final_20fcleancleanp1.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

Form 20-F


*	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
	OR
R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013
*	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	OR
*	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 1-14406

________________

Perusahaan Perseroan (Persero)

PT Telekomunikasi Indonesia Tbk.

(Exact name of Registrant as specified in its charter)

Telecommunications Indonesia

(a state-owned public limited liability company)

(Translation of Registrant’s name into English)

________________

Republic of Indonesia

(Jurisdiction of incorporation or organization)

Jl. Japati No. 1, Bandung 40133, Indonesia

(Address of principal executive offices)

Investor Relations Unit

Grha Merah Putih, Jl. Gatot Subroto No. 52, 5^th Floor, Jakarta 12710, Indonesia

(62) (22) 452-7101

(62) (21) 521-5109

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

________________

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of Each class				Name of each exchange on which registered
American Depositary Shares representing Series B Shares, par value 50 Rupiah per share				New York Stock Exchange
Series B Shares, par value 50 Rupiah per share				New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
Series A Dwiwarna Share, par value 50 Rupiah per share					1
Series B Shares, par value 50 Rupiah per share					97,100,853,599

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x] No [ ]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [ ] No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [x]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x]		Accelerated filer [ ]	Non-accelerated filer [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP [ ] International Financial Reporting Standards as issued by the International Accounting Standards Board [x] Other [ ] If “Other” has been checked in response to the previous question, indicate by checkmark which financial statement item the registrant has elected to follow. Item 17 [ ] Item 18 [ ]
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]


*	The Series B Shares were registered in connection with the registration of American Depositary Shares (“ADSs”). The Series B Shares are not listed for trading on the New York Stock Exchange.

TABLE OF CONTENTS

DEFINITIONS	1
CERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION	9
FORWARD-LOOKING STATEMENTS	9

PART I

ITEM 1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	10
ITEM 2	OFFER STATISTICS AND EXPECTED TIMETABLE	10
ITEM 3	KEY INFORMATION	10
ITEM 4	INFORMATION ON THE COMPANY	27
ITEM 4A	UNRESOLVED STAFF COMMENTS	63
ITEM 5	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	63
ITEM 6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	84
ITEM 7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	92
ITEM 8	FINANCIAL INFORMATION	97
ITEM 9	THE OFFER AND LISTING	98
ITEM 10	ADDITIONAL INFORMATION	101
ITEM 11	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	107
ITEM 12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	110

PART II

ITEM 13	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	112
ITEM 14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	112
ITEM 15	CONTROLS AND PROCEDURES	112
ITEM 16A	AUDIT COMMITTEE FINANCIAL EXPERT	113
ITEM 16B	CODE OF ETHICS	113
ITEM 16C	PRINCIPAL ACCOUNTANT FEES AND SERVICES	113
ITEM 16D	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	114
ITEM 16E	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	115
ITEM 16F	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	116
ITEM 16G	CORPORATE GOVERNANCE	116
ITEM 16H	MINE SAFETY DISCLOSURE	117

PART III

ITEM 17	FINANCIAL STATEMENTS	118
ITEM 18	FINANCIAL STATEMENTS	118
ITEM 19	EXHIBITS	118
	Exhibit 1.1 Articles of Association (as amended on May 8, 2013)
	Exhibit 8.1 Please refer to Item 4 "Information on the Company-Organizational Structure" for a list of subsidiaries of the Registrant
	Exhibit 12.1 CEO Certification pursuant to Section 302
	Exhibit 12.2 CFO Certification pursuant to Section 302
	Exhibit 13.1 CEO Certification pursuant to Section 906
	Exhibit 13.1 CFO Certification pursuant to Section 906
	Exhibit 15.1 Letter of the Company's predecessor auditor to Securities Exchange Commissions in relation to Item 16F. Change in Registrant's Certifying Accountant
SIGNATURES		119-123

DEFINITIONS

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The generic term for third generation mobile telecommunications technology. 3G offers high speed connections to cellular phones and other mobile devices, enabling video conference and other applications requiring broadband connectivity to the internet.

3.5G

A grouping of disparate mobile telephony and data technologies designed to provide better performance than 3G systems, as an interim step towards deployment of full 4G capability.

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization. Adjusted EBITDA and other related ratios in this Annual Report serve as additional indicators on our performance and liquidity, which is a non-GAAP financial measure.

ADS

American Depositary Share (also known as an American Depositary Receipt, or an “ADR”), a certificate traded on a US securities market (such as New York Stock Exchange) representing a number of foreign shares. Each of our ADS represents 200 of our Series B shares.

ADSL

Asymmetric Digital Subscriber Line, a type of digital subscriber line technology, a data communications technology that enables faster data transmission over copper telephone lines than a conventional voice band modem can provide.

APMK

Alat Pembayaran Menggunakan Kartu or card-based payment instruments, a payment instrument in the form of credit cards, Automated Teller Machine (“ATM”) and/or debit cards.

ARPU

Average Revenue per User, a measure used primarily by telecommunications and networking companies which states how much money we make from the average user. It is defined as the total revenue from specified services divided by the number of consumers for those services.

Backbone

The main telecommunications network consisting of transmission and switching facilities connecting several network access nodes. The transmission links between nodes and switching facilities include microwave, submarine cable, satellite, optical fiber and other transmission technology.

Bandwidth

The capacity of a communication link.

Bapepam-LK

Badan Pengawas Pasar Modal dan Lembaga Keuangan, or the Indonesian Capital Market and Financial Institution Surpervisory Agency, the predecessor to the OJK.

Broadband

A signaling method that includes or handles a relatively wide range (or band) of frequencies.

BSC

Base Station Controller, an equipment responsible for radio resource allocation to mobile station, frequency administration and handover between BTSs controlled by the BSC.

BSS

Base Station Subsystem, the section of a cellular telephone network responsible for handling traffic and signaling between a mobile phone and the network switching subsystem. A BSS is composed of two parts: the BTS and the BSC.

BTS

Base Transceiver Station, equipment that transmits and receives radio telephony signals to and from other telecommunication systems.

BWA

Broadband Wireless Access, a technology that provides high speed wireless internet access or computer networking access over a wide area.

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CDMA

Code Division Multiple Access, a transmission technology where each transmission is sent over multiple frequencies and a unique code is assigned to each data or voice transmission, allowing multiple users to share the same frequency spectrum.

CPE

Customer Premises Equipment, any handset, receiver, set-top box or other equipment used by the consumer of wireless, fixed line or broadband services, which is the property of the network operator and located on the customer premises.

DCS

Digital Communication System, a mobile cellular system using GSM technology operating in the 1800 MHz frequency band.

Defined Benefit Pension Plan

A type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending on investment returns. It is considered ‘defined’ in the sense that the formula for computing the employer’s contribution is known in advance.

Defined Contribution Pension Plan

A type of retirement plan in which the amount of the employer’s annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employer contributions and, if applicable, employee contributions) plus any investment earnings on the money in the account. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate on the basis of investment earnings.

Dial-Up

Access to the internet using fixed telephone lines or mobile phone.

DLD
Domestic Long Distance, a long distance call service designed for customers who live in different areas but still within one country. These areas normally have different area codes.

Down link

Radio signal frequency emitted by the satellite to earth station.

DSL
Digital Subscriber Line, a technology that allows combinations of services including voice, data and one way full motion video to be delivered over existing copper feeder distribution and subscriber lines.

DTH

Direct-to-Home satellite broadcasting, the distribution of television signals from high-powered geostationary satellites to small dish antennas and satellite receivers in homes across the country.

Dual Band

The capability of a mobile cellular network and mobile cellular handsets to operate across two frequency bands, for example GSM 900 and GSM 1800.

e-Business
Electronic Business solutions, including electronic payment services, internet data centers and content and application solutions. Refer to “New Economy Business (“NEB”) and Strategic Business Opportunities Portfolio” under Business Overview.

e-Commerce

Electronic Commerce, the buying and selling of products or services over electronic systems such as the internet and other computer networks.

e-Money

Electronic Money, money or script that is only exchanged electronically.

e-Payment

Also known as electronic funds transfer, the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems.

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E1 Link

The backbone transmission unit which operates over two separate sets of wires, usually twisted pair cable. E1 link data rate is 2,048 Mbps (full duplex), which is divided into 32 timeslots.

Earth Station

The antenna and associated equipment used to receive or transmit telecommunication signals via satellite.

EDGE

Enhanced Data rates for GSM Evolution, a digital mobile phone technology that allows improved data transmission rates as a backward-compatible extension of GSM.

Edutainment

Education and Entertainment.

EVDO

Evolution Data Optimize, a standard high speed 3G wireless broadband for CDMA.

Fixed Line

Fixed wireline and fixed wireless.

Fixed Wireless

The local wireless transmission link using a cellular, microwave, or radio technology to connect customers at a fixed location to the local telephone exchange.

Fixed Wireline

A fixed wire or cable path linking a subscriber at a fixed location to a local exchange, usually with an individual phone number.

FTTx
Fiber to the “x”, a generic term for any broadband network architecture that uses optical fiber to replace all or part of the usual metal local loop used for last mile telecommunication. The generic term originated as a generalization of several configurations of fiber deployment such as fiber to the home, fiber to the node or fiber to the building.

Gateway

A peripheral that bridges a packet based network (IP) and a circuit based network (PSTN).

Gigabyte, a unit of information used, for example, to quantify computer memory or storage capacity.

Gbps

Gigabyte per second, the average number of bits, characters, or blocks per unit time passing between equipment in a data transmission system. This is typically measured in multiples of the unit bit per second or byte per second.

GHz

Gigahertz. The hertz (symbol Hz), the international standard unit of frequency defined as the number of cycles per second of a periodic phenomenon.

GMS

General Meeting of Shareholders, which may be an Annual General Meeting of Shareholders (“AGMS”) or an Extraordinary General Meeting of Shareholders (“EGMS”).

GPON

Gigabyte-Passive Optical Network, the most widely deployed type of passive optical network system that bring optical fiber cabling and signals all or most of the way to end users.

GPRS

General Packet Radio Service, a data packet switching technology that allows information to be sent and received across a mobile network and only utilizes the network when there is data to be sent.

GSM

Global System for Mobile Telecommunication, a European standard for digital cellular telephone.

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homepass

A connection with access to fixed line voice, IPTV and broadband services.

HSPA+

Evolved High Speed Packet Access is defined in the Third Generation Partnership Project Release 7. It introduces a simpler IP-centric architecture for the mobile network bypassing most of the legacy equipment. HSPA+ boosts peak data rates to 42 Mbit/s on the downlink and 22 Mbit/s on the uplink.

IDD

International Direct Dialing, a service that allows a subscriber to make an international call without the assistance or intervention of an operator from any telephone terminal.

IME

Information, Media and Edutainment.

IMT-2000

International Mobile Telecommunications-2000, a body of specifications provided by the International Telecommunication Union. Application services include wide area wireless voice telephone, mobile internet access, video calls and mobile TV, all in a mobile environment.

Installed Lines

Complete lines fully built-out to the distribution point and ready to be connected to subscribers.

Intelligent Network

A service-independent telecommunications network where the logic functions are taken out of the switch and placed in computer nodes distributed throughout the network. This provides the means to develop and control services more efficiently allowing new or advanced telephony services to be introduced quickly.

Interconnection

The physical linking of a carrier’s network with equipment or facilities not belonging to that network.

Internet Protocol, the method or protocol by which data is sent from one computer to another on the internet.

IP Core

A block of logic data that is used in making a field programmable gate array or application-specific integrated circuit for a product.

IP DSLAM

Internet Protocol-Digital Subscriber Line Access Multiplexer, a network device located near the customer’s location that allows telephone lines to make faster connections to the internet by connecting multiple customer Digital Subscriber Lines (DSLs) to a high-speed internet backbone line using multiplexing techniques.

IP VPN

A data communication service using IP Multi Protocol Label Switching (“MPLS”) and based on any to any connection. This service is connected to the data security systems, L2TP and IPSec. The speed depends on the customer’s needs and ranges from 64 Kbps to 2 Mbps.

IPTV

Internet Protocol Television, a system through which television services are delivered using the Internet Protocol suite over a packet-switched network such as the internet, instead of being delivered through traditional terrestrial, satellite signal, and cable television formats.

ISDN

Integrated Services Digital Network, a network that provides end-to-end digital connectivity and allows simultaneous transmission of voice, data and video and provides high speed internet connectivity.

ISP

Internet Services Provider, an organization that provides access to the internet.

Kbps

Kilobyte per second, a measure of speed for digital signal transmission expressed in thousands of bits per second.

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Lambda

Lambda indicates the wavelength of any wave, especially in physics, electronics engineering and mathematics.

Leased Line

A dedicated telecommunications transmissions line linking one fixed point to another, rented from an operator for exclusive uses.

Local Exchange Capacity

The aggregate number of lines at a local exchange connected and available for connection to outside plant.

LTE

Long Term Evolution technology, a standard for high-speed wireless data communication for mobile phones and data terminals.

Mbps

Megabyte per second, a measure of speed for digital signal transmission expressed in millions of bits per second.

Metro Ethernet

Bridge or relationship between locations that are apart geographically, this network connects LAN customers at several different locations.

MHz

Megahertz, a unit of measure of frequency equal to one million cycles per second.

Mobile Broadband

The marketing term for wireless internet access through a portable modem, mobile phone, USB Wireless Modem or other mobile devices.

MoCI

The Ministry of Communication and Information, to which regulatory responsibility over telecommunications was transferred from the Ministry of Communication (“MoC”) in February 2005.

MSAN

Multi Service Access Networks, represent the third generation of optical access network technology and are single platforms capable of supporting traditional, widely deployed, access technologies and services as well as emerging ones, while simultaneously providing a gateway to a NGN core. MSAN will enable us to provide triple play services that distribute high speed internet access, voice packet services and IPTV services simultaneously through the same infrastructure.

Network Access Point

A public network exchange facility where ISPs connected with one another in peering arrangements.

NGN

Next Generation Network, a general term that refers to a packet-based network able to provide services, including telecommunication services, and able to make use of multiple broadband, quality of service enabled transport technologies and in which service-related functions are independent from underlying transport related technologies. A NGN is intended to be able to, with one network, transport various services (voice, data, and various media such as video) by encapsulating these into packets, similar to how such packet are transmitted on the internet. NGNs are commonly built around the Internet Protocol.

Node B

A BTS for a 3G W-CDMA/UMTS network.

OBCE

Operational, Business and Customer support system and Enterprise relations management, which is part of our strategic initiatives.

OJK

Otoritas Jasa Keuangan, or the Indonesian Financial Services Authority, the successor of Bapepam-LK, is an independent institution with authority to regulate and supervise financial services activities in the banking sector, capital market sector as well as non-bank financial industry sector.

OLO

Other Licensed Operators, i.e. operators other than our Company.

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Optical Fiber

Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted through thin filaments of glass.

Outside Plant

The equipment and facilities used to connect subscriber premises to the local exchange.

Pay TV

Pay Television, premium television, or premium channels, subscription-based television services, usually provided by both analog and digital cable and satellite, but also increasingly via digital terrestrial and internet television.

PDN

Packet Data Network, a digital communications network which breaks a group data to be transmitted into segments called packets, which are then routed independently.

PKLN

Tim Pinjaman Komersial Luar Negeri, or Foreign Commercial Loan Coordinating Team, an inter-agency team of the Government charged with, among others, considering requests of Indonesian State-Owned Enterprises such as us for consent to obtain foreign commercial loans.

POWL

Public Offering Without Listing.

Premium SMS

Premium Short Message Service, a text messaging service component of phone, web, or mobile communication systems, using standardized communications protocols that allow the exchange of short text messages between fixed line or mobile phone devices.

PSTN

Public Switched Telephone Network, a telephone network operated and maintained by us and the KSO Units for us and on our behalf.

Pulse

The unit in the calculation of telephone charge.

Radio Frequency Spectrum

The part of the electromagnetic spectrum corresponding to radio frequencies, i.e. frequencies lower than around 300 GHz (or, equivalently, wavelengths longer than about 1 mm).

RIO

Reference Interconnection Offer, a regulatory term covering all facilities, including interconnection tariffs, technical facilities and administrative issues offered by one telecommunications operator to other telecommunications operator for interconnection access.

RMJ
Regional Metro Junction, an inter-city cable network installation service in one regional (region/province).

Roaming

A general term referring to the extension of connectivity service in a location that is different from the home location where the service was registered.

RUIM card

Removable User Identity Module, a smart card designed to be inserted into a fixed wireless telephone that uniquely identifies a CDMA network subscription and that contains subscriber-related data such as phone numbers, service details and memory for storing messages.

Satellite Transponder

Radio relay equipment embedded in a satellite that receives signals from earth and amplifies and transmits the signal back to the earth.

SCCS

Submarine Communications Cable System, a cable laid on the sea bed between land-based stations to carry telecommunication signals across stretches of ocean.

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SDP

Service Delivery Platform, a set of components that provide a service delivery architecture (such as service creation, session control and protocols) for a type of service.

SIM card

Subscriber Identity Module, a “smart” card designed to be inserted into cellular phone that uniquely identifies a GSM network subscription and contains subscriber-related data such as phone numbers, service details and memory for storing messages.

SME

Small and Medium Enterprise.

SMS

Short Messaging Service, a technology allowing the exchange of text messages between mobile phones and between fixed wireless phones.

SOE

State-Owned Enterprise, a Government-owned corporation, state-owned company, state-owned entity, state enterprise, publicly owned corporation, Government business enterprise, or parastatal, a legal entity created by a Government to undertake commercial activities on behalf of an owner Government.

Softswitch

A central device in a telephone network that connects calls from one phone line to another, entirely by means of software running on a computer system. This work was formerly carried out by hardware, with physical switchboards to route the calls.

STM-1

Synchronous Transport Module level-1, the SDH ITU-T fiber optic network transmission standard with a bit rate of 155.52 Mbps. The other standards are STM-4, STM-16 and STM-64.

Switch

A mechanical, electrical or electronic device that opens or closes circuits, completes or breaks an electrical path, or selects paths or circuits, used to route traffic in a telecommunications network.

Terra Router

Terra Router or terabit router on the theory allows the network capacity on a scale of terabits (1 terabit = 1 million gigabits).

TIMES

Telecommunication, Information, Media, Edutainment and Service.

TITO

Trade-In, Trade-Off, a conversion scheme to replace copper with optical cable. Refer to “Development and Modernization of Broadband Access through the TITO Scheme” under Network Development.

Trunk Exchange

A switch that has the function of connecting one telephony switch to another telephony switch, which can either be a local or a trunk switch.

UMTS

Universal Mobile Telephone System, one of the 3G mobile systems being developed within the ITU’s IMT-2000 framework.

USO

Universal Service Obligation, the service obligation imposed by the Government on all telecommunications services providers for the purpose of providing public services in Indonesia.

VoIP

Voice over Internet Protocol, a means of sending voice information using the IP.

VPN

Virtual Private Network, a secure private network connection, built on top of publicly-accessible infrastructure, such as the internet or the public telephone network. VPNs typically employ some combination of encryption, digital certificates, strong user authentication and access control to secure the traffic they carry. These provide connectivity to many machines behind a gateway or firewall.

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CERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION

Unless the context otherwise requires, references in this Form 20-F to the “Company”, “Telkom”, “we”, “us”, and “our” are to PT Telekomunikasi Indonesia Tbk. and its consolidated subsidiaries. All references to “Indonesia” are references to the Republic of Indonesia. All references to the “Government” herein are references to the Government of the Republic of Indonesia. References to “United States” or “US” are to the United States of America. References to “United Kingdom” or “UK” are to the United Kingdom of Great Britain and Northern Ireland. References to “Rupiah” or “Rp” are to the lawful currency of Indonesia. References to “US Dollar” or “US$” are to the lawful currency of the United States. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ.

Our consolidated financial statements as of January 1, 2012 (Restated), December 31, 2012 (Restated) and December 31, 2013 and for the years ended December 31, 2011 (Restated), 2012 (Restated) and 2013 included in this Form 20-F (the “Consolidated Financial Statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

On December 31, 2013, the financial statements of nine of our subsidiaries were consolidated into the Consolidated Financial Statements for 2013. The nine companies are PT Telekomunikasi Indonesia International (“TII”, a wholly-owned subsidiary), PT Dayamitra Telekomunikasi (“Dayamitra”, a wholly-owned subsidiary), PT Pramindo Ikat Nusantara (“PINs”, a wholly-owned subsidiary), PT Telekomunikasi Selular (“Telkomsel”, in which we own a 65% stake), PT Multimedia Nusantara (“Metra”, a wholly-owned subsidiary), PT Graha Sarana Duta (“GSD”, in which we own a 99.99% stake), PT Telkom Akses (“Telkom Akses”, a wholly-owned subsidiary), PT Patra Telekomunikasi Indonesia (“Patrakom”, a wholly-owned subsidiary) and PT Napsindo Primatel Internasional (“Napsindo”, in which we own a 60% stake). See Note 1d to our Consolidated Financial Statements.

Solely for the convenience of the reader, certain Rupiah amounts have been translated into US Dollars at specified rates. Unless otherwise indicated, US Dollars equivalent information for amounts in Rupiah is translated at the Reuters Rate for December 31, 2013 at 04.00 PM Jakarta time, using the average of the market buy and sell rates of Rp12,170 to US$1.00. The average of the market buy and sale on March 20, 2014 was Rp11,445 to US$1.00. The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Rupiah. No representation is made that the Rupiah or US Dollar amounts shown herein could have been or could be converted into US Dollar or Rupiah, as the case may be, at any particular rate or at all. See Item 3 “Key Information – Selected Financial Data – Exchange Controls” for further information regarding rates of exchange between the Rupiah and the US Dollar.

FORWARD-LOOKING STATEMENTS

This Form 20-F contains “forward-looking statements” as defined in Section 27A of the US Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the US Securities Exchange Act of 1934, as amended (“Exchange Act”), within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations and projections for our future operating performance and business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this Form 20-F are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements herein are reasonable, we can give no assurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, including changes in the economic, social and political environments in Indonesia. This Form 20-F discloses, under Item 3 “Key Information – Risk Factors” and elsewhere, important factors that could cause actual results to differ materially from our expectations.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

The following tables present our selected consolidated financial information and operating statistics as of the dates and for each of the periods indicated. The selected financial information as of and for the years ended December 31, 2010, 2011, 2012 and 2013 presented below is based upon our audited Consolidated Financial Statements prepared in conformity with IFRS as issued by the IASB. The selected financial information as of and for the years ended December 31, 2010, 2011, 2012 and 2013 should be read in conjunction with, and is qualified in its entirety by reference to, our audited Consolidated Financial Statements, including the notes thereto, and the other information include elsewhere in this Form 20-F and in our previous Form 20-F filed with the SEC on April 1, 2013. In 2013, we adopted IAS 19 Employee Benefits (Revised 2011) on a retrospective basis and the 2011 and 2012 consolidated financial statements have been restated. Moreover, in 2013, our shareholders approved the stock split with a ratio of 1:5, accordingly the historical per share information has been retrospectively adjusted. The selected financial information as of and for the years ended December 31, 2009 is based upon our audited Consolidated Financial Statements prepared in conformity with Indonesian Financial Accounting Standards (“IFAS”), with a reconciliation to US GAAP. The selected financial information as of and for the years ended December 31, 2009 should be read in conjunction with, and is qualified in its entirety by reference to, our audited Consolidated Financial Statements, including the notes thereto, and the other information included elsewhere in our previous Form 20-F filed with the SEC on April 8, 2010. Therefore, financial information for 2010, 2011, 2012 and 2013 are not comparable with financial information for 2009 and are presented separately.

The Public Accountant Firm (“KAP”) Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) audited our Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2013, while, our Consolidated Financial Statements as of and for the years ended December 31, 2009, 2010 and 2011 were audited by KAP Tanudiredja, Wibisana & Rekan, a member firm of the PwC global network (“PwC”).

	Years Ended December 31,
	2010		2011 (Restated)		2012 (Restated)		2013		2013
	(Rp billion)		(Rp billion)		(Rp billion)		(Rp billion)		(US$ million)
	except for per share and per ADS amount
Key Consolidated Statements of Comprehensive Income Data
IFRS
Revenues	68,529		71,238		77,127		82,967		6,817
Expenses⁽¹⁾	46,337		49,880		54,200		57,850		4,753
Adjusted EBITDA	37,334		36,857		39,971		43,532		3,577
Operating Profit	22,754		22,034		25,497		27,727		2,278
Profit before Income Tax	21,264		20,982		24,027		27,030		2,221
Net Income Tax Expense	(5,512	)	(5,437	)	(5,886	)	(6,900	)	(567	)
Profit for the Year	15,752		15,545		18,141		20,130		1,654
Attributable to owners of the parent company	11,427		11,043		12,621		14,046		1,154
Attributable to non-controlling interests	4,325		4,502		5,520		6,084		500
Other Comprehensive Income (Expenses) - Net	(553	)	(1,928	)	(2,540	)	5,115		420
Net Comprehensive Income for the Year	15,199		13,617		15,601		25,245		2,074
Attributable to owners of the parent company	10,911		9,183		10,056		19,018		1,562
Attributable to non-controlling interests	4,288		4,434		5,545		6,227		512

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	Years Ended December 31,
	2010	2011 (Restated)	2012 (Restated)	2013	2013
	(Rp billion)	(Rp billion)	(Rp billion)	(Rp billion)	(US$ million)
	except for per share and per ADS amount
Weighted average number of shares outstanding (in millions)	98,345	97,959	96,011	96,359	-
Basic and Diluted Earnings per Share (in full amount)
Net incomeper share⁽²⁾	116.19	112.73	131.45	145.77	0.01
Net income per ADS (200 Series B shares per ADS)	23,238.00	22,546.00	26,290.80	29,153.58	2.40
Dividend relating to the period (accrual basis, in full amount)
Dividends declared per share	64.52	74.21	87.24	-	-
Dividends declared per ADS	12,903.60	14,842.17	17,447.53	-	-
Dividend paid in the period (cash basis, in full amount)⁽³⁾
Dividends declared per share	55.09	61.71	74.29	87.24	0.01
Dividends declared per ADS	11,017.83	12,342.57	14,858.69	17,447.53	1.43

(1) Expenses are calculated as the sum of the following expenses: operation, maintenance and telecommunication services, depreciation and amortization, personnel, interconnection, marketing, general and administrative, loss (gain) on foreign exchange, share of loss of associated companies and other expenses.

(2) Using IFAS results, our profit attributable to owners of the parent company would be Rp11,537 billion, Rp10,965 billion, Rp12,850 billion and Rp14,205 for 2010, 2011, 2012 and 2013, and our net income per share would be Rp117.31, Rp111.93, Rp133.84 and Rp147.42 for 2010, 2011, 2012 and 2013. We distribute dividends based on profit attributable to owners of the parent company and net income per share determined in reliance on IFAS.

(3) In 2010, we paid a cash dividend for 2009 of Rp55.09 per share and interim cash dividend 2010 of Rp5.35 per share. In 2011, we paid a cash dividend for 2010 of Rp61.71 per share. In 2012, we paid a cash dividend for 2011 of Rp74.29 per share. In 2013, we paid a cash dividend for 2012 of Rp87.24 per share.

	Years Ended December 31,
	2010	2011 (Restated)	2012 (Restated)	2013	2013
	(Rp billion)	(Rp billion)	(Rp billion)	(Rp billion)	(US$ million)
Reconciliation of Operating Profit to Adjusted EBITDA
Operating Profit	22,754	22,034	25,497	27,727	2,278
Add:
Depreciation and Amortization	14,580	14,823	14,474	15,805	1,299
Adjusted EBITDA⁽¹⁾	37,334	36,857	39,971	43,532	3,577

(1) Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization. Adjusted EBITDA and other related ratios in this Annual Report serve as additional indicators on our performance and liquidity, which is a non-GAAP financial measure. Adjusted EBITDA is presented because our management believes that it is widely used by investors in their analysis of our performance and can assist them in their comparison of our performance with those of other companies in the telecommunications, information and media sector. We also present adjusted EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Companies in the telecommunications, information and media sector have historically reported adjusted EBITDA as a supplement to financial measures in accordance with IFRS or US GAAP. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of our performance, nor should adjusted EBITDA be considered an alternative to cash flows from operating activities as a measure of liquidity or as an alternative to any other measure determined in accordance with IFRS. Unlike net income, adjusted EBITDA does not include depreciation and amortization or financing costs and, therefore, does not reflect current or future capital expenditures or the cost of capital. We compensate for these limitations by using adjusted EBITDA as only one of several comparative tools, together with IFRS-based measurements, to assist in the evaluation of operating performance. Such IFRS-based measurements include profit before income tax, profit for the year, cash flows from operations and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in adjusted EBITDA. Our calculation of adjusted EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

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	As of December 31,
	2010		2011 (Restated)		2012 (Restated)	2013	2013
	(Rp billion)		(Rp billion)		(Rp billion)	(Rp billion)	(US$ million)
	except for shares
Key Consolidated Statements of Financial Position Data
IFRS
Cash and cash equivalents	9,120		9,634		13,118	14,696	1,207
Trade and other receivables	4,534		5,393		5,409	6,421	527
Advances and prepaid expenses	3,441		3,294		3,721	3,937	324
Total Current Assets	18,830		21,401		27,973	33,075	2,718
Property and equipment	75,624		74,638		76,908	86,599	7,116
Intangible assets	1,786		1,791		1,443	1,508	124
Total Non-current Assets	82,242		80,965		82,238	94,721	7,783
Total Assets	101,072		102,366		110,211	127,796	10,501
Trade and other payables	7,787		8,355		7,457	11,988	985
Current income tax liabilities	736		729		1,280	942	77
Accrued expenses	3,409		4,790		6,163	5,264	432
Unearned income	2,681		2,821		2,729	3,490	287
Short-term loans and other borrowings	5,360		4,913		5,658	5,525	454
Total Current Liabilities	20,473		22,189		24,108	28,437	2,336
Deferred tax liabilities	4,047		3,159		2,252	2,908	239
Pension benefit and other post-employment benefit obligations	2,805		5,372		8,184	4,258	350
Long-term loans and other borrowings	16,655		12,958		13,617	14,731	1,210
Total Non-current Liabilities	24,061		22,018		24,734	22,705	1,866
Total Liabilities	44,534		44,207		48,842	51,142	4,202
Capital stock⁽¹⁾	5,040		5,040		5,040	5,040	414
Net Equity Attributable to Owners of the Parent Company	44,627		44,844		46,055	59,753	4,910
Non-controlling interests	11,911		13,315		15,314	16,901	1,389
Total Equity (Net Assets)	56,538		58,159		61,369	76,654	6,299
Net Debt	12,895		8,237		6,157	5,560	457
Net Working Capital	(1,643	)	(788	)	3,865	4,638	382
Issued and fully paid shares (in shares)	100,799,996,400		100,799,996,400		100,799,996,400	100,799,996,400	100,799,996,400

(1) As of December 31, 2013, our issued and paid-up capital consists of one Series A Dwiwarna share having a par value of Rp50 (the “Dwiwarna Share”) and 100,799,996,399 Series B shares having a par value of Rp50 per share (“common stock”) each from an authorized capital stock comprising one Series A Dwiwarna share and 399,999,999,999 Series B shares.

		As of and Years Ended December 31,
		2009*
		(Rp billion)
Consolidated Income Statement Data
Indonesian GAAP
Operating Revenues		67,678
Operating Expenses
Depreciation and amortization		13,975
Personnel		8,371
Operations, maintenance and telecommunication services		14,549
General and administrative		2,806
Interconnection		2,929
Marketing		2,260
Total Operating Expenses		44,890

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	As of and Years Ended December 31,
	2009*
	(Rp billion)
Operating Income	22,788
Other Income (Expenses)
Interest income	462
Equity in net (loss) income of associated companies	(30	)
Interestexpense	(2,096	)
Gain(loss) on foreign exchange - net	973
Others - net	350
Other expenses - net	(341	)
IncomeBefore Tax	22,447
Income Tax (Expense) Benefit	(6,404	)
Income Before Minority Interest in Net Income of Consolidated Subsidiaries	16,043
Minority interest in net income of consolidated subsidiaries, net	(4,644	)
NetIncome	11,399
Weighted average number of shares outstanding (in millions)	19,669
Basic and Diluted Earnings per Share (in full amount)
Net income per share	579.52
Net income per ADS	23,180.80
US GAAP⁽¹⁾
Net income	12,092
Operating revenues	67,677
Basic and Diluted Earnings per Share (in full amount)
Net income per share	614.78
Net income per ADS	24,591.25
Dividend relating to the period (accrual basis, in full amount)
Dividends declared per share	288.06
Dividends declared per ADS	11,522.40
Dividend paid in the period (cash basis, in full amount)⁽²⁾
Dividends declared per share	323.59
Dividends declared per ADS	12,943.60
Consolidated Balance Sheet Data
Indonesian GAAP
Current assets	16,095
Non-current assets	81,836
Total assets	97,931
Current liabilities⁽³⁾	26,892
Non-current liabilities	21,544
Total liabilities	48,436
Minority interest	10,933
Capital stock	5,040
Total stockholders’ equity	38,562
Total liabilities and stockholders’ equity	97,931
US GAAP⁽¹⁾
Current assets	18,381
Non-current assets	83,100
Total assets	101,481
Current liabilities	26,931
Non-current liabilities	22,522
Total liabilities	49,453
Non-controlling interest in net assets of subsidiaries	11,067
Total stockholders’ equity	40,961
Total liabilities and stockholders’ equity	101,481

* As restated.

(1) US GAAP amounts reflect adjustments resulting from differences in the accounting treatment of voluntary termination benefits, foreign exchange differences capitalized on assets under construction, interest capitalized on assets under construction, revenue-sharing arrangements, employees benefits, equity in net loss (income) of associated companies, amortization of land rights, revenue recognition, amortization of goodwill, finance leases, acquisition of Dayamitra, asset retirement obligations, deferred taxes, available-for-sale securities, amendment and restatement of JOS in Regional Division VII and non-controlling interests.

(2) In 2009, we paid a cash dividend for 2008 of Rp296.94 per share and interim cash dividend 2009 of Rp26.65 per share.

(3) Includes current maturities of long-term debt.

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Exchange Controls

Exchange Rate Information

The following table shows the exchange rate of 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.

	at Period End	Average	Low	High
Calendar Year	(Rp Per US$1)
2009⁽¹⁾	9,400	10,356	11,980	9,400
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	12,189	11,597	12,270	10,922
September⁽²⁾	11,613	11,346	11,613	10,922
October⁽²⁾	11,234	11,367	11,593	11,018
November⁽²⁾	11,977	11,613	11,977	11,354
December⁽²⁾	12,189	12,087	12,270	11,830
2014	11,634	12,057	12,267	11,620
January⁽²⁾	12,226	12,180	12,267	12,047
February⁽²⁾	11,634	11,935	12,251	11,620

Source: Bank Indonesia

(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.

Under the current exchange rate system, the exchange rate of the 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 2013, the average rate of Rupiah to the US Dollar was Rp11,597, with the lowest and highest rates being Rp12,270 and Rp10,922, respectively.

The exchange rates used for translation of monetary assets and liabilities denominated in foreign currencies are the buy and sell rates published by Reuters in 2011, 2012 and 2013. The Reuters buy and sell rates, applied respectively to monetary assets and liabilities, were Rp9,060 and Rp9,075 to US$1.00 as of December 31, 2011, Rp9,630 and Rp9,645 to US$1.00 as of December 28, 2012 and Rp12,160 and Rp12,180 to US$1.00 as of December 31, 2013.

The Consolidated Financial Statements are stated in Rupiah. The translations 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 Rp12,170 to US$1.00 published by Reuters on December 31, 2013.

On March 20, 2014, the Reuters bid and ask rates were Rp11,440 and Rp11,450 to US$1.00.

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 US$10,000. As a State-Owned Company, and based on the decree of the Head of 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.

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASON FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

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D. RISK FACTORS

A. Risks Related to Indonesia

1. Political and Social Risks

Current political and social events in Indonesia may adversely affect our business

Since 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesia’s changing political landscape. In 1999, Indonesia conducted its first free elections for parliament and president. Indonesia also has many political parties, without any one party holding a clear majority. Due to these factors, Indonesia has, from time to time, experienced political instability, as well as general social and civil unrest. For example, since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against former President Abdurahman Wahid, former President Megawati, and current President Susilo Bambang Yudhoyono as well as in response to specific issues, including fuel subsidy reductions, privatization of state assets, anti-corruption measures, decentralization and provincial autonomy and the American-led military campaigns in Afghanistan and Iraq. Although these demonstrations were generally peaceful, some turned violent.

Indonesia is facing a couple of critical political events in 2014, namely the legislative election scheduled for April 9, 2014, and the election for President and Vice President scheduled for July 9, 2014. Political tensions are expected to increase during both the legislative and the presidential elections. President Susilo Bambang Yudhoyono is required to step down after having served two terms, thus the presidential election will likely be hotly contested, with an uncertain outcome.

Increased political tensions may cause social and civil disturbances and conflicts to increase. Social conflicts, in particular, may escalate in the lead-up period to the 2014 legislative and presidential election. The dynamics of political maneuvering to win the sympathy of different groups of the public may trigger friction at the grass-root level.

Separatist movements and clashes between religious and ethnic groups have also resulted in social and civil unrest in parts of Indonesia, such as Aceh in the past and in Papua currently, where there have been clashes between supporters of those separatist movements and the Indonesian military, including continued activity in Papua, by separatist rebels that has led to violent incidents. There have also been inter-ethnic conflict, for example in Kalimantan, as well as inter-religious conflict such as in Maluku and Poso.

Labor issues have also come to the fore in Indonesia. In 2003, the Government enacted a new labor law that gave employees greater protections. Occasional efforts to reduce these protections have prompted an upsurge in public protests as workers responded to policies that they deemed unfavorable.

There can be no assurance that social and civil disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, materially and adversely affect our business, financial condition, results of operations and prospects.

Terrorist activities in Indonesia could destabilize Indonesia, which would adversely affect our business, financial condition and results of operations, and the market price of our securities

There have been a number of terrorist incidents in Indonesia, including the May 2005 bombing in Central Sulawesi, the Bali bombings in October 2002 and 2005 and the bombings at the JW Marriot and Ritz Carlton hotels in Jakarta in July 2009. Although the Government has successfully countered some terrorist activities in recent years and arrested several of those suspected of being involved in these incidents, terrorist incidents may continue and, if serious or widespread, might have a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy and may also have a material adverse effect on our business, financial condition, results of operations and prospects and the market price of our securities.

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2. Macro Economic Risks

Negative changes in global, regional or Indonesian economic activity could adversely affect our business

Changes in the Indonesian, regional and global economies can affect our performance. Two significant events in the past that impacted Indonesia’s economy were the Asian economic crisis of 1997 and the global economic crisis which started in 2008. The 1997 crisis was characterized in Indonesia by, among others, currency depreciation, a significant decline in real gross domestic product, high interest rates, social unrest and extraordinary political developments, while the global economic crisis that arose from the subprime mortgage crisis in the US put Indonesia’s economy under pressure, although not as severely as in 1997. The global financial markets have also experienced volatility as a result of the downgrade of US sovereign debt in 2012 and concerns over the debt crisis in the Eurozone. Uncertainty over the outcome of the Eurozone governments’ financial support programs and worries about sovereign finances generally are ongoing. If the crisis becomes protracted, or extends to Asia and Indonesia, we can provide no assurance that it will not have a material and adverse effect on Indonesia’s economic growth and consequently on our business.

Adverse economic conditions could result in less business activity, less disposable income available for consumers to spend and reduced consumer purchasing power, which may reduce demand for communication services, including our services, which in turn would have an adverse effect on our business, financial condition, results of operations and prospects. There is no assurance that there will not be a recurrence of economic instability in future, or that, should it occur, it will not have an impact on the performance of our business.

Fluctuations in the value of the Rupiah may materially and adversely affect us

Our functional currency is the Rupiah. One of the most important effects of the Asian economic crisis that affected Indonesia was the depreciation and volatility in the value of the Rupiah as measured against other currencies, such as the US Dollar. The Rupiah continues to experience significant volatility. From 2009 to 2013, the Rupiah per US Dollar exchange rate ranged from a high of Rp8,508 per US Dollar to a low of Rp12,270 per US Dollar. As a result, we recorded foreign exchange losses of Rp210 billion in 2011, Rp189 billion in 2012 and Rp249 billion in 2013. The Rupiah depreciated significantly in 2013. As of December 31, 2013, the Rupiah per US Dollar exchange rate stood at Rp12,170 per US Dollar compared to Rp9,637.5 per US Dollar as of December 31, 2012.

To the extent that the Rupiah depreciates further from the exchange rate as of December 2013, our US Dollar-denominated obligations under our accounts payable and procurements payable, as well as payments for foreign currency-denominated loans payable and bonds payable, would increase in Rupiah terms. A depreciation of the Rupiah would also increase the Rupiah cost of our capital expenditures as most of our capital expenditures are priced in or with reference to foreign currencies, mainly US Dollars and Euros, while a substantial majority of our revenues are in Rupiah. Such depreciation of the Rupiah would result in losses on foreign exchange translation, significantly affect our total expenses and net income and reduce the US Dollar amounts of dividends received by holders of our ADSs. We can give no assurances that we will be able to control or manage our exchange rate risk successfully in the future or that we will not be adversely affected by our exposure to exchange rate risk.

In addition, while the Rupiah has generally been freely convertible and transferable, from time by time, Bank Indonesia has intervened in the currency exchange markets in furtherance of its policies, either by selling Rupiah or by using its foreign currency reserves to purchase Rupiah. We can give no assurances that the current floating exchange rate policy of Bank Indonesia will not be modified or that the Government will take additional action to stabilize, maintain or increase the Rupiah’s value, or that any of these actions, if taken, will be successful. Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economic recession, loan defaults or declining subscriber usage of our services, and as a result, we may also face difficulties in funding our capital expenditures and in implementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial condition, results of operations and prospects.

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Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our business

As of the date of this Annual Report, Indonesia’s sovereign foreign currency long-term debt is rated “Baa3” by Moody’s (upgraded from “Ba1” on January 18, 2012), “BB+” by Standard & Poor’s (upgraded from “bb” on April 8, 2011) and “BBB” by Fitch Ratings (upgraded from “BB+” on December 15, 2011). Indonesia's short-term foreign currency debt is rated “B1/NP” by Moody’s, “B” by Standard & Poor’s and “B” by Fitch Ratings. On January 18, 2012, Moody’s upgraded Indonesia’s long-term debt rating to investment grade status.

We can give no assurances that Moody’s, Standard & Poor’s or Fitch Ratings, will not change or downgrade the credit ratings of Indonesia. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. Interest rates on our floating rate Rupiah-denominated debt would also likely increase. Such events could have material adverse effects on our business, financial condition, results of operations and prospects.

3. Disaster Risks

Indonesia is vulnerable to natural disasters and events beyond our control, which could adversely affect our business and operating results

Many parts of Indonesia, including areas where we operate, are prone to natural disasters such as floods, lightning strikes, typhoons, earthquakes, tsunamis, volcanic eruptions, fires, droughts, power outages and other events beyond our control. The Indonesian archipelago is one of the most volcanically active regions in the world as it is located in the convergence zone of three major lithospheric plates. It is subject to significant seismic activity that can lead to destructive earthquakes, tsunamis or tidal waves. From time to time, natural disasters have killed, affected or displaced large numbers of people and damaged our equipment. These events in the past, and may in the future, disrupt our business activities, cause damage to equipment and adversely affect our financial performance and profit.

In recent years, several natural disasters have occurred in Indonesia (in addition to the Asian tsunami in 2004), including tsunamis in Pangandaran in West Java in 2006 and 2010, an earthquake in Yogyakarta in Central Java in 2006, a hot mud eruption and subsequent flooding in Sidoarjo in East Java in 2006 and separate earthquakes in Papua, West Java, Sulawesi and Sumatra in 2009.

On September 2, 2009, an earthquake in West Java caused damage to our assets. On September 30, 2009, an earthquake in West Sumatra disrupted the provision of telecommunications services in several locations. Although our Crisis Management Team in cooperation with our employees and partners was able to restore services quickly, the earthquake caused severe damage to our assets. There were a number of earthquakes detected in 2010 through 2013, although none of them presented significant risks to our business in general.

Flash floods and more widespread flooding occur regularly during the rainy season from November to April. Cities, especially Jakarta, are frequently subject to severe localized flooding which can result in major disruption, and occasionally fatalities. Jakarta experienced significant floods in February 2007 as did in Solo in Central Java in January. In January 2009, torrential rain caused a dam to burst outside Jakarta, flooding hundreds of homes in a densely populated neighborhood, resulting in the death of approximately 100 people. Landslides regularly occur in rural areas during the wet season.

There are numerous volcanoes in Indonesia, any of which can erupt without warning. In October and November 2010, Mount Merapi in Central Java erupted several times, killing an estimated 140 persons, displacing several hundred thousand others in a 20 km radius, causing billions of dollars of property damage and disrupting air travel. Since April 2008, Mount Soputan in North Sulawesi, Mount Egon in Flores Island, Nusa Tenggara, Mount Ibu in North Maluku and Anak Krakatau in the Sunda Strait have shown significant increased volcanic activity. Mount Sinabung, 60 km (40 miles) southwest of Sumatra's main city Medan, erupted on August 29, 2013 after lying dormant for 400 years, and erupted again in November 2013. Ash and acrid smoke from the volcano blanketed villages and crops.

In 2010, our submarine cables forming part of our backbone suffered damage due to a tsunami in West Sumatra and an earthquake in Sumbawa. These were repaired.

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Although we have implemented a Business Continuity Plan (“BCP”) and a Disaster Recovery Plan (“DRP”), and test these regularly and we have insured our assets to protect from any losses attributable to natural disasters or other phenomena beyond our control, there is no assurance that the insurance coverage will be sufficient to cover the potential losses, that the premium payable for these insurance policies upon renewal will not increase substantially in the future, or that natural disasters would not significantly disrupt our operations.

There are no assurances that future geological or meteorological occurrences will not have a significant impact on Indonesian and its economy. A significant earthquake, other geological disturbance or weather-related natural disaster in any of Indonesia’s more populated cities and financial centers could severely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our business, financial condition, results of operations and prospects.

Our operations may be adversely affected by an outbreak of avian influenza, Influenza A (H1N1) virus or other epidemics

An outbreak of avian influenza, Influenza A (H1N1) virus or a similar epidemic, or the measures taken by the Governments of affected countries, including Indonesia, against such an outbreak, could severely disrupt the Indonesian and other economies and undermine investor confidence, thereby materially and adversely affecting our financial condition or results of operations and the market value of its securities. Moreover, our operations could be materially disrupted if our employees remained at home and away from our principal places of business for extended period of time, which would have a material and adverse effect on our financial condition or results of operations and the market value of its securities.

4. Other Risks

Indonesian Corporate Disclosure Standards differ in significant respects from those applicable in other countries, including the United States

As an IDX, NYSE and LSE listed company, we are subject to regulatory and exchange corporate governance and reporting requirements in multiple jurisdictions. There may be less publicly available information about Indonesian public companies, including us, than is regularly disclosed by public companies in countries with more mature securities markets. As a result, investors may not have access to the same level and type of disclosure as that available in other countries, and comparisons with other companies in other countries may not be possible in all respects.

Our financial results are reported herein in conformity with IFRS, however, we report our financial results to OJK (as the successor to Bapepam-LK) in conformity with IFAS, which differs in certain significant respects from IFRS, and we distribute dividends based on profit for the year attributable to owners of the parent company and net income per share determined in reliance on IFAS

In accordance with regulations of OJK and the IDX, we are required to report our financial results to OJK in conformity with IFAS. We have provided to OJK our financial result for the financial year ended December 31, 2013, on March 6, 2014, which we furnished to the SEC on a Form 6-K dated March 19, 2014, which contains our audited Consolidated Financial Statements as of December 31, 2013 and for the year then ended and prepared in conformity with IFAS. IFAS differs in certain significant respects from IFRS, and, as a result, there are differences between our financial results as reported under IFAS and IFRS, including profit for the year attributable to owners of the parent company and net income per share. We distribute dividends based on profit for the year attributable to owners of the parent company and net income per share determined in reliance on IFAS.

Using IFAS results, our profit for the year attributable to owners of the parent company would be Rp12,850 billion and Rp14,205 billion for 2012 and 2013, and our net income per share would be Rp133.84 and Rp147.42 for 2012 and 2013. Dividends declared per share were Rp87.24 for 2012. The dividends declared per share for the year 2013 will be decided at the 2014 AGMS, scheduled for April 2014.

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We are incorporated in Indonesia, and it may not be possible for investors to effect service of process, or enforce judgments, on us within the United States, or to enforce judgments of a foreign court against us in Indonesia

We are a limited liability company incorporated in Indonesia, operating within the framework of Indonesian laws relating to Indonesian companies with limited liability, and all of our significant assets are located in Indonesia. In addition, our Commissioners and our Directors reside in Indonesia and a substantial portion of the assets of such persons are located outside the United States. As a result, it may be difficult for investors to effect service of process, or enforce judgments on us or such persons within the US, or to enforce against us or such persons in the US, judgments obtained in US courts.

We have been advised by Hadiputranto, Hadinoto & Partners, our Indonesian legal advisor that judgments of US courts, including judgments predicated upon the civil liability provisions of the US federal securities laws or the securities laws of any state within the US, are not enforceable in Indonesian courts, although such judgments could be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. They have also advised that there is doubt as to whether Indonesian courts will enter judgments in original actions brought in Indonesian courts predicated solely upon the civil liability provisions of the US federal securities laws or the securities laws of any state within the US. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian courts.

Our controlling shareholder’s interest may differ from those of our other shareholders

The Government has a controlling stake of 53.1% of our issued and outstanding shares of common stock and the ability to determine the outcome of all actions requiring the approval of the shareholders. The Government also holds our one Series A Dwiwarna share, which has special voting rights and veto rights over certain matters, including the election and removal of our Directors and Commissioners. It may also use its powers as majority shareholder or under the Dwiwarna share to cause us to issue new shares, amend our Articles of Association or bring about actions to merge or dissolve us, increase or decrease our authorized capital or reduce our issued capital, or veto any of these actions. One or more of these may result in the delisting of our securities from certain exchanges. Further, through the MoCI, the Government exercises regulatory power over the Indonesian telecommunications industry.

As of December 31, 2013, the Government had a 14.3% equity stake in PT Indosat Tbk. ("Indosat") which compete with us, in fixed IDD telecommunications services, and competes with Telkomsel in cellular services. The Government's stake includes the Series A Dwiwarna share which has special voting rights and veto rights over certain strategic matters under Indosat's Articles of Association, including decisions on dissolution, liquidation and bankruptcy, and also permits the Government to nominate one Director to its Board of Directors and one Commissioner to its Board of Commissioners. There may thus be instances where the Government’s interests will conflict with ours. There is no assurance that the Government will not direct opportunities to Indosat or favor Indosat when exercising regulatory power over the Indonesian telecommunications industry. If the Government were to give priority to Indosat’s business over ours or to expand its stake in Indosat, our business, financial condition, and results of operations and prospects could be materially and adversely affected.

B. Risks Related to Our Business

1. Operational Risks

A material failure in the continuing operations of our network, certain key systems, gateways to our network or the networks of other network operators could adversely affect our business, financial condition, results of operations and prospects

We depend to a significant degree on the uninterrupted operation of our network to provide our services. For example, we depend on access to our fixed wireline network (“PSTN”) for the operation of our fixed line network and the termination and origination of cellular telephone calls to and from fixed line telephones, and a significant portion of our cellular and international long-distance call traffic is routed through the PSTN. We also depend on access to an internet and broadband network and a cellular network. Our integrated network includes a copper access network, fiber optic access network, BTSs, switching equipment, optical and radio transmission equipment, an IP core network, satellite and application servers.

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In addition, we also rely on interconnection to the networks of other telecommunications operators to carry calls and data from our subscribers to the subscribers of operators both within Indonesia and overseas. We also depend on certain technologically sophisticated management information systems and other systems, such as our customer billing system, to enable us to conduct our operations. Our network, including our information systems, IT and infrastructure and the networks of other operators with whom our subscribers interconnected, are vulnerable to damage or interruptions in operation from a variety of sources including earthquake, fire, flood, power loss, equipment failure, network software flaws, transmission cable disruption or similar events.

Although we have a comprehensive BCP and DRP which we test and strive to improve, we cannot guarantee that the implementation of such plans will be completely or partially successful should any portion of network be severely damaged or interrupted. Any failure that results in an interruption of our operations or of the provision of any service, whether from operational disruption, natural disaster or otherwise, could adversely affect our business, financial condition, results of operations and prospects.

Our networks, face both potential physical and cyber security threats, such as theft, vandalism and acts intended to disrupt operations, which could adversely affect our operating results

Our networks and equipment, particularly our wireline access network, face both potential physical and cyber security threats. Physical threats include theft and vandalism of our equipment and organized attacks against key infrastructure intended to disrupt operations. In addition, telecommunications companies worldwide face increasing cyber security threats as businesses become increasingly dependent on telecommunications and computer networks and adopt cloud computing technologies. Cyber security threats include gaining unauthorized access to our systems or inserting computer viruses or malicious software in our systems to misappropriate consumer data and other sensitive information, corrupt our data or disrupt our operations. Unauthorized access may also be gained through traditional means such as the theft of laptop computers, portable data devices and mobile phones and intelligence gathering on employees with access.

Although we have not experienced any material successful cyber attacks to date that have affected our operations, our network and our website are frequently targeted by cyber attacks. A successful cyber attack may lead us to incur substantial costs to repair damage or restore data, implement substantial organizational changes and training to prevent future similar attacks and lost revenues and litigation costs due to misused sensitive information, and cause substantial reputational damage. We take preventive and remedial measures, including enhanced cooperation with the police, particularly in areas prone to criminal activity and regular upgrades of our data security measures. However, there is no assurance that our physical and cyber security measures will be successful. Damage to our network, equipment or data and the need to repair such damage resulting from a physical or cyber attack may materially and adversely affect our business, financial condition and operating results. Our networks face potential security threats, such as theft or vandalism, which could adversely affect our operating results.

We face a number of risks relating to our internet-related services

In addition to cyber security threats, because we provide connections to the internet and host websites for customers and develop internet content and applications, we may be perceived as being associated with the content carried over our network or displayed on websites that we host. We cannot and do not screen all of this content and may face litigation claims due to a perceived association with this content. These types of claims can be costly to defend, divert management resources and attention, and may damage our reputation.

A revenue leakage might occur due to internal weaknesses or external factors and if this happened it could have an adverse effect on our operating results

A revenue leakage is a generic risk for all telecommunications operators. We may face revenue leakage problems, or problems with collecting all the revenues to which we may be entitled, due to the possibility of weaknesses at the transactional level, delay in transaction processing, dishonest customers or other factors.

We have taken some preventive measures against the possibility of revenue leakage by increasing control functions in all of our existing business process, implementing revenue assurance methods, employing adequate policies and procedures as well as implementing information systems applications to minimize revenue leakages. Nonetheless, there is no assurance that in the future there will be no significant revenue leakages or that any such leakages will not have a material adverse affect on our operating results.

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New technologies may adversely affect our ability to remain competitive

The telecommunications industry is characterized by rapid and significant changes in technology. We may face increasing competition due to technologies currently under development or which may be developed in the future. Future development or application of new or alternative technologies, services or standards could require significant changes to our business model, the development of new products, the provision of additional services and substantial new investments by us. New products and services may be expensive to develop and may result in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technological changes will affect our operations or the competitiveness of our services. Furthermore, we cannot guarantee that we will be able to effectively integrate new technologies into our existing business model.

As part of our continuing development of our TIMES business, we continue to seek to develop businesses through which we also provide content to our telecommunications subscribers. We do not yet have substantial experience as a content provider therefore we cannot assure you that we will be able to effectively manage the growth of this business.

We cannot assure you that our technologies will not become obsolete, or be subjected to competition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed circumstances on commercially acceptable terms. Our failure to react to rapid technological changes could adversely affect our business, financial condition, results of operations and prospects.

Our satellites have limited operational life they may be damaged or destroyed during in-orbit operation or suffer launch delays or failures. The loss or reduced performance of our satellites, whether caused by equipment failure or its license being revoked, may adversely affect our financial condition, results of operations and ability to provide certain services

Our Telkom-1 and Telkom-2 satellites have a limited operational life, currently estimated to end approximately in 2015 and 2020, respectively. A number of factors affect the operational lives of satellites, including the quality of their construction, the durability of their systems, subsystems and component parts, on-board fuel reserves, accuracy of their launch into orbit, exposure to micrometeorite storms, or other natural events in space, collision with orbital debris, or the manner in which the satellite is monitored and operated. We currently use satellite transponder capacity on our satellites in connection with many aspects of our business, including direct leasing of such capacity and routing for our international long-distance and cellular services.

Moreover, International Telecommunication Union (“ITU”) regulations specify that a designated satellite slot has been allocated for Indonesia, and the Government has the right to determine which party is licensed to use such slot. While we currently hold a license to use the designated satellite slot, in the event our Telkom-1 and Telkom-2 satellites experience technical problems or failure, the Government may determine that we have failed to optimize the existing slot under our license, which may result in the Government withdrawing our license. We cannot assure you that we will be able to maintain use of the designated satellite slot in a manner deemed satisfactory by the Government.

In anticipation of the growth in demand for satellite services and to support our business strategy with regard to providing TIME services, we signed a contract in 2009 for the procurement of the Telkom-3 Satellite System. However, due to a launch failure in August 2012, the Telkom-3 satellite ended up in an unusable orbit. Although we had fully insured the cost of the satellite, the loss of the Telkom-3 satellite will require us to lease transponder capacity from a third-party provider to fulfill our commitments to our satellite operations customers, with likely lower margins than we would have received from the use of Telkom-3 had it been successfully launched. We are currently in the initial phases for the procurement of a replacement satellite, the Telkom-3S, which is currently planned for launch in 2016. Although the Telkom-1 satellite may still be operational for several years after the end of its currently estimated operational lifespan in 2015, if there is any delay in the development and launch of the Telkom-3S, or if the operational life of the Telkom-1 satellite ends before the Telkom-3S is successfully launched, or damage or failure renders our existing satellites unfit for use, we would need to lease additional transponder capacity from a third party, which would likely increase our costs of operations. Failure to lease adequate satellite capacity from a third-party provider may also result in service interruptions and/or a cessation of our satellite operations. The termination of our satellite business could increase expenses associated with our provision of other telecommunications services, particularly in the eastern parts of Indonesia which currently rely largely on satellite coverage for telecommunications services, and could adversely affect our business, financial condition and results of operations.

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2. Financial Risks

We are exposed to interest rate risk

Our debt includes bank borrowings to finance our operations. Where appropriate, we seek to minimize our interest rate risk exposure by entering into interest rate swap contracts to swap floating interest rates for fixed interest rates over the duration of certain of borrowings. However, our hedging policy may not adequately cover our exposure to interest rate fluctuations and this may result in a large interest expense and an adverse effect on our business, financial condition and results of operations.

Changes in the economic situation in the United States, including improvement or expectations of improvement in the U.S. economy, may also have an impact on Southeast Asia and Indonesia. Expectations of the United States Federal Reserve tapering its bond buying program on an improving economy resulted in, among other things, the weakening of equity and bond markets around the world and a number of Asian currencies including the Rupiah since May 2013. In part, in an effort to support the Rupiah, particularly around May and June 2013, Bank Indonesia began raising its benchmark reference rate from a record low of 5.75% which was set in February 2012. The benchmark reference rate has since risen four times between June and November 2013 by an aggregate of 1,175 basis points to 7.5%. The increase of Bank Indonesia reference rate was followed by increases in the JIBOR and Bank Indonesia Certificate (“SBI”) interest rates. It is uncertain how the global markets and the Rupiah may be affected as the United Stated Federal Reserve continues the tapering of its bond buying program.There can be no assurance that the Bank Indonesia reference rate, JIBOR or SBI rate will not continue to rise in the future.

We may not be able to successfully manage our foreign currency exchange risk

Changes in exchange rates have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations are denominated in Rupiah and a majority of our capital expenditures are denominated in US Dollars. Most of our revenues are denominated in Rupiah and a portion is denominated in US Dollars (for example from international services). We may also incur additional long-term indebtedness in currencies other than the Rupiah, including the US Dollars, to finance further capital expenditures.

Overall, our financial risk management program aims to minimize losses on the financial assets and financial liabilities arising from fluctuation of foreign currency exchange rates. We have a written policy for foreign currency risk management, which mainly covers time deposits placements and hedging to cover foreign currency risk exposure for periods ranging from three up to twelve months.

The exchange rate of Rupiah weakened relative to the US Dollar in 2013, and in the future, we can give no assurance that we will be able to manage our exchange rate risk successfully or that our business, financial condition or results of operations will not be adversely affected by our exposure to exchange rate risk.

We may be unable to fund the capital expenditures needed for us to remain competitive in the telecommunications industry in Indonesia

The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update our telecommunications infrastructure technology, which involves substantial capital investment. For the years ended December 31, 2011, 2012 and 2013, our actual consolidated capital expenditures totaled Rp14,603 billion, Rp17,272 billion and Rp24,898 billion (US$2,046 million), respectively. Our ability to fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailing economic conditions, levels of interest rates and financial, business and other factors, many of which are beyond our control, and upon our ability to obtain additional external financing. We cannot assure you that additional financing will be available to us on commercially acceptable terms, or at all. In addition, we can only incur additional financing in compliance with the terms of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capital resources to improve or expand our telecommunications infrastructure technology or update our other technology to the extent necessary to remain competitive in the Indonesian telecommunications market. Our failure to do so could have a material adverse effect on our business, financial condition, results of operations and prospects.

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3. Legal and Compliance Risks

If we are found liable for price fixing by the Indonesian Anti-Monopoly Committee and for class action allegations, we may be subject to substantial liability which could lead to a decrease in our revenue and affect our business, reputation and profitability

On June 17, 2008, the Commission for the Supervision of Business Competition ("KPPU") determined that our Company, Telkomsel, PT XL Axiata Tbk. (“XL”), PT Bakrie Telecom Tbk. (“Bakrie Telecom”), PT Mobile-8 Telecom Tbk. (“Mobile-8”) and PT Smart Telecom (“Smart Telecom”) had jointly breached Article 5 of Law No.5/1999. We and Telkomsel appealed the KPPU’s ruling to the Bandung District Court and the South Jakarta District Court, respectively. On April 12, 2011, the Supreme Court ordered a consolidation of the appeals and appointed the Central Jakarta District Court to handle the appeals. Neither we nor Telkomsel has received any notification from the court with respect to the resolution of this case. See Item 8 “Financial Information – Consolidated Statements and Other Financial Information – Material Litigation”. If the District Court issues a verdict against our Company and/or Telkomsel, we could be subjected to the payment of a fine, the amount of which will be subject to the discretion of the District Court, which could have an adverse effect on our business, reputation and profitability.

Class action lawsuits were filed against Telkomsel and Indosat during 2007 and 2008 in the District Court of Bekasi, the Central Jakarta District Court and the Tangerang District Court, relating to Temasek Holdings (Private) Limited’s prior cross ownership of shares in Telkomsel and Indosat, alleging price fixing of telecommunications services. The plaintiffs withdrew the lawsuit filed with the District Court of Bekasi. On January 27, 2010, the court dismissed the class action filed with the Central Jakarta District Court on the basis that the plaintiffs did not establish their legal standing and that two members of the plaintiff class did not qualify as class representatives. On May 24, 2010, the court dismissed the class action filed with the Tangerang District Court on the basis that the plaintiffs failed to establish their legal standing as class representatives.

There can be no assurance that other subscribers, people, or partners will not file similar cases in the future. If a District Court in any new class action suit, issues a verdict in favor of such plaintiff, it could have an adverse effect on our business, reputation and profitability.

Forward-looking statements may not be accurate

This Annual Report incorporates forward-looking statements that include announcements regarding our current goals and projections of our operational performance and future business prospects. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking statements. In addition, all statements, other than statements that contain historical facts, are forward-looking statements. While we believe that the expectations contained in these statements are reasonable, we cannot give an assurance that they will be realized. These forward-looking statements are subjected to a number of risks and uncertainties, including changes in the economic, social and political situation in Indonesia and other risks described in "Risk Factors". All forward-looking statements, written or verbal, made by us or by persons on behalf of us are deemed to be subject to those risks.

4. Regulation Risks

We operate in a legal and regulatory environment that is undergoing significant change. These changes may result in increased competition, which may result in reduced margins and operating revenue, among other things. These changes may also directly reduce our margins or reduce the costs of our competitors. These adverse changes resulting from regulation may have a material adverse effect on us

Reformation in Indonesian telecommunications regulation initiated by the Government in 1999 has, to a certain extent, resulted in the industry’s liberalization, including removal of barriers to entry and the promotion of competition. However, in recent years, the volume and complexity of regulatory changes has created an environment of considerable regulatory uncertainty. In addition, as the legal and regulatory environment of the Indonesian telecommunications sector continues to change, competitors, potentially with greater resources than us, may enter the Indonesian telecommunications sector and compete with us in providing telecommunications services. Furthermore, it is impossible to anticipate the regulatory policies that will be applied to new technologies.

We derive substantial revenue from interconnection services because we have the largest network in Indonesia and our competitors must pay tariffs to connect to our network. As regulated by the MoCI, interconnection rates have decreased in recent years. The current interconnection rates, effective in 2011, reduced rates by an average of 1.5% to 3.0% compared to the previous rates effective in 2008. See Item 4 “Information on the Company – Distribution and Marketing Strategy – Legal Basis and Regulation – Interconnection”.

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The termination of Telkomsel’s premium SMS services from October 2011 as a result of MoCI Regulation No.1/PER/M.KOMINFO/01/2009 resulted in a substantial reduction in our revenues from these services. These services have been resumed by Telkomsel from August 6, 2013 as allowed under MoCI Regulation No.21 year of 2013 dated July 26, 2013, regarding the Operation of Content Provider Services on Mobile Cellular Network and Local Fixed Wireless Network with Limited Mobility, which replaced MoCI Regulation No.1/PER/M.KOMINFO/01/2009. However, pursuant to the new decree, premium SMS service providers are required to meet stricter requirements that are more difficult to comply with. Accordingly we do not expect revenues from premium SMS services to return to levels seen prior to October 2011.

In the future, the Government may announce or implement other regulatory changes which may adversely affect our business or our existing licenses. We cannot assure you that we will be able to compete successfully with other domestic and foreign telecommunications operators, that regulatory changes will not disproportionately reduce our competitors’ costs or disproportionately reduce our revenues, or that regulatory changes, amendments or interpretations of current or future laws and regulations promulgated by the Government will not have a material adverse effect on our business and operating results.

The entry of additional Indonesian telecommunications operators as providers of international direct dialing services could adversely affect our international telecommunications services operating margins, market share and results of operations

We obtained a license and entered the international long-distance service market in 2004, and acquired a significant market share for IDD services by the end of 2006. Indosat, one of our primary competitors, entered this market prior to us and continues to maintain a substantial market share for IDD services. Bakrie Telecom was awarded an IDD license in 2009 to provide international long distance service using the “009” access code. There is a possibility that other operators will be granted IDD licenses in the future. The operations of incumbents and the entrance of new operators into the international long-distance market, including the VoIP services provided by such operators, continue to pose a significant competitive threat to us. We cannot assure you that such adverse effects will not continue or that such increased competition will not continue to erode our market share or adversely affect our fixed telecommunications services operating margins and results of operations.

We face risks related to the opening of new long distance access codes

In an attempt to liberalize DLD services, the Government issued regulations assigning each provider of DLD services a three-digit access code to be dialed by customers making DLD calls. In 2005, the MoCI announced that three-digit access codes for DLD calls will be implemented gradually within five years and that it would assign us the “017” DLD access code for five major cities, including Jakarta, and allow us to progressively extend it to all other area codes. Indosat was assigned “011” as its DLD access code. We were required to open DLD access codes in all remaining areas on September 27, 2011, by which date our network was ready to be opened up to the three-digit DLD access codes in all coded areas throughout Indonesia.

However, we believe that the cost for operators who have not upgraded their network infrastructure to open their networks to the three-digit access codes to do so is significant. To date, neither of the OLOs have made a request to us to connect their networks to enable their DLD access codes to be accessible, other than with respect to Balikpapan, and as such, we believe that except with respect to Balikpapan, none of the DLD access codes for any of the licensed operators are usable by customers of other operators. However, if they do so in the future, the implementation of any new DLD access codes can potentially increase competition by offering our subscribers more options for DLD services. In addition, the opening of new DLD access codes is expected to result in increased competition and less cooperation among industry incumbents, which may result in reduced margins and revenues, among other things, all of which may have a material adverse effect on us.

New regulations for the configuration of BTS towers may delay the set up of new BTS towers or changes in the placement of existing towers, and may erode our leadership position by requiring us to share our towers with our competitors

In 2008 and 2009, the Government issued regulations relating to the construction, utilization and sharing of BTS towers. Pursuant to the regulations, the construction of BTS towers requires permits from the local government. The local government has a right to determine the placement of the towers, the location in which the towers can be constructed, and also to determine a license fees to build tower infrastructure. These regulations also obligate us to allow other telecommunication operators to lease space and utilize our telecommunications towers without any discrimination.

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These regulations may adversely affect in the allocation, development or expansion plan of our new BTS towers as setting up of our new towers will become more complicated. They may also adversely affect our existing BTS towers if local governments required any changes in the placement of the existing towers.

The requirement that we share space on our cellular (Telkomsel) towers and our fixed wireless (Telkom Flexi) towers may also disadvantage us by requiring that we allow our competitors to expand quickly, particularly in urban areas where new space for additional towers may be difficult to obtain.

Effective 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 2013, 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 voice services continued to decline 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 4.0% at the end of 2012 and by 4.5% at the end of 2013, revenues from our wireline voice services decreased by 8.2% in 2012 and by 8.3% in 2013. The percentage of revenues derived from our wireline voice services out of our total revenues continued to decrease from 12.2% in 2012 to 10.4% in 2013.

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 fixed wireless business is in decline and this decline is likely to continue

Due to competition and the increasing popularity of mobile cellular platforms, our fixed wireless revenues and ARPU has been declining in recent years.

While fixed wireless tariffs historically were generally lower than GSM mobile cellular tariffs, in part due to regulatory changes in December 2010 in how right-of-use fees are calculated, tariff differences between fixed wireless services and GSM mobile cellular services are now generally negligible. In addition, there is limited frequency bandwidth of 5 MHz available for our fixed wireless platform, and the GSM platform is generally able to make more efficient use of frequency bandwidth. As a result, in 2013, we did not further develop our fixed wireless network (other than optimize existing BTSs for our fixed wireless network), and did not conduct any new product launches or promotional campaigns activities for this service. We do not plan to further develop our fixed wireless network in any significant way in the future.

As a result of above factors, and as we also undertook an exercise to remove inactive Telkom Flexi subscribers in late 2013 so that they are no longer recorded on our system as connections in service, the number of our fixed wireless connections in service declined sharply in 2013, from approximately 14.2 million as of December 31, 2011 and 17.9 million as of December 31, 2012 to 6.8 million as of December 31, 2013.

Our fixed wireless business has also seen lower average tariffs due to intense competition from the cellular market which has led to declining ARPU for Telkom Flexi, with blended monthly prepaid and postpaid ARPU decreasing from approximately Rp9,500 in 2011 to Rp8,700 in 2012 and Rp8,400 in 2013. As a result of the above factors, revenue from our fixed wireless revenue has declined, from Rp1,342 billion as of December 31, 2011 to Rp1,225 billion as of December 31, 2012 and Rp1,051 billion as of December 31, 2013. We expect that this declining trend will continue.

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We plan to undertake a strategy to migrate our fixed wireless customers to our mobile cellular platform by offering promotional packages. However, we cannot assure you that we will be successful in this migration, as competition from other mobile cellular providers is intense. If we are not able to successfully migrate our fixed wireless users to our mobile cellular platform as and when they decide to migrate to another platform, it may 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.

Wireless broadband access operators that received licenses in 2009 for Wi-Max technology began to establish their businesses in the fourth quarter of 2010 (for instance First Media) and in 2012 (Berca). In 2013, the regulator has permitted the Wi-Max operators to deploy the Long Term Evolution (“LTE”) technology. This will adversely affect our market share and revenues from our Speedy broadband service. The number of broadband mobile subscribers have increased with the Blackberry’s popularity. The increasing use of mobile broadband services also adversely affects our market share and revenues from our fixed data and internet services.

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”), PT Natrindo Telepon Seluler (“Natrindo” or “AXIS”), 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.

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. In subsequent developments, XL has plans for the acquisition of Natrindo (Axis). On September 29, 2013, XL-Axiata has signed a CSPA with Axis for the acquisition of Axis’ shareholders. The strategic acquisition will position XL as the second largest operator while also acquiring additional frequency allocations to facilitate the roadmap to 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 in recent years to issue new licenses for cellular players.

While operator consolidation may lead to improved conditions in the cellular telecommunication industry, it also present challenges for Telkomsel in maintaining its market position.

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7. Risks Related to Development of New Businesses

We believe that efforts to develop new businesses other than our telecommunication business as well as international expansion are necessary to ensure continuing business growth. We plan to undertake these activities through our subsidiaries, Metra and TII. 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 (such as risks relating to intellectual property, consumer protection and confidentiality of customer data).

Focusing on international expansion is one of our strategic business intiatives. In particular, we have already started expansion into seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan, and United States of America through our subsidiary, TII. 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 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.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

We are a limited liability company incorporated under the laws of Indonesia and domiciled in Bandung. We trade under the legal name “Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk” and with the commercial name “Telkom”. We were converted from a state agency to a State-Owned Enterprise on September 24, 1991 and obtained status as a legal entity on November 19, 1991 for an indefinite period of time. Our registered office is located at Jl. Japati No.1, Bandung 40133, Indonesia, and our telephone number is +(62) (21) 521 5109. Our agent for service of process in the United States with respect to our ADSs is Puglisi & Associate at 850 Library Avenue, Suite 204, Newark, DE, 19711. Our corporate website may be accessed at www.telkom.co.id. The information found on our corporate website does not form part of this Form 20-F and is not incorporated by reference herein. Information about the legislation under which we operate is provided elsewhere in this Form 20-F. A description, including the amount invested, of our principal capital expenditures and divestitures (including interests in other companies), since the beginning of our last three financial years and information concerning our principal capital expenditures is contained elsewhere in this Form 20-F.

A description of our principal capital expenditures and divestitures, since the beginning of the last three financial years to the date of this Annual Report is set forth in Item 5 “Operating and Financial Review and Prospects – Liquidity – Capital Expenditures”. Information concerning our principal capital expenditures and divestitures currently in progress is also described in Item 5 “Operating and Financial Review and Prospects – Liquidity – Capital Expenditures”.

We are a State-Owned Enterprise that operates in the telecommunications and network services sector in Indonesia. Our history and certain information required by Item 4 of Form 20-F is as follows:

History of Telkom

1856-1882

On October 23, 1856, the Dutch colonial government deployed the first electromagnetic telegraph in Indonesia, connecting Batavia (Jakarta) with Buitenzorg (Bogor).

1906-1965

The Dutch colonial government established a government agency to operate post and telecommunications services in Indonesia. In 1965, the post and telecommunications services were separated and brought under the control of two state companies, PN Pos and Giro and PN Telekomunikasi.

1974

PN Telekomunikasi was split into two divisions, PT Industri Telekomunikasi Indonesia (“PT INTI”), which manufactured telecommunications equipment, and Perusahaan Umum Telekomunikasi (“Perumtel”), which supplied domestic and international telecommunication services.

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1980

The international telecommunication business was taken over by Indosat.

1991

Perumtel became PT Telekomunikasi Indonesia or Telkom, and operations were organized into twelve regional units (“Witel”). These were later reorganized into seven regional divisions: Division I Sumatra, Division II Jakarta and Surrounding Area, Division III West Java, Division IV Central Java and DI Yogyakarta, Division V East Java, Division VI Kalimantan and Division VII Eastern Indonesia.

1995

We held our Initial Public Offering on November 14, 1995 on the Jakarta Stock Exchange and the Surabaya Stock Exchange. On May 26, 1995, we established Telkomsel, our cellular business subsidiary.

1999

The Telecommunications Law (Law No. 36/1999), which went into effect in September 2000, facilitated the entry of new players, intensifying the competition in the telecommunications industry.

2001

We acquired Indosat’s 35% shareholdings in Telkomsel, making us the majority shareholder with a stake of 77.7%. Indosat then took over our 22.5% shareholding in Satelindo and 37.7% share in PT Aplikanusa Lintasarta. At the same time, we lost our exclusive right to be the sole fixed line telephone operator in Indonesia.

2002

We divested 12.7% of our shares in Telkomsel to Singapore Telecom Mobile Pte Ltd. (“SingTel Mobile”).

2004

We launched our international direct dial fixed line service.

2005

The Telkom-2 Satellite was launched to replace all satellite transmission services previously provided by the Palapa B-4 satellite. This brought our total number of satellites launched to eight, including the Palapa A-1 satellite.

2009

We underwent a transformation from an infocom to a TIME company. The new Telkom was introduced to the public with the new corporate logo and tagline, “the world in your hand”.

2010

The JaKaLaDeMa submarine and fiber optic cable project linking Java, Kalimantan, Sulawesi, Denpasar and Mataram was successfully completed in April 2010.

2011

We commenced the reform of our telecommunications infrastructure through the Telkom Nusantara Super Highway project, which unites the Indonesian archipelago from Sumatra to Papua, and the True Broadband Access project, which will enable customers all over Indonesia to have broadband access to the internet.

2012

We sought to achieve widespread broadband penetration throughout Indonesia through the implementation of the Indonesia Wi-Fi program towards the development of Indonesia Digital Network.

We sought to improve business value creation by reconfiguring our business portfolios from TIME to TIMES (Telecommunications, Information, Media, Edutainment & Services).

Establishment of Telkom Corporate University to develop a globally competitive human capital (“from competence to commerce”).

2013

We commenced operations in seven countries, namely Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan and United States of America.

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BUSINESS OVERVIEW

Business Portfolio

We are a State-Owned Enterprise and currently the largest telecommunication service and network provider in Indonesia. We serve millions of customers throughout Indonesia with a complete range of telecommunications services that include fixed wireline and fixed wireless telephone connections, cellular services, network and interconnection services, as well as internet and data communication services. We also provide services in information, media and edutainment, including cloud-based and server-based managed services, e-Payment and IT enabler services, Pay TV, as well as e-Commerce and other portal services. We posted revenues of Rp77,127 billion and Rp82,967 billion, respectively, for the years ended December 31, 2012 and 2013.

Fixed line telephone services include local, direct long-distance (“DLD”), and international call services, as well as other telecommunications and supporting services. Fixed wireless services include local and direct long-distance CDMA-based telephone connections, and other telecommunication services. Cellular services comprise cellulars telecommunication service. Our telecommunications-related business may experience certain seasonal effects. Cellular tend to increase around the Ramadhan lunar month and the culmination of the Eid festivity, as well as during the December holiday season, while fixed line communications from homes and offices and fixed wireless communications may decrease when there are fewer working days in the period or a greater number of subscribers are on vacation. In 2013, except for OLOs who use our interconnection services and Telkomsel’s employee cooperative (“Kisel”), none of our customers accounted for more than 1% of our total revenues.

A substantial majority of our revenue has and continues to come from telecommunications-related services, including data and internet services. As a company that provides TIMES, we continue to encourage innovations in sectors other than telecommunications, and capture synergies among all of our products, services and solutions ranging from our legacy business to the new economy business (“NEB”). Our business portfolio is grouped into the following lines of business:

A. Telecommunications Business

Our telecommunications business portfolio includes (i) fixed wireline services, (ii) fixed wireless services, (iii) cellular services, (iv) broadband and internet services, (v) network services, (vi) interconnection services, and (vii) ancillary services.

1. Fixed Wireline Services

Our fixed wireline services include plain old telephone services (“POTS”), value-added services (“VAS”), Intelligent Network (“IN”) services and session initiation protocol (“SIP”) services. IN services are IP-based network services that are connected to our exchange systems and telecommunications network. SIP services are IP multimedia subsystem (“IMS”) services which combines wireless and fixed line technologies for voice and data communications.

We succeeded in improving the performance of our fixed wireline business line through the implementation of a “More for Less” program in 2013, where, through bundling, subscribers are able to get deeper discounts with greater telephone usage such as unlimited talk time using their home phone. Other features of our “More for Less” program, such as, unlimited broadband access with various bandwidth options and television channels offered as part of program packages, helped promote our fixed wireline business as these products are offered to customers are part of a bundle with our fixed wireline services.

2. Fixed Wireless Services

Our fixed wireless business, which uses limited mobility CDMA technology, is managed by our Wireless Broadband Division under the trademarks "Telkom Flexi" or "Flexi". In 2013, we optimized existing BTSs for our fixed wireless network, but did otherwise further develop our fixed wireless network or conduct any new product launches or promotional campaigns activities for this service as we have initiated a migration strategy whereby we are encouraging our fixed wireless customers to enter into plans operated by Telkomsel. As we undertook an exercise to remove inactive Telkom Flexi subscribers in late 2013 so that they are no longer recorded on our system as connections in service, the number of our fixed wireless connections in service declined sharply in 2013, from approximately 14.2 million as of December 31, 2011 and 17.9 million as of December 31, 2012 to 6.8 million as of December 31, 2013.

3. Cellular Services

We provide cellular communications services using GSM technology through our subsidiary, Telkomsel. Cellular services (excluding mobile data services) remained the largest contributor to our consolidated revenues in 2013. We have two primary types of cellular products and services, postpaid services represented by “kartuHalo” and prepaid services represented by simPATI and Kartu As.

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In 2013, with the increasing demand for data services from customers, Telkomsel added various data services to its range of products and services to complement its legacy in voice and SMS. In order to accelerate the adoption of 3G mobile devices, Telkomsel also intensified collaboration with device principals and distributors of local and global brands of mobile devices by introducing affordable 3G mobile device bundled packages.

– kartuHalo is a postpaid mobile communications service. As of December 31, 2013, kartuHalo had 2.5 million subscribers, up from 2.1 million subscribers as of December 31, 2012.

– simPATI is a prepaid service that can be purchased at any cellular shop in the form of starter packs and top up vouchers.

– Kartu As is a prepaid service that bills customers based on seconds of talk time. Kartu As targets the young customer segment.

In 2013, we introduced a number of marketing programs for cellular services to promote sales and enhance awareness of Telkomsel's brands. For example, kartuHalo. We believe Telkomsel’s promotional programs have succeeded strengthening our mobile cellular business in Indonesia. Our mobile cellular base increased from 125.1 million subscribers at the end of 2012 to 131.5 million by the end of 2013, an increase of 5.1% or 6.4 million subscribers.

4. Broadband and Internet Services

We provide a range of products and services in data communication and internet services as described below:

- Broadband internet, our primary non-cellular based broadband internet service, using ADSL and fiber optic technology, is offered under the commercial name “Speedy”. We also provide a prepaid on-demand, “pay as you use” broadband internet service using Speedy or Wi-Fi access under the commercial name of “Speedy Instan”. We also offer a triple play package combining broadband internet (Speedy), telephone services and content (UseeTV, home monitoring and music-Melon) under the commercial name “Indihome”.

- Cellular data communication, Telkomsel provides internet and mobile data communications services through its mobile cellular network. This service is provided through Blackberry and other smartphone packages, wireless modems and dongles and non-package data services, primarily under the commercial name "Flash".

- SMS services are provided to mobile and fixed wireless telephone subscribers.

- “TelkomNet instan” is our dial-up internet access service.

- Wi-Fi/hotspot is a wireless access solution for intranet and mobile internet data services in a particular area by utilizing our and other ISP’s payment facilities, or in bulk using Customer Premises Equipment-based Wi-Fi technology. In 2012, we launched “Indonesia Wi-Fi” or @wifi.id to meet the need for Wi-Fi based internet service at public places such as airports, shopping malls, hospitals, universities/schools, cafes, and other public places. Our “Indonesia Wi-Fi” service has a minimum speed of 10 Mbps to accommodate offloading, retail and other uses.

- “FlexiNet” is our internet access service that uses the Telkom Flexi fixed wireless network. Our “Flexi Hotspot” service provides customers who wish to enjoy high speed internet access through a wireless internet connection that is supported by our hotspot infrastructure. These services can be easily accessed from any device that has Wi-Fi capability by the FlexiNet Unlimited or Flexi Mobile Broadband username and the password in each hotspot.

- VPN is a virtual private network service that uses the internet for secure connection to remote sites.

- “Astinet” provides high quality internet access using a default internet gateway and public IP address for a dedicated, fixed communication line 24 hours a day.

- VoIP. We provide affordable international call services through our premium VoIP service package “Telkom Global-01017” as well as “Telkom Save” for regular international calls. Both services can be accessed by dialing a special prefix for international calls. To provide these services, we cooperate with 79 international wholesale carriers that can support our IDD call services worldwide, to deliver VoIP traffic.

- ISDN PRA is a digital network to facilitate multimedia telecommunications services, using wider bandwidth as well as inter-terminal digital systems to accommodate high-speed, high-quality and high-capacity voice, data and video communications through a single channel. We also provide ISDN-based internet access.

- DINAccess is a wireless communications service with dedicated access to provide LAN interconnection services and multimedia services at a speed adjustable to customer needs.

- Global Datacom is a data communications service that lets corporate customers connect their headquarters with branch offices or clients across the globe. We work with global partners through TII, our subsidiary, in providing these services.

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- Metro Link is a Metro-network-based connectivity services that accommodates point-to-point, point-to-multipoint and multipoint-to-multipoint communications.

- Metro I-net is a high capacity data network solution based on IP (Internet Protocol) or ethernet that provides flexibility, ease of use and effectiveness as well as quality assurance for corporate and SME customers.

- Port Wholesale provides wholesale rental of port remote access servers to internet service providers, content service providers and corporate customers for subsequent sale to their customers.

- Value-added service Datacom provides additional facilities that offer added value to data communications customers.

5. Network Services

We directly manage the provision of network services to customers comprising of our business partners, commercial businesses and OLOs. Our network services include satellite transponder leasing, satellite broadcasting, VSAT, audio distribution, as well as satellite-based and terrestrial-based leased lines. Our network services customers may enter into short-term deals for several minutes of broadcasting to longer-term agreements for one to five year periods.

6. Interconnection Services

We also earn revenue from other telecommunications operators that utilize our extensive network infrastructure in Indonesia, both for calls that end at or transit via our network. Similarly, we also pay interconnection fees to other telecommunications operators when we use their networks to connect a call from our customers. Interconnection services that we provide to other telecommunications operators comprise domestic and international interconnection services. In 2013, we increased our efforts to optimize the capability of Telkom Group through exploiting synergies among Telkom, Telkomsel and TII with respect to interconnection services.

7. Ancillary Services

We have exclusive agreements with some investors under revenue sharing arrangements to expand fixed line phone services, public card phones (including their maintenance), data and internet networks, and ancillary facilities related to telecommunications.

See Note 37 in the Consolidated Financial Statements of the Company for further details about these revenue sharing arrangements.

We also operate other supporting and ancillary businesses, which include the lease and/or supply of BTS to other cellular operators and the provision of various support facilities. We manage our telecommunications tower business through our subsidiary, Dayamitra.

B. New Economy Business (“NEB”) and Strategic Business Opportunities Portfolio

NEB and Strategic Business Opportunities are a part of our IME portfolio. We have designated our subsidiary, Metra, as a sub-holding company that focuses on our IME business development.

Our information business portfolio includes:

1. IT Outsourcing or Managed Application which provides cloud-based and server-based management services and IT consulting services.

2. e-Payment/Payment services, including the following:

- Billing payment, a service that allows customers to make payments to service or goods providers such as PLN, Telkom, PDAM, KAI, and others through collecting agents that include banks, cooperatives, BPR, convenience stores, and others.

- Remittance is money transfer service where neither the money sender nor the recipient need a bank account to complete a transfer, as transfers can be accomplished using only a mobile device.

- e-Money provides services to customers who wish to manage money electronically through certain media (mobile, prepaid card, or a virtual account that can be accessed via the Internet) for use in electronic transactions.

- e-Vouchers or Telkom Voucher is a single voucher issued by us that can be used to purchase or recharge any of our services, such as for Kartu As, simPATI, Flexi Trendy, and Speedy Hotspot.

3. IT enabler services include business process outsourcing and knowledge process outsourcing, which consist of:

- Network centric value added services, comprising IT-based value-added services for data and phone, security services, and server and storage services for connectivity customers.

- Integration services, comprising integration services for network and hardware associated with CPE, integration services for applications and software, and integration services for computer hardware.

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Our Media and Edutainment business portfolio includes the following :

1. Television broadcast services comprising the following

- Pay TV by satellite, a pay TV service broadcasted over satellite links offering premium-grade contents in news, sports, entertainment, and others.

- IPTV, an Internet Protocol-based television ("IPTV") under the commercial name ”UseeTV Cable”. The service is delivered using the Speedy broadband access network, and offers ”pause and rewind” features for contents such as video-on-demand programming, FTA TV, premium TV, internet radio and TV on demand, which allows playback of program content from the last seven days.

- OTT TV (Over the Top TV), an internet TV service under the commercial name ”UseeTV” that can be accessed from Telkom's internet network, offering free content such as video-on-demand programming, live TV, internet radio, and some pay video programming. Similar to UseeTV Cable, the OTT TV is also capable of allowing play back of program content from the last three days.

2. Advertising is a commercial service for the promotion of products or services of any third party that are presented in digital or print media, such as radio, television, internet, newspapers, brochures/leaflets and billboards.

3. Portal Services facilitates content aggregation and distribution. In addition to sales and payments related to our products and services conducted through our e-Commerce portal, our portal e-Store and on-device portal services also accommodate the sale and distribution of content or applications such as games, applications, news, sports news, educational content, music, ring back tones, SMS content and others, which can be downloaded directly by customer mobile device or internet users. Content or applications can be obtained either at a certain price or free of charge.

Network Infrastructure

We pursue development of our network infrastructure to offer a more efficient and cost-competitive as part of the Government’s Master Plan for the Acceleration and Expansion of Indonesia's Economic Development (“MP3EI”) in line with our transformation into a TIMES provider under our Indonesia Digital Network ("IDN") program which began in 2012 and is also intended to support the establishment of a National Broadband Network To transform our infrastructure into a high quality, efficient and cost competitive infrastructure to deliver our TIMES services, we have been developing and improving our network infrastructure towards what we previously called the Telkom One network which is intended to be a jointly developed network used by our various units in the Telkom Group.

Our IDN program involves the following three program developments:

1. id-Convergence (“id-Con”): convergence of the node service network infrastructure into a multi-service and multi-screen integrated NGN.

2. id-Ring: development of our transport network infrastructure into an IP-based and optical backbone network.

3. id-Access: development of our customer access network infrastructure into a high speed broadband access through fiber optic and Wi-Fi networks.

A. Fixed Line Network and Transmission

1. Fixed Wireline Network

As of December 31, 2013, we managed 9.4 million fixed wireline connections. Our network and infrastructure IDN master plan aims to modernize our legacy network to broadband access infrastructure network.

The following table shows data related to our fixed wireline network from 2009 to 2013:

Operating Statistics	As of and for the year ended December 31,
Operating Statistics	2009		2010	2011	2012	2013
Exchange capacity	11,094,063		11,237,229	12,180,214	13,908,003	13,918,369
Installed lines	10,013,565		10,510,048	11,005,208	11,109,156	10,650,652
Lines in service⁽¹⁾	8,376,793		8,302,818	8,688,526	9,034,010	9,350,806
Subscriber lines	8,038,294		7,980,337	8,323,175	8,672,332	9,080,236
Public telephones	338,499		322,481	278,505	273,929	270,570
Leased lines in service⁽²⁾	4,273		3,988	3,662	3,342	2,864
Fixed wireline subscriber pulse production (millions minutes)⁽³⁾	54,186	⁽⁴⁾	9,403	8,054	6,770	5,773

(1) Lines in service are subscriber lines and public telephone lines, including the lines in service that we operate under revenue-sharing arrangements.

(2) Excludes leased lines for our network and multimedia businesses.

(3) Consists of pulses generated by local and domestic long distance calls, excluding calls from public pay phones and cellular phones.

(4) In millions of pulse for year 2009.

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2. Fixed Wireless Network

Our infrastructure consists of mobile switching centers (“MSC”) that are connected to every other trunk exchange. Each MSC is connected to a base station sub system (“BSS”), which consists of a base station controller (“BSC”) and a base transceiver station (“BTS”). These, in turn, connect the customers’ handheld devices and fixed wireless terminals to our fixed wireless network. The number of fixed wireless connections in service was 6.8 million as of December 31, 2013.

3. Transmission Network

Throughout 2013, we continued to primarily focus on the development of our broadband network, which serves as the backbone for our network infrastructure as a whole. Our backbone telecommunications network consists of transmission networks, remote switching facilities and core routers, which connect a number of access nodes. The transmission links between nodes and switching facilities comprise a terrestrial transmission network, in particular fiber optic, microwave and submarine cable networks, as well as satellite transmission networks and other transmission technologies.

The following table shows our transmission capacity as of December 31, 2012 and 2013:

	Capacity (number of Transmission medium circuits)
Transmission Network	E1	STM-1	STM-4	STM-16	STM-64	STM-256
As of December 31,
2012	131,546	720	92	55	260	3
2013	131,303	736	100	58	337	3

Note: The backbone transmission unit uses E1, STM1 (equivalent to 63 E1), STM4 (equivalent to 4 STM1), STM16 (equivalent to 4 STM4), STM64 (equivalent to 4 STM16), and STM256 (equivalent to 4 STM64). STM or Synchronous Transfer Mode is the unit typically used in backbone transmission networks. Facilitating broadband services requires high capacity transmission networks using nxSTM-1 units. E1 units are used to support legacy services.

We operate the Telkom-1 and Telkom-2 satellites as well as 205 earth stations, including one satellite master control station. The Telkom-1 satellite has 36 transponders, including 12 extended C-band transponders and 24 standard C-band transponders, while the Telkom-2 satellite has 24 standard C-band transponders.

In addition to our Telkom-1 and Telkom-2 satellites, we also lease transponder capacity for 30 TPE (transponder equivalent, @36 MHz), comprising 9 TPE from the JSAT-5A (132 BT) satellite, 10 TPE from the Etuelsat 172A (172 BT) satellite, 8 TPE from the Chinasat-10 (110 BT) satellite, and 3 TPE from the Intelsat-8 (169 BT) satellite.

The Telkom-3 satellite, launched in August 2012, failed to reach its usable orbit. We had insurance coverage for the procurement costs of Telkom-3 satellite. We will lease additional satellite transponder capacity from third parties, if required to fulfill internal operational needs and to accomodate the needs of customers. We are currently in the initial phases for the procurement of a replacement satellite, the Telkom-3S, which is currently planned for launch in 2016.

B. Cellular Network

Our cellular services, which are operated by our subsidiary, Telkomsel, have the most extensive network coverage of any cellular operators in Indonesia. Telkomsel currently operates on the GSM/DCS, GPRS, EDGE and 3.5G networks. The GSM/DCS network consists of 7.5 MHz of bandwidth on the 900 MHz frequency and 22.5 MHz of bandwidth on the 1800 MHz frequency. Telkomsel’s 3G network uses 10 MHz of bandwidth on the 2.1 GHz frequency. Telkomsel tendered for and obtained a further 5 MHz of bandwidth on the 2.1 GHz frequency in 2013, which it began to use from October 2013, bringing its total bandwidth allocation on its 3G network to 15 MHz on the 2.1 GHz frequency.

As of December 31, 2013, Telkomsel’s digital network was supported by 69,864 BTS with an overall network capacity capable of facilitating the communication needs of 131.5 million customers.

C. Data and Internet Network

To ensure a high level of reliability, we have built hierarchical and dual homing IP/MPLS-based internet and data networks. Our IP backbone network is now capable of serving all of Indonesia and as of December 31, 2013 covered of PoP locations with primary and secondary PoP which consisted of 22 terra router nodes, 6 core router nodes and 128 PE router nodes.

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We also operate an ethernet carrier metro service as an aggregator for broadband access traffic connecting to IP backbone. As of December 31, 2013, 813 Metro Ethernet nodes were in use to support our 163.9 Gbps broadband access services.

We provide fixed line-based broadband internet access using ADSL technology under the brand “Speedy”. As of December 31, 2013, we had capacity for 8.2 million homepass and were serving 3.0 million Speedy registered subscribers, an increase of 28.7% compared to 2.3 million registered subscribers as of December 31, 2012.

Our wireless broadband network infrastructure consists of wireless access gateways that are connected to wireless access connections, which are in turn connected to our access points. Using a variety of wireless broadband terminals such as laptop computers and other handheld personal devices, end users link to these access points to use our broadband Wi-Fi services. As of December 31, 2013, we had 75,250 access points.

Our subsidiary, Telkomsel, also provides mobile cellular broadband service under the commercial name “Flash” as well as a dedicated BlackBerry service. As of December 31, 2013, Flash had 17.3 million subscribers, a 56.5% increase compared to 11.0 million registered subscribers as of December 31, 2012. As of December 31, 2013, we had 7.6 million subscribers to our BlackBerry service, a 31.1% increase from 5.8 million subscribers as of December 31, 2012.

D. International Networks

We operate international gateways in Batam, Jakarta, and Surabaya to route outgoing and incoming calls on our IDD service (“007”). Our international network is supported by submarine communications cable systems (“SCCS”) including the Dumai-Malaka Cable System, and the Thailand-Indonesia-Singapore (“TIS”) system, as well as by indefeasible rights of use, and satellite capacity. To consolidate our international network and expand domestic broadband services, our subsidiary, TII, entered into the Asia America Gateway cable consortium in April 2007 to develop the Batam-Singapore Cable System which connects Batam with Singapore and was completed in the first quarter of 2014. Through TII, we plan in the long-term to enhance international telecommunication access to regions in eastern Indonesia, diversify our services and capture business opportunities in South Asia, the Middle East and Europe.

Furthermore, we have entered into international telecommunications service agreements with a number of overseas operators to facilitate international call interconnections. Moreover, since we do not have agreements with telecommunications operators in all our IDD destinations, we have signed agreements with SingTel, Telekom Malaysia, Verizon, Belgacom, NTT, TIS, France Telecom and other telecommunications operators under which such operators act as hubs and route international calls to certain parts of the world. As of December 31, 2013, we had agreements with 79 international telecommunication service operators in 26 countries. We have focused on entering into more international telecommunications service agreements with other telecommunication operators to provide direct interconnections services in the top 20 most popular calling destinations for IDD outgoing traffic. In addition to connect with the 20 top countries for IDD outgoing calls, we are also connected to several telecommunications operators in various other countries.

To support the international services both voice and data, TII operates points of presence in various parts of the world, including in Asia (Singapore, Hong Kong, Malaysia, Japan, South Korea and Timor Leste), Europe (United Kingdom, Germany and Netherland) and the USA (Los Angeles, San Jose and New York).

CUSTOMER SERVICE

We provide a number of value-added services which allow our customers to conveniently access a wide range of our products and services.

A. Personal Customer Segment

In order to facilitate our individual customers' access to our products and services, we operate a network of Plasa Telkom and GraPARI outlets, and contact centers and also provide services through our websites and on-line applications.

1. Plasa Telkom & GraPARI

Plasa Telkom is a walk-in customer service point at which customers can access information on a range of products and services, including billing, payment, account suspension, promotional deals and submit complaints. As of December 31, 2013, we maintained 572 outlet Plasa Telkom in Indonesia and we opened an overseas Plasa Telkom in Hong Kong. As of December 31, 2013 Telkomsel’s had 408 customer service outlets consisting of 86 GraPARI and 322 GeraiHalo. We also have 268 unit mobile customer service points under the name Mobile GraPARI.

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2. Contact Center

Our contact centers are call centers that allow customers to make enquiries regarding our products and services, billing, promotional offers and submit complaints by dialing "147" from any phone line. We operate 24-hour contact center facilities in Medan, Jakarta and Surabaya.

For cellular subscribers, Telkomsel operates 24-hour call centers under the brand “Caroline” which is the abbreviation of “Customer Care Online”. Caroline is accessible through various access numbers, some of which are available 24-hours and some of which are toll-free.

3. Web-in

Web-in is an online facility for to our customers, where customers can access products and services independently through our website through the “MyTelkom” menu. Available services include e-Billing registrations, collective bill registrations, and complaints.

Our cellular customers can access on-line services through Telkomsel website on “MyTelkomsel” menu that launched in 2013. Through “MyTelkomsel”, our customer may purchase service packages for Flash internet, telephone, SMS, MMS, and international roaming conduct phone credit transfers, purchase flash gifts and monitor internet quota usage. The customers can download the application for use on Android and BlackBerry.

B. Corporate Customers

We categorize our corporate customers into business, enterprise, wholesale and international groups based on a numbers of criteria such as contribution to our revenues, our customers' geographic scope of operations and the type and range of products and services procured from us. As part of our strategy to provide streamlined customer service, we operate account management teams to manage our relationships with our corporate clients who are supported by the Telkom Solution House, SME Centers and Contact Centers, as described below.

1. Account Management

Our Business Service Division caters to business customers, which include micro customers, SMEs, local governments, cooperatives and rural credit banks. Our Business Service Division accounts managers and representatives managers manage customers directly by conducting site visits and telephonically. We categorize business customers into three groups based on our customer’s line of business, namely public and general services, construction and manufacturing services, and trading and business services. In addition, we also manage customers through community management, value added resellers, marketing and sales using web-based technology, and tele-account management.

Our Enterprise Service Division serves large enterprise customers including State-Owned Enterprises, national corporations and multinational corporations. Our Enterprise Service Division account managers and representatives primarily manage relationships by conducting visits to our clients' offices. We categorize enterprise customers into thirteen groups based on our customers’ line of business, namely bank management services, education management services, energy & resources services, financial management services, government management services, hospitality & business services, healthcare & welfare services, logistic & transport services, manufacturing & agribusiness services, media & communication services, military & police services, property & construction services, and trading & distribution services.

Our Wholesale Service Division caters to wholesale customers which are categorized into the following carrier service groups:

– Group carrier service 1: handling OLO Telkomsel, PT Hutchison CP Telecommunication (“Hutchison”), AXIS, PT Sampoerna Telekomunikasi Indonesia and PT Pasifik Satelit Nusantara.

– Group carrier service 2: handling OLO Indosat, XL-Axiata, Bakrie Telecom, Smart Telecom, Batam Bintan Telecom and PT Indonesia Comnets Plus (“ICON+”).

– Group carrier service 3: handling operators within the business scope of ISP, VoIP, closed user group, call center and satellite provider.

Our subsidiary, TII, caters to international carriers who provide TIMES portfolio overseas. The priority of provision of the services is determined in line with the opportunity in every countries where TII operates. We operate account management teams which are headquartered in Jakarta, in Singapore, Hong Kong and Timor Leste. Beginning in 2013, TII commenced operating telecommunication services in Hong Kong-Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan and The United States of America.

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2. Telkom Solution Houses and SME Centers

We offer special services to our corporate customers through our Telkom Solution Houses located in Jakarta, Denpasar and Surabaya. We also operate SME Centers in Jakarta, Surabaya, Bandung, Palembang, Balikpapan and Makassar. Our SME Centers function are as a community and business center.

3. Contact Center

We provide a 24-hour contact number “500250” for business customers and a 24-hour toll-free number “08001Telkom” (“08001835566”) for enterprise customers.

Service Level Guarantee Program

We offer service level guarantees, which guarantee a specified minimum level of service to customers in terms of product quality and customer handling.

For individual customers, the program is available for fixed line, Flexi as well as data and internet subscribers. The service level guarantee is applicable to customers applying for new connections, a change in type of service, resolution of service disruption, resumption of disconnected service and complaints over customer billing. Under this program, we will provide non-cash compensation such as free subscriptions for a limited period, if we fail to meet the minimum standard.

For the corporate customer segment, the service level guarantee is provided under a contract agreed between us and the relevant customers. We offer service level guarantees to OLOs and certain wholesale customers who use our SL Digital, IP Transit and Metro-E products. Our guarantee covers the availability of our services and the time taken to install and repair the equipment we provide. We divide service levels guarantees for such customers into five classes of service (Bronze, Silver, Gold, Platinum and Diamond) which represent different levels of price, products and services offered and technical parameters guarantee.

Customer Satisfaction and Loyalty

We routinely engage independent market analysts to conduct surveys and market research on our customers' levels of satisfaction and loyalty. In 2013, we achieved the following levels of the Customer Satisfaction Index (“CSI”) and Customer Loyalty Index (“CLI”) using the “top two boxes” and “top three boxes with seven scales” methods, whereby survey participants are asked to rate their satisfaction and loyalty on a scale from one to five (or seven). CSI and CLI ratings are based on the percentage of participants which have provided the top two ratings out of five or top three ratings out of seven. Our CSI and CLI ratings are as follows:

– personal customer segment: 80.16% in CSI and 67.64% in CLI.

– business customer segment: 91.23% in CSI and 87.27 % in CLI.

– enterprise customer segment: 94.28% in CSI and 97.26% in CLI.

DISTRIBUTION AND MARKETING STRATEGY

The following are the primary distribution marketing channels for our products and services:

1. Plasa Telkom and GraPARI are outlets that function as walk-in customer service points, where customers have access to the full range of Telkom and Telkomsel’s respective products and services. Customers can also access GeraiHalo outlets, which are managed by third parties and provide a more limited range of cellular services.

2. Contact Centers handle enquiries regarding our products, services and customer transactions. Our contact/call centers currently do not handle payments. Our contact centers also operate our customer care (telecaring) and telemarketing programs.

3. Partnership Stores are extensions of our distribution channels, in cooperation with a variety of third-party marketing outlets such as computer or electronic stores, banks, and others.

4. Feet on The Street are sales agents that conduct direct marketing of our products, particularly for our Speedy products, through door-to-door sales, open table discussions, exhibitions, product demonstrations, and other similar activities.

5. Authorized dealers and retail outlets are sales and distribution outlets for a variety of telecommunication products such as Speedy Instan cards, Flexi subscription cards, starter packs, prepaid SIM cards and top-up vouchers. These dealers are non-exclusive, and they receive a discount on all of the products they receive. Retail outlets also include outlets jointly operated by us, Telkomsel and PT Pos Indonesia, as well as other outlets such as banks.

6. Account Management Teams who manage relationships with our individual, business, and corporate customers.

7. Telkom Solution Houses are places where an enterprise customer can obtain information on a variety of TIMES solutions, products and services, and the latest technology. At these Telkom Solution Houses, we provide free live demonstrations (such as Speedy, Hotspot, PDN, IP-Phone), live demonstrations for commercial products (such as video conference), enterprise consultation and ecosystem business solutions for customized TIMES for corporations, and simulated demonstrations (such as e-Payment & VPN over GSM and Flexi).

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8. SME Centers function as a communication center supported with advanced office facilities, a community center where our customers can interact, and a commerce center especially for e-Commerce solutions.

9. Our website which provides customers with information on the entire range of our products and services, multimedia as well as telephony, through the official company websites at www.telkom.co.id and www.telkomsel.com.

Marketing Strategy

Marketing communications and distribution channels are important in ensuring that our product/service offerings are directed at and reach the right customer segment. In addition to marketing using traditional (offline) media such as advertisement placement in television, print media, newspaper, and radio as well as during local events, we have also begun to intensify product marketing through the digital (online) media within various digital communities as well as building popularity in social networks.

Plasa Telkom and GraPARI outlets are our direct distribution channels. In addition to its function as a direct channel for our product distribution, these outlets also handles after-sales service for our customers, and disseminates information on programs, promotions and products to customers and end users. This distribution channel enables us to monitor and improve service quality, complaint handling performance, and customer satisfaction level in general. As of December 31, 2013, we operated 572 Plasa Telkom and 86 GraPARI outlets through Indonesia.

In the distribution of Telkom Flexi and Speedy Instan card (SPIN Card) and mobile cellular products, we engage a partnership of best-performing dealers, giving each of these partners a designated and exclusive sales area ("cluster") to manage. As of December 31, 2013, we have partnerships with 53 official dealers that manage more than 83,000 retail outlets in 96 clusters. In addition, we also have partnership arrangements with seven national retail partners and 17 national banking partners.

For kartuHalo, Telkomsel focuses on corporate and professional customers with high usage volumes. Marketing for this segment is undertaken by special corporate account teams, which are also responsible for maintaining long-term relations with our customers through efforts to provide solutions suitable to the needs of the corporate customers.

The simPATI and Kartu As products are designed to appeal towards a much wider target segment and particularly to younger customers. Telkomsel uses above and below the line marketing channels to promote its brands, including campaigns aimed at schools and special interest groups, placing print advertisements, billing insertions, point-of-sale presentations, and events promotion and sponsorship.

In keeping with changes in consumer behavior and lifestyle trends, we consistently develop sales partnerships on a national scale with number of partners. These comprise of sales of bundled products through sales outlets owned by the respective partner, such as Samsung and Intel, among others.

As part of our strategy to promote internet technology to the broader public and to improve customer knowledge about broadband internet products and application, we have engaged in an initiative to develop Broadband Learning Centers ("BLCs"). At our BLCs, we provide facilities including air conditioned rooms, personal computers with internet connections, blackboards, educational materials, and teachers and other speakers from our internal as well as in cooperation with other institutions. The BLCs program primarily targets non-internet users, as well as communities that are interested in deepening their knowledge on internet and information technology topics, such as students and collegues. In addition to facilitate events, the BLCs facilities can also be used by communities for events related to education and information technology development. As of December 31, 2013, we operate a total of 218 BLCs in various locations throughout Indonesia.

Telecommunications Industry in Indonesia

Indonesia's telecommunication industry has shown rapid growth ever since the transformation of the telecommunication sector from monopoly to competitive, enacted by the Government through Law No.36 Year 1999 on Telecommunication. This growth is moreover further accelerated by advances in communication technology using radio frequencies, as alternative telecommunication means to communication through cable networks and satellite.

Compared to the growth of fixed wireline telephony for many decades that eventually stagnated at only around 9.4 million lines, the telecommunication teledensity in Indonesia has since experienced a very significant jump in less than 20 years to more than 310 million lines, driven primarily by the growth of cellular telephony, as well as fixed wireless telephony. The cellular telephony business also continues to grow through a variety of innovations as well as constant adaptation to changes in market demands and consumer preferences. While the growth in voice and Short Messaging Service (“SMS”) has showed signs of declining in recent years, there was at the same time a marked strengthening in the growth of data communication and mobile internet access services.

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There are a number of factors or conditions that point to good growth prospects for Indonesia's telecommunication industry, including:

1. Indonesia's demographics, with the fourth largest population in the world and a fast growing middle class segment, as well as Indonesia's economy that has shown stable and respectable growth in recent years, are expected to drive further demands for telecommunication and data services.

2. While internet penetration in the country is still relatively low compared to peer countries in the region, people in Indonesia is becoming increasingly exposed, and are increasingly adopting global trends in digital lifestyle, as shown especially in the marked increase of smartphone usage with more affordable prices as well as higher levels of social networking media activities. We expect that the growth of mobile internet services will continue to be fueled on the back of the increasing popularity of smartphones, tablets and other internet-enabled mobile devices in Indonesia, faster data transmission of wireless networks, and increasingly affordable smart devices and mobile internet services.

3. The increasingly open and tight competition among telecommunication operators, which is expected to result in improved service quality, higher industry efficiency, and constant innovations in products or services, and will eventually drive more growth in Indonesia's telecommunication industry.

Legal Basis and Regulation

The framework for the telecommunications industry is comprised of specific laws, government regulations, ministerial regulations and ministerial decrees enacted and issued from time to time. The current telecommunications policy was first formulated and articulated in the Government’s “Blueprint of the Indonesian Government’s Policy on Telecommunications”, contained in MoC Decree No.KM.72/1999 dated September 17, 1999 which was intended to:

- increase the telecommunication sector’s performance in the era of globalization;

- liberalize the sector with a competitive structure by removing monopolistic controls;

- increase transparency and predictability of the regulatory framework;

- create opportunities for national telecommunications operators to form strategic alliances with foreign partners;

- create business opportunities for small and medium enterprises; and

- facilitate new job opportunities.

A. Telecommunications Law

The telecommunications sector is primarily governed by Law No.36 year 1999 (“Telecommunications Law”), which became effective on September 8, 2000. The Telecommunications Law sets guidelines for industry reforms, including industry liberalization, facilitation of new entrants and enhanced transparency and competition.

The Telecommunications Law eliminated the concept of “organizing entities” thereby ending our and Indosat’s responsibility for coordinating domestic and international telecommunications services, respectively. To enhance competition, the Telecommunications Law prohibits monopolistic practices and unfair competition among telecommunications operators.

The Telecommunications Law was implemented through several Government Regulations, Ministerial Regulations and Ministerial Decrees. The most important of such regulations include:

- Government Regulation No.52/2000 regarding Telecommunications Services;

- MoCI Regulation No.1/PER/M.KOMINFO/01/2010 dated January 25, 2010 regarding Operation of Telecommunications Networks;

- MoC Decree No.KM.21/2001 regarding the Provision of Telecommunications Services that was most recently amended by MoCI Regulation No.31/PER/M.KOMINFO/09/2008 regarding the Third Amendment of Decree of the Minister of Communication No.KM.21/2001 regarding the Provision of Telecommunications Services;

- MoC Decree No.33/2004 regarding Supervision of Healthy Competition in the Provision of Fixed Network and Basic Telephony Services; and

- MoC Decree No.KM.4/2001 dated January 16, 2001 regarding the Determination of Fundamental Technical Plan National 2000 for National Telecommunications Development most recently amended by MoCI Regulation No.09/PER/M.KOMINFO/06/2010 dated June 9, 2010 regarding the sixth amendment of MoC Decree No.KM.4/2001 regarding the Determination of Fundamental Technical Plan National 2000 for National Telecommunications Development.

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B. Telecommunications Regulators

In February 2005, the authority to regulate the telecommunications industry was transferred from the MoC to a newly-established Ministry, the MoCI. Pursuant to authorities assigned to him through Telecommunication Law, the Minister of Communication and Information sets policies, regulates, supervises and controls telecommunications industry in Indonesia. On October 28, 2010, MoCI engaged in certain organizational and administrative reforms that included transferring licensing and regulatory authority to two newly established general directorates, the Directorate General of Posts and Informatics Resources and Equipment (“DGRE”) and Directorate General of Post and Informatics (“DGPI”) pursuant to MoCI Regulation No.17/PER/M.KOMINFO/10/2010 regarding the Organization and Administration of Ministry of Communication and Information. Following the reforms, certain adjustments were made through MoCI Regulation No.15/PER/M.KOMINFO/06/2011 dated June 20, 2011 regarding title adjustments in a number of Decrees and/or MoCI regulations that regulate Special Materials in Post and Telecommunications and/or in Decrees of the Director General of Posts and Telecommunications, which transfer all substances related to the postal and telecommunications sectors to the DGPI including licensing, numbering, interconnection, universal service obligation and business competition. Meanwhile, matters related to radio frequency spectrum and standardization of telecommunications equipments were transferred to the DGRE.

Following the enactment of the Telecommunications Law, the MoC established an independent regulatory body as stipulated in MoC Decree No.KM.31/2003 dated July 11, 2003 regarding the Establishment of the ITRA which was later revoked by MoC Regulation No.KM.36/PER/M.KOMINFO/10/2008 dated October 31, 2008 and amended by MoCI Regulation No.1/PER/M.KOMINFO/02/2011 dated February 7, 2011 (“MoCI Regulation No.36/2008”). Pursuant to MoCI Regulation No.36/2008, the ITRA was assigned the authority to regulate the Indonesian telecommunication industry, including the provision of telecommunication networks and services. The ITRA which is chaired by the Director General of Post and Informatics Operations and comprises of nine members, including six members of the public, and three members selected from Government institutions (DGRE and Director of DGPI and a government representative appointed by the Minister of Communication and Information). Other regulatory functions of the ITRA include:

- licensing of telecommunication networks and services;

- implementation of operational and service quality standards;

- governance of interconnection charges;

- regulating telecommunication equipment standards; and

- settlement of disputes between network operators and service providers.

Finally, oversight authority of the ITRA covers:

- operating performance;

- competition; and

- utilization of telecommunication equipments.

C. Classification and Licensing of Telecommunications Providers

The Telecommunications Law organized telecommunication services into following three categories:

- provision of telecommunication networks;

- provision of telecommunication services; and

- provision of special telecommunications services.

Licenses issued by MoCI are required for each category of telecommunications services. MoCI Regulation No.1/2010 and MoC Decree No.KM.21/2001 dated May 31, 2001 regarding the Operation of Telecommunications Services, as amended by MoCI Regulation No.31/PER/M.KOMINFO/09/2008 dated September 9, 2008, are the principal implementing regulations governing licensing.

MoCI Regulation No.1/2010 classified network operations into fixed and mobile networks. Fixed network operations are grouped into:

- local fixed network operations;

- fixed domestic long distance operations;

- fixed international connection operations; and

- fixed closed network operations.

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The mobile network operations were divided into:

- terrestrial mobile network operations;

- mobile cellular network operations; and

- satellite mobile network operations.

MoC Decree No.KM.21/2001 categorized the provision of services into basic telephony services, value-added telephony services, and multimedia services. The provision of multimedia services is further categorized into provision of internet services, network access point services, public internet telephony services, and data communication system services. The provision of network services and of telecommunications services requires separate licenses according to the established categories. Special telecommunications license held for private purposes, broadcasting, as well as defense and national security are provided separately.

D. Introduction of Competition in the Indonesian Telecommunications Industry

In 1995, we were granted a monopoly to provide local fixed line telecommunications services until December 31, 2010, and DLD services until December 31, 2005. Indosat and Satelindo (which subsequently merged with Indosat) were granted a duopoly for provision of basic international telecommunications services until 2004.

As a consequence of the Telecommunications Law, the Government terminated our exclusive rights to provide domestic fixed line telephone and DLD services and Indosat’s and Satelindo’s duopoly rights to provide basic international telephone services. Instead, the Government adopted a duopoly policy to create competition between Indosat and us as comprehensive service and network providers. The market for IDD services was liberalized in August 2003 with the termination of Indosat’s and Satelindo’s exclusive rights. In 2012, Indosat began operating fixed line services and, in 2013, fixed wireless access and DLD services. We subsequently received our IDD services license and began offering IDD services in 2004 in direct competition with Indosat.

E. DLD Services

To liberalize DLD services, the Government amended the National Telecommunications Technical Plan pursuant to MoCI Decree No.6/P/M.KOMINFO/5/2005 dated May 17, 2005 (“MoCI Decree No.6/2005”) to assign each provider of DLD services a three-digit access code that would permit their customers to select an alternative DLD services provider by dialing the three-digit access number. MoCI Decree No.6/2005 did not provide for immediate implementation of the three-digit system for DLD calls, but as the first DLD service provider, we were required to gradually open our network to the three-digit access codes in all coded areas throughout Indonesia by April 1, 2010. We were assigned the “017” DLD access code, while Indosat was assigned “011”. The MoCI thereafter amended the National Telecommunications Plan as provided in MoCI Decree No.43/P/M.KOMINFO/12/2007 dated December 3, 2007, (“MoCI Decree No.43/2007”), which delayed the deadline for the implementation of three-digit access code for DLD calls throughout all the area code in Indonesia until September 27, 2011.

Pursuant to MoCI Decree No.43/2007, we opened our network to the “01X” three-digit DLD access service in Balikpapan by April 3, 2008. Since that date, our customers are able to make DLD calls from Balikpapan by first dialing Indosat’s “011”. As stipulated in MoCI Regulation No.43/2007, we have provided a nation-wide network for three-digit access code for fixed and fixed wireless DLD with “01X” that can be used by Indosat or other licensed operator starting September 27, 2011. To date, no other licensed operators have submitted a request to us to connect their networks and enable DLD access. If there is another operator that provide the “01X” access code, whether nationally or in certain parts of Indonesia, our customers can choose to use such other operator to make DLD calls, whenever available.

On December 16, 2008, the MoCI issued an in-principle DLD license to Bakrie Telecom, increasing the number of potential DLD operators to three. However, as of the date of filing of this annual report, Bakrie Telecom has not yet obtained a DLD operating license which would require them to first procure necessary DLD infrastructure.

Our DLD tariffs are regulated by MoCI Regulation No.15/PER/M.KOMINFO/4/2008 dated April 30, 2008 regarding Tariff Calculation Procedures for Basic Telephony Services on Fixed Wireline Networks (“MoCI Regulation No.15/2008”), limits our interconnection tariffs in accordance to a specified cost-based formula. MoCI

Regulation No.15/2008 also provides that our tariff structure be comprised of a connection fee, monthly charges, usage charges and additional facilities fees. We are required by MoCI Regulation No.15/2008 to report our cost-based tariff calculation to the ITRA.

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F. IDD Services

We received our IDD license in May 2004 and began offering IDD fixed line services to customers in June 2004 using the “007” IDD access code. The Indosat IDD access code is “001”. Our December 2005 interconnection agreement with Indosat enables Indosat’s network customers to access our IDD services by dialing “007” and our network customers to access Indosat’s IDD services by dialing “001”.

On February 12, 2009, the MoCI issued a fixed IDD license to Bakrie Telecom, with international access code “009”, which has increased the number of potential IDD operators to three.

Interconnection fees from international network providers to local network providers are determined based on the interconnection offering document for fixed line local network providers. Our fixed line IDD tariff are regulated by MoCI Regulation No.15/2008 in the same manner as our fixed line DLD services.

G. Limited Mobility Wireless Services

MoC Decree No.KM.35/2004 dated March 11, 2004 regarding Implementation of Fixed Wireless Networks with Limited Mobility, as amended by MoCI Decree No.16/PER/M.KOMINFO/06/2011 dated June 27, 2011, (“MoC Decree No.KM.35/2004”) provides that only local fixed network operators holding licenses issued by the MoC may offer limited mobility wireless (or fixed wireless) access services. In addition, MoC Decree No.35/2004 states that each limited mobility wireless access operator must provide basic telephone services. Under an automated migration feature, customers are able to make and receive calls on their fixed limited mobility wireless access phones using a different number with a different area code.

Indosat, Bakrie Telecom and Mobile-8 also hold limited mobility wireless operating licenses.

Our fixed wireless tariff are regulated by MoCI Regulation No.15/2008 in the same manner as our DLD and IDD fixed line services.

H. Cellular

Cellular telephone service is provided in Indonesia on the radio frequency spectrum of 1.8 GHz (DCS technology), 2.1 GHz (UMTS technology) and 900 MHz (GSM and UMTS technology). The MoCI regulates the use and allocation of the radio frequency spectrum for mobile cellular networks. Telkomsel has obtained frequency allocation for cellular services on the 900 MHz, 1.8 GHz and 2.1 GHz frequency bands. The Government conducted tenders for the allocation of the 2.1 GHz radio frequency spectrum, and allocated bandwidth, in 2006, the Government allocates through the tender prosess for allocation at 5 MHz, while for the allocation of additional radio spectrum allocated through an evaluation mechanism was in 2009 and a selection in 2013. The allocation of bandwidth in the 2.1 GHz frequency spectrum is regulated by:

- MoCI Decree No.19/KEP/M.KOMINFO/2/2006 dated February 14, 2006 regarding the Determination of Winner of IMT-2000 Mobile Cellular Operator Selection at 2.1 GHz Radio Frequency Band;

- MoCI Decree No.268/KEP/M.KOMINFO/9/2009 regarding the Determination of Additional Allocation of Radio Frequency Bandwidth Blocks, Tariffs, and Payment Scheme Radio Frequency Spectrum Right of Usage Fees for IMT-2000 Mobile Cellular Operators at 2.1 GHz Radio Frequency Band; and

- MoCI Decree No.191 Year 2013 regarding the Determination of PT Telekomunikasi Selular as Winner in the Selection of Users of Additional Frequency Bandwidth at 2.1 GHz Radio Frequency Band for IMT-2000 Mobile Cellular Operators.

I. Interconnection

The Telecommunications Law expressly prohibits monopolistic and unfair business practices and requires network providers to allow users to access other users or obtain services from other networks by paying interconnection fees agreed upon by each network operator. Government Regulation No.52/2000 dated July 11, 2000 regarding Telecommunications Operations provides that interconnection charges between two or more network operators must be transparent, mutually agreed upon and fair.

On February 8, 2006, the MoCI issued Regulation No.8/PER/M.KOMINFO/02/2006 on Interconnection (“MoCI Regulation No.8/2006”), mandated a cost-based interconnection tariff scheme for all network and services operators replacing the previous revenue-sharing scheme. Under the new scheme, interconnection charges are determined by the network operator on which a call terminates based on a long-run incremental cost formula provided under MoCI Regulation No.8/2006.

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MoCI Regulation No.8/2006 requires operators to submit to the ITRA annual RIO proposals containing proposed interconnection tariffs for the coming year. Operators are required to use the cost-based methodology in preparing RIO proposals, and the ITRA and MoCI are required to use the same methodology in evaluating the RIO proposals and approving interconnection tariffs. The RIO proposals also include call scenarios, traffic routing, point of interconnection, procedure for requesting and providing interconnection, and other matters. RIOs must also disclose the type of interconnection services offered and tariffs charged for each service offered. Interconnection access providers are required to implement a queuing system on a First-in-First-Serve basis. Additionally, network interconnection must be implemented in a transparent and without discrimination.

Pursuant to MoCI Regulation No.8/2006 and ITRA Letter No.246/BRTI/VIII/2007 dated August 6, 2007, we submitted a RIO proposal to the ITRA in October 2007, which covered adjustments for operational, configuration, technical and service offerings. In December 2007, we and all other network operators signed new interconnection agreements that superseded previous interconnection agreements between us and other network operators which also amended all interconnection agreements signed in December 2006. These agreements temporarily served in lieu of RIOs while the ITRA continued to review the RIO proposals received from ourselves and other operators.

On February 5, 2008, the ITRA required that we and other operators begin implementing the cost-based interconnection tariff regime. On April 11, 2008, pursuant to Directorate General of Post and Telecommunication (“DGPT”) Decree No.205/2008, the ITRA and the MoCI approved RIO proposals from all operators to replace previous interconnection agreements. The RIO approved in 2008 was effective until July 29, 2011 when new interconnection charges were implemented as stipulated in ITRA Letter No.227/BRTI/XII/2010 dated December 31, 2010 regarding the Implementation of Interconnection Charges in 2011. This is the result of interconnection charges recalculation conducted in 2010 by MoCI that was agreed on by all operators and outlined in a Memorandum of Understanding. In this process, we were appointed as a default data source for the calculation of fixed wireline and fixed local interconnection tariffs. Our subsidiary, Telkomsel, and Indosat were similary appointed as the default data source for the calculation cellular interconection tariffs. Meanwhile, Indosat data is positioned as a benchmark for calculating the cost of cellular mobile network interconnection. The results of this interconnection charges reform caused a slight decrease in interconnection costs.

On December 12, 2011, the ITRA changed the SMS interconnection fee basis from a “Sender Keep All” basis to a cost basis interconnection fee calculation which required certain amendments to RIOs agreed upon in 2011. MoCI Regulation No.8/2006 stipulates that the RIO of telecommunications network operators generating operating revenue that is equal to or more than 25% of the combined revenues of all telecommunication operators that serve the same respective segment, must obtain ITRA’s approval, necessitating changes in our and Telkomsel’s RIOs which were approved on June 20, 2012. In 2012, we and Telkomsel were confirmed as telecommunication network operators that are capable of posting revenue of 25% or more of total operating revenues of all telecommunication operators combined in the respective segments in 2012, through the Decree of the Director General of PPI No.181A/KEP/DJPPI/KOMINFO/5/2012 dated May 16, 2012. Until this report is published, no recalculation of interconnection fees for 2012 had been done as doing such should have been preceded by an evaluation on interconnection charges in 2011.

J. VoIP

In January 2007, the Government implemented new interconnection regulations and a five-digit access code system for VoIP services pursuant to MoCI Decree No.06/P/M.KOMINFO/5/2005. Under the Decree, the prefix for VoIP, which was originally 01X, was changed to 010XY. On April 27, 2011, the MoCI issued Regulation No.14/PER/M.KOMINFO/04/2011, which imposed quality control standards in relation to VoIP services, which became effective three months thereafter, to which we and other operators must adhere to.

K. IPTV

In August 19, 2009, MoCI issued Ministerial Decree No.30/PER/M.KOMINFO/8/2009 regarding the undertaking of IPTV services in Indonesia, in order to address the convergence of telecommunications services with broadcasting and electronic transactions. In July 2010, MoCI replaced this regulation with MoCI Regulation No.11/PER/M.KOMINFO/07/2010 (“MoCI Regulation No.11/2010”) which established the legal basis for the licensing and regulates the provision of IPTV services, including the rights and obligations of IPTV providers, technical standards, foreign ownership requirements and the use of domestic independent content providers.

MoCI Regulation No.11/2010 recognizes IPTV as a convergence of telecommunications, broadcasting, multimedia and electronic transactions and provides that only a consortium comprising at least two Indonesian entities may be licensed as an IPTV provider. Each consortium must together hold licenses as a local fixed network provider, internet services provider and one broadcast services provider. Such consortium may only provide IPTV services in the area covered by all three required licenses. MoCI Regulation No.11/2010 further requires that IPTV services be delivered through a wire network.

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L. Satellite

Our international satellite business is highly regulated. In addition to being subject to domestic licensing requirements and regulation for the use of orbital slots and radio frequencies as stipulated in MoCI Regulation No. 13/P/M.KOMINFO/8/2005 dated September 6, 2004 which is partially amended by MoCI Regulation No.37/P/M.KOMINFO/12/2006 dated December 6, 2006 (“MoCI Regulation No.37/2006”), our satellite operations is also regulated by the Radio Communications Bureau of the International Telecommunications Union.

Furthermore, MoCI Regulation No.37/2006 dated December 6, 2006 requires foreign satellite operators to obtain a landing right license to operate in Indonesia which requires such foreign satellite operators to coordinate with domestic satellite operators, including us, to ensure that no Indonesian satellite and terrestrial systems will be disrupted by their operation.

M. Consumer Protection

Under the Telecommunications Law, each network provider is required to protect consumer rights in relation to, among others, quality of services, tariffs and compensation. Customers injured or damaged by negligent operations may file claims against negligent providers. Telecommunications consumer protection regulations provide service standards for telecommunication operators.

N. USO

All telecommunications operators, whether network or service providers, are bound by a USO regulation that requires them to contribute to providing telecommunication facilities and infrastructure in the interest of opening equal access to telecommunications throughout all regions in Indonesia, which is generally done by way of financial contribution. MoCI Regulation No.32/PER/M.KOMINFO/10/2008 dated October 10, 2008 regarding the USO (as amended by MoCI Regulation No.03/PER/M.KOMINFO/02/2010 dated February 1, 2010) (“MoCI Regulation No.32/2008”) stipulated, among others, details services that shall be provided in relation to USO regulation, which is providing telephone, SMS and internet access services in remote and other areas of Indonesia that have been classified as USO regions where it is not economical to provide these services.

USO payment requirements are calculated as a percentage of our and Telkomsel’s unconsolidated gross revenues, net of bad debts and/or interconnection charges and/or connection charges. Pursuant to Government Regulation No.7/2009 dated January 16, 2009, regarding Tariffs for Non-Tax State Revenue that apply to the Ministry of Communication and Information (“GR No.7/2009”) and Decree No.05/PER/M.KOMINFO/2/2007 dated February 28, 2007, the current USO tariff rate is 1.25% of gross revenue, net of bad debts and/or interconnection charges and/or connection charges. Subsequently, in December 2012, Decree No.05/PER/M.KOMINFO/2/2007 was replaced by Decree No.45 year 2012 of the MoCI which was effective from January 22, 2013. The Decree stipulates, among other things, the exclusion of certain revenues that are not considered as part of gross revenues as a basis to calculate the USO charged, and changed the payment period which was previously on a quarterly basis to become quarterly or semi-annually.

O. Telecommunication Regulatory Charges

On January 16, 2009, the Government issued Government Regulation No.7/2009, which sets the types of non-tax state revenues that apply to the MoCI derived from various services, including telecommunications.

We are required to pay right-of-use fees related to the radio frequency spectrum that we use. The right-of-use fees with reference to our BTS licensing were payable annually based on a formula that took into account base prices for both radio frequency spectrum and transmission capacity, as adjusted by fee indices set by the Minister of Communications and Information in consultation with the Minister of Finance. The right-of-use fees calculated with reference to our radio frequency spectrum is determined by tender and comprises of both an upfront fee and radio frequency spectrum (“IPSFR”) annual fees.

On December 13, 2010, the Government issued Government Regulation No.76/2010 amending Government Regulation No.7/2009. Pursuant to Government Regulation No.76/2010, we are no longer required to pay right-of-use fees calculated with reference to the BTSs that we deploy in our network, except for BTSs deployed in our backbone, with effect from December 15, 2010. As a result, our right-of-use fees are now calculated based on the bandwidth of the radio frequency spectrum that we use.

In addition to radio frequency spectrum right-of-use fees, Government Regulation No.7/2009 requires all telecommunications operators to pay an annual license fee for telecommunication operation, which is equal to 0.5% of unconsolidated gross revenues, net of bad debts and/or interconnection charges and/or connection charges.

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Pursuant to Law No.28/2009 regarding Local Taxes and Local Fees, local governments are permitted to impose fees on the sites that we use for telecommunications towers. The fees may not exceed 2% of the site’s assessed tax value. Currently, there are some 525 local (provincial and regency level) governments through out Indonesia that may be authorized to impose these fees to increase in the future.

P. Telecommunications Towers

On March 17, 2008, the MoCI issued MoCI Regulation No.02/PER/M.KOMINFO/3/2008 regarding Guidelines on Construction and Utilization of Sharing Telecommunication Towers (“MoCI Regulation No.02/2008”). Under MoCI Regulation No.02/2008, the construction of telecommunications towers requires permits from the relevant governmental institution, while the local government determines the placement and locations at which telecommunications towers may be constructed. In addition, telecommunications providers that own telecommunication towers and other tower owners are obligated to allow other telecommunication operators to utilize their telecommunication towers without any discrimination, with due regards to the technical capacity of the respective tower.

Since the operations of telecommunication towers involves a number of relevant Government bodies, on March 30, 2009, a joint regulation is issued in the forms of Minister of Home Affairs Regulation No.18/2009, Minister of Public Works Regulation No.07/PRT/M/2009, MoCI Regulation No.19/PER.M.KOMINFO/03/2009 and Head of the Investment Coordinating Board Regulation No.3/P/2009 regarding Guidelines for the Construction and Shared Use of Telecommunications Towers (“Joint Decree”).

The Joint Decree regulates that license for telecommunication tower construction is to be issued by regents or mayors, and for Jakarta Province, its Governor. The Joint Decree also provides for tower construction standards and requires that telecommunications towers be made generally available for shared use by telecommunications service providers. The owner of a telecommunications tower is allowed to collect a fee, which is negotiated with reference to costs associated with investment and operational costs, the return of investment and a profit. Monopolistic practices in the ownership and management of telecommunications towers is prohibited.

In addition to the Joint Decree and MoCI Regulation No.02/2008, several regional authorities have implemented regulations limiting the number and location of telecommunication towers and require operators to share in the utilization of telecommunications towers.

Competition

Measures following the Telecommunications Law’s adoption in 2001 moved the Indonesian telecommunications sector from a duopoly between Indosat and us to one with multiple competing providers. See “Legal Basis and Regulation – Introduction of Competition in the Indonesian Telecommunications Industry”.

Competition Law

The Government currently promotes liberalization, competition and transparency in the telecommunications sector. It does not prevent providers from attaining and capitalizing upon a dominant market position. However, the Government does prohibit operators from abusing a dominant position. In March 2004, the MoC issued Decree No.33/2004, which prescribes measures to prohibit such abuse by dominant network and service providers. A provider is considered dominant based on factors such as scope of business, service coverage area and control of a particular market. Specifically, Decree No.33/2004 prohibits dumping, predatory pricing, cross-subsidies, mandatory use of a provider’s services (to the exclusion of competitors) and hampering mandatory interconnection (including discrimination against specific providers).

Competition in the telecommunications sector, like all Indonesian business sectors, is also governed more generally by Law No.5/1999 dated March 5, 1999 regarding Prohibition of Monopolistic Practice and Unfair Business Competition (“Competition Law”). The Competition Law bans agreements and activities tending toward unfair business competition, as well as the abuse of a dominant market position. Pursuant to the Competition Law, the Commission for the Supervision of Business Competition (“KPPU”) has been established as Indonesia’s antitrust regulator with the authority to enforce the provisions of the Competition Law.

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The Competition Law is implemented by various regulations, including Government Regulation No.57/2010 dated July 20, 2010 regarding Mergers and Acquisitions Potentially Causing Monopolistic Practices or Unfair Business Practices. Government Regulation No.57/2010 permits voluntary consultation with the KPPU prior to a merger or acquisition, resulting in the KPPU issuing a non-binding opinion. Government Regulation No.57/2010 also requires that a mandatory report be made to the KPPU after a merger or acquisition is completed if the transaction exceeds certain asset or sales value thresholds.

A. Fixed Line, Fixed Wireless and DLD

Our exclusive right to provide domestic fixed line telecommunications services in Indonesia ended following the Telecommunications Law’s implementation in 2000. The MoC issued licenses to Indosat for domestic fixed line services in August 2002 and for DLD telephone services in May 2004. We entered into an interconnection agreement with Indosat dated September 23, 2005 to allow interconnection between our local fixed line services in Jakarta, Surabaya, Batam, Medan, Balikpapan, Denpasar and certain other areas. By 2006, Indosat was able to provide nationwide DLD services through its CDMA-based fixed wireless network, its fixed line network and these interconnection arrangements with us.

In an attempt to liberalize DLD services, the Government required each DLD provider to implement a three-digit access code to be dialed by customers making DLD calls. These regulations were first implemented in Balikpapan in 2008, with Balikpapan residents given the option to make a normal DLD call or to select a three-digit code assigned to Indosat or to us. Under current regulations, this system is to be applied nationally beginning September 27, 2011. See “Legal Basis and Regulation – Introduction of Competition in the Indonesian Telecommunications Industry”.

Indosat remains our largest competitor with respect to fixed line and DLD services and we also compete against other fixed line service providers such as PT Bakrie Telecom Tbk. (formerly Ratelindo) and PT Batam Bintan Telecom. However, traditional fixed line services have faced and will continue to increasingly face competition from cellular services, particularly as cellular tariffs decrease, and from other alternate services such as fixed wireless, SMS, VoIP and e-mail services.

Telkom Flexi, our fixed wireless network is the largest in Indonesia with coverage of 370 cities offering limited mobility and charging customers based on PSTN tariff that is principally lower than GSM. For comparison, Indosat in 2004 launched its CDMA-based fixed wireless phone service under the brand name “StarOne” in Jakarta and Surabaya. Bakrie Telecom offers fixed wireless services in more than 30 cities and Mobile-8 was granted a nationwide fixed wireless access license in 2009. In general, the technologies employed by CDMA and fixed wireless access operators are less capital-intensive, previously allowing these operators to offer more competitive prices than GSM operators. Furthermore, licensing fees for radio stations of fixed wireless mobile phone connections is lower than cellular.

B. Cellular

We operate our cellular service business through our majority-owned subsidiary, Telkomsel. As of December 31, 2013, Indonesia’s cellular market is dominated by Telkomsel, Indosat and XL Axiata, which collectively account for 80.4 % of the full-mobility cellular market. Other providers include Hutchison, Natrindo, Smart Telecom and Bakrie Telecom.

There were approximately 310 million full-mobility cellular subscribers in Indonesia as of December 31, 2013, a 12.3 % increase from approximately 276 million as of December 31, 2012.

We believe that Telkomsel competes effectively in the Indonesian cellular market on the basis of price, coverage, service quality and value added services. As of December 31, 2013, Telkomsel remained the largest national licensed provider of cellular services in Indonesia, with approximately 131.5 million cellular subscribers and a market share of 42.4 % of the full-mobility cellular market. The second and the third largest providers were Indosat and XL Axiata, which have a market share of 19.2 % and 18.7 % respectively, based on the estimated number of subscribers as of December 31, 2013. In addition to the nationwide GSM operators, a number of smaller regional GSM, analog and CDMA fixed wireless providers operate in Indonesia.