The settlement of cross and joint ownerships The settlement of cross and joint ownership enables Telkom to hold the majority interest in Telkomsel, the leading cellular company in the country with approximately 50% cellular market share and customer base of 3.25 million as of December 31, 2001.

Steps for the overcoming of KSO problems The buyout of Dayamitra constitutes an initial step for overcoming the KSO problems which will strengthen Telkom in developing telecommunications services and network including improvement of fixed-line teledensity in Indonesia. The step was followed by the buyout of Pramindo and Ariawest.

“Through utilization of Telkom sophisticated services, I can always maintain close relationship with my loved-ones, even from a distance”.

14 • 15

personalized se

Access technology is predicted to move quickly along

2001 Operating Results

with the growth of the demand for broader bandwidth

For 2001, Telkom booked a consolidated net income of

due to the fact that access network remains the basic

Rp 4,250.11 billion and earning per share of Rp 421.64

platform as well catalyst for the deployment of data

or increased by 41.20% compared to the result of last

communication in the country. This will lead to the

year earning per share of Rp 298.61. The contribution

movement of telecommunications platform toward the

to the growth of net income was mainly the increase in

era of data oriented. Meanwhile, wire-line access

cellular of 73.36% and interconnections revenues of

technology is designed to provide broadband services

41.03%.

through xDigital Subscriber Line (XDSL) technology or through Hybrid Fiber Coaxial (HFC) technology, while

Consolidated operating revenues increased by 33.18%

wireless technology is directed toward CDMA-1000 1X-

from Rp 12,111.99 billion in 2000 to Rp 16,130.79 billion

based technology. In supporting the government’s

in 2001. While the growth of consolidated operating

program for increasing teledensity in the country,

expenses was 32.35% from Rp 6,433.84 billion in 2000

telecommunications network infrastructure that is

to Rp.8,515.09 billion in 2001. The difference resulted

compatible with Indonesian geographic condition is

in 34.12% increase in operating income from Rp 5,678.15

needed. Telkom plans to deploy Fixed Wireless Access

billion in 2000 to Rp 7,615.70 billion in 2001. While

(FWA) - CDMA2000 1X technology which is flexible in

consolidated earning before tax, depreciation and

time for infrastructure deployment as well as services.

amortization (EBITDA) increased from Rp 8,097.2 billion

Telkom expects the government’s support to the plan

in 2000 to Rp 10,499.5 billion bilion in 2001.

by allocating the required frequency-band as well as

Nevertheless, EBITDA margin in 2001 was 64.78% or

numbering plan.

lower than 2000 figure of 66.85%.

Data-based services are not merely supplements of the

The number of Telkomsel’s cellular subscribers

telephone service. In fact, they have become one of the

increased by 92.73% during the last one year, whereas

main vehicles to meet market demand. For such reason,

for fixed wirelines, there were net additional lines in

Telkom has delivered VoIP services with a brand-name

service (LIS) of 556,333 lines, 4.48% lower compared to

of TelkomSave which is supported by the development

the additional LIS of 582,412 lines in 2000. The increase

of IP backbone.

in LIS took place in Telkom regions of 339,542 lines

rvice

and in KSO regions of 216,791 lines. As of December 31, 2001, total Telkom’s lines in service were 7,218,938 consisting of 3,949,905 lines in Telkom regions and 3,269,033 lines in KSO regions.

Total Operatings Revenue (Billion)

Services In line with the change of Telkom’s paradigm in

20,000

providing services to its customers, the Company has accomplished some improvement to the quality of

15,000

service. Telkom identifies a zone-20 customers, that

10,000

comprise 20% customers contributing approximately 5,000

80% revenue for Telkom. To the zone-20 customers, Telkom applies active management approach, among

0 1997 1998 1999 2000

2001

others, by encouraging the Company’s account managers, which are backed-up by virtual account teams consisting of back-room staff, product owner, partners and other related functions.

Total Assets (Billion Rupiah) 35,000

For retail customers, the Company sets up a Service

30,000 25,000

Level Guarantee (SLG) policy and differentiation of

20,000

services which are already implemented in Regional

15,000

Division-II (East Java) and Regional Division-V Jakarta.

10,000

The policy will also be gradually implemented in all KSO

5,000

Divisions (Division I, III, IV, VI dan VII) starting from the

0 1997

1998

1999

2000

2001

middle of 2002. The Company also offers incentives to encourage retail customers to utilize less-physical contact facilities such as call center/phone in, and web in as well as to reduce customers involvement in

Net Income (Billion Rupiah)

reaching service centers and service points.

5,000 4,000

Independent assessment on Telkom’s GCG

3,000

As part of universal assessment to measure business

2,000

practice excellence implemented in the Company, Ernst

1,000

& Young has finalized the assessment of Telkom’s Good Corporate Governance. The conclusion of the

0 1997

16 • 17

1998

1999

2000

2001

assessment by the year 2001 is as follows.

Good Corporate Governance Assessment Good 1 2 1. Roles and Powers 2. Employee Guidelines and Code of Conduct 3. Board Appointments 4. Board Skills and Resources 5. Board Independence 6. Business and Community Consultation 7. Strategy Setting V 8. Monitoring Board Performance 9. Management Reporting 10. Risk Management -

Assessment of Governance Needs Improvement Poor 3 4 V V V V V V V V V -

Telkom realizes that the results of assessment of Telkom’s good corporate governance practice were mostly “needs improvement”. The Company takes these initial results as an impetus for encouraging all staff to reach the best practice in operating the business.

Operating Revenues (In millions of Rupiah) For the Years Ended

% to Total

% to 2000

Total

% to

December 31,

2001

Fixed wirelines

6,415,156

39.77

5,177,864

42.75

4,528,902

1999

48.25

Total

Mobile cellular

5,052,598

31.32

2,914,514

24.06

1,755,222

18.70

joint operation scheme

2,219,586

13.76

2,267,154

18.72

1,677,217

17.87

Interconnection revenues

1,422,170

8.82

1,008,424

8.33

732,510

7.80

Revenue under

Other telecommunication services Total Operating Revenues

1,021,279

6.33

744,040

6.14

691,869

7.37

16,130,789

100,00

12,111,996

100,00

9,385,720

100,00

S T E P S

T O W A R D

S U C C E S S

Settlement of joint and cross ownership Pursuing the Sales and Purchase Agreement (SPA) signed on April 3, 2001 the Company has completed a series of transactions with Perusahaan Perseroan (Persero) PT Indonesian Satellite Corporation Tbk (“Indosat”), including the acquisition of 35.0% of the issued and fully paid shares of PT Telekomunikasi Selular (“Telkomsel”) owned by Indosat. The parties also agreed that the company sold 22.5% of the issued and fully paid shares of PT Satelit Palapa Indonesia (“Satelindo”) to Indosat for US$186 million, and sold 37.66% of the issued and fully paid shares of PT.Aplikanusa Lintasarta (“Lintasarta”) for US$38 million. The agreement also stated the acquisition by Indosat of all of the company’s rights, and transfer or novation of all of Company’s obligations, under a joint operating agreement with PT Mitra Global Telekomunikasi Indonesia (“MGTI”) dated October 20, 1995, as amended (the “KSO IV Agreement”), and all contracts to which the Company is a party and which relate to the business of the joint operating scheme established pursuant to the KSO IV Agreement (the “KSO IV Unit”), together with all other property and assets of the Company operated and maintained as property and assets of the KSO IV Unit created by the joint operating agreement (the “KSO IV Assets”), for a consideration of US$375 million (the “KSO IV Transaction”). By January 31, 2002 the KSO-IV transaction has been terminated since the terms and conditions required by the SPA could not be fulfilled. With the completion of the transaction, Telkom holds 77.72% share of Telkomsel - the leading cellular company in Indonesia. 18 • 19

Long-term solutions for KSO

Lines in Service (Thousand)

On October 20, 1995, Telkom entered into long-term agreements on joint operation scheme (Kerjasama Operasi

8,000 7,000

“KSO”) with five KSO investors providing for the transfer

6,000

of network development and operational responsibility

5,000

in Telkom’s Regional Division I, III, IV, VI and VII to the

4,000

KSO investors for15 year period commencing the year 1996 to 2010.

3,000 2,000 1,000 0 1997 1998

Due to the monetary crisis engulfed the country in 1997

1999

2000

2001

and thereafter, the Government, Telkom, and the KSO partners came to long-term alternative solutions: (i) KSO arrangement based on the original agreements and the Memorandum of Understanding signed on June 5, 1998,

Pulse Production (Billion)

plus new arrangement for additional installed lines; (ii) establish a joint venture company with TELKOM; (iii) establish a joint venture company with Indosat; (iv) grant

80 70 60

licence to the KSO investors to be new operators; and (v)

50

early termination of the KSO agreement.

40 30

KSO-I On February 20, 2002 Telkom and the shareholders of

20 10 0

PT Pramindo Ikat Nusantara (“Pramindo”) - KSO partners

1997

1998

1999

2000

2001

in Regional Division-I Sumatra - signed a Memorandum of Understanding (MoU) with regard to the acquisition of 100% shares of Pramindo at enterprise value of US$ 425 million. The amount includes outstanding debt of Call Completion Rate (%)

Pramindo of US$339 million and Pramindo’s equity of US$86 million. The Company will make an initial payment of US$ 54 million while the remaining amount will be paid

80 70 60

in installments in ten quarters. On initial closing, 30%

50

ownership will be taken and at the end of September

40

2003 additional shares amounting to 15% and another

30

55% will be owned until end of 2004. The buy out agreement had been signed on April 22, 2002.

20 10 0 1997

The settlement with respect to the transaction is subject to the satisfaction of certain conditions set forth in the Purchase Agreement, including shareholders’ approval.

1998 LDC

1999

2000

2001 Local

KSO-III The long-term solution for the problem with PT Ariawest International (“Ariawest”) – KSO partner for KSO – III West Java and Banten – is being undertaken in two ways, first through the International Chamber of Commerce in Geneva, and second, through negotiation with Ariawest’s shareholders. On May 8, 2002, the discussion with Ariawest shareholders has closed by the signing of Conditional Sales and Purchase Agreement to acquire Ariawest by PT Telkom. With the settlement of the KSO-III problems, the outstanding obstacle in relation to the joint operation scheme has been eventually overcome. KSO-IV As part of the cross and joint ownership settlement with Indosat, on April 3, 2001 the Company has signed a sales and purchase agreement (“SPA”) with Indosat for the transfer of Telkom’s rights, assets and business in KSI-IV (Central Java and Yogyakarta) to Indosat, for an amount of US$ 375 million. The closing of the transaction was subject to 8 (eight) condition precendents: (i) the completion of the Telkomsel Transaction and Satelindo Transaction; (ii) the receipt of all necessary approvals from MGTI; (iii) the resolution to Indosat’s satisfaction of all disputes relating to the liabilities of the Company under

Telkom has increased

the

KSO IV Agreement and KSO IV Construction

Agreement; (iv) Indosat or its nominee having been

ownership to become majority shareholder at

granted a license or authorized by the Government to own

and

operate

a

public

switched

voice

telecommunications network (fixed line and fixed wireless) in the Territory; (v) the parties having executed and delivered to each other a final assets report or having

Telkomsel – the largest

received a final arbitration award with respect to such assets; (vi) the novation of certain contracts; (vii) the

cellular phone company

the transfer of employees of the Company assigned to

20 • 21

execution by the parties of an agreement with regard to

in Indonesia

the KSO IV Unit to Indosat; and (viii) the execution of certain deeds, assignments, licenses, lease agreements, interconnection agreements and other agreements.

The sale of assets and business operations of KSO-IV has

operating telephone cellular services in East Java region,

terminated due to the unfulfillment of the terms and

and PT Multisaka Mitra (“MSM”), card issuer for TMI, both

conditions agreed in the SPA. As a consequence, KSO-IV

for Rp 151 billion. With the completion of the transaction,

remains under the control of Telkom and KSO partner

the Company holds no more shares in Telekomindo.

PT Mitra Global Telekomunikasi Indonesia (“MGTI”). PT Telekomindo Selular Raya (“Telesera”) KSO-VI

Following the completion of the share swap transaction,

On May 2001 Telkom and PT Dayamitra Telekomunikasi

the Company holds 69.77% shares of Telesera, an AMPS-

(“Dayamitra”) closed the transaction of acquiring 90.32%

based cellular company with 10,012 subscribers as of

of Dayamitra for US$.121.93 million plus Dayamitra’s

December 31, 2001. Telesera will be a vehicle for Telkom

existing debt obligations of approximately US$88.5

to develop and expand fixed wireless service.

million. In connection with this transaction, the company would have assumed liability for a portion of debt. The

PT Graha Sarana Duta (“GSD”) buy out

company has made an initial payment of US$18.29 million

Based on Sales and Purchase Agreement dated April 6,

upon completion of the transaction, and will pay the

2001, the Company bought 100% of GSD shares from

remaning amount in equal quarterly installments over a

Koperasi Mitra Duta and Dana Pensiun Bank Duta at Rp

two-year period. Following the closing of the transaction,

119 billion. The Rp 106.35 billion balance between the

Telkom owns 90.32% shares of Dayamitra, and TM

purchase price and the book value was recorded as

Communications (HK) Ltd. owns the remaining 9.68%

goodwill as a purchase method of accounting and to be

interest.

amortized in five years. (Refer to Page F-15 on the Notes on Consolidated Financial Report).

KSO-VII Telkom and PT Bukaka SingTel (KSO partner in Region-VII

Increased ownership in PT Indonusa Telemedia

Eastern Indonesia) tend to continue the KSO schemes in

(“Indonusa”)

accordance with the original agreements with certain

In 2001, the Company had increased its ownership in

modifications which benefit both parties. The Company

Indonusa from the previous 35% into 57.5%, which

has also reached an agreement to construct a series of

amounts Rp 28 billion recorded as goodwill amounting

lines in service in service in several cities in the region.

to Rp 654 million (Refer to page F-14 on the Notes on Consolidated Financial Report).

Restructuring ownership in associated companies

PT Tangara Mitrakom (“Tangarakom”) shares selling In 2001, the Company sold out all of its ownership in

PT Telekomindo Primabhakti (“Telekomindo”)

Tangarakom for Rp 232 million. This has been acknowledged

On December 5, 2001 the Company concluded an equity

by purchase method of accounting (Refer to page F-14 on

swap agreement with PT Rajawali Corporation (“Rajawali”),

the Notes on Consolidated Financial).

PT Telekomindo Primabhakti (“Telekomindo”) and PT Telekomindo Media Informatika (“TMI”) in conjunction

Business projects

with the sale of the company shares in Telekomindo, TMI,

The establishment of business projects in 2000 has driven

and PT Graha Insani Primabhakti (“GIP”) to Rajawali for

the company closer toward a complete set of phone,

Rp.146 billion. Meanwhile, the company has acquired

mobile, view, internet, and service (PMVIS) as well as

shares of PT Telekomindo Selular Raya (“Telesera”), an

generating additional revenues.The progress of each

AMPS-based cellular technology which is currently

business project is as follows:

Enterprise business

Calling Card and Payphone services. Caling Card service

The project function is to integrate units and product

is developed using Iintelligent Network (IN) and VoIP-based

owners of Telkom’s network and services in order to

technology, while Payphone service is developed through

deliver integrated solution to corporate customers. The

smart card and Debit/Credit Card Phone. Currently the

project was established in light of the increasing demand

business project is in the progress of developing credit

for interregional as well as packaged products.

card caling card as a follow-up of Memorandum of Understanding (MOU) signed by the company and VISA.

Services delivered by Enterprise Business Project include Solution for Enterprise Network (SEN) and satellite

Intelligent Network (IN) Business Project

transponders. By the date, the customers of the project

To improve its POTS network utilization in line with the

include PT Ekacita Dian Persada, PT Pembangkit Tenaga

increase in customer needs for value added services based

Listrik Jawa-Bali, PT Bank Mandiri, PT Bank International

on Intelligent Network, IN business project developed

Indonesia (BII), BAPEDAL, Dit.Jend. Pajak, PT KAI, PT Heinz

services such as Vote Call and Vote Free with the brand-

ABC, Mabes POLRI, Otorita Batam, Jamsostek, PT BPD Jabar,

name of TelkomVote, in addition to Premiun Call and Free

TNI, PT Semen Gresik , PT Federal International Finance

Call managed by Telkom’s Network Division. Other

and BAPPENAS.

services will be launched including Uni Call (TelkomUnicall), Caling Card (TelkomCard), Virtual Net

Pay TV/Cable TV Business Project

(TelkomVirtual), and Split Charging.

In 2001 the Company signed a partnership agreement with Alcatel to deploy Hybrid Fiber Coaxial (HFC) infrastructure

Voice over Internet Protocol (VoIP) Business Project

for concentrated customers of 52.610 homepasseds for

On October 17, 2001 the Government has granted Telkom

US$ 15 million. While Direct to Home (DTH) infrastructure

a license to operate VoIP service. In 2001 Telkom launched

is developed for spread customers by using three

TelkomSave, through which customers are able to make

transponders of Telkom-1 satellite.

international calls.

In addition to the infrastructure being developed with

For the year 2001 the service recorded a revenue of

Alcatel, HFC is also being developed by PT Indonusa

Rp 17.30 billion from three basic sources of (i) outgoing -

Telemedia (“Indonusa”) - Telkom’s subsidiary for 25.876

TelkomSave-post-paid of Rp 3.21 billion; (ii) outgoing -

homepasseds and has been used to deliver services to

TelkomSave-pre-paid of Rp.5.86 billion; and (iii) incoming

5,384 customers in Jakarta and Surabaya.

- wholesale trafffic of Rp.8.60 billion.

Telkom and its subsidiary provide pay TV services with

The service is supported by 22 places of point of presence

the brand-name of TelkomVision.

(PoP) located in 22 big cities in Indonesia. Investment for VoIP network for 2001 was Rp. 51,03 billion.

Caling Card and Payphone (CCP) Business Project CCP businees project was established to improve fixed wireline network utilization, among others, by developing

22 • 23

Awards Best Managed Company B2B Business Project In the year 2000 B2B business project has developed ecommunity, e-solution, and e-service service. In 2001 the project came into the second phase of the progress after completing the installation phase in 2000. The second phase includes development of main infrastructure and the development of virtual community through virtual network. The development of main infrastructure has resulted in services such as:i-trust (certification authority), efulfillment (including i-logistic and i-payment), and data center. While the development of virtual community (by utilizing value added services) resulted in services such as (i) i-deal SME (virtual community of small and medium business and cooperatives); (ii) SCM Otomotif; (iii) Farmation Center (community of chemist); (iv) BUMNOnline (state-owned enterprises community); (v) Eprocurement (Telkom as a pilot project); and (vi) i-Xchange (virtual financial community). International Services Business Project Telkom established international services project in 2001 to accurately prepare international call service and other related services. Currently the project is collaborating with SingTel involving the deployment of radio link between Singapore and Batam for leased line services. The project is also preparing regional link with Telecom Malaysia, Thailand and the Phillipines.

Finance Asia magazine awarded Telkom as one of the Indonesian Best Managed Companies.

Best Investor Relations from an Indonesian Company Investor Relations magazine in their program of Investor Relations Asia Award, awarded Telkom for Best Investor Relations by an Indonesian Company.

The achievement of World-class excellence Telkom reached a score of 406 by Malcolm Baldrige National Quality Assessment compared to the average 1999-2000 USA applicants’ score of 415. This was the first year Telkom used the Baldrige criteria as a basis for achieving world class excellence and expects to reach higher score in the coming years.

Independent assessment on Telkom’s Good Corporate Governance As part of universal assessment to measure business practice excellence implemented in Telkom, Ernst & Young has made an assessment on Telkom’s good corporate governance practice. The initial assessment is a stepping stone for Telkom to improve its governance to meet business practice excellence.

Most Innovative M&A Deal Awarded Most Innovative M&A Deal to the restructuring of PT Telkom and Indosat. The transaction allowed Telkom to gain full control of Indonesia top mobile phone business, and this is certainly lift up the rating of Telkom stock.

Best Telecom Restructuring M&A On its December 2001 issue, The Assets asserted the US$ 1.9 billion restructuring of PT Telkom and PT Indosat as Best Telecom Restructuring Merger and Acquisition. The transaction represents the largest M&A transaction to date in Indonesia and Telkom has gained control of the leading cellular company Telkomsel.

H U M A N

R E S O U R C E

HR amount and composition In line with the changes in business environment, Telkom has set its new policy on human resource management to prepare more professional and competent employees to operate and run InfoCom businesses. The policy encompasses corporate rules and regulations, competence based human resource management, retention plan, outsourcing, and voluntary retirement program. The new corporate rules and regulations were prepared in the light of competitive atmosphere where rights and obligations of the

In honing individual

employees and the company are clearly and resolutely stated.

skills, Telkom As of December 2001, Telkom

conducts a number of domestic and overseas intensive

employed 37,422 staff consisting of 18,926 employees in Telkom regions and 18,496 in KSO regions. A productivity ratio measured by numbers of fixed lines in

education and

service per employee was

training programs.

2001, while as of December

192.91 as of December 31, 31, 2000 was 176.70.

As of December 31, 2001 13.96% of employees were university graduate and 26.92% were graduated from diploma program.

24 • 25

As a reputable company, Telkom provides better employment for today and tomorrow.

Training and development

by the Board of Directors, including

In 2001, a number of 1,352

24 employees for outstanding

employees were studying at local

inventions.

educations

consisting

of

71

programs, while 10 employees were

Pension Fund

studying at overseas institutions of

Telkom established an institution

healthcare service for all Telkom’s

10 programs. Meanwhile, a number

referred to as Telkom Pension

employees

of

were

Foundation (Yayasan Dana Pensiun

dependants.

undergoing 986 local training

Telkom) on December 22, 1982. The

foundation provides similar service to

programs and 228 students were

objective of the institution is to

Telkom’s pensioners. The company

undergoing 64 overseas training

maintain continuity of employees’

provides a post retirement health care

programs.

post retirement income by providing

plan to all of its pensioners who have

61,947

employees

and In

their

eligible

addition,

the

program for pension benefit. In line

worked for over 20 years and their

Telkom’s

with the Law No.11/1992 on Pension

eligible dependants, except for

employees reached an average of

Fund, the institution has adjusted its

employees who retired prior to June

20.69 mandays a year for training and

formal status to Pension Fund (“Dana

3, 1995. However, the employees

education. Meanwhile, a number of

Pensiun”) that manages and operates

hired by the Company starting from

117 employees were awarded by the

a defined pension benefit plan.

November

Government

high

Sources of the fund are derived from

dependants will no longer be entitled

achievements and 290 were awarded

the company’s contribution as well as

to this benefit.

For

the

year

2001,

for

their

1,

1995

and

their

employees’ contribution.

Early Retirement Program By the end of 2001, participants of the

In the year 2001, Telkom offered

plan consisted of 37,438 active

voluntary early retirement program to

members, 13,049 pensioners, 6,810

employees

beneficieries (widows/widowers/

requirements. In March 2002, the

children), and 158 former employees

company approved 1.899 applications

(term vested).

with total benefit and severance of Rp

based

on

certain

284.9 billion of which Rp108.6 billion

Medication and health care services Telkom also established a Medication and Healthcare Foundation (Yayasan Kesehatan Pegawai). The Foundation engages in providing medication and

was paid by the KSO Units.

S O C I E T Y D E V E L O P M E N T

T

Telkom involves in several social activities such as education, health, and other social welfare, through foundation and partnerships. Yayasan Sandhykara Putra Telkom (“YSPT”)

STT Telkom

The establishment of YSPT on Januari 17, 1980 was initiated

STT TELKOM provides study programs for Strata-1/S-1

by women’s association of Telkom (Dharma Wanita Telkom)

(bachelor degree) as well as diploma degree. S-1 degree

with an objective to participate in developing social welfare

provides program of Industrial Engineering, Electrical

through education and social activities. By end of 2001,

Engineering, and Informatics Engineering; while diploma

YSPT has several educational institutions such as one

degree provides programs of Electrical Engineering and

secondary school (Sekolah Lanjutan Tingkat Pertama/

Informatics Engineering. During the last two years, an

”SLTP”), one senior high school (Sekolah Menengah Umum/

average of approximately 6,500 students deliver their

”SMU”), 3 tourism vocational school (Sekolah Menengah

admission yearly. By December 2001, 4,095 students

Kejuruan Pariwisata/”(SMK Par”), 6 telecommunications

consisting of 3,016 S-1 students and 1,079 diploma degree

vocational schools (Sekolah Menengah Kejuruan

students were studying at STT TELKOM. An approximate

Telekomunikasi/”SMK Tel”), One Academy of Tourism

of 3,513 alumni of STT TELKOM are currently working in

(Akademi Pariwisata/”Akpar”), and 31 Kindergarten (Taman

the telecommunication industry.

Kanak-Kanak). These institutions are operated by involving 816 teachers and staff. As of Desember 31, 2001 the total

STMB

registered students were 7,738.

STMB

holds

programs

of

S-1

degree

in

Telecommunications and Informatics Management, and For social developments, YSPT performs various activities

Master in Business Administration. By December 2001, a

such as scholarship for low-level income community,

number of 422 registered students were studying at Strata-

development of multi purpose building in under-

1 degree and 315 registered students were at master

developing areas, and other incidental social

degree. As of December 31, 2001, STMB has graduated

contributions. Telkom provides some of the poverty

346 masters of business/magister management.

alleviation fund available in the budget particularly for education.

Partnership With Small and Medium Scale Business Community

Yayasan Pendidikan Telkom (“YPT”) Telkom Education Foundation (YPT) engages in both

Warung Telekomunikasi/WARTEL (Phone-kiosk)

under-graduate and graduate education institution namely

Individuals and small businesses are eligible to provide

School of Telecommunications Technology (Sekolah Tinggi

telecommunication services by running phone-kiosk. The

Teknologi Telkom/STT TELKOM) and Bandung Institute

kiosks are considered as the arm-length of TELKOM

of Management (Sekolah Tinggi Management Bandung/

services. Such cooperation mutually benefit both parties,

26

STMB). YPT also has a radio broadcasting station, which

Telkom as well as customers. As of December 31, 2001,

•

is operated by PT Lintas Kontinental (Radio K-Lite 107,2

lines in service used for phone kiosks were 282,067 lines

FM). These institutions are located in the city of Bandung,

or increased by 23.25% from 228,862 lines as of

West Java.

December 31, 2000. The increase in the number of phone

27

Telkom believes in the value of education for shaping a brighter generation

kiosks have rendered benefit to individuals and small

Museum (Galery) Telekomunikasi (“Mustel”)

businesses in creating revenue and unemployment

Mustel is located in the tourism resort of Taman Mini

reduction.

Indonesia Indah (TMII) Jakarta and was officially opened on April 20, 1991. The establishment of Mustel was funded

Small and Medium Business Enterprise Center Project

by PT Telkom (47,14%), PT Indosat (47,14%), and PT Inti

As an implementation of the Summit Conference XI of 15

(5,72%). As of December 31, 2001, all 21 staff of Mustel

Governments’ Declaration in Jakarta on May 25, 2001

were Telkom’s employees and remunerated by Telkom.

which has appointed Indonesia to be coordinator for the

Other operating expenses are collectively provided by

development of Small and Medium Enterprises (SME), the

PT Telkom (45%), PT Indosat (40%) and PT Inti (15%).

company together with Bank Rakyat Indonesia and Center of Development of Small Medium Enterprises (CD-SMEs)

Mustel provides facilities for documentation and media

has developed information system and e-commerce

for information exchange on telecommunication

network throughout nine cities. One of the objectives is

technology. The main mission is to absorb, gather, review,

to provide integrated services for the SMEs to access the

and distribute information, communication, publicity and

information, market, standardization, banking,

education in relation to the story of telecommunication

tecknology and management through SME Center. Telkom

in Indonesia, its development and prospects.

has developed infrastructure and access to information and communication as well as application of e-commerce

Through Mustel, Telkom provides the community with

that enables the community to access the web-site:

education and recreation facility by presenting visual aid

www.sme-center.com

as well as information on the history, the development, and trends of telecommunication technology to visitors.

MANAGEMENT PROFILE

<< Bacelius Ruru, Chairman of the Board of Commissioners Chairman of TELKOM since April 2000. Secretary to the Minister of state-owned enterprise (2001 to date). Chairman of the Jakarta Stock Exchange (2001 to date). Chairman of the Jakarta Initiative Task Force since 2000. Chairman of PT Perkebunan IV (1999-2001). Chairman of PT Sucofindo (1998 to date). Deputy Minister of Investment and StateOwned Enterprises in charge for Supervising and Control of the Ministry and formerly as Deputy for Mining and Agro-Industry Business in the same Ministry (1998-2000). Director General of the State-Owned Enterprise in Ministry of Finance. (1995-1998). Chairman of Capital Market Supervisory Agency in Ministry of Finance (1993-1995). Head of Legal Bureau and Public Relations of the Ministry of Finance (1987 -1993). In charge of director/head of some directorates/institutions in Ministry of Finance (19751993). Graduate of Faculty of Law, University of Indonesia, Jakarta (1975). Harvard Law School (1981).

<< Noor Fuad, Commissioner

<< Rahardjo Tjakraningrat, Commissioner

Commissioner of TELKOM since April 2000. Head of Training and Education Board, Ministry of Finance (2001 to date). Secretary General, Ministry of Finance (2000-2001).Commissioner of PT Inhutani III, Ministry of Forestry (1987-1994). Commissioner of PT Pelabuhan Indonesia I Medan (1995 to1998). Senior Executive Advisor in Human Resources to the President Director of PT Rajawali Nusindo (1997 to date). Commissioner of PT Pelabuhan Indonesia III Surabaya (1998 to date). Commissioner of PT Perkebunan Nasional VIII Jawa Barat (1999 to date). Commissioner of PT BRI Sanwa - Finance (1999 to date). Graduate of Faculty of Economics, Gajah Mada University, Yogyakarta (1972). M.Sc. in Political Economics, University of Illinois (1986).

Commissioner of TELKOM since April 2000. Commissioner of PT Multi Eka Karma (2000 to date). President Director of PT. Multi Eka Karma (1996 to 2000). President Director of PT Telesarana Adi Prima (1995 to 1997). Director of Finance of PT.BELTDC (1992 to 1995). Director of Commercial of PT Rajasa Hasanah Perkasa/Era Mobitel (1986 to 1991). Graduate of Faculty of Law, University of Indonesia (1966).

>> Purnomo Sidhi, Commissioner

28 • 29

Commissioner of TELKOM since April 2000. Head of Training and Education Board, Ministry of Communication and Transportation (2000 to date). Senior Executive Advisor to the Minister of Communication (1997 to date). Indonesian Air Force Operation Commander II (1996 to 1997). Vice Commander I of Indonesian Air Force Operation (1994 to 1996). Senior Executive Advisor to the Chief of Indonesian Air Force (1992 to 1993). Graduate of Indonesian Air Force Academy (1968). Air-Flight Instructor School (1977). School of Staff and Commander of Indonesian Air Force (1985). S.I.D.M.C., USA (1995).

>> Andi Siswaka Faisal, Commissioner Commissioner of TELKOM since April 2000. Director of Planning and Technology of PT TELKOM (1996-2000), Vice President of Corporate and Technological Planning of PT TELKOM (1995-1996), General Manager of Corporate Planning of PT TELKOM (19931995).Head of the North Jakarta Regional Telecommunication Office (1991-1993). Head of the Kebayoran Baru Service Office (1990-1991). Graduate of Electrical Engineering, Trisakti University, Jakarta (1983). Master of Science, American World University (1998).

<< Muhammad Nazif, President Director and CEO President Director of TELKOM since April 2000, Vice Rector, University of Indonesia (1994-2000). Executive Director Islamic Development Bank (1990-1991). Member of Deregulation Team, Ministry of Finance (1990-1993). Member of Efficiency Improvement Team of State-Owned Enterprises, Ministry of Finance (1989-1991). President Director Bank Umum Koperasi Indonesia (1985-1989). Executive Director Bank Duta Ekonomi (1972-1979). Citibank (1968). Graduate of Economics Faculty, University of Indonesia (1973). MBA, Katholieke University, Leuven, Belgium (1981).

>> Mursyid Amal, Director of Finance

>> Komarudin Sastrakoesoemah, Director of Operations & Marketing

Director of Finance of TELKOM since April 2000. Chairman of Logistic Assistance Group, TELKOM Corporate Office (1997 2000). Logistic General Manager TELKOM (1995-1997). Logistic General Manager TELKOM, Jakarta Regional Division (1992-1995). Magister Management (MM)., Bandung School of Management (1997). Graduate of Economics Faculty, Islamic University of Nusantara, Bandung (1986).

Director of Operations and Marketing of TELKOM since April 2000. Head of TELKOM’s Development Division (19972000). Member of Blue Print Development Team, Directorate General Post and Telecommunications (1999). Member of KSO Development Team (1994-1995). Chief of Regional Division IX Kalimantan (19921993). Graduate of Electrical Engineering, Bandung Institute of Technology, Bandung (1976).

<< Kristiono, Director of Planning & Technology Director of Planning and Technology of TELKOM since April 2000. Head of TELKOM’s Regional Division V, East Java (1995-2000). Head of TELKOM’s Project IV (1992-1995). General Manager of TELKOM’s Logistic Department (1990-1992). Deputy of Telkom’s Chief Regional Division VIII Denpasar (1989- 1990). Technical Manager, PT Telkom (1978- 1989). Graduate of Electrical Engineering, Surabaya Institute of Technology, Surabaya (1978).

<< Taufik Akbar, Director of Human Resources Development Director of Human Resources Development of TELKOM since April 2000. President Director of PT Aplikanusa Lintasarta (1994-2000). Executive General Manager for Palapa Satellites Operation of TELKOM (1992-1993). General Manager Telecommunication Planning of TELKOM (1990-1992). Manager Satellite Transmission Planning of TELKOM (19831989). Astronaut Training for Indonesian Candidate (Payload Specialist) NASA, Houston, Texas (1986). Graduate of Electrical Engineering, Bandung Institute of Technology, Bandung (1975). Telecommunications Management Course, Vancouver, Canada (1991).

TELKOM’S BUSINESS PORTFOLIO

TELKOM Corporate

Core Division

Support Division

Business Projects

Affiliated & Subsidiary

Division I Sumatra

Information System Division

Enterprise

Division II Jakarta

Training Division

Cable TV

Division III West Java

Property Division

Calling Card & Payphone

Division IV Central

Development Division

Intelligent Network

Division V East Java

Repair Division

VoIP

Division VI Kalimantan

Research & Development

Business to Business

Division VII Eastern Part of

Division

International Business

Indonesia Network Division Multimedia Division

Dayamitra Graha Sarana Duta Indonusa Infomedia Telkomsel Telesera Citra Sari Makmur Komselindo Menara Jakarta Metrosel Mobisel Multimedia Nusantara Napsindo Pasifik Satelit Nusantara Patrakom Babintel Bangtelindo Ratelindo

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A S S O C I AT E D C O M PA N I E S

The following table depicts Telkom’s ownership in associated companies as of December 31, 2001:

Company Name

Telkom s Ownership (%)

Business Operations

Percentage of ownership more than 50%:

PT PT PT PT PT PT

Dayamitra Telekomunikasi (“Dayamitra”) Graha Sarana Duta (“GSD”) Indonusa Telemedia (“Indonusa”) Infomedia Nusantara (“Infomedia”) Telekomunikasi Selular (“Telkomsel”) Telekomunikasi Selular Raya (“Telesera”)

90.32 99.99 57.50 51.00 77.72 69.77

Telecommunications (KSO-VI Kalimantan) Property Multimedia (Pay TV, internet) Telecommunications information services Telecommunications (GSM cellular) Telecommunications (AMPS cellular)

25.00 35.00 20.00 20.17 25.00 31.00 32.00 22.57 30.00

VSAT and consulting services Telecommunications (AMPS cellular) Infrastructure for multimedia services Telecommunications (AMPS cellular) Telecommunications (NMT-450 cellular) Multimedia Network Access Point Satellite transponder and communications Telecommunications (VSAT)

Percentage of ownership between 20% to 50%

PT Citra Sari Makmur (“CSM”) PT Komunikasi Selular Indonesia (“Komselindo”) PT Menara Jakarta PT Metro Selular Indonesia (“Metrosel”) PT Mobile Selular Indonesia (“Mobisel”) PT Multimedia Nusantara PT Napsindo Primatel Internasional (”Napsindo”) PT Pasifik Satelit Nusantara (“PSN”) PT Patra Telekomunikasi Indonesia (“Patrakom”) Percentage of ownership less than 20%

PT Batam Bintan Telekomunikasi (“Babintel”) PT Pembangunan Telekomunikasi Indonesia (“Bangtelindo”) PT Radio Telepon Indonesia (“Ratelindo”)

5.00 Telecommunications (in Batam and Bintan islands) 3.18 Construction and consulting 12.86 Telecommunications (fixed wireless)

C O N TA C T I N F O R M AT I O N

PT Telekomunikasi Indonesia, Tbk CORPORATE OFFICE Jl. Japati No. 1, Bandung 40133 Tel: (022) 4521108, Fax: (022) 4521408 CORE DIVISION Regional Division I Sumatera Jl. Prof. H.M. Yamin, SH. No. 2, Medan 20111 Tel: (061) 4151747 Fax: (061) 4150747 Regional Division II Jakarta Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 Tel: (021) 5215100 Fax: (021) 5202733 Regional Division III West Java Jl. W.R. Supratman No. 66 Bandung 40261 Tel: (022) 4523801 Fax: (022) 7206541 Regional Division IV Central Java Jl. Pahlawan No.10, Semarang 50241 Tel: (024) 8302312 Fax: (024) 8302313, 449980 Regional Division V East Java Jl. Ketintang No. 156, Surabaya 60231 Tel: (031) 8286000 Fax: (031) 8286080 Regional Division VI Kalimantan Jl. M.T. Haryono No. 169, Balikpapan 76114 Tel: (0542) 873500 Fax: (0542) 873040 Regional Division VII Eastern part of Indonesia Jl. A.P. Pettarani No.2, Makassar 90221 Tel: (0411) 330777 Fax: (0411) 869889, 330977 Network Division Jl. Japati No. 1, 2nd Floor Bandung 40133 Tel: (022) 4522315 Fax: (022) 4522321

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SUPPORT DIVISION Training Division Jl. Gegerkalong Hilir No. 47 Bandung 40152 Tel: (022) 2013930, 2013238 Fax: (022) 2014429 Research and Development Division Jl. Gegerkalong Hilir No. 47 Bandung 40152 Tel: (022) 2014403 Fax: (022) 2014669 Property Division Jl. Cisanggarung No. 2 Bandung 40133 Tel: (022) 4521630 Fax: (022) 4521631 Repair Division Jl. Japati No. 1, 4th Floor Bandung 40133 Tel: (022) 7206520 Fax: (022) 4524125 Information System Division Jl. Japati No. 1, 4th Floor Bandung 40133 Tel: (022) 4524227 Fax: (022) 7201890 Development Division Jl. Japati No. 1, 6th Floor Bandung 40133 Tel: (022) 4525441 Multimedia Division Jl. Kebon Sirih No.37, Jakarta 10340 Tel: (021) 3160500 Fax: (021) 3160300

Investor Relations Unit Jl. Japati No. 1, 7th Floor, Bandung 40133 Tel: (62-22) 4527337 Fax: (62-22) 7104743

F I N A N C I A L S TAT E M E N T S

INDEPENDENT AUDITOS’ REPORT

40

CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2000 and 2001 and for each of the three years in the period ended December 31, 2001

48 • 49

Consolidated Balance Sheets

51

Consolidated Statements of Income

53

Consolidated Statements of Changes in Equity

54

Consolidated Statements of Cash Flows

57

Notes to Consolidated Financial Statements

59

Annual Report for the year 2001 Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk is signed by the Board of Commissioners and Board of Directors on May 10, 2002

Bacelius Ruru Chairman

Rahardjo Tjakraningrat Commissioner

H. Noor Fuad Commissioner

Purnomo Sidhi Commissioner

Andi Siswaka Faisal Commissioner

Muhammad Nazif President Director

Komarudin Sastrakoesoemah Director

Mursyid Amal Director

Taufik Akbar Director

Kristiono Director