P.T. Telekomunikasi Indonesia Tbk. (TLK), popularly known as TELKOM, is the leading provider of telecommunications services in Indonesia. Fixed-line telephone services (mainly local and domestic long-distance) are offered through seven regional divisions operating across Indonesia. Cellular services are offered through TLK's 65%-owned subsidiary, Telkomsel (Singapore Telecommunications Ltd. owns the remaining 35%). TLK also provides data and Internet, interconnection, network, and other telecommunication services. The company went public in 1995, but the Indonesian government still owns 51% of TLK. At the end of 2006, the company had approximately 8.7 million fixed lines in service (with 4.6 million "fixed wireless" lines) and 38.9 million cellular subscribers. The fixed wireless business, which is marketed under the brand name "TELKOMFlexi is being offered in selected cities as a low-cost alternative to converged wireless/fixed-line service. TELKOMFlexi provides customers the ability to use wireless handsets with limited mobility (within a local area code). In July 2004, the company launched a broadband Internet access service known as "SPEEDY". Currently, there are over 38,000 broadband subscribers.
Telkomsel Primary Growth Driver: Favorable industry trends are expected to sustain robust growth in the wireless business (Telkomsel) for the next several years. Both fixed-line and mobile phone penetration in the country are still very low (< 20%), leaving plenty of opportunities for subscriber growth. Wireless services are increasingly popular as a result of declining handset prices, attractive service plans and improving network coverage. Telkomsel is the largest mobile communication provider in Indonesia with a subscriber base of 38.9 million at the end of fiscal 2006, up 44.3% over the same period in 2005. Additionally, Telkomsel's EBITDA margin has held up well in the face of increasing competition due to its significant economies of scale. Telkomsel remains the wireless leader in Indonesia with more than 50% market share (based on the number of subscribers).
New Expansion: Telkom (fixed line unit) has launched a new satellite to support the demand for voice, video, and data. The company also entered into interconnection agreements with both Hutchison CP Telecommunication and Indosat, respectively. These initiatives will create much needed bandwidth and connectivity for the company's fixed line subscribers. On the mobility side, Telkomsel won a 5Mhz 3G spectrum license from the Indonesian government for 5 years. Total value of this license was Indonesian Rupiah (IDR) 2 trillion. Telkomsel has started establishing a 3G network and is likely to offer 3G services in 2007. The company has decided to further expand the SPEEDY' service to 22 more cities with lower pricing plans in order to counter increasing competition and to maintain its market share.
Potential Acquisitions: The Company has expressed continued interest in acquiring an ownership stake in a telecommunications operator based in one of its neighboring countries (possibly Bangladesh, India or Sri Lanka). Given the low wireless penetration levels in these markets, we see significant potential for long-term growth from such a strategy.