PROPERTY, PLANT AND EQUIPMENT continued
PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2004 AND 2005, AND FOR YEARS ENDED
DECEMBER 31, 2004 AND 2005 Figures in tables are presented in millions of Rupiah, unless otherwise stated
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12.
PROPERTY, PLANT AND EQUIPMENT continued
2004 2005
Proceeds from sale of property, plant and equipment 67,196
84,621 Net book value
93,285 38,428
Loss gain on disposal 26,089
46,193
In accordance with the amended and restated KSO agreement with MGTI Note 5d, ownership rights to the acquired property, plant and equipment in KSO IV are legally retained by MGTI until
the end of the KSO period December 31, 2010. As of December 31, 2004 and 2005, the net book value of these property, plant and equipment was Rp2,000,073 million and Rp1,469,700 million,
respectively.
As of December 31, 2004 and 2005, the net book value of property, plant and equipment included in the Company’s property, plant and equipment that are utilized by the KSO amounted to Rp449,016
million and Rp356,658 million, respectively. The legal ownership of these property, plant and equipment are still retained by the Company.
In the first quarter of 2005, the Government, in its efforts to rearrange the frequency spectra utilized by the telecommunications industry, issued a series of regulations which resulted in the Company not
being able to utilize certain frequency spectra it currently uses to support its fixed wireline cable network commencing at the end of 2006. As a result of these regulations, certain of the Company’s
cable network facilities within the fixed wireline segment, which comprise primarily of Wireless Local Loop “WLL” and Approach Link equipment operating in the affected frequency spectra, can
no longer be used commencing at the end of 2006. Accordingly, the Company has shortened its estimate of the remaining useful lives for WLL and Approach Link equipment in the first quarter of
2005 and begun depreciating the then remaining net book value of those assets through December 31, 2006. The effect of this change in estimate increased depreciation expense by Rp471,187 million
Rp329,831 million after tax in 2005.
Further, on August 31, 2005, the Minister of Communication and Information “MoCI” issued a press release which announced that in order to conform with the international standards and as
recommended by the International Telecommunications Union – Radiocommunication Sector “ITU- R”, the 1900 MHz frequency spectrum would only be used for the International Mobile
Telecommunications-2000 “IMT-2000” or “3-G” network. The MoCI also announced that the CDMA-based technology network which the Company uses for its fixed wireless services can only
operate in the 800 MHz frequency spectrum. At present, the Company utilizes the 1900 MHz frequency spectrum for its fixed wireless network in Jakarta and West Java areas while for other
areas, the Company utilizes the 800 MHz frequency spectrum. As a result of the Government’s decision, the Company’s Base Station System “BSS” equipment in Jakarta and West Java areas
which are part of transmission installation and equipment for fixed wireless network can no longer be used commencing at the end of 2007. Management expects the BSS equipment will be
completely replaced with BSS equipment operating in 800 MHz by the end of June 2007. On January 13, 2006, the MoCI issued MoCI Regulation No. 01PERM.KOMINFO12006 which
reaffirmed the Government’s decision that the Company’s fixed wireless network can only operate in the 800 MHz frequency spectrum and that the 1900 MHz is allocated for 3-G network.
PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2004 AND 2005, AND FOR YEARS ENDED
DECEMBER 31, 2004 AND 2005 Figures in tables are presented in millions of Rupiah, unless otherwise stated
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12.
PROPERTY, PLANT AND EQUIPMENT continued Following the Government’s decisions, the Company reviewed the recoverable amount of cash-
generating unit to which the affected fixed wireless asset belongs. The recoverable amount was estimated using value in use which represents the present value of estimated future cash flows from
cash-generating unit using a pretax discount rate of 16.89, representing the Company’s weighted average cost of capital as of December 31, 2005. In determining cash-generating unit to which an asset
belongs, assets are grouped at the lowest level that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Based on this review,
in 2005, the Company recognized a write-down of Rp616,768 million related to transmission installation and equipment of fixed wireless assets and recorded this amount as a component of
operating expenses in the consolidated statement of income. In addition, the Company recognized a loss relating to non-cancelable contracts for procurement of the 1900 MHz transmission installation
and equipment in Jakarta and West Java areas amounting to Rp79,359 million. The loss was included as a component of operating expenses in the consolidated statement of income with a corresponding
liability included in “Accrued expenses” in the consolidated balance sheet. In addition, the Company changed its estimate of the remaining useful lives for the Jakarta and West Java BSS equipment and
depreciates the remaining net book value of these assets through June 30, 2007. The effect of this change in estimate increased depreciation expense by Rp159,042 million Rp111,329 million after tax
in 2005. On August 18, 2005, the Company disposed of its Palapa B-4 satellite which had been fully
depreciated as of July 1, 1999. On November 17, 2005, the Company’s Telkom-2 satellite was launched, and on December 20, 2005, the Telkom-2 satellite passed the final acceptance test and was
put into service. As of December 31, 2005, the Company operated two satellites which primarily provide backbone
transmission links for its network and earth station satellite up-linking and down-linking services to domestic and international users. As of December 31, 2005, there were no events or changes in
circumstances that would indicate that the carrying amount of the Company’s satellites may not be recoverable.
Interest capitalized to property under construction amounted to Rp57,690 million and nil in 2004 and 2005, respectively.
Foreign exchange losses capitalized as part of property under construction amounted to Rp74,283 million and nil in 2004 and 2005, respectively.
The Company and its subsidiaries own several pieces of land located throughout Indonesia with Building Use Rights Hak Guna Bangunan or HGB for a period of 20-30 years, which will expire
between 2006-2035. Management believes that there will be no difficulty in obtaining the extension of the landrights when they expire.
PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2004 AND 2005, AND FOR YEARS ENDED
DECEMBER 31, 2004 AND 2005 Figures in tables are presented in millions of Rupiah, unless otherwise stated
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