liquidity and Capital Resources

TELKOM Annual Report 2005 and unappropriated retained earnings was due to the change in method of accounting for restructuring transactions between entities under common control, which resulted in TELKOM reclassifying the difference in value of restructuring transactions between entities under common control account as of January 1, 2005, previously recorded in the stockholders’ equity section amounting to Rp 7,288.3 billion as a charge to unappropriated retained earnings as of January 1, 2005, and cash dividends of Rp 2,921.2 billion, which decrease was offset by net income for the year 2005 of Rp 7,993.6 billion.

B. liquidity and Capital Resources

TELKOM expects to have substantial liquidity and capital resources requirements in 2006 and 2007 as it continues to develop and expand its existing businesses, including entering into new businesses. TELKOM expects that these expenditures will be important factors in preparing to face tight competition as the Indonesian telecommunications market has been deregulated and maintaining its current position as the leading Indonesian telecommunications and full-service network provider. In 2006 and 2007, TELKOM expects its principal liquidity and capital resources requirements, aside from its requirements for working capital and to make payments of dividends and taxes, will at least consist of the following: • capital expenditures for existing and new network and backbone infrastructure, including a backbone transmission network on Ring JASUKA Jawa, Sumatra and Kalimantan, Submarine Cable JDM Jember-Denpasar-Mataram, the expansion of TELKOM’s CDMA wireless access networks, the expansion of Submarine Cable SUB Surabaya-Ujung Pandang-Banjarmasin, an additional ground satellite segment in Jakarta, fiber optic transmission network Medan-Padang, softswitch development, the installation and upgrading of fixed lines and increased capacity in its mobile cellular service conducted through Telkomsel; • debt service requirements relating to existing indebtedness, including two-step loans, its short-term loan with Bank Central Asia and Bank Niaga, and its medium-term notes of Rp 610 billion, IDR bonds of Rp 1 trillion, loan facility from Bank Central Asia in relation to the construction of Sumatera backbone network, loan from a consortium of banks for the Regional Division V junction project, loans from Citibank N.A. through its Hermes Export facility, High Performance Backbone facility and EKN-Backed facility and a loan from the Export and Import Bank of Korea in connection with the CDMA project and loan facilities of Rp 40,000 million and Rp 2,500 million from Bank Mandiri; • installment payments of the purchase price for shares of AriaWest which are expected to be fully paid by January 31, 2009; • payments of contribution to TELKOM’s defined benefit pension plan and post-retirement health care plan; • fixed monthly payments to MGTI pursuant to the amended and restated agreement for KSO IV, commencing February 2004 and terminating in 2010; and • payment of call option price through monthly payment beginning in December 2004 and ending March 2006 relating to the acquisition of 9.68 shares of Dayamitra. Liquidity and capital resources will also be required for TELKOM to change its current DLD access code as a result of the end of TELKOM’s exclusive right to provide DLD services, with possible expenditures for the creation of a new routing database and costs for customer education and marketing. TELKOM will be required to fully implement this change in its DLD access code by April 1, 2010. Primary sources of financing available to TELKOM consist of: i cash flow from operating activities; ii financing from bonds issuance; iii financing from banks or export credit agencies including financing procured by vendors; and iv deferred vendor payment arrangements. TELKOM believes that these sources of financing will be sufficient to fund planned capital expenditures, anticipated working capital needs and likely contractual obligations and commitments in 2006 and 2007. Nonetheless, if global or Indonesian economic conditions worsen or do not improve, competition or product substitution accelerates beyond current expectations or the value of the Rupiah depreciates significantly against the U.S. Dollar, TELKOM’s net cash flow from operating activities may decrease and the amount of required capital expenditures in Rupiah terms may increase, any of which may negatively impact its liquidity. TELKOM manages the liquidity for all of its businesses, including KSOs controlled by TELKOM, on a total group basis. However, Telkomsel manages its own liquidity and accesses capital resources, independently of TELKOM. With regard to Telkomsel, in 2006 and 2007 its management expects to continue focusing on enhancing and expanding Telkomsel’s network capacity and infrastructure. It is expected that these expenditures will allow Telkomsel to maintain its position as the leading provider of mobile cellular services in Indonesia in an increasingly competitive market for such services. In recent years, Telkomsel’s primary source of financing has been cash flow from operating activities. Telkomsel’s management believes that Telkomsel will continue to generate sufficient cash flow from its operating activities to fund planned capital expenditures in 2006 and 2007. TELKOM Annual Report 2005

1. net Cash Flows

a. Net Cash Flows from Operating Activities TELKOM’s primary source of liquidity in recent years was cash flows from operating activities and from financing activities. Net cash flows from operating activities totaled Rp 16,051.5 billion in 2004 and Rp 21,102.7 billion in 2005. In 2005, the growth in operating cash flows principally resulted from higher cash receipts from operating revenues as a result of growth in its mobile cellular business conducted through Telkomsel, higher interconnection revenues from mobile cellular operators and IDD operators and its IDD service business TIC-007 and higher data and Internet revenues due to increased SMS, data communication and broadband Internet access network usage. In 2005 compared to 2004, net cash flow from operating activities increased by Rp 5,051.2 billion, or 31.5, primarily due to an increase of Rp 4,327.7 billion, or 41.2, in cash receipts from cellular business, primarily due to a growth in the mobile cellular business of Telkomsel; an increase of Rp 1,636.9 billion, or 28.4, in cash receipts from interconnection services, primarily due to an increase in cellular interconnection fees, resulting from an increased mobile cellular subscriber base in Indonesia; and an increase of Rp 1,978.8 billion, or 39.8, in cash receipts from data and Internet primarily due to increases in SMS usage by Telkomsel subscribers and the number of Speedy subscribers. The increase was partially offset by an increase of Rp 2,684.1 billion, or 21.9, in cash payments for operating expenses, which is in line with the increase in operating expenses excluding depreciation and amortization, write-down of assets and loss on procurement commitments. b. Net Cash Flows from Investing Activities Net cash flows used in investing activities totaled Rp 9,598.1 billion and Rp 12,212.7 billion in 2004 and 2005, respectively. In 2004 and 2005, the net cash used in investing activities were primarily used for capital expenditures. Apart from cash on hand and cash in banks, TELKOM invests the majority of its excess cash from time to time in time deposits. Since May 14, 2004, TELKOM also has been investing a part of its excess cash in Rupiah-based mutual funds. At December 31, 2005, Rp 159.9 billion of time deposit had a maturity greater than three months and Rp 22 billion of mutual funds were outstanding. In 2005 compared to 2004, net cash flows used in investing activities increased by Rp 2,614.6 billion, or 27.2, primarily due to an increase of Rp 3,538.1 billion, or 41.3, in the acquisition of property, plant and equipment, primarily due to an additional installation of transmission stations and equipment and an investment in data processing equipment. This increase was partially offset by a decrease of Rp 851.2 billion, or 80, in cash payments for advances for the purchase of property, plant and equipment. c. Net Cash Flows from Financing Activities Net cash flows used in financing activities totaled Rp 6,904.9 billion and Rp 8,339.4 billion in 2004 and 2005, respectively. In all two years, net cash flows from financing activities were driven primarily by repayments of outstanding indebtedness and by payments of cash dividends. In 2005, cash flow used in financing activities increased by Rp 1,434.5 billion, or 20.8, primarily resulting from a 148.3 increase in payments of cash dividends to minority shareholders of subsidiaries to Rp 1,694.3 billion, a 193.6 decrease in proceeds from short-term borrowings net of repayments, from net proceeds of Rp 1,062.2 billion in 2004 to net repayments of Rp 994.7 billion in 2005, and a 76.1 decrease in proceeds from long-term borrowings to Rp 570.0 billion. This increase was partially offset by a decrease of Rp 4,011.0 billion in repayments of long-term borrowings.

2. working Capital

Net working capital, calculated as the difference between current assets and current liabilities, was Rp 2,473.1 billion at December 31, 2004 and Rp 3,208.6 billion at December 31, 2005. The decrease in net working capital was principally due to increases in trade accounts payable, taxes payable, accrued expenses and unearned income. These increases were partially offset by a decrease in short-term bank loans. net Cash Flows Year Ended December 31 2004 2005 Rp billion Rp billion from operating activities 16,051.5 21,102.7 from investing activities 9,598.1 12,212.7 from financing activities 6,904.9 8,339.4 Change in cash and cash equivalents 451.5 550.6 Effect of foreign exchange changes on cash and cash equivalents 213.1 32.0 Cash and cash equivalents, beginning of year 5,094.5 4,856.1 Cash and cash equivalents, end of year 4,856.1 5,374.7 TELKOM Annual Report 2005 5 a. Current Assets Current assets were Rp 9,203.9 billion at December 31, 2004 and Rp 10,304.6 billion at December 31, 2005, reflecting an increase of Rp 1,100.7 billion, or 12.0. The increase in current assets was primarily due to: • an increase of Rp 149.8 billion, or 23.8, in prepaid expenses from Rp 628.1 billion in 2004 to Rp 777.9 billion in 2005; • an increase of Rp 258.8 billion, or 7.8, in trade account receivables from Rp 3,319.1 billion in 2004 to Rp 3,577.9 billion in 2005; • an increase of Rp 97.4 billion, or 174.6, in other accounts receivables from Rp 55.8 billion in 2004 to Rp 153.2 billion in 2005; • an increase of Rp 518.6 billion, or 10.7, in cash and cash equivalents from Rp 4,856.1 billion in 2004 to Rp 5,374.7 billion in 2005; and • an increase of Rp 114.9 billion, or 257.6, in other current assets from Rp 44.6 billion in 2004 to Rp 159.5 billion in 2005. These increases were partially offset by a decrease of Rp 58.3 billion, or 75.5, in prepaid taxes from Rp 77.2 billion in 2004 to Rp 18.9 billion in 2005. At December 31, 2004 and 2005, approximately 23.3 and 17.8, respectively, of TELKOM’s current assets were denominated in foreign currencies, principally the Euro in 2004 and the U.S. Dollar in 2005, such that the movements of Rupiah exchange rate against U.S. Dollar and Euro across these years would affect TELKOM’s current assets. a1. Trade accounts Receivable Trade accounts receivable from related parties net of allowance for doubtful accounts increased by Rp 111.3 billion, or 26.6, from Rp 419.1 billion as of December 31, 2004 to Rp 530.4 billion at December 31, 2005. Trade accounts receivable from third parties net of allowance for doubtful accounts increased by Rp 147.5 billion, or 5.1 from Rp 2,900.0 billion at December 31, 2004 to Rp 3,047.5 billion at December 31, 2005, primarily due to an increase in trade accounts receivable from residential and business subscribers. In the case of trade accounts receivable from related parties, the increase was primarily due to an increase in trade accounts receivable from the government agencies. The allowance for doubtful accounts for trade accounts receivable from related parties increased by Rp 19.4 billion, or 29.9, from Rp 64.9 billion at December 31, 2004 to Rp 84.3 billion at December 31, 2005, in line with an increase in the amount of accounts receivable from related parties. At December 31, 2005 compared to December 31, 2004, the allowance for doubtful accounts for trade receivables from third parties increased by Rp 144.3 billion, or 31.6, from Rp 457.1 billion to Rp 601.4 billion, in line with an increase in the amount of accounts receivable from third parties. a2. Other Current assets At December 31, 2005, Rp 159.5 billion of TELKOM’s time deposits with maturity of less than one year were restricted for security interests for bank guarantees. b. Current Liabilities Current liabilities were Rp 11,677.0 billion at December 31, 2004 and Rp 13,513.2 billion at December 31, 2005, reflecting an increase of Rp 1,836.2 billion, or 15.7. The increase in current liabilities primarily arose from increases in the following: a taxes payable; b accrued expenses; c trade accounts payable; and d unearned income. At December 31, 2004 and 2005, approximately 31.6 and 31.4, respectively, of TELKOM’s current liabilities were denominated in foreign currencies, principally the U.S. Dollar, such that the movement of Rupiah exchange rate against U.S. Dollar across these years significantly affected TELKOM’s current liabilities. b1. Current maturities of long-term liabilities Current maturities of long-term liabilities decreased by Rp 73.9 billion, or 3.2, from Rp 2,300.8 billion at December 31, 2004 to Rp 2,226.9 billion at December 31, 2005. This decrease was primarily due to the decreases in current maturities of the two-step loans and TELKOM’s medium-term notes, which decrease was partially offset by increases in current maturities of bank loans and liabilities of business acquisition. b2. accrued expenses Accrued expenses increased by Rp 469.8 billion, or 44.7, from Rp 1,051.4 billion at December 31, 2004 to Rp 1,521.2 billion at December 31, 2005. The increase was primarily due to an increase of Rp 201.5 billion, or 83.1, in accruals for general, administrative and marketing expenses from Rp 242.6 billion at December 31, 2004 to Rp 444.1 billion at December 31, 2005, an increase of 131.2 billion, or 40.8, in accrued salaries and benefits from Rp 321.2 billion at December 31, 2004 to Rp 452.4 billion at December 31, 2005, and an increase of Rp 86.7 billion, or 26.7 in accruals for operation, maintenance and telecommunication services expenses from Rp 324.3 billion at December 31, 2004 to Rp 411.1 billion at December 31, 2005. TELKOM Annual Report 2005

3. indebtedness

Consolidated total indebtedness consisting of long-term liabilities, current maturities of long-term liabilities and short-term bank loans at December 31, 2004 and 2005, was as follows: interest rate of 5.70. All of TELKOM’s Japanese Yen-denominated indebtedness was fixed rate and bore a weighted average interest rate at December 31, 2005 of 3.11. indebtedness Year Ended December 31 2004 2005 Rp billion Rp billion Indonesian Rupiah 1 4,550.0 4,009.0 U.S. Dollar 2 , 3 9,904.2 7,993.9 Japanese Yen 4 1,512.4 1,302.6 EURO 5 649.7 427.7 Total 16,616.3 13,733.2 1 Amounts at December 31, 2005 include debt issuance costs for medium-term notes of Rp 0.7 billion. In addition for 2004 and 2005, amounts also include bond issuance costs for TELKOM bonds of Rp 13.4 billion and Rp 8.15 billion. 2 Amounts at December 31, 2004 and 2005 translated into Rupiah at Rp 9,300 and Rp 9,835 = US1, respectively, being the Reuters sell rates for U.S. Dollars at each of those dates. 3 Amounts at December 31, 2004 include imputed interest on liabilities of business acquisitions which relates to AriaWest, the remaining 9.68 interest in Dayamitra and KSO IV in the amount of US9.7 million Rp 90.2 billion, US1.3 million Rp 11.9 billion and US101.0 million Rp 938.7 billion, respectively, being imputed interest on the installment payments of the foregoing liabilities. Amounts at December 31, 2005 included imputed interests on the liabilities of business acquisitions relating to Aria West, the remaining 9.68 interest in Dayamitra and KSO IV of US5.8 million Rp 57.3 billion, US0.3 million Rp 2.5 billion and US72.9 million Rp 717.1 billion, respectively, being imputed interest on installment payments of the foregoing liabilities. 4 Amounts at December 31, 2004 and 2005 translated into Rupiah at Rp 90.6 and Rp 83.89 = Yen 1, respectively, being the prevailing exchange rates for buying Yen at each of those dates. 5 Amounts at December 31, 2004 and 2005 translated into Rupiah at Rp 12,666.9 and Rp 11,651.5 = EURO 1, respectively, being the prevailing exchange rate for buying Euros at each of those dates. Of total indebtedness at December 31, 2005, Rp 2,400.7 billion, Rp 3,407.2 billion and Rp 7,925.3 billion were scheduled for repayments in 2006, 2007 and 2008-2024, respectively. Of these amounts, Telkomsel was scheduled to repay Rp 493.3 billion in 2006, Rp 323.3 billion in 2007 and Rp 180.7 billion in 2008. Further, Rp 14.3 billion was to be repaid by Dayamitra in 2006. Infomedia was scheduled to repay Rp 4.7 billion, Rp 3.4 billion and Rp 2.3 billion in 2006, 2007 and 2008, respectively. TELKOM expects scheduled repayments of indebtedness to be financed primarily from net cash flows from operating activities and re-financing by TELKOM, Telkomsel and Dayamitra, respectively. At December 31, 2005, approximately 53.01 of TELKOM’s Rupiah-denominated indebtedness and approximately 24.38 of its U.S. Dollar-denominated indebtedness bore interest at floating rates. TELKOM’s Rupiah-denominated floating rate indebtedness bore interest rates between 8.54 and 13.27, with rates generally based on interest rates on three-month Certificates of Bank Indonesia SBI plus a margin of 1.0. The weighted average interest rate on Rupiah-denominated floating rate indebtedness at December 31, 2005 was 9.17. TELKOM’s U.S. Dollar-denominated floating rate indebtedness was subject to interest rates between 4.02 and 5.31, with rates generally based on floating interest rates offered by the lenders or LIBOR plus a margin of between 0.5 and 0.75. The weighted average interest rate on U.S. Dollar-denominated floating rate indebtedness at December 31, 2005 was 5.03. TELKOM’s Rupiah-denominated fixed rate indebtedness at that date bore a weighted average interest rate of 15.29, while its U.S. Dollar-denominated fixed rate indebtedness bore a weighted average At December 31, 2005, TELKOM had the following outstanding significant indebtedness: • Rp 5,329.5 billion US542.2 million including current maturities in two-step loans through the Government; • Rp 991.9 billion US100.9 million after bond issuance costs IDR bonds issued by TELKOM; • Rp 693.7 billion US70.6 million including current maturities in acquisition indebtedness relating to TELKOM’s acquisition of 100 equity interest in AriaWest after discount; • Rp 145.3 billion US14.8 million from exercising the call option agreement with TM Communication HK Ltd. to purchase 9.68 of Dayamitra shares after discount; • Rp 3,151.3 billion US320.6 million representing the present value of fixed monthly payments to be paid to MGTI in respect of the acquisition of KSO IV; • Rp 609.3 billion US62.0 million medium-term notes net of debt issuance costs issued by TELKOM; • Rp 1,156.3 billion US117.6 million in project financing from the Export and Import Bank of Korea in connection with the CDMA Project; • Rp 301.0 billion US30.6 million loan for the Sumatera backbone network; and • Rp 74.89 billion US7.6 million loan for the Regional Division V junction project. • Rp 827.3 billion US101.45 million including current maturities of Telkomsel’s loan from Citibank International plc through its Hermes Export facility Rp 427.7 billion and EKN- Backed facility Rp 399.6 billion; • Rp170.0 billion US17.3 million including current maturities of Telkomsel’s loan from Bank Central Asia; and TELKOM Annual Report 2005 • Rp 30.9 billion US3.15 million including current maturities and short-term loans from other facilities for other subsidiaries, namely, Infomedia, Dayamitra, Balebat and GSD.

4. Capital expenditures

At December 31, 2005, TELKOM unconsolidated incurred capital expenditures of Rp 3,367.8 billion, which was less than the Rp 5,572.4 billion originally budgeted in its capital expenditure plan. TELKOM groups its capital expenditures into the following categories for planning purposes: • Infrastructure, which consists of the transmission network, access network including fixed wireless networks, data backbone and fixed line network backbone infrastructure; • Phone, which is essentially fixed wireline and fixed wireless; • Mobile, which consists of GSM mobile wireless telephone services and is presently conducted through Telkomsel; • Multimedia, which consists of Internet access, VoIP services and data services and other content development; and • Service-Net, which consists of various commercial services intended to increase traffic on TELKOM’s network, including interconnection, Internet network and third-party call centers. In addition, Telkomsel incurred capital expenditures of Rp 10,085.7 billion for network infrastructure and other investments and TELKOM’s other subsidiaries incurred capital expenditures of Rp 99.5 billion. Actual future capital expenditures may differ from the amounts indicated above due to various factors, including but not limited to the Indonesian economy, the RupiahUS dollar and RupiahEuro exchange rates and other applicable foreign exchange rates, the availability of vendor or other financing on terms acceptable to TELKOM, technical or other problems in obtaining or installing equipment and whether TELKOM enters any new lines of business. a. Planned Investments in 2006 In 2006, TELKOM plans to make capital investments in infrastructure, commercial services and supporting services. • Planned Investments in Infrastructure TELKOM’s planned capital investments in infrastructure in 2006 total Rp 4,142.4 billion. This will be used for capital investments in transmission infrastructure, which are expected to include investments in a fiber optic transmission network, a backbone transmission network on the island of Kalimantan and Sulawesi and an additional ground satellite segment in Jakarta, a submarine Capital expenditures Year Ended December 31 2004 2005 2006 2007 Rp billion Rp billion Rp billion Rp billion TelkOm Infrastructure: Transmission Network and Backbone 560.4 277.7 1,205.3 1,015.0 Access Network 1,831.2 1,577.0 2,937.1 1,724.5 Subtotal Infrastructure 2,391.6 1,854.7 4,142.4 2,739.5 Commercial Services: Phone 901.5 524.5 1,077.7 360.0 Mobile Cellular - - - - Multimedia 92.7 334.2 729.9 169.5 Services-Net 34.2 94.9 108.8 222.2 Subtotal Commercial Services 1,028.4 953.6 1,916.4 751.7 Supporting Services 295.6 559.5 754.6 758.5 Subtotal for TELKOM unconsolidated 3,715.6 3,367.8 6,813.4 4,249.7 TelkOm’s subsidiaries: Telkomsel 4,982.7 10,085.7 11,937.0 14,000 Dayamitra 50.4 - 41.3 21.1 Infomedia Nusantara 63.0 37.9 114.5 82.7 Pramindo Ikat Nusantara 1.7 29.4 44.5 35.2 Indonusa Telemedia 1.4 8.9 - 28.5 Graha Sarana Duta 3.7 2.4 18.0 13.0 PT Pro Infokom Indonesia 0.6 - - - PT Metra Holding 0.9 19.3 42.0 32.5 AriaWest 0.1 1.1 87.3 175.2 Napsindo 0.3 0.5 - - Subtotal for subsidiaries 5,104.8 10,185.2 12,284.6 14,388.2 Total for TelkOm consolidated 8,820.4 13,553.0 19,098.0 18,637.9 Amounts for 2004 and 2005 are actual capital expenditures. Amounts for 2006 are planned capital expenditures included in TELKOM’s budget and are subject to upward or downward adjustment. Amounts for 2007 are projected capital expenditures for such year, and actual capital expenditures may be significantly different from projected amounts. TELKOM Annual Report 2005 cable system between Batam-Jakarta and a submarine cable system between Puger and Denpasar. Substantial investment will also be made in expanding access infrastructure, which includes fiber optic cable fixed line, copper wire fixed line and CDMA wireless access networks. • Planned Investments in Commercial Services TELKOM also plans to spend Rp 1,916.4 billion in 2006 for capital investments in commercial services, including: - capital investments in fixed line commercial services including fixed wireless services, which include additional capacity, service enhancements and upgrades, including to its value added services and software and mechanical and electrical systems; - enhancing TELKOM’s multimedia network including core network of IP transport, HFC and CATV services, which includes increases in the number of VoIP access points, Internet multiplexing IMUX systems for Internet and data access, Internet value added services such as B2B e-commerce, broadband access xDsl, and improving TELKOM’s HFC and CATV systems; and - investing in service-net, including the establishment of fixed wireless services, e-commerce, internet connectivity and value added services. • Planned Investments in Supporting Services TELKOM plans to spend Rp 754.6 billion in 2006 for capital investments in supporting facilities including: investments in BTS stations to expand network coverage, transmission receiver TRX and microcells to improve its quality; switching equipment; equipment used for prepaid products; fiber optic transmission for large cities in Java; additional radio network capacity; 3G roll out plan; and supporting facilities consisting of buildings, RD and office facilities b. Other Financing Techniques In common with many Indonesian state-owned enterprises, TELKOM has historically relied on two-step loans financed by the Government and revenue sharing with co-investors to fund investment in property, plant and equipment. In recent years, however, TELKOM has funded its capital investments largely through internally generated cash flows from operating activities and direct borrowing from commercial banks. In addition, TELKOM has in recent years accessed the debt capital markets for a portion of its financing needs. On July 16, 2002, TELKOM issued a fixed rate IDR Bond in the amount of Rp 1,000 billion with maturity of five years with fixed interest rate of 17 per annum. On December 15, 2004, TELKOM issued unsecured medium- term notes “MTN” in the principal amount of Rp 1.125 trillion in four series with interest rates ranging from 7.7 to 9.4 per annum. TELKOM is presently in the process of exploring alternative sources of financing for capital investment, including vendor-procured and other bank financing, as well as other potential sources of borrowed funds. • Revenue Sharing Until recently, TELKOM made use of revenue-sharing arrangements to develop fixed line networks in heavily populated urban areas of Indonesia, public card-phone booths and its analog mobile cellular networks. Under these revenue-sharing arrangements, investors finance the costs incurred in procuring and installing equipment, while TELKOM manages and operates the equipment, and bears the cost of repairs and maintenance, after installation and until the end of the revenue-sharing period. The investors legally retain rights to the equipment during the revenue-sharing period but transfer ownership to TELKOM at the end of such period. TELKOM did not fund any capital investments other than capital investments in fixed line telephone services and broadband Internet services through revenue- sharing arrangements in 2003, 2004 or 2005 and does not intend to fund any such capital investments through such arrangements in the future. Since 2004, TELKOM has been trying to replace existing revenue-sharing agreements with new partnership schemes on more favorable terms.

C. Commitments on Capital expenditures