T A B L E O F C O N T E N T STelkom at a Glance 1

Financial and Operational Highlights 2

Stock Highlights 4

Message from the Chairman of the Board 6

Message from the President Director to Shareholders 8

Business Overview 10

Steps toward Success 18

Human Resource 24

Society Development 26

Corporate Information 28

Management Discussion and Analysis 33

Financial Statements 48

History in brief:

1882A private entity was established by the Dutch ColonialAdministration to provide postal and telegraph servicesto the public.

1906The Dutch Administration formed an agency to assumecontrol of post and telegraph services referred to as Post,Telegraph en Telephone Dienst (“PTT”).

1945Indonesia proclaimed her independence as a free andsovereign state from the Dutch Colonial Administration.

1961The agency (PTT) status was changed to a state-ownedand fully controlled company (Perusahaan Negara Posdan Telekomunikasi (“PN Postel”).

1965PN Postel was split into two companies: PerusahaanNegara Pos dan Giro (“PN Pos dan Giro”) to manage postalservices, and Perusahaan Negara Telekomunikasi (“PNTelekomunikasi”) to manage telecommunications services.

1974PN Telekomunikasi was changed into a semi profit-makingcompany called Perusahaan Umum Telekomunikasi(“Perumtel”) providing domestic and internationaltelecommunications services.

1980PT Indonesian Satellite Corporation (“Indosat”) wasestablished as a new separate company to operateinternational telecommunications services.

1991Perumtel’s status was changed to a profit-making companycalled Perusahaan Perseroan (Persero) PT TelekomunikasiIndonesia (“Telkom”).

1995Telkom successfully completed its initial public offering(IPO). Ever since TELKOM shares are listed at the JakartaStock Exchange (JSX), Surabaya Stock Exchange (SSX), NewYork Stock Exchange (NYSE) and London Stock Exchange(LSE). TELKOM also offered its shares through a PublicOffering Without Listing (POWL) at Tokyo Stock Exchange.

Vi s i o n : t o b e c o m e a l e a d i n g

PT Telekomunikasi Indonesia, Tbk. (“Telkom”) is the most

prominent telecommunications service provider in Indonesia

providing information and communication (InfoCom)

services and network. Telkom directly and through its

associated companies provides a wide range of information

and communications (“InfoCom”) services and network

including fixed wire-lines), mobile (cellular), view (pay TV

and cable TV), internet and multimedia services as well as

other related services. Telkom currently holds majority

interests in PT Telekomunikasi Selular (“Telkomsel”),

PT Dayamitra Telekomunikasi (“Dayamitra”), PT Indonusa

Telemedia (“Indonusa”), PT Infomedia Nusantara

(“Infomedia”), and PT Graha Sarana Duta (“GSD”). Telkom

also holds minority interests in other associated

companies. Its consolidated total assets as of December

31, 2001 was Rp 32.47 trillion.

Telkom at a glance

InfoCom company in the region

F I N A N C I A L A N D O P E R AT I O N A L H I G H L I G H T S

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Financial HighlightsThese selected financial data for the year ended December 31, 2001 is restated from the company’s consolidated financialstatements, and for the years ended December 31, 2000, 1999, 1998 and 1997 are restated from the company’s consolidatedfinancial statements.

Consolidated Statements of Income(In Millions of Rupiah and Thousands of U.S. Dollar, except shares and American Depositary Shares/ADS data)

Under Indonesian GAAP 2001 2000 1999 1998 1997

Rp U.S.$(1) As restated

OPERATING REVENUESFixed-lines 6,415,156 631,102 5,177,864 4,528,902 3,805,207 3,205,876Cellular 5,052,598 497,058 2,914,514 1,755,222 1,091,982 586,800Revenue under Joint Operation Scheme 2,219,586 218,356 2.267,154 1,677,217 1,591,537 1,646,292Interconnection Revenues 1,422,170 139,908 1,008,424 732,510 453,212 477,000Other Telecommunications Services 1,021,279 100,470 744,040 691,863 647,738 484,084Total Operating Revenues 16,130,789 1,586,894 12,111,996 9,385,720 7,589,676 6,400,052

OPERATING EXPENSESDepreciation 2,828,603 278,269 2,419,069 2,626,484 2,467,818 1,801,686Operation and Maintenance 2,149,921 211,502 1,385,735 1,146,419 725,477 551,294Personnel 2,028,812 199,588 1,610,196 1,224,474 903,898 891,182General and Administrative 1,287,747 126,684 871,683 570,864 675,328 625,079Marketing 220,006 21,643 147,160 76,245 51,411 81,414Total Operating Expenses 8,515,089 837,686 6,433,843 5,644,485 4,823,932 3,950,655

OPERATING INCOME 7,615,700 749,208 5,678,153 3,741,234 2,765,744 2,449,397

OTHER INCOME (CHARGES) - NET (928,411) (91,334) (888,953) (166,527) (1,339,876) (803,629)INCOME BEFORE TAX 6,687,289 657,874 4,789,200 3,574,707 1,425,868 1,645,768

TAX EXPENSE (2,070,654) (203,704) (1,466,267) (1,008,880) (258,258) (459.074)

INCOME BEFORE MINORITY INTERESTSIN NET INCOME OF SUBSIDIARY 4,616,635 454,170 3,322,933 2,565,827 1,167,610 1,186,964

PRE ACQUISITION LOSS 108,080 10,633 - - - -

MINORITY INTERESTS INNET INCOME OF SUBSIDIARY (474,605) (46,690) (312,930) (162,115) (15,205) (9,134)

NET INCOME 4,250,110 418,113 3,010,003 2,403,712 1,152,405 1,177,560

Weighted Average Outstanding and Fully PaidShares (in Millions) (2) 10,079,999 - 10,079,999 9,644.274 9,333.333 9,333.333Net Income per Share (Rp) 421.64 0.04 298.61 249.23 123.47 126.17Net Income per ADS (Rp) 8,432.76 0.83 5,972.23 4,984.64 2,469.44 2,523.34Declared Dividends per Share (3) (Rp) - 88.16 107.75 50.99 48.47 48.47Declared Dividends per ADS (3) (Rp) - 1,706.20 2,155.00 1,019.80 969.40 969.40

Under US GAAPNet Income (millions of Rupiah) 4,036,641 397,112 2,952,133 2,621,235 814,928 841,745Net Income per Share (Rp) 400.46 0.04 292.87 271.79 87.31 90.19Net Income per ADS (Rp) 8,009.21 0.79 5,857.41 5,435.72 1,746.27 1,803.74

(1) Stated in US Dollar based on Bridge Telerate on February 28, 2002 of Rp 10,165 per US$ 1.00

(2) Prior to IPO on November 14, 1995 TELKOM shares were 8,400,000,000 and post IPO were 9,333,333,000

In August 1999, TELKOM issued bonus shares of 746,666,640 resulted in total shares of 10,079,999,640.

Weighted average for 1999 was 213/365 x total shares pre-distribution of bonus shares plus 152/365 x total

shares post-distribution of bonus shares.

(3) Dividends for the financial year concerned, based on the outcome of the General Meeting of Shareholders held in the

early following year.

Consolidated Balance Sheets(In Millions of Rupiah and Thousands of U.S. Dollar)

As of December 31 2001 2000 1999 1998 1997Under Indonesian GAAP Rp As restated

ASSETS:CURRENT ASSETS 7,308,519 10,299,704 7,572,719 4,324,548 2,539,234NONCURRENT ASSETS

Long-term investments - net 191,382 277,135 518,025 452,380 288,647Property, plant, and equipment - net 22,288,766 20,019,464 19,300,965 20,216,867 17,258,582Property, plant, and equipment underrevenue-sharing agreements - net 452,733 533,509 630,890 662,814 838,667Other noncurrent assets 2,228,880 889,128 550,996 383,571 679,762

TOTAL NON CURRENT ASSETS 25,161,761 21,719,236 21,000,876 21,715,632 19,065,658TOTAL ASSETS 32,470,280 32,018,940 28,573,595 26,040,180 21,604,892

LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES 10,075,323 4,509,355 4,331,222 3,940,196 3,240,577NONCURRENT LIABILITIES

Deferred tax liabilities 1,767,759 1,787,214 1,546,122 1,357,924 1,193,207Unearned income on revenue sharing Agreements 225,714 299,409 437,641 586,062 774,095Unearned initial investor paymentsunder joint operation scheme 111,834 153,493 168,842 184,191 199,541Long-term debt 9,730,741 9,546,259 8,540,515 8,537,124 5,658,331

TOTAL NON CURRENT LIABILITIES 11,836,048 11,786,375 10,693,120 10,665,301 7,825,174TOTAL LIABILITIES 21,911,371 16,295,730 15,024,342 14,605,497 11,065,751MINORITY INTERESTS IN NET ASSETS

OF SUBSIDIARY 1,235,334 814,034 533,642 359,407 337,632EQUITY 9,323,575 14,909,176 13,015,611 11,075,276 10,201,509TOTAL LIABILITIES AND EQUITY 32,470,280 32,018,940 28,573,595 26,040,180 21,604,892

Operating Ratio (%)Net Income to Equity 45.58 20.19 18.47 10.41 11.54Net Income to Total Assets 13.09 9.40 8.41 4.43 5.45Operating Income to Total Assets 23.45 17.73 13.09 10.62 11.34

Financial Ratio (%)Current Assets to Current Liabilities (Current Ratio) 72.54 228.41 174.63 109.75 78.36Total Liabilities to Total Stockholders’ Equity 235.01 109.30 115.53 131.87 108.47Total Liabilities to Total Assets 67.48 50.89 52.60 56.09 51.22

Operational HighlightsFixed-Lines 2001 2000 1999 1998 1997

Installed lines 8,055,306 7,668,077 7,429,262 7,197,099 6,523,724Subscriber lines 6,836,274 6,317,298 5,810,951 5,354,993 4,815,742Public Phones (including Kiosk phones) 382,664 345,307 269,242 216,651 166,724Lines in Service (LIS) 7,218,938 6,662,605 6,080,193 5,571,644 4,982,466Pulse production (LIS) (billion) 78.87 71.52 62.43 58.71 50.72Density (LIS per 100 Inhabitants) 3.25 3.07 2.93 2.73 2,50Number of Employees 37,422 37,705 37,983 38,117 37,974Productivity (LIS per employee) 192.91 176.70 160.1 146.2 131.2

Call Completion Ratio (%)Local 73.92 72.97 70.63 68.1 60.4Domestic Long Distance Direct Dialing 65.67 65.82 62.98 62.1 56.5

Mobile (Telkomsel):Base Transceiver Station (BTS) 1,995 1,411 1,169 1,050 982Transmitt-Receive Exchange 14,981 8,795 5,919 5,284 4,926Mobile Switching Center 26 23 23 22 22Base Switching Center 88 80 77 75 73Home Location Register (HLR) capacity 3,970,000 2,785,000 1,435,000 800,000 725,000Customer base: 3,252,032 1,687,339 1,025,221 492,624 393,493

Post-paid (KartuHALO) 865,211 657,436 437,197 329,384 364,587Pre-paid (SimPATI) 2,386,821 1,029,903 588,024 163,240 28,906

Average Revenue per User (ARPU) 171,000 179,000 191,000 236,000 NaPost-paid (KartuHALO) 287,000 281,000 276,000 236,000 NaPre-paid (SimPATI) 111,000 103,000 102,000 Na Na

TELKOM share price at the New York Stock Exchange in 2001

TELKOM share price at the Jakarta Stock Exchange in 2001

S T O C K H I G H L I G H T S

TELKOM’s authorized capital: 1 series-A Dwiwarna share and 39,999,999,999 series-B shares

Issued and fully-paid: 1 series-A Dwiwarna share and 10,079, 999,639 series-B shares

(common stock) at par Rp 500.00

Holders (as of December 31, 2001):

The State of the Republic of Indonesia

Represented by the Government: 5,472,235,356 shares 54.29%

Public: Local investors 717,008,877 shares 7.11%

Foreign investors 3,890,755,407 shares 38.60%

Total 10,079,999,640 shares 100.00%

The Government holds the 1 series-A Dwiwarna share, a special and non-transferable share, which entitles the Government

a veto power with respect to nomination, election and removal of Commissioners and Directors and amendments to the

Company’s Article of Association. The Government’s rights with respect to the Dwiwarna Share will not terminate

unless the Article of Association of the Company is amended, which requires the consent of the Government as the

holder of the Dwiwarna Share.

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0

1,000

2,000

3,000

4,000Rp

Jan Dec

0

2.00

4.00

6.00

8.00US$

Jan Dec

2 0 0 1

2 0 0 0

TELKOM share closing price in each quarter of 2000 and 2001.

JSX (Rp)/share NYSE (US$)/ADS*) LSE (US$)/ADS*)High Low High Low High Low

First quarter 4,350 3,325 12.0000 9.0625 12.150 9.1875Second quarter 3,775 2,675 9.6875 6.4375 9.625 6.4500Third quarter 3,325 2,600 8.0000 5.8750 7.875 6.1000Fourth quarter 2,890 2,025 6.3125 4.1250 6.425 4.2750

First quarter 3,125 1,825 6.6500 4.0000 6.5000 3.8500Second quarter 3,200 2,225 5.6000 3.6500 5.5500 3.8000Third quarter 3,400 2,650 7.0600 5.5000 7.0500 5.5000Fourth quarter 3,200 2,425 5.8000 4.6500 6.1250 4.7500

* ADS = American Depositary Share, 1 ADS representing 20 shares of Common Stock.

The continuous

improvement of the

Company performance

has made over

Telkom share one of

the blue chips in the

stock market.

M E S S A G E F R O M

T H E C H A I R M A N O F T H E B O A R D

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A fundamental change in the telecommunications industry is taking place in Indonesia following the enactment of the Law No.36/

1999 on Telecommunications. The settlement of joint and cross ownership transaction between Telkom and Indosat in 2001 has

sparked off the beginning of a new era of competition. The Board of Commissioners perceive that a true reform in the industry -

that provides users and customers with more choices of wide range of information and communication (“InfoCom”) services as

well as operators - will turn out to be true.

The onus is on us to reach a common understanding and vision as to what we want ‘Telkom to be’ in anticipation

of being a front runner in these changing times. Meanwhile many players in this fast-faced telecommunications

industry seem to be impatient to see the impact of the reforms. The Board of Commissioners, however, believe

that Telkom’s management will be capable of preserving and strengthening Telkom’s credibility as incumbent

operator through utilization of its superb infrastructure, network, and human resource. The Board warmly

support the management policy to adopt a smart approach in designing a new strategy to materialize the

Company vision.

Strategic changes undertaken by the management would not only be a matter of survival but a synergic strategy

as well in efforts to win competition by working hand in hand with all partners. Such changes, indeed, require

extraordinary foresight and audacity amidst the unpredictable environment. The Board would like to encourage

all Telkom’s people to actively and constructively participate in the on-going transformation.

The joint and cross ownership settlement transactions with Indosat and the buy out of Dayamitra have reflected

Telkom’s strong determination to reengineer its business port-folio in order to strengthen its position as a full

service and network provider. The transactions, indeed, would increase Telkom’s consolidated revenues, for

one reason or another, that mobile cellular business provided by Telkomsel shows a very good prospect.

We thank God for the significant progress achieved in the settlement of KSO issues. The Company has started

to settle the KSO issues by acquiring 90.32% shares of PT Dayamitra Telekomunikasi - the KSO partner for

KSO-VI Kalimantan. The Company has also reached an agreement to acquire PT Pramindo Ikat Nusantara - the

KSO partner for KSO-I Sumatera. The Company’s achievement was the long awaited solution for KSO-III West

Java and Banten.

We earnestly hope that the settlement of KSO problems could make up a great momentum for the development

of telecommunications in the country and convey a positive contribution to the Company’s growth.

In terms of regulatory perspective, the release of the Minister of Communications Decree No. KM.20/2001 on

Telecommunications Network Provision and No. KM.21/2001 on Telecommunications Services Provision have

strongly suggested a clear indication of the implementation of the Law No.36/1999 on Telecommunications. We

look forward to having comprehensive regulations that cover licensing, tariff, interconnection scheme as well

as compensation. We also envisage the need of the telecommunications industry for a forum where

telecommunications operators and regulatory authorities can sit together to discuss key issues and obtain

input from those affected by the regulations.

In the unprecedented telecommunications business environment, a general notion prevails that Telkom’s prospect

in the future will depend on its aptness and capability to add value or enhance the quality of network and

services to the public, inter alia, by improving service focus and system integration, sharpening business portfolio,

as well as maintaining its high potential employees.

A new age of full globalization and free competition in 2003 is on the threshold, so it is high time for the

company to get ready for take off.

Bandung, May 10, 2002

Bacelius Ruru

Chairman of the Board of Commissioners

Strategic changes undertaken by

the management would not only be

a matter of survival but a synergic

strategy as well in efforts to win

competition by working hand in

hand with all partners.

I am delighted to deliver to you Telkom’s Annual Report 2001 that was flourished by a number of significant

momentums, which gave birth to several strategic steps by Telkom. There have been the abrogation of joint and

cross ownership in some associated companies with Indosat, the buy-out of Dayamitra (KSO partner for Telkom’s

Regional Division VI - Kalimantan) as well as the provision of Voice over Internet Protocol (VoIP) services.

Through the settlement of joint and cross ownership with PT Indosat, the company has now become the majority

shareholder of PT Telkomsel with 77,72% of shares. Telkomsel is a dominant cellular operator in Indonesia with

almost 50% market share. In addition to Telkomsel, the Company also holds majority interest in other associated

companies such as PT Dayamitra Telekomunikasi (90,32%), PT Indonusa Telemedia (57,5%), PT Infomedia Nusantara

(51%) and PT Graha Sarana Duta (99.99%). It is encouraging and at the same time challenging to see that the

transaction has been awarded as Most Innovative M&A Deal by the Finance Asia Achievement Award as a result

of their survey to investors/analysts, and as Best Telecom Restructuring M&A by The Asset.

On top of that, Telkom is now engaged in consolidating resources including restructuring the organization and

personnel, accelerating the settlement of joint operation scheme (KSO), and mapping out value chain business.

The implementation of competence-based human resource management (CBHRM), retention plan, and voluntary

retirement program, for example, would constitute strategic steps to streamline the chubby company so as to

make it more agile and efficient.

M E S S A G E F R O M T H E P R E S I D E N T D I R E C T O R

T O S H A R E H O L D E R S

The strategic actions which have

been taken during the last two

years have brought the company

closer to its vision for entering the

InfoCom business with core

services covering fixed-phone,

mobile, view, internet and total

Dear shareholders,

solution services.

The strategic actions which have been taken during the last two years have steadfastly brought the company

closer to its vision for entering into the overall InfoCom business with core services covering fixed-phone,

mobile, view, internet and total solution services. Through strategic business projects established two years

ago, for instance, the company has been reaping benefits from the integration of systems and services. The

improvement of products has generated more revenues as well as providing customers and users with telephony

and internet based services, internet protocol, cellular and value-added services.

These improvements have been reflected to some extent in the company’s financial performance. In 2001 the

company recorded consolidated net income of Rp 4.25 trillions or increased by 41.20 % compared to the previous

year, and EBITDA of Rp 10.44 trillion, an increase of 28.89% compared to the previous year.

Inspite of the improvements achieved, we are well aware that there are problems which have yet to be resolved

such as the low penetration of fixed telephone density, and the deterioriation of service quality in certain areas.

We are convinced, however, these problems could gradually be overcome through mutual understanding and

team-work, which eventually offers greater benefits to customers, users, partners and shareholders.

It is our belief that the excellent performance in the past, especially in 2001, could not have been achieved

without cooperation and support from parties which have been rendering their valuable contribution to the

company. For those reasons, therefore, I have no slightest hesitation to represent the management to thank all

the customers, employees, shareholders, and partners for their immeasurable contribution to the company.

We look forward to enjoying equal or even stronger support for the years to come so as to enable the company

to get better off and excel to the best in all its business ventures in the interest of the stakeholders.

Bandung, May 10, 2002

Muhammad Nazif

President Director and CEO

Regulatory environment

Telecommunications sector regulations (Law No.36/

1999) that came into effect since September 8, 2000

has opened up business opportunities for network and

services provision in Indonesia as well as liberalized

the market. The Law also omits the organizing body,

by which releases private companies from the

obligation to cooperate with Telkom in providing

telecommunication services.

In 2001, the Minister of Communications issued decrees

No. KM.20/2001 on Telecommunications Network

Provision and No. KM21/2001 on Telecommunications

Services Provision as a follow-up of Law No.36/1999 on

Telecommunications which have underlined that

network or services provision could be possessed by

state owned company (BUMN), municipal government

owned company (BUMD), private company or

cooperative.

Regulatory regime in tariff also constitutes a significant

instrument affecting the company business. In addition

to incentives for investors to enter the business, an

adequate tariff regime would encourage Telkom and its

KSO investors to develop services and infrastructures

plan. On January 29, 2002, the Ministry of

Communications (MoC) issued Decree No.KM.12/2002

concerning the adjustment of Ministry of Tourism, Post

and Telecommunications Decree No.KM.79/PR.301/

MPPT-95 on the Adjustment Procedures for Domestic

Telecommunications Services Basic Tariff, which was

completed with a letter No.PK.304/1/3 PHB-2002

concerning the increase of domestic fixed-line basic

telephone services for the year 2002. Based on the letter,

the increase in tariff for fixed-line basic telephone

services in the next three years would be 45.49% and

for the year 2002 was 15% on average.

Policy and strategy

The implementation of the Law No.36/1999 has driven

the company to adapt to the changing business

environment. It is in this perspective that infrastructure,

customer based service and human resource are to be

consolidated in order to maintain the company’s market

share as well as acquiring and retaining new customers.

The new era of competition in 2003 is on the threshold.

Telkom, by all means, has to accelerate the

transformation process both in organisational area and

business portfolio.

The company has prudently prepared for the imminent

competition era by the deployment of strategic policies

in 2000 and has adopted strategic actions afterward such

as: (i) continuously upgrades and expands the

network in terms of bandwidth, features, and

penetration; (ii) utilizes benefits from the high growth

B U S I N E S S O V E R V I E W

Several predominant factors that have significantly affected the

company’s business in the year 2001 were the regulatory environ-

ment, technology development, customer needs, and the company

ability to adapt to the ongoing changes of environment.

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netwo

“Thanks to the excellent diversity of TELKOM services,I can enjoy the optimal benefit of business opportunities

in the ever increasing competitive environment”

rk improvement

of mobile and data/internet business, by aggressively

develops mobile and internet infrastructure and

services; (iii) focuses on corporate customers; (iv)

rationalizing assets and restructuring associated

companies; (v) maintains its main revenue sources from

fixed telephone; (vi) global connectivity; and (vii)

strategic partnerships.

The company is currently in the process of

transformation to become a full service and network

provider in InfoCom business which is supported by

five basic business pillars covering Phone, Mobile, View,

Internet and Service. To manage these businesses, the

company runs the business on its own as well as through

its associated companies or under partnership scheme.

By applying the transformation process, Telkom expects

to be able to realize its main goals throughout to 2004

in terms of compound annual growth rate (CAGR) of

operating revenues of 25% and market share of the

business in Phone of 85%, Mobile of 45%, View of 43%,

and Internet of 44%.

Development of information and communication

technology

The dynamic telecommunications technology

development is partly shown by a paradigm shift from

voice-based toward data-based technology platform.

Likewise, the development of telecommunications

technology is moving toward the convergence of voice,

data, and image.

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Along with the trend, Telkom is focusing its

development program on three main areas of technology

deployment: transport, access and customer premise

equipment.

In transport technology, Telkom is working out the

backbone network and sets priorities on the

development of Internet Protocol (IP) and optimizes the

nodes of Asynchronous Transfer Mode (ATM). Telkom

collaborates with Cisco-Datacraft to develop IP backbone

nodes in 68 cities throughout the country. In addition,

Telkom also collaborates with Nortel-Astel to optimize

ATM nodes in 10 sites in Java, Sumatra (Medan and

Pekanbaru), and Kalimantan.

Telkom is setting on transmission network

(High Performance Backbone) to support the

development of packet backbone by, among

others, collaborating with Pirelli-Siemens to

deploy fiber optic transmission in Sumatra

using DWDM-8λ laying between Medan and

Bandarlampung. Telkom also plans to

deploy fiber optic cable in Sulawesi and

Kalimantan islands, which is currently in the

evaluation stage of the bidders’ proposal.

Besides, Telkom is in the process to procure

Telkom-2 satellite with 24 transponders C-band

covering from India to Australia to replace Palapa-

B4 satellite, which will expire in 2004.

The settlement of cross and joint

ownerships

The settlement of cross and joint

ownership enables Telkom to hold the

majority interest in Telkomsel, the

leading cellular company in the country

with approximately 50% cellular market

share and customer base of 3.25 million

as of December 31, 2001.

Steps for the overcoming of KSO

problems

The buyout of Dayamitra constitutes an

initial step for overcoming the KSO

problems which will strengthen Telkom

in developing telecommunications

services and network including

improvement of fixed-line teledensity in

Indonesia. The step was followed by the

buyout of Pramindo and Ariawest.

InfoCom superb services have

significantly enhanced business

partnership efficiency.

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“Through utilization of Telkom sophisticatedservices, I can always maintain close relationship

with my loved-ones, even from a distance”.

personalized se

rvice

Access technology is predicted to move quickly along

with the growth of the demand for broader bandwidth

due to the fact that access network remains the basic

platform as well catalyst for the deployment of data

communication in the country. This will lead to the

movement of telecommunications platform toward the

era of data oriented. Meanwhile, wire-line access

technology is designed to provide broadband services

through xDigital Subscriber Line (XDSL) technology or

through Hybrid Fiber Coaxial (HFC) technology, while

wireless technology is directed toward CDMA-1000 1X-

based technology. In supporting the government’s

program for increasing teledensity in the country,

telecommunications network infrastructure that is

compatible with Indonesian geographic condition is

needed. Telkom plans to deploy Fixed Wireless Access

(FWA) - CDMA2000 1X technology which is flexible in

time for infrastructure deployment as well as services.

Telkom expects the government’s support to the plan

by allocating the required frequency-band as well as

numbering plan.

Data-based services are not merely supplements of the

telephone service. In fact, they have become one of the

main vehicles to meet market demand. For such reason,

Telkom has delivered VoIP services with a brand-name

of TelkomSave which is supported by the development

of IP backbone.

2001 Operating Results

For 2001, Telkom booked a consolidated net income of

Rp 4,250.11 billion and earning per share of Rp 421.64

or increased by 41.20% compared to the result of last

year earning per share of Rp 298.61. The contribution

to the growth of net income was mainly the increase in

cellular of 73.36% and interconnections revenues of

41.03%.

Consolidated operating revenues increased by 33.18%

from Rp 12,111.99 billion in 2000 to Rp 16,130.79 billion

in 2001. While the growth of consolidated operating

expenses was 32.35% from Rp 6,433.84 billion in 2000

to Rp.8,515.09 billion in 2001. The difference resulted

in 34.12% increase in operating income from Rp 5,678.15

billion in 2000 to Rp 7,615.70 billion in 2001. While

consolidated earning before tax, depreciation and

amortization (EBITDA) increased from Rp 8,097.2 billion

in 2000 to Rp 10,499.5 billion bilion in 2001.

Nevertheless, EBITDA margin in 2001 was 64.78% or

lower than 2000 figure of 66.85%.

The number of Telkomsel’s cellular subscribers

increased by 92.73% during the last one year, whereas

for fixed wirelines, there were net additional lines in

service (LIS) of 556,333 lines, 4.48% lower compared to

the additional LIS of 582,412 lines in 2000. The increase

in LIS took place in Telkom regions of 339,542 lines

and in KSO regions of 216,791 lines. As of December

31, 2001, total Telkom’s lines in service were 7,218,938

consisting of 3,949,905 lines in Telkom regions and

3,269,033 lines in KSO regions.

1997 1998 1999 2000 2001

0

5,000

15,000

20,000

25,000

30,000

35,000

10,000

Total Assets (Billion Rupiah)

1997 1998 1999 2000 2001

0

1,000

2,000

3,000

4,000

5,000

Net Income (Billion Rupiah)

1997 1998 1999 2000 2001

0

5,000

10,000

15,000

20,000

Total Operatings Revenue (Billion) Services

In line with the change of Telkom’s paradigm in

providing services to its customers, the Company has

accomplished some improvement to the quality of

service. Telkom identifies a zone-20 customers, that

comprise 20% customers contributing approximately

80% revenue for Telkom. To the zone-20 customers,

Telkom applies active management approach, among

others, by encouraging the Company’s account

managers, which are backed-up by virtual account

teams consisting of back-room staff, product owner,

partners and other related functions.

For retail customers, the Company sets up a Service

Level Guarantee (SLG) policy and differentiation of

services which are already implemented in Regional

Division-II (East Java) and Regional Division-V Jakarta.

The policy will also be gradually implemented in all KSO

Divisions (Division I, III, IV, VI dan VII) starting from the

middle of 2002. The Company also offers incentives to

encourage retail customers to utilize less-physical

contact facilities such as call center/phone in, and web

in as well as to reduce customers involvement in

reaching service centers and service points.

Independent assessment on Telkom’s GCG

As part of universal assessment to measure business

practice excellence implemented in the Company, Ernst

& Young has finalized the assessment of Telkom’s Good

Corporate Governance. The conclusion of the

assessment by the year 2001 is as follows.

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Good Corporate Governance Assessment

Assessment of GovernanceGood Needs Improvement Poor

1 2 3 41. Roles and Powers - V -2. Employee Guidelines and Code of Conduct - V -3. Board Appointments - V -4. Board Skills and Resources - V -5. Board Independence - - V6. Business and Community Consultation - V -7. Strategy Setting V - -8. Monitoring Board Performance - V -9. Management Reporting - V -10. Risk Management - V -

Telkom realizes that the results of assessment of Telkom’s

good corporate governance practice were mostly “needs

improvement”. The Company takes these initial results

as an impetus for encouraging all staff to reach the best

practice in operating the business.

(In millions of Rupiah)

For the Years Ended % to % to % to

December 31, 2001 Total 2000 Total 1999 Total

Fixed wirelines 6,415,156 39.77 5,177,864 42.75 4,528,902 48.25

Mobile cellular 5,052,598 31.32 2,914,514 24.06 1,755,222 18.70

Revenue under

joint operation scheme 2,219,586 13.76 2,267,154 18.72 1,677,217 17.87

Interconnection revenues 1,422,170 8.82 1,008,424 8.33 732,510 7.80

Other telecommunication services 1,021,279 6.33 744,040 6.14 691,869 7.37

Total Operating Revenues 16,130,789 100,00 12,111,996 100,00 9,385,720 100,00

Operating Revenues

S T E P S T O W A R D S U C C E S S

Settlement of joint and cross ownershipPursuing the Sales and Purchase Agreement (SPA) signed on April 3,2001 the Company has completed a series of transactions withPerusahaan Perseroan (Persero) PT Indonesian Satellite CorporationTbk (“Indosat”), including the acquisition of 35.0% of the issued andfully paid shares of PT Telekomunikasi Selular (“Telkomsel”) ownedby Indosat.

The parties also agreed that the company sold 22.5% of the issuedand fully paid shares of PT Satelit Palapa Indonesia (“Satelindo”) toIndosat for US$186 million, and sold 37.66% of the issued and fullypaid shares of PT.Aplikanusa Lintasarta (“Lintasarta”) for US$38million.

The agreement also stated the acquisition by Indosat of all of thecompany’s rights, and transfer or novation of all of Company’sobligations, under a joint operating agreement with PT Mitra GlobalTelekomunikasi Indonesia (“MGTI”) dated October 20, 1995, asamended (the “KSO IV Agreement”), and all contracts to which theCompany is a party and which relate to the business of the jointoperating scheme established pursuant to the KSO IV Agreement (the“KSO IV Unit”), together with all other property and assets of theCompany operated and maintained as property and assets of the KSOIV Unit created by the joint operating agreement (the “KSO IV Assets”),for a consideration of US$375 million (the “KSO IV Transaction”). ByJanuary 31, 2002 the KSO-IV transaction has been terminated sincethe terms and conditions required by the SPA could not be fulfilled.

With the completion of the transaction, Telkom holds 77.72% shareof Telkomsel - the leading cellular company in Indonesia.

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Long-term solutions for KSO

On October 20, 1995, Telkom entered into long-term

agreements on joint operation scheme (Kerjasama Operasi

“KSO”) with five KSO investors providing for the transfer

of network development and operational responsibility

in Telkom’s Regional Division I, III, IV, VI and VII to the

KSO investors for15 year period commencing the year

1996 to 2010.

Due to the monetary crisis engulfed the country in 1997

and thereafter, the Government, Telkom, and the KSO

partners came to long-term alternative solutions: (i) KSO

arrangement based on the original agreements and the

Memorandum of Understanding signed on June 5, 1998,

plus new arrangement for additional installed lines; (ii)

establish a joint venture company with TELKOM; (iii)

establish a joint venture company with Indosat; (iv) grant

licence to the KSO investors to be new operators; and (v)

early termination of the KSO agreement.

KSO-I

On February 20, 2002 Telkom and the shareholders of

PT Pramindo Ikat Nusantara (“Pramindo”) - KSO partners

in Regional Division-I Sumatra - signed a Memorandum

of Understanding (MoU) with regard to the acquisition of

100% shares of Pramindo at enterprise value of US$ 425

million. The amount includes outstanding debt of

Pramindo of US$339 million and Pramindo’s equity of

US$86 million. The Company will make an initial payment

of US$ 54 million while the remaining amount will be paid

in installments in ten quarters. On initial closing, 30%

ownership will be taken and at the end of September

2003 additional shares amounting to 15% and another

55% will be owned until end of 2004. The buy out

agreement had been signed on April 22, 2002.

The settlement with respect to the transaction is subject

to the satisfaction of certain conditions set forth in the

Purchase Agreement, including shareholders’ approval.

1997 1998 1999 2000 2001

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Lines in Service (Thousand)

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001

Pulse Production (Billion)

1997

LDC Local

1998 1999 2000 2001

0

10

20

30

40

50

60

70

80

Call Completion Rate (%)

KSO-III

The long-term solution for the problem with PT Ariawest

International (“Ariawest”) – KSO partner for KSO – III West

Java and Banten – is being undertaken in two ways, first

through the International Chamber of Commerce in

Geneva, and second, through negotiation with Ariawest’s

shareholders. On May 8, 2002, the discussion with

Ariawest shareholders has closed by the signing of

Conditional Sales and Purchase Agreement to acquire

Ariawest by PT Telkom.

With the settlement of the KSO-III problems, the

outstanding obstacle in relation to the joint operation

scheme has been eventually overcome.

KSO-IV

As part of the cross and joint ownership settlement with

Indosat, on April 3, 2001 the Company has signed a sales

and purchase agreement (“SPA”) with Indosat for the

transfer of Telkom’s rights, assets and business in KSI-IV

(Central Java and Yogyakarta) to Indosat, for an amount

of US$ 375 million. The closing of the transaction was

subject to 8 (eight) condition precendents: (i) the

completion of the Telkomsel Transaction and Satelindo

Transaction; (ii) the receipt of all necessary approvals from

MGTI; (iii) the resolution to Indosat’s satisfaction of all

disputes relating to the liabilities of the Company under

the KSO IV Agreement and KSO IV Construction

Agreement; (iv) Indosat or its nominee having been

granted a license or authorized by the Government to

own and operate a public switched voice

telecommunications network (fixed line and fixed

wireless) in the Territory; (v) the parties having executed

and delivered to each other a final assets report or having

received a final arbitration award with respect to such

assets; (vi) the novation of certain contracts; (vii) the

execution by the parties of an agreement with regard to

the transfer of employees of the Company assigned to

the KSO IV Unit to Indosat; and (viii) the execution of

certain deeds, assignments, licenses, lease agreements,

interconnection agreements and other agreements.

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Telkom has increased

ownership to become

majority shareholder at

Telkomsel – the largest

cellular phone company

in Indonesia

The sale of assets and business operations of KSO-IV has

terminated due to the unfulfillment of the terms and

conditions agreed in the SPA. As a consequence, KSO-IV

remains under the control of Telkom and KSO partner

PT Mitra Global Telekomunikasi Indonesia (“MGTI”).

KSO-VI

On May 2001 Telkom and PT Dayamitra Telekomunikasi

(“Dayamitra”) closed the transaction of acquiring 90.32%

of Dayamitra for US$.121.93 million plus Dayamitra’s

existing debt obligations of approximately US$88.5

million. In connection with this transaction, the company

would have assumed liability for a portion of debt. The

company has made an initial payment of US$18.29 million

upon completion of the transaction, and will pay the

remaning amount in equal quarterly installments over a

two-year period. Following the closing of the transaction,

Telkom owns 90.32% shares of Dayamitra, and TM

Communications (HK) Ltd. owns the remaining 9.68%

interest.

KSO-VII

Telkom and PT Bukaka SingTel (KSO partner in Region-VII

Eastern Indonesia) tend to continue the KSO schemes in

accordance with the original agreements with certain

modifications which benefit both parties. The Company

has also reached an agreement to construct a series of

lines in service in service in several cities in the region.

Restructuring ownership in associated

companies

PT Telekomindo Primabhakti (“Telekomindo”)

On December 5, 2001 the Company concluded an equity

swap agreement with PT Rajawali Corporation (“Rajawali”),

PT Telekomindo Primabhakti (“Telekomindo”) and

PT Telekomindo Media Informatika (“TMI”) in conjunction

with the sale of the company shares in Telekomindo, TMI,

and PT Graha Insani Primabhakti (“GIP”) to Rajawali for

Rp.146 billion. Meanwhile, the company has acquired

shares of PT Telekomindo Selular Raya (“Telesera”), an

AMPS-based cellular technology which is currently

operating telephone cellular services in East Java region,

and PT Multisaka Mitra (“MSM”), card issuer for TMI, both

for Rp 151 billion. With the completion of the transaction,

the Company holds no more shares in Telekomindo.

PT Telekomindo Selular Raya (“Telesera”)

Following the completion of the share swap transaction,

the Company holds 69.77% shares of Telesera, an AMPS-

based cellular company with 10,012 subscribers as of

December 31, 2001. Telesera will be a vehicle for Telkom

to develop and expand fixed wireless service.

PT Graha Sarana Duta (“GSD”) buy out

Based on Sales and Purchase Agreement dated April 6,

2001, the Company bought 100% of GSD shares from

Koperasi Mitra Duta and Dana Pensiun Bank Duta at Rp

119 billion. The Rp 106.35 billion balance between the

purchase price and the book value was recorded as

goodwill as a purchase method of accounting and to be

amortized in five years. (Refer to Page F-15 on the Notes

on Consolidated Financial Report).

Increased ownership in PT Indonusa Telemedia

(“Indonusa”)

In 2001, the Company had increased its ownership in

Indonusa from the previous 35% into 57.5%, which

amounts Rp 28 billion recorded as goodwill amounting

to Rp 654 million (Refer to page F-14 on the Notes on

Consolidated Financial Report).

PT Tangara Mitrakom (“Tangarakom”) shares selling

In 2001, the Company sold out all of its ownership in

Tangarakom for Rp 232 million. This has been acknowledged

by purchase method of accounting (Refer to page F-14 on

the Notes on Consolidated Financial).

Business projects

The establishment of business projects in 2000 has driven

the company closer toward a complete set of phone,

mobile, view, internet, and service (PMVIS) as well as

generating additional revenues.The progress of each

business project is as follows:

Enterprise business

The project function is to integrate units and product

owners of Telkom’s network and services in order to

deliver integrated solution to corporate customers. The

project was established in light of the increasing demand

for interregional as well as packaged products.

Services delivered by Enterprise Business Project include

Solution for Enterprise Network (SEN) and satellite

transponders. By the date, the customers of the project

include PT Ekacita Dian Persada, PT Pembangkit Tenaga

Listrik Jawa-Bali, PT Bank Mandiri, PT Bank International

Indonesia (BII), BAPEDAL, Dit.Jend. Pajak, PT KAI, PT Heinz

ABC, Mabes POLRI, Otorita Batam, Jamsostek, PT BPD Jabar,

TNI, PT Semen Gresik , PT Federal International Finance

and BAPPENAS.

Pay TV/Cable TV Business Project

In 2001 the Company signed a partnership agreement with

Alcatel to deploy Hybrid Fiber Coaxial (HFC) infrastructure

for concentrated customers of 52.610 homepasseds for

US$ 15 million. While Direct to Home (DTH) infrastructure

is developed for spread customers by using three

transponders of Telkom-1 satellite.

In addition to the infrastructure being developed with

Alcatel, HFC is also being developed by PT Indonusa

Telemedia (“Indonusa”) - Telkom’s subsidiary for 25.876

homepasseds and has been used to deliver services to

5,384 customers in Jakarta and Surabaya.

Telkom and its subsidiary provide pay TV services with

the brand-name of TelkomVision.

Caling Card and Payphone (CCP) Business Project

CCP businees project was established to improve fixed

wireline network utilization, among others, by developing

Calling Card and Payphone services. Caling Card service

is developed using Iintelligent Network (IN) and VoIP-based

technology, while Payphone service is developed through

smart card and Debit/Credit Card Phone. Currently the

business project is in the progress of developing credit

card caling card as a follow-up of Memorandum of

Understanding (MOU) signed by the company and VISA.

Intelligent Network (IN) Business Project

To improve its POTS network utilization in line with the

increase in customer needs for value added services based

on Intelligent Network, IN business project developed

services such as Vote Call and Vote Free with the brand-

name of TelkomVote, in addition to Premiun Call and Free

Call managed by Telkom’s Network Division. Other

services will be launched including Uni Call

(TelkomUnicall), Caling Card (TelkomCard), Virtual Net

(TelkomVirtual), and Split Charging.

Voice over Internet Protocol (VoIP) Business Project

On October 17, 2001 the Government has granted Telkom

a license to operate VoIP service. In 2001 Telkom launched

TelkomSave, through which customers are able to make

international calls.

For the year 2001 the service recorded a revenue of

Rp 17.30 billion from three basic sources of (i) outgoing -

TelkomSave-post-paid of Rp 3.21 billion; (ii) outgoing -

TelkomSave-pre-paid of Rp.5.86 billion; and (iii) incoming

- wholesale trafffic of Rp.8.60 billion.

The service is supported by 22 places of point of presence

(PoP) located in 22 big cities in Indonesia. Investment for

VoIP network for 2001 was Rp. 51,03 billion.

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Best Managed Company

Finance Asia magazine awarded Telkom as one of the

Indonesian Best Managed Companies.

Best Investor Relations from an Indonesian

Company

Investor Relations magazine in their program of Investor

Relations Asia Award, awarded Telkom for Best Investor

Relations by an Indonesian Company.

The achievement of World-class excellence

Telkom reached a score of 406 by Malcolm Baldrige National

Quality Assessment compared to the average 1999-2000 USA

applicants’ score of 415. This was the first year Telkom used

the Baldrige criteria as a basis for achieving world class

excellence and expects to reach higher score in the coming

years.

Independent assessment on Telkom’s Good

Corporate Governance

As part of universal assessment to measure business

practice excellence implemented in Telkom, Ernst & Young

has made an assessment on Telkom’s good corporate

governance practice. The initial assessment is a stepping

stone for Telkom to improve its governance to meet

business practice excellence.

Most Innovative M&A Deal

Awarded Most Innovative M&A Deal to the restructuring of

PT Telkom and Indosat. The transaction allowed Telkom to

gain full control of Indonesia top mobile phone business,

and this is certainly lift up the rating of Telkom stock.

Best Telecom Restructuring M&A

On its December 2001 issue, The Assets asserted the US$

1.9 billion restructuring of PT Telkom and PT Indosat as

Best Telecom Restructuring Merger and Acquisition. The

transaction represents the largest M&A transaction to date

in Indonesia and Telkom has gained control of the leading

cellular company Telkomsel.

Awards

B2B Business Project

In the year 2000 B2B business project has developed e-

community, e-solution, and e-service service. In 2001 the

project came into the second phase of the progress after

completing the installation phase in 2000. The second phase

includes development of main infrastructure and the

development of virtual community through virtual network.

The development of main infrastructure has resulted in

services such as:i-trust (certification authority), e-

fulfillment (including i-logistic and i-payment), and data

center. While the development of virtual community (by

utilizing value added services) resulted in services such

as (i) i-deal SME (virtual community of small and medium

business and cooperatives); (ii) SCM Otomotif; (iii)

Farmation Center (community of chemist); (iv) BUMN-

Online (state-owned enterprises community); (v) E-

procurement (Telkom as a pilot project); and (vi) i-Xchange

(virtual financial community).

International Services Business Project

Telkom established international services project in 2001

to accurately prepare international call service and other

related services. Currently the project is collaborating with

SingTel involving the deployment of radio link between

Singapore and Batam for leased line services. The project

is also preparing regional link with Telecom Malaysia,

Thailand and the Phillipines.

H U M A N R E S O U R C E

HR amount and composition

In line with the changes in business environment, Telkom has set

its new policy on human resource management to prepare more

professional and competent employees to operate and run

InfoCom businesses. The policy encompasses corporate rules and

regulations, competence based human resource management,

retention plan, outsourcing, and voluntary retirement program.

The new corporate rules and regulations were prepared in the

24

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In honing individual

skills, Telkom

conducts a number

of domestic and

overseas intensive

education and

training programs.

light of competitive atmosphere

where rights and obligations of the

employees and the company are

clearly and resolutely stated.

As of December 2001, Telkom

employed 37,422 staff consisting of

18,926 employees in Telkom regions

and 18,496 in KSO regions. A

As of December 31, 2001 13.96% of employees

were university graduate and 26.92% were

graduated from diploma program.

productivity ratio measured

by numbers of fixed lines in

service per employee was

192.91 as of December 31,

2001, while as of December

31, 2000 was 176.70.

Training and development

In 2001, a number of 1,352

employees were studying at local

educations consisting of 71

programs, while 10 employees were

studying at overseas institutions of

10 programs. Meanwhile, a number

of 61,947 employees were

undergoing 986 local training

programs and 228 students were

undergoing 64 overseas training

programs.

For the year 2001, Telkom’s

employees reached an average of

20.69 mandays a year for training and

education. Meanwhile, a number of

117 employees were awarded by the

Government for their high

achievements and 290 were awarded

by the Board of Directors, including

24 employees for outstanding

inventions.

Pension Fund

Telkom established an institution

referred to as Telkom Pension

Foundation (Yayasan Dana Pensiun

Telkom) on December 22, 1982. The

objective of the institution is to

maintain continuity of employees’

post retirement income by providing

program for pension benefit. In line

with the Law No.11/1992 on Pension

Fund, the institution has adjusted its

formal status to Pension Fund (“Dana

Pensiun”) that manages and operates

a defined pension benefit plan.

Sources of the fund are derived from

the company’s contribution as well as

employees’ contribution.

By the end of 2001, participants of the

plan consisted of 37,438 active

members, 13,049 pensioners, 6,810

beneficieries (widows/widowers/

children), and 158 former employees

(term vested).

Medication and health care

services

Telkom also established a Medication

and Healthcare Foundation (Yayasan

Kesehatan Pegawai). The Foundation

engages in providing medication and

healthcare service for all Telkom’s

employees and their eligible

dependants. In addition, the

foundation provides similar service to

Telkom’s pensioners. The company

provides a post retirement health care

plan to all of its pensioners who have

worked for over 20 years and their

eligible dependants, except for

employees who retired prior to June

3, 1995. However, the employees

hired by the Company starting from

November 1, 1995 and their

dependants will no longer be entitled

to this benefit.

Early Retirement Program

In the year 2001, Telkom offered

voluntary early retirement program to

employees based on certain

requirements. In March 2002, the

company approved 1.899 applications

with total benefit and severance of Rp

284.9 billion of which Rp108.6 billion

was paid by the KSO Units.

As a reputable company, Telkom

provides better employment for

today and tomorrow.

TS O C I E T Y D E V E L O P M E N T

Yayasan Sandhykara Putra Telkom (“YSPT”)

The establishment of YSPT on Januari 17, 1980 was initiated

by women’s association of Telkom (Dharma Wanita Telkom)

with an objective to participate in developing social welfare

through education and social activities. By end of 2001,

YSPT has several educational institutions such as one

secondary school (Sekolah Lanjutan Tingkat Pertama/

”SLTP”), one senior high school (Sekolah Menengah Umum/

”SMU”), 3 tourism vocational school (Sekolah Menengah

Kejuruan Pariwisata/”(SMK Par”), 6 telecommunications

vocational schools (Sekolah Menengah Kejuruan

Telekomunikasi/”SMK Tel”), One Academy of Tourism

(Akademi Pariwisata/”Akpar”), and 31 Kindergarten (Taman

Kanak-Kanak). These institutions are operated by involving

816 teachers and staff. As of Desember 31, 2001 the total

registered students were 7,738.

For social developments, YSPT performs various activities

such as scholarship for low-level income community,

development of multi purpose building in under-

developing areas, and other incidental social

contributions. Telkom provides some of the poverty

alleviation fund available in the budget particularly for

education.

Yayasan Pendidikan Telkom (“YPT”)

Telkom Education Foundation (YPT) engages in both

under-graduate and graduate education institution namely

School of Telecommunications Technology (Sekolah Tinggi

Teknologi Telkom/STT TELKOM) and Bandung Institute

of Management (Sekolah Tinggi Management Bandung/

STMB). YPT also has a radio broadcasting station, which

is operated by PT Lintas Kontinental (Radio K-Lite 107,2

FM). These institutions are located in the city of Bandung,

West Java.

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Telkom involves in several social activities such as education, health, andother social welfare, through foundation and partnerships.

STT Telkom

STT TELKOM provides study programs for Strata-1/S-1

(bachelor degree) as well as diploma degree. S-1 degree

provides program of Industrial Engineering, Electrical

Engineering, and Informatics Engineering; while diploma

degree provides programs of Electrical Engineering and

Informatics Engineering. During the last two years, an

average of approximately 6,500 students deliver their

admission yearly. By December 2001, 4,095 students

consisting of 3,016 S-1 students and 1,079 diploma degree

students were studying at STT TELKOM. An approximate

of 3,513 alumni of STT TELKOM are currently working in

the telecommunication industry.

STMB

STMB holds programs of S-1 degree in

Telecommunications and Informatics Management, and

Master in Business Administration. By December 2001, a

number of 422 registered students were studying at Strata-

1 degree and 315 registered students were at master

degree. As of December 31, 2001, STMB has graduated

346 masters of business/magister management.

Partnership With Small and Medium Scale

Business Community

Warung Telekomunikasi/WARTEL (Phone-kiosk)

Individuals and small businesses are eligible to provide

telecommunication services by running phone-kiosk. The

kiosks are considered as the arm-length of TELKOM

services. Such cooperation mutually benefit both parties,

Telkom as well as customers. As of December 31, 2001,

lines in service used for phone kiosks were 282,067 lines

or increased by 23.25% from 228,862 lines as of

December 31, 2000. The increase in the number of phone

kiosks have rendered benefit to individuals and small

businesses in creating revenue and unemployment

reduction.

Small and Medium Business Enterprise Center Project

As an implementation of the Summit Conference XI of 15

Governments’ Declaration in Jakarta on May 25, 2001

which has appointed Indonesia to be coordinator for the

development of Small and Medium Enterprises (SME), the

company together with Bank Rakyat Indonesia and Center

of Development of Small Medium Enterprises (CD-SMEs)

has developed information system and e-commerce

network throughout nine cities. One of the objectives is

to provide integrated services for the SMEs to access the

information, market, standardization, banking,

tecknology and management through SME Center. Telkom

has developed infrastructure and access to information

and communication as well as application of e-commerce

that enables the community to access the web-site:

www.sme-center.com

Museum (Galery) Telekomunikasi (“Mustel”)

Mustel is located in the tourism resort of Taman Mini

Indonesia Indah (TMII) Jakarta and was officially opened

on April 20, 1991. The establishment of Mustel was funded

by PT Telkom (47,14%), PT Indosat (47,14%), and PT Inti

(5,72%). As of December 31, 2001, all 21 staff of Mustel

were Telkom’s employees and remunerated by Telkom.

Other operating expenses are collectively provided by

PT Telkom (45%), PT Indosat (40%) and PT Inti (15%).

Mustel provides facilities for documentation and media

for information exchange on telecommunication

technology. The main mission is to absorb, gather, review,

and distribute information, communication, publicity and

education in relation to the story of telecommunication

in Indonesia, its development and prospects.

Through Mustel, Telkom provides the community with

education and recreation facility by presenting visual aid

as well as information on the history, the development,

and trends of telecommunication technology to visitors.

Telkom believes in the value of education for

shaping a brighter generation

<< Rahardjo Tjakraningrat,Commissioner

<< Bacelius Ruru, Chairman of the Board of Commissioners

Chairman of TELKOM since April 2000. Secretary to the Minister of state-owned enterprise(2001 to date). Chairman of the Jakarta Stock Exchange (2001 to date). Chairman of theJakarta Initiative Task Force since 2000. Chairman of PT Perkebunan IV (1999-2001).Chairman of PT Sucofindo (1998 to date). Deputy Minister of Investment and State-Owned Enterprises in charge for Supervising and Control of the Ministry and formerlyas Deputy for Mining and Agro-Industry Business in the same Ministry (1998-2000).Director General of the State-Owned Enterprise in Ministry of Finance. (1995-1998).Chairman of Capital Market Supervisory Agency in Ministry of Finance (1993-1995).Head of Legal Bureau and Public Relations of the Ministry of Finance (1987 -1993). Incharge of director/head of some directorates/institutions in Ministry of Finance (1975-1993). Graduate of Faculty of Law, University of Indonesia, Jakarta (1975). Harvard LawSchool (1981).

<< Noor Fuad,Commissioner

Commissioner of TELKOM since April 2000.Commissioner of PT Multi Eka Karma (2000 todate). President Director of PT. Multi Eka Karma(1996 to 2000). President Director ofPT Telesarana Adi Prima (1995 to 1997).Director of Finance of PT.BELTDC (1992 to1995). Director of Commercial of PT RajasaHasanah Perkasa/Era Mobitel (1986 to 1991).Graduate of Faculty of Law, University ofIndonesia (1966).

Commissioner of TELKOM since April2000. Head of Training and EducationBoard, Ministry of Finance (2001 todate). Secretary General, Ministry ofFinance (2000-2001).Commissioner ofPT Inhutani III, Ministry of Forestry(1987-1994). Commissioner ofPT Pelabuhan Indonesia I Medan (1995to1998). Senior Executive Advisor inHuman Resources to the PresidentDirector of PT Rajawali Nusindo (1997to date). Commissioner of PT PelabuhanIndonesia III Surabaya (1998 to date).Commissioner of PT PerkebunanNasional VIII Jawa Barat (1999 to date).Commissioner of PT BRI Sanwa - Finance(1999 to date). Graduate of Faculty ofEconomics, Gajah Mada University,Yogyakarta (1972). M.Sc. in PoliticalEconomics, University of Illinois (1986).

>> Purnomo Sidhi,Commissioner

Commissioner of TELKOM sinceApril 2000. Head of Training andEducation Board, Ministry ofCommunication andTransportation (2000 to date).Senior Executive Advisor to theMinister of Communication (1997to date). Indonesian Air ForceOperation Commander II (1996 to1997). Vice Commander I ofIndonesian Air Force Operation(1994 to 1996). Senior ExecutiveAdvisor to the Chief ofIndonesian Air Force (1992 to1993). Graduate of Indonesian AirForce Academy (1968). Air-FlightInstructor School (1977). Schoolof Staff and Commander ofIndonesian Air Force (1985).S.I.D.M.C., USA (1995).

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M A N A G E M E N T P R O F I L E

Commissioner of TELKOM since April2000. Director of Planning andTechnology of PT TELKOM (1996-2000),Vice President of Corporate andTechnological Planning of PT TELKOM(1995-1996), General Manager ofCorporate Planning of PT TELKOM (1993-1995).Head of the North Jakarta RegionalTelecommunication Office (1991-1993).Head of the Kebayoran Baru ServiceOffice (1990-1991). Graduate of ElectricalEngineering, Trisakti University, Jakarta(1983). Master of Science, AmericanWorld University (1998).

>> Andi Siswaka Faisal,Commissioner

<< Muhammad Nazif, President Director and CEO

>> KomarudinSastrakoesoemah,

Director of Operations &Marketing

<< Kristiono, Director ofPlanning & Technology

President Director of TELKOM since April 2000, Vice Rector, University of Indonesia(1994-2000). Executive Director Islamic Development Bank (1990-1991). Member ofDeregulation Team, Ministry of Finance (1990-1993). Member of Efficiency ImprovementTeam of State-Owned Enterprises, Ministry of Finance (1989-1991). President DirectorBank Umum Koperasi Indonesia (1985-1989). Executive Director Bank Duta Ekonomi(1972-1979). Citibank (1968). Graduate of Economics Faculty, University of Indonesia(1973). MBA, Katholieke University, Leuven, Belgium (1981).

>> Mursyid Amal,Director of Finance

Director of Finance of TELKOMsince April 2000. Chairman ofLogistic Assistance Group,TELKOM Corporate Office (1997 -2000). Logistic General ManagerTELKOM (1995-1997). LogisticGeneral Manager TELKOM, JakartaRegional Division (1992-1995).Magister Management (MM).,Bandung School of Management(1997). Graduate of EconomicsFaculty, Islamic University ofNusantara, Bandung (1986).

Director of Operations and Marketing ofTELKOM since April 2000. Head ofTELKOM’s Development Division (1997-2000). Member of Blue Print DevelopmentTeam, Directorate General Post andTelecommunications (1999). Member ofKSO Development Team (1994-1995). Chiefof Regional Division IX Kalimantan (1992-1993). Graduate of Electrical Engineering,Bandung Institute of Technology, Bandung(1976).

<< Taufik Akbar, Directorof Human ResourcesDevelopment

Director of Planning and Technology ofTELKOM since April 2000. Head of TELKOM’sRegional Division V, East Java (1995-2000).Head of TELKOM’s Project IV (1992-1995).General Manager of TELKOM’s LogisticDepartment (1990-1992). Deputy ofTelkom’s Chief Regional Division VIIIDenpasar (1989- 1990). Technical Manager,PT Telkom (1978- 1989). Graduate ofElectrical Engineering, Surabaya Institute ofTechnology, Surabaya (1978).

Director of Human ResourcesDevelopment of TELKOM sinceApril 2000. President Director ofPT Aplikanusa Lintasarta (1994-2000).Executive General Manager for PalapaSatellites Operation of TELKOM(1992-1993) . Genera l ManagerTelecommunication Planning of TELKOM(1990-1992) . Manager Sate l l i teTransmission Planning of TELKOM (1983-1989). Astronaut Training for IndonesianCandidate (Payload Specialist) NASA,Houston, Texas (1986). Graduate ofElectrical Engineering, Bandung Instituteof Technology, Bandung (1975).Telecommunications ManagementCourse, Vancouver, Canada (1991).

TELKOMCorporate

Division I Sumatra

Division II Jakarta

Division III West Java

Division IV Central

Division V East Java

Division VI Kalimantan

Division VII Eastern Part of

Indonesia

Network Division

Multimedia Division

DayamitraGraha Sarana Duta

IndonusaInfomediaTelkomsel

Telesera

Citra Sari MakmurKomselindo

Menara JakartaMetroselMobisel

Multimedia NusantaraNapsindo

Pasifik Satelit NusantaraPatrakom

BabintelBangtelindo

Ratelindo

Information System Division

Training Division

Property Division

Development Division

Repair Division

Research & Development

Division

Enterprise

Cable TV

Calling Card & Payphone

Intelligent Network

VoIP

Business to Business

International Business

Core Division Support Division Business Projects Affiliated & Subsidiary

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T E L K O M ’ S B U S I N E S S P O R T F O L I O

The following table depicts Telkom’s ownership in associated companies as of December 31, 2001:

Telkom s Company Name Ownership Business Operations

(%)

Percentage of ownership more than 50%:

PT Dayamitra Telekomunikasi (“Dayamitra”) 90.32 Telecommunications (KSO-VI Kalimantan)PT Graha Sarana Duta (“GSD”) 99.99 PropertyPT Indonusa Telemedia (“Indonusa”) 57.50 Multimedia (Pay TV, internet)PT Infomedia Nusantara (“Infomedia”) 51.00 Telecommunications information servicesPT Telekomunikasi Selular (“Telkomsel”) 77.72 Telecommunications (GSM cellular)PT Telekomunikasi Selular Raya (“Telesera”) 69.77 Telecommunications (AMPS cellular)

Percentage of ownership between 20% to 50%

PT Citra Sari Makmur (“CSM”) 25.00 VSAT and consulting servicesPT Komunikasi Selular Indonesia (“Komselindo”) 35.00 Telecommunications (AMPS cellular)PT Menara Jakarta 20.00 Infrastructure for multimedia servicesPT Metro Selular Indonesia (“Metrosel”) 20.17 Telecommunications (AMPS cellular)PT Mobile Selular Indonesia (“Mobisel”) 25.00 Telecommunications (NMT-450 cellular)PT Multimedia Nusantara 31.00 MultimediaPT Napsindo Primatel Internasional (”Napsindo”) 32.00 Network Access PointPT Pasifik Satelit Nusantara (“PSN”) 22.57 Satellite transponder and communicationsPT Patra Telekomunikasi Indonesia (“Patrakom”) 30.00 Telecommunications (VSAT)

Percentage of ownership less than 20%

PT Batam Bintan Telekomunikasi (“Babintel”) 5.00 Telecommunications(in Batam and Bintan islands)

PT Pembangunan Telekomunikasi Indonesia(“Bangtelindo”) 3.18 Construction and consultingPT Radio Telepon Indonesia (“Ratelindo”) 12.86 Telecommunications (fixed wireless)

A S S O C I A T E D C O M P A N I E S

PT Telekomunikasi Indonesia, TbkCORPORATE OFFICEJl. Japati No. 1, Bandung 40133Tel: (022) 4521108, Fax: (022) 4521408

CORE DIVISION

Regional Division I Sumatera

Jl. Prof. H.M. Yamin, SH. No. 2, Medan 20111

Tel: (061) 4151747

Fax: (061) 4150747

Regional Division II Jakarta

Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710

Tel: (021) 5215100

Fax: (021) 5202733

Regional Division III West Java

Jl. W.R. Supratman No. 66

Bandung 40261

Tel: (022) 4523801

Fax: (022) 7206541

Regional Division IV Central Java

Jl. Pahlawan No.10, Semarang 50241

Tel: (024) 8302312

Fax: (024) 8302313, 449980

Regional Division V East Java

Jl. Ketintang No. 156, Surabaya 60231

Tel: (031) 8286000

Fax: (031) 8286080

Regional Division VI Kalimantan

Jl. M.T. Haryono No. 169, Balikpapan 76114

Tel: (0542) 873500

Fax: (0542) 873040

Regional Division VII Eastern part of Indonesia

Jl. A.P. Pettarani No.2, Makassar 90221

Tel: (0411) 330777

Fax: (0411) 869889, 330977

Network Division

Jl. Japati No. 1, 2nd Floor

Bandung 40133

Tel: (022) 4522315

Fax: (022) 4522321

SUPPORT DIVISION

Training Division

Jl. Gegerkalong Hilir No. 47

Bandung 40152

Tel: (022) 2013930, 2013238

Fax: (022) 2014429

Research and Development Division

Jl. Gegerkalong Hilir No. 47

Bandung 40152

Tel: (022) 2014403

Fax: (022) 2014669

Property Division

Jl. Cisanggarung No. 2

Bandung 40133

Tel: (022) 4521630

Fax: (022) 4521631

Repair Division

Jl. Japati No. 1, 4th Floor

Bandung 40133

Tel: (022) 7206520

Fax: (022) 4524125

Information System Division

Jl. Japati No. 1, 4th Floor

Bandung 40133

Tel: (022) 4524227

Fax: (022) 7201890

Development Division

Jl. Japati No. 1, 6th Floor

Bandung 40133

Tel: (022) 4525441

Multimedia Division

Jl. Kebon Sirih No.37, Jakarta 10340

Tel: (021) 3160500

Fax: (021) 3160300

C O N T A C T I N F O R M A T I O N

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Investor Relations Unit

Jl. Japati No. 1, 7th Floor, Bandung 40133

Tel: (62-22) 4527337 Fax: (62-22) 7104743

INDEPENDENT AUDITOS’ REPORT 40

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2000 and 2001

and for each of the three years

in the period ended December 31, 2001

Consolidated Balance Sheets 51

Consolidated Statements of Income 53

Consolidated Statements of Changes in Equity 54

Consolidated Statements of Cash Flows 57

Notes to Consolidated Financial Statements 59

F I N A N C I A L S T A T E M E N T S

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Annual Report for the year 2001

Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk

is signed by the Board of Commissioners and Board of Directors

on May 10, 2002

Rahardjo TjakraningratCommissioner

Bacelius RuruChairman

H. Noor FuadCommissioner

Purnomo SidhiCommissioner

Andi Siswaka FaisalCommissioner

Komarudin SastrakoesoemahDirector

Muhammad NazifPresident Director

Mursyid AmalDirector

Taufik AkbarDirector

KristionoDirector