Code of ethics risks related to Development of new businesses

292 PT Telkom Indonesia Persero Tbk GCG’s role is to guarantee and ensure that the entire process and planning activities can be well-performed, accountable, transparent and able to provide a sustainable added value for the Company, and certainly, not contrary to the interests of all stakeholders. In order to constantly updating the development and dynamics of the business and operations, the company performs an update on the company’s planning policy through the Company’s Strategic Planning System number. PD.105.00r.00HK.200COP-D00300002014 dated January 28, 2014. appliCation of it governanCe As a company engaged in the business of information and customers’ datainformation distribution whose security must be guaranteed, we always try to take advantage of the widest possible use of technology in the management of the company as directly improving the quality of implementation of corporate governance. Almost all points in the value chain of the company, which includes network operation of the entire infrastructure of production tools, all important aspects of management such as inance, logistics, human resources as well as services to the employees, customers, suppliers and other stakeholders, have been integrated into the IT network. Framework for the management of IT governance refers to the Control Objectives for Information and related Technology “COBIT” version 5.0, which adapted into the company regulation under number PD 404.00r.00HK- 200COP-C03000002014 dated 15 July 2014 regarding Guidelines and General Policy of Information Technology Governance of Telkom Group which aimed, among others, to provide the controlling principles in the governance and management of IT that includes 5 ive main principles as follows: 1. Compliance with the needs of stakeholders meeting stakeholder needs; 2. Covering the whole process of the company in end- to-end basis covering the enterprise end-to-end; 3. Implementation of a single integrated framework applying a single integrated framework; 4. Overall pattern approachholistic approach enabling a holistic approach; 5. The separation between governance and management of IT separating governance from management. One of purpose of this decision is to provide clear direction that the governance of Information Technology IT solely based on the creation of value value creation which is based on the needs of the Company’s stakeholders stakeholder needs by way of realizing the business beneits beneit realization, optimization in the management of risk risk optimization and optimization in the management of resources resource optimization. The other purposes of this decision are to increase the efectiveness and eiciency of business processes of IT, IT productivities, availability of information that is complete, comprehensive, accurate and punctual to support the management in decision making process, in order to fulill the business needs, improving performance and the Company’s growth sustainable. Governance implementation in the operational environment is performed by applying IT General Control ITGC, which includes domain process of Program Development PD, Program Change PC, Access to Programs Data APD and Computer Operation CO. Some examples of IT governance practices in the operation of the Company are management of change requests, management of user access review, password management, management of audit logaudit trail, management of security systems, and management of end user computing. For completeness of IT governance policies, a several other regulations have also been regulated, such as, the Company’s Regulation with regard to security of information systems, Standard User Access, Standard IT Services under ISO 20000 basis, Standard for IT Service Continuity Management based on ISO 27031, Standard for Application Development of Information System with consideration on the security aspects Secured Software Development Life cycle and other procedures related. The Strategy and IT Governance Unit is the Company’s structural work unit which responsible to strategize and planning for the Company’s IT and the establishment of IT Governance of the Company, beginning from the policy, standards, as well as the socialization and implementation process in practice with monitoring mechanism and the evaluation of the efectiveness of implementation. Meanwhile, the management of the company’s IT operations ia performed by IT management Unit, which are, among others, is responsible for managing the services and components of IT services, both in the sphere of software and hardware, including the development of IT services. it audit In ensuring compliance with IT governance, we performed internal and external control. Internal unit in question actively participate in ensuring the implementation of the design of controls to operate efectively through the implementation of Control Self Assessment CSA Key Control KC ITGC attached to the unit periodically by involving internal Quality Control unit. Furthermore, Internal Audit and External Audit conducted an audit on the implementation of KC ITGC entire unit that implements the KC. 293 PT Telkom Indonesia Persero Tbk sMART ENOuGH Is NOT ENOuGH... DIsRupTIVE Is A MusT - ALEX J. SINAGA - 294 PT Telkom Indonesia Persero Tbk Through various consistent eforts across all layers of organization, which includes the phases of design, planning and operation as well as monitoring, and with strong commitment of the management and all stakeholders, respectively since 2010, has been able to maintain the achievement of Zero Control Deiciency in cyclecoverage of ITGC. This achievement result relects the implementation of IT governance through the implementation of ITGC in a company which has been able to run efectively. Zero CD Control Deiciency Zero CD Control Deiciency Zero CD Control Deiciency Zero CD Control Deiciency Zero CD Control Deiciency 2010 2011 2012 2013 2014 MW SD CD Zero CD iMpleMentation of e–proCUreMent As a commitment to implement GCG and Integrity Pact, to date, we continue to consistently manage the procurement process and partnership with the use of e-auction system through applications that minimize physical contact between the supplierpartner and the committee due to the whole tender and negotiations process have been conducted by computer basis that takes place fair and transparent. We do the selection of suppliers through three main stages, namely Registration of Suppliers where the Supplier register online through the application of Supply Management and Logistics Enhancement “SMILE”, followed by the Selection of Suppliers where we conduct assessment of the supplier in accordance with the classiication of the business and some other criteria that generating rank and short-list and determination of Eligible Bidder, in which the suppliers that entitled or will be involved to continue the procurement process. Some of the beneits that have been obtained, among others, the timeliness of the tender process, determination of prospective tender participants which electronically determined according to the requirements as speciied, electronically winner selection, and other beneits associated with the process quality which is improving, reasonable prices, fairness, transparency and preventing any intervention. DevelopMent of HUMan reSoUrCeS CoMpetenCe Changes in the business portfolio from Infocom to TIMES has implication on shift necessary competence. The competence and ability of human resources “HR” are a few of important element that must be considered in order to achieve GCG practices. In the implementation, knowledge management is focused on creating business value that generates sustainable competitive advantage by optimizing the process of creation acquisition, sharing and utilization of knowledge as required by the company. In order to support the process of managing such knowledge, we have been providing Knowledge Management System named KAMPIUN, which is a data bank repository as a medium for every employee to improve their insight and knowledge by uploading or downloading through the system, therefore, we expected it would be a solution to the diverse problems of work, which in turn encourages the growth of productivity and quality of work. 295 PT Telkom Indonesia Persero Tbk The inal goal of knowledge management is the creation of a learning organization, which is a condition where the organization will remain operating without creating dependence toward certain employees by projecting itself into a knowledge based enterprise through a transformation of Learning Center as a unit of learning with conventional methods into a Corporate University “CorpU”, which is a vehicle for improving the competence that can support the business needs of the Company in order to form a center of excellent human capital with international standard in the TIMES industry that can support the improvement of business performance and the implementation of a new culture with the tagline “from competence to commerce” which has a meaning that any competent employees will advance the business. Kindly refer to the section of Management’s Discussion and Analysis on Telkom Performance - Functional Overview - Human Resources for more detailed information on the development of HR competencies. oWnerSHip ManageMent inforMation anD intangible aSSet Any information and all intangible assets, including research, technology, and intellectual property rights earned by the assignment andor at the expense of the company are reserved as the property of the Company. We have a Regulation regarding the Management of Intellectual Knowledge and Intellectual Property Rights in accordance with No.PD.6052011. As the intellectual properties are being protected and managed, it is expected to increase income and sustaining a competitive advantage. Creativity and innovations on the existing or new products and services are reserved as the assets of the company. We manage the database which includes creation, brands, industrial designs, inventions, trade secrets, copyrights, trademark rights, rights to industrial design, patent and trade secret rights. The company is routinely manage a wide range of activities which are the intangible assets, such as innovation through a portal: http:inovasi.telkom.co.id that can be accessed by all employees. folloWing Up on CoMplaintS froM tHe CUStoMer anD CoMMUnity In conditions where the telecommunications business has reached a saturated point, the expectations of various stakeholders presents a challenge in implementing GCG. From time to time, customers and the general public have expressed their criticisms or complaints regarding industrial and telecommunication services, among others, the tarif war which contributed to the decline in ARPU and the decrease in the quality of service, complaints in invoice and billing services, the phenomenon of pulses suction and others. We use this feedback to evaluate and improve the quality of our services and immediately respond to and follow up on any complaints of the customers and the public because we commit to consistently prioritize ethical business practices and provide customer service satisfaction to our customers and other stakeholders. SignifiCant DifferenCeS of gCg praCtiCeS in inDoneSia anD nySe StanDarDS The following are briely outlines of the general summary of signiicant diferences between the corporate governance practices in Indonesia and under requirement by the NySE listing standards.

a. inDoneSian legal revieW

Indonesian public companies are required to observe and comply with corporate governance practices that have been applied. The requirements and standards of corporate governance practices for public companies are regulated under the Limited Liability Companies Law the “Company Law” No.402007, Law No.81995 on Capital Market the “Capital Market Law”, Law No.192003 on State-Owned Enterprises BUMN, Regulation of the State Minister of State- Owned Enterprises No.PER-09MBU2012 regarding the Amendment of the Regulation of the State Minister of State-Owned Enterprises No.PER-01MBU2011 regarding Implementation of Good Corporate Governance on State-Owned Enterprises, the FSA OJK Rules and the regulations issued by the BEI. In addition to these regulations, the articles of association of public companies incorporate provisions aimed at the implementation of corporate governance practices. On November 30, 2004, the Government established the National Committee on Governance Policy NCG or “KNKG” under the regulation of the Coordinating Minister for Economic Afairs No.KEP- 49M.EKONOM12004. The establishment is a form of revitalization of the National Committee on Corporate Governance NCCG or “KNTKP” which was established in 1999. The purpose of the NCGKNKG is to improve the understanding and implementation of corporate governance in Indonesia and to advise the Government on matters related to the management 296 PT Telkom Indonesia Persero Tbk of data, both in corporate sector and in public. NCG KNKG formulated the 2006 Code of Corporate Governance the “Code” which recommends a more stringent corporate governance standards for Indonesian companies, such as the establishment of the independent audit Committee, nomination and remuneration Committee by the Board of Commissioners, as well as an increase in the scope of the disclosure obligations Indonesian companies. Although the NCGKNKG recommends that the Code to be applied by the Government as a basis for legal reform, however, as of the date of the conclusion of this annual report, the Government has not yet issued regulations that fully implement these provisions.

b. CoMpoSition of inDepenDent DireCtorS anD CoMMiSSionerS

The NySE listing standards require that the Board of Directors of companies listed in the U.S. shall be composed of a majority of Independent Directors and that particular Committee should be comprised of Independent Directors. Unlike companies incorporated in the U.S., Indonesian companies’ management consist of two institutions with the same status, namely, the Board of Commissioners and the Board of Directors. In general, the Board of Directors is responsible for routine business activities of the company and is authorized to act for and on behalf of the company, while the Board of Commissioners has the authority and responsibility of overseeing the Board of Directors and based on Indonesian Company Law, is mandated to provide advice to the Board of Directors. With regard to the Board of Commissioners, the Company Law requires at least two members of the Board of Commissioners are existed in public companies. Although the Company Law does not regulate the composition of the Board of Commissioners, however, the Listing Regulation No.I-A under KEP.305BEJ07-2004 issued by the Indonesia Stock Exchange IDX Regulation No.I-A stated that at least 30 of members of the Board of Commissioners of public companies such as Telkom must be independent. The Company Law stipulates that the Board of Directors is composed by at least two members, each of which must meet the minimum qualiication requirements set forth in the Company Law. In addition, pursuant to IDX Regulation No.I-A, it is stated that at least one member of the Board of Directors must be a non-ailiated member.

C. CoMMitteeS

The NySE listing standards require that a listed company in the U.S must have an Audit Committee, Corporate Governance Committee and Compensation Committee. Each of these committees must consist of independent directors and is equipped with a written charter that addresses the matters speciied in the listing standards. The Company Law does not require Indonesian public companies to form any Committee as set forth in the NySE listing standards. However, the FSA Rules No.IX.I.5 and IDX Regulation No.I-A require the Board of Commissioners of a listed public company such as Telkom to form an Audit Committee comprising at least three members, one of whom must be an Independent Commissioner and acts as chairperson of the Audit Committee. While the two other members of the Audit Committee must be appointed from independent parties and at least one member must have an understanding of accounting and inance. The NySE listing regulation which applied pursuant to Rule No.10A-3 of Exchange Act requires a foreign private issuer with shares listed on the NySE to have an Audit Committee comprised of independent directors. However, not all members of our Audit Committee are independent directors as required by Rule No.10A-3 of the Exchange Act. Pursuant to Rule No.10A-3c 3 of Exchange Act, foreign private issuers may be exempted from the independence requirements if i the Government or the Stock Exchange of the home origin country requires that companies have an Audit Committee, ii the Audit Committee is separated from the Board of Directors and has members from outside the Board of Directors, iii Audit Committee members are not elected by the management and no executive oicer of the company is a member of audit Committee, iv the Government or the Stock Exchange of the country of origin requires the Audit Committee to be independent from the management of the company, and v the Audit Committee is responsible on the appointment, retention and oversight of the work of external auditors. 297 PT Telkom Indonesia Persero Tbk Not all members of our Audit Committee are independent directors as required by Rule No. 10A-3 of the Exchange Act. We refer to the general exemption pursuant to Rule No.10A-3c3 regarding the composition of the Audit Committee. We believe that this does not materially afect the ability of the Audit Committee to act independently.

D. DiSCloSUre in relation WitH Corporate governanCe

The NySE listing standard requires the U.S. companies to adopt and put on their website, the guidelines for the implementation of corporate governance. These guidelines, among other things, shall stipulate directors qualiication standards, director responsibilities, relations between directors with management and independent advisors, compensation for the directors, orientation and continuing education for the directors, management succession and annual work performance evaluation. Moreover, each year, the CEO of the U.S. company must certify to the NySE that heshe is not aware of any violations committed by the company with regard to the NySE corporate governance standard listing. Certiication must be disclosed in the company’s annual report to the shareholders. There is no disclosure requirement in the applicable Laws in Indonesia that is similar to the NySE listing standards described above. However, the Capital Markets Law generally requires Indonesian public companies to disclose certain types of information to their shareholders and to the FSA OJK, particularly information relating to the change of ownership of shares of public companies and material facts that may afect the decision of shareholders to maintain their stake in the said public company.

D. CoDe of etHiCS anD bUSineSS ConDUCt

The NySE listing standards require each listed companies in the U.S. to adopt and to post on their company’s website, the code of ethics and business conduct for the Board of Directors, officials and employees. No similar requirement under the applicable Laws in Indonesia. However, the company shall submit periodic reports to the U.S. SEC, which stated the implementation of the code of ethic by senior inancial oicials in the company.