2011, local Governments are permitted to assess fees of up to 2.0 of the tax assessed value of towers. Although
we do not expect the amount of these fees to be material in 2014, there can be no assurance that they will not be
substantial in the future.
5. Risks Related to Our Fixed Telecommunication Business
We may further lose wireline telephone subscribers and revenues derived from our wireline voice services may
continue to decline, which may materially adversely affect our results of operations, financial condition and
prospects
Revenues derived from our wireline voiceservices have declined during the past several years mainly due to the
increasing popularity of mobile voice services and other alternative means of communication, such as VoIP. Tariffs
for mobile services have declined in recent years which has further accelerated substitution of mobile for wireline
voice services. While the number of our fixed wireline subscribers increased by 4.5 in 2013 and increased by
3.7 at the end of 2014, revenues from our wireline voice services decreased by 8.3 in 2013 and by 2.2 in 2014.
The percentage of revenues derived from our wireline voice services out of our total revenues continued to
decrease from 10.4 in 2013 to 9.4 in 2014.
We have been taking various measures in order to stabilize our revenues from wireline voice services.
However, we cannot assure you that we will be successful in mitigating the adverse impact of the substitution of
mobile voice services and other alternative means of communication for wireline voice services or in reducing
the rate of decline in our revenues generated from wireline voice services. Migration from wireline voice
services to mobile services and other alternative means of communication may further intensify in the future,
which may affect the financial performance of our wireline voice services and thus materially and adversely affect
our results of operations, financial condition and prospects as a whole.
Our data and internet services are facing increasing competition, and we may experience declining margins
from such services as such competition intensifies
Our data and internet services are facing increase competition from other data and internet operators as
well as mobile operators. The number of mobile broadband subscribers have increased with the increasing popularity
of smart phones in Indonesia, which adversely affects our market share and revenues from our fixed line data
and internet services.
In 2013, the regulator permitted the Wi-Max operators to deploy the long term evolution “LTE” technology
which will further intensify competition in the broadband internet space.
We have been taking various measures in order to mitigate the impact of intense competition in our data
and internet businesses. However, we cannot assure you that we will be successful in mitigating such adverse
impact. Competition may further intensify in the future, which may affect the financial performance of our data
and internet services and thus materially and adversely affect our results of operations, financial condition and
prospects as a whole.
6. Competition Risks Related to Our Cellular Business Telkomsel
Competition from existing service providers and new market entrants may adversely affect our cellular services
business
The Indonesian cellular services business is highly competitive. Competition among cellular services providers
in Indonesia is based on various factors, including pricing, network quality and coverage, the range of services,
features offered and customer service. Our cellular services business, operated through our majority-owned
subsidiary, Telkomsel, competes primarily against Indosat and XL. Several other smaller GSM and CDMA operators
also provide cellular services in Indonesia, including PT Hutchison CP Telecommunications “Hutchison”,
Smart Telecom and Bakrie Telecom. In addition to current cellular service providers, the MoCI may license additional
cellular service providers in the future, and such new entrants may compete with us.
A number of consolidations among Indonesian operators have taken place in recent years. In March 2010, Smart
Telecom and Mobile-8 announced the signing of a cooperation agreement to use the same logo and brand
under the brand name smartfren. On January 18, 2011, Mobile-8 acquired a significant number of shares in
Smart Telecom, and on April 12, 2011 PT Mobile-8 Telecom Tbk. changed its name to PT Smartfren Telecom Tbk.
XL-Axiata completed the acquisition of a majority interest
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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.
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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.
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