Financial Risks We are exposed to interest rate risk

in PT Axis Telekom in March 2014 and merged in April 2014. The merger resulted in XL-Axiata becoming one of the three largest operators and also acquiring additional frequency allocations to facilitate its plans to implement LTE 4G technology. Further operator consolidation is likely in order to ensure that each operator can remain competitive, reduce operational costs and also to “rebalance” the broadband mobile frequency spectrum that require wider frequency bandwidth. The MoCI also supports operator consolidation, as it has been reluctant to issue new licenses for cellular players in recent years. While operator consolidation may lead to improved conditions in the cellular telecommunication industry, it also present challenges for Telkomsel in maintaining its market position.

7. Risks Related to Development of New Businesses

We believe that efforts to develop new businesses other than the telecommunication business as well as international expansion are necessary to ensure continuing business growth. This is undertaken through the activities of our subsidiaries, primarily Metra and Telin. Risks related to new business development include competition from established players, suitability of business model, the need to acquire new expertise in the new areas of operation, and risks related to online media which include intellectual property, consumer protectionand confidentiality of customer data. Focusing on international expansion is one of our strategic business intiatives. In particular, we have started expansion into seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan, and the United States of America. Expanding our operations internationally exposes us to a number of risks associated with operating in new jurisdictions for example, our international operations could be adversely affected by political or social instability and unrest, by regulatory changes, such as an increase in taxes applicable to our operations, macroeconomic instability, limitations on or controls on the foreign exchange trade, competition from local operators, difference in consumer preferences and a lack of expertise in the local markets in which we will be in operation. Any of these factors could cause our expected returns from our expansion to be limited and could have a material and adverse effect on our business, results of operations and financial condition.

C. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risks that arise from changes in exchange rates, interest rates, credit risk and liquidity risk, each of which will have an impact on us. We do not generally hedge our long-term liabilities in foreign currencies but hedge our obligations for the current year. As of December 31, 2014, assets in foreign currencies reached 83 against our liabilities denominated in foreign currencies. Our exposure to interest rate risk is managed through a mix of fixed and variable rate liabilities and assets, including short-term fixed rate assets. Our exposure to such market risks fluctuated during 2012, 2013 and 2014 as the Indonesian economy was affected by changes in the US Dollar-Rupiah exchange rate and interest rates themselves. We are not able to predict whether such conditions will continue during 2014 or thereafter. 254 2014 Annual Report PT Telkom Indonesia Tbk Persero FINANCIAL AND PERF ORMANCE HIGHLIGHT MANA GEMENT REPOR T PREF A GENERAL INF ORMA TION OF TELK OM INDONE SIA MANA GEMENT’S DISCUSSION AND ANAL Y SIS CORPORA TE GO VERNANCE SOCIAL AND ENVIRONMENT AL RE SPONSIBILITY APPENDICE S 1. Exchange Rate Information The following table shows the exchange rate of Indonesia Rupiah to US Dollar based on the middle exchange rate which is calculated based on the Bank Indonesia buying and selling rates for the periods indicated. Calendar Year at Period End Average Low High RpUS1 2010 1 8,991 9,078 9,365 8,924 2011 1 9,068 8,773 9,170 8,508 2012 1 9,670 9,419 9,670 9,000 2013 1 12,189 10,563 12,189 9,667 2014 1 12,440 11,880 12,440 11,404 September 2 12,212 11,891 12,212 11,710 October 2 12,082 12,145 12,241 11,993 November 2 12,196 12,156 12,206 12,092 December 2 12,440 12,438 12,900 12,264 2015 1 12,932 12,807 12,932 12,625 January 2 12,625 12,578 12,732 12,444 February 2 12,863 12,750 12,887 12,609 March 25 2 12,932 13,069 13,237 12,932 Source: Bank Indonesia Under the current exchange rate system, the exchange rate of the Indonesian rupiah is determined by the market, reflecting the interaction of supply and demand in the market. However, Bank Indonesia may take measures to maintain a stable exchange rate. For the year 2014, the average rate of Rupiah to the US Dollar was Rp11,880, with the lowest and highest rates being Rp12,440 and Rp 11,404, respectively. The exchange rates used for conversion of monetary assets and liabilities denominated in foreign currencies are the buy and sell rates published by Reuters in 2012, 2013 and 2014. The Reuters buy and sell rates, applied respectively to monetary assets and liabilities, were, Rp9,630 and Rp9,645 to US1.00 as of December 31, 2012, Rp12,160 and Rp12,180 to US1.00 as of December 31, 2013 and Rp12,380 and Rp12,390 to US1.00 as of December 31, 2014. The Consolidated Financial Statements are stated in Rupiah. The conversion of Rupiah amounts into US Dollar are included solely for the convenience of the readers and have been made using the average of the market buy and sell rates of Rp12,385 to US1.00 published by Reuters on December 31, 2014. On March 25, 2015, the Reuters bid and ask rates were Rp12,982 and Rp12,990 to US1.00.

2. Foreign Exchange Controls Indonesia operates a liberal foreign exchange system

that permits the free flow of foreign exchange. Capital transactions, including remittances of capital, profits, dividends and interest, are free of exchange controls. A number of regulations, however, have an impact on the exchange system. For example, only banks are authorized to deal in foreign exchange and execute exchange transactions related to the import and export of goods. In addition, Indonesian banks including branches of foreign banks in Indonesia are required to report to Bank Indonesia any fund transfers exceeding US10,000. As a State-Owned Company, and based on the decree of the Head of Pinjaman Komersial Luar Negeri PKLN, we are required to obtain an approval from PKLN prior to acquiring foreign commercial loans and must submit periodical reports to PKLN during the term of the loans. 1 Determined based upon the last day middle exchange rate of each month announced by Bank Indonesia applicable for the period. 2 Determined based upon the daily middle exchange rate announced by Bank Indonesia during the applicable period. 255 2014 Annual Report PT Telkom Indonesia Tbk Persero