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**SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**Form 20-F/A****(AMENDMENT NO. 2)**
**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF****THE SECURITIES EXCHANGE ACT OF 1934** **For the fiscal year ended December 31, 2002****Commission file number 1-14406**

**Perusahaan Perseroan (Persero)****P.T. Telekomunikasi IndonesiaTbk.**(Exact name of Registrant as specified in itscharter)
**Telecommunications Indonesia****(a state-owned public limited liabilitycompany)**(Translation of Registrant’s name intoEnglish)

**Republic of Indonesia**(State or other jurisdiction of incorporation ororganization)
**Jalan Japati, 1****Bandung 40133****Indonesia****(62) (21) 521-5109***(Address of Registrant’s principal executiveoffices)

    Securities registered or to be registeredpursuant to Section 12(b) of the Act.     **Title of****Name of each exchange on****Each class****which registered**American Depositary Shares representing    Series B Shares, par value 500 Rupiah per share      New York Stock Exchange Series B Shares, par value 500 Rupiah per    share      New York Stock Exchange** 
    Securities registered or to be registeredpursuant to Section 12(g) of the Act.None
    Securities for which there is a reportingobligation pursuant to Section 15(d) of the Act.None
    Indicate the number of outstanding shares of eachof the issuer’s classes of capital or common stock as ofthe close of the period covered by the annual report:   Series A Shares, par value 500 Rupiah per    share     1    Series B Shares, par value 500 Rupiah per    share     10,079,999,639    
    Indicate by check mark whether the registrant(1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and(2) has been subject to such filing requirements for thepast 90 days.
Yes    No X 
    Indicate by check mark which financial statementitem the Registrant has elected to follow.
Item 17   Item 18  X 
  * Investor Relations Unit, Graha Citra Caraka, Jl.    Gatot Subroto, No. 52, 5th Floor, Jakarta 12570.    ** The Series B Shares were registered in    connection with the registration of the American Depositary    Shares. The Series B Shares are not listed for trading on    the New York Stock Exchange.    

**TABLE OF CONTENTS**
TABLE OF CONTENTSDEFINITIONSFORWARD LOOKING STATEMENTSCONVENTIONSPART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLEITEM 3. KEY INFORMATIONITEM 4. INFORMATION ON THE COMPANYITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTSITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONSITEM 8. FINANCIAL INFORMATIONITEM 9. THE OFFER AND LISTINGITEM 10. ADDITIONAL INFORMATIONITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESPART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSITEM 15. CONTROL AND PROCEDURESITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTITEM 16B. CODE OF ETHICSITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESPART IIIITEM 17. CONSOLIDATED FINANCIAL STATEMENTSITEM 18. CONSOLIDATED FINANCIAL STATEMENTSITEM 19. EXHIBITSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY --(Continued)CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY --(Continued)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSEx-4.1 Agreement Sale & Purchase dated Apr 3,2002Settlement Agreement, dated July 31, 2003Credit Agreement, dated July 31, 2003Ex-4.4 1st Amendment Conditional Sale and PurchaseEX-4.5 Conditional Sale & Purchase AgreementEX-4.6 Conditional Sale & Purchase AgreementEx-4.7 Conditional Sale & Purchase AgreementEx-4.8 Cooperation Agreement,dated Sept.3, 2002Ex-4.11 Master Procurement Partnership AgreementEx-4.12 Am#1 to the Master Procurement PartnershipEx-4.13 Service Level Agreement,dated Dec.23, 2002Ex-4.14 Loan Agreement, dated Aug.27, 2003Ex-4.15 Master Procurement Partnership AgreementEx-4.16 Service Level Agreement, dated Dec.23,2002Ex-4.17 Master Procurement Partnership AgreementEx-4.18 Service Level Agreement, Aug.26,2003Ex-4.19 Partnership Agreement, dated Sept.24,2003Ex-4.21 Am#1 to the Development Contract,Aug.22/02Ex-4.22 Am#2 to the Development Contract,Oct.25/02Ex-4.23 Am#3 to the Development Contract,Dec.20/02Ex-4.24 Am#4 to the Development Contract,Mar.20/03Ex-4.25 Am#5 to the Development Contract,June26/03Ex-4.26 Master Procurement Partnership AgreementEx-4.27 Partnership Agreement, November 12, 2003Ex-4.28 Contract Agreement, dated Dec.18, 2003Ex-4.29 Side Letter to Partnership AgreementEx-4.30 Am#1 to Partnership Agreement, Sept.27/02Ex-4.31 Am#2 to Partnership Agreement, Dec.30/02Ex-4.32 Supply Contract, dated Nov.27,2002Ex-4.33 Cable Network Construction & Main. AgmtEx-4.34 Amended & Restated KSO Agreement,Jan.20/04Ex-4.35 Service Level Agreement, March 24,2003Ex-4.36 Indemnity Agreement, dated Feb.9,2004Ex-12.1 Certification Pursuant to Section 302Ex-12.2 Certification Pursuant to Section 302Ex-13.1 Certification Pursuant to Section 906Ex-13.2 Certification Pursuant to Section 906

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**TABLE OF CONTENTS**       **Page**EXPLANATORY NOTE      1 DEFINITIONS      3 FORWARD LOOKING STATEMENTS      8 CONVENTIONS      8 **PART I**    Item  1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND    ADVISERS*      9 Item  2.     OFFER STATISTICS AND EXPECTED TIMETABLE*      9 Item  3.     KEY INFORMATION      9 Item  4.     INFORMATION ON THE COMPANY      24 Item  5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS      66 Item  6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES      126 Item  7.     MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS      134 Item  8.     FINANCIAL INFORMATION      142 Item  9.     THE OFFER AND LISTING      143 Item 10.     ADDITIONAL INFORMATION      146 Item 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT    MARKET RISK      159 Item 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY    SECURITIES*      162 **PART II**    Item 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES      162 Item 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY    HOLDERS AND USE OF PROCEEDS      162 Item 15.     CONTROL AND PROCEDURES      162 Item 16.     RESERVED      164 **PART III**    Item 17.     CONSOLIDATED FINANCIAL STATEMENTS      165 Item 18.     CONSOLIDATED FINANCIAL STATEMENTS      165 Item 19.     EXHIBITS      165 

* Omitted because the item is not applicable.    
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**EXPLANATORY NOTE**
     TELKOM was unable to meet its June 30, 2003deadline to file a fully compliant Annual Report onForm 20-F for 2002 because the audit firm it had originallyappointed to perform its 2002 audit was not qualified for SECpurposes, and TELKOM’s SEC-qualified 2002 auditors, KAPDrs. Hadi Sutanto & Rekan, the member firm ofPricewaterhouseCoopers in Indonesia (“PwC”), did notbegin their audit work until their appointment in July 2003.TELKOM filed a non-compliant Annual Report on April 17,2003 and then filed Amendment No. 1 to the Annual Report onJune 11, 2003 to:
 • remove the 2002 reports of TELKOM’s prior    auditors, KAP Eddy Pianto, and the auditors of TELKOM’s    subsidiary, Telkomsel;      • identify the consolidated financial statements    therein for 2002 as “unaudited” and indicate that    TELKOM’s consolidated financial statements therein for 2002    had not been audited by an independent accounting firm qualified    in accordance with SEC requirements;      • furnish an explanation of the foregoing;      • describe the review by the SEC’s Division of    Corporation Finance of TELKOM’s Annual Report on    Form 20-F for 2002 and of TELKOM’s public statements    regarding its annual report, and the referral of those matters    to the SEC’s Division of Enforcement;      • discuss the material consequences of the    deficiencies in its Annual Report on Form 20-F for 2002, of    TELKOM’s public statements regarding such Annual Report and    of an SEC enforcement action regarding the same; and      • describe TELKOM’s plan to bring its Annual    Report into full compliance with applicable SEC regulations.    
     The purpose of this Amendment No. 2 to theAnnual Report for 2002 is to file a compliant Form 20-Fwith audited consolidated financial statements as of and for theyears ended December 31, 2000, 2001 and 2002 and to modifycertain disclosures. This Amendment No. 2 to the AnnualReport contains restated consolidated financial statements forthe three years ended December 31, 2002, together with thereports of Telkom’s independent auditors with respectthereto, and restated selected financial information as of andfor the years ended December 31, 1998 and 1999. Suchrestated consolidated financial statements and selectedfinancial information reflect certain adjustments and modifycertain disclosure to the notes from the previously filedunaudited consolidated financial statements as of and for theyear ended December 31, 2002, and the previously filedaudited consolidated financial statements as of and for theyears ended December 31, 2000 and 2001 and selectedfinancial information as of and for the years endedDecember 31, 1998 and 1999. These adjustments, which aredescribed in detail in Notes 4 and 57(3)to theconsolidated financial statements and Item 5. Operating andFinancial Review and Prospects — Restatement ofInformation Previously Reported, give effect to the followingkey items:
 • corrections to the Indonesian GAAP consolidated    financial statements primarily relating to the accounting for    long service awards, deferred taxes, and business acquisitions,    as well as the assumptions underlying TELKOM’s    post-retirement healthcare plan; and      • additional corrections for U.S. GAAP    purposes primarily relating to accounting for installation    revenue, deferred taxes, revenue sharing arrangements and    business acquisitions.    
     Under TELKOM’s restated audited consolidatedfinancial statements, TELKOM’s consolidated net incomeunder Indonesian GAAP decreased by 3.7% for 2002, 4.3% for 2001and 7.8% for 2000 from consolidated net income previouslyreported and TELKOM’s consolidated stockholders’equity under Indonesian GAAP decreased by 8.1% as ofDecember 31, 2002, 2.6% as of December 31, 2001 and2.9% as of December 31, 2000 from consolidatedstockholders’ equity previously reported. See Item 5.Operating and Financial Review and Prospects.
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     Because of the foregoing and because this AnnualReport was filed after the June 30, 2003 deadline, TELKOMmay face an SEC enforcement action under U.S. securitieslaw and incur other legal liability and adverse consequencessuch as a delisting of its ADSs from the New York StockExchange. In addition, the staff of the SEC has described apress release that TELKOM issued and furnished to the SEC onForm 6-K in May 2003 as “grossly understating thenature and severity of the staff’s concerns” regardingmatters related to TELKOM’s filing of a non-compliantAnnual Report. Such press release could also form the basis ofan SEC enforcement action and other legal liability. TELKOMcannot at this time predict the likelihood or severity of an SECenforcement action or any other legal liability or adverseconsequences.
     Except as required to reflect the effects of therestatements of our consolidated financial statements or asotherwise expressly stated herein, this Amendment No.2 to AnnualReport is not intended to, and does not, update, in any materialrespect, the disclosure contained in TELKOM’s originalForm 20-F filed on April 17, 2003. The disclosurecontained in such original Form 20-F is restated herein forthe convenience of the reader. Furthermore, in order to preservethe nature and character of such disclosure and except asrequired to reflect the effects of the restatements of ourconsolidated financial statements or as otherwise expresslystated herein, such disclosure relates primarily to eventsoccurring on or prior to December 31, 2002 and not as of alater date. Accordingly, events may have taken place since suchdate that would have been required to be reflected in thisfiling had they taken place prior to such date.
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**DEFINITIONS** “ADS”    American Depositary Share, which is a certificate    (known as an ADR) being traded on a U.S. securities market    (such as New York Stock Exchange) representing a number of    foreign shares. One ADS of TELKOM represents twenty of    TELKOM’s Series B shares. The ratio of shares to ADS    is 20:1.     “ADSL”    (Asymmetric Digital Subscriber Line) is 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.     “AMPS”    (Advanced Mobile Phone System) is an analog    mobile cellular system standard.     “ARPU”    (Average Revenue Per User) serves as an    evaluation statistic in connection with a network    operator’s subscriber base.     “ASR”    (Answer to Seizure Ratio). See “Call    Completion Rate”.     “ATM”    (Asynchronous Transfer Mode) is a transfer mode    in which the information is organized into cells. It is    asynchronous in the sense that the recurrence of cells    containing information from an individual user is not    necessarily periodic.     “B2B”    (Business-to Business Electronic Commerce) is a    technology-enabled application environment to facilitate the    exchange of business information and automate commercial    transaction designed to automate and optimize interactions    between business partners.     “backbone”    refers to 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”    refers to the capacity of a communications link.     “BTS”    (Base Transceiver Station) refers to equipment    that transmits and receives radio telephony signals to and from    other telecommunication systems.     “call completion rate”    is the percentage of calls that are successfully    completed, as measured by the number of calls successfully    answered divided by the number of call attempts that are    recognized by the caller’s local exchange, in the case of    call completion rates for local calls, and call attempts that    are recognized by the trunk exchange, in the case of call    completion rates for long-distance calls. Call completion rate    is measured by the answer to seizure ratio, or “ASR”.     “capacity utilization”    refers to the ratio of lines in service to local    exchange capacity or installed lines.     “CDMA”    (Code Division Multiple Access) is a wide-band    spread- spectrum network technology.    
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 “DCS 1800”    (Digital Communication System) is a mobile    cellular system using GSM technology operating in the 1800Mhz    frequency band.     “DGPT”    is the Director General of Post and    Telecommunications.     “distribution point”    is the point of interconnection between the    dropwire and the secondary cable running to a cabinet and/or a    local exchange.     “DLD”    refers to domestic long-distance    telecommunications services such as long-distance telephone    calls and leased lines services.     “downlink”    refers to the receiving portion of a satellite    circuit extending from the satellite to the Earth.     “dropwire”    is the wire connecting the subscriber’s    premises to the distribution point.     “DTR”    (Distributable TELKOM Revenues) is the monthly    revenue share payable by each KSO Unit to TELKOM under the KSO    Agreements, being a specified percentage of total KSO revenues    in a KSO Unit after deduction of specified KSO operating    expenses and MTR.     “dual band”    refers to the capability of a mobile cellular    network and mobile cellular handsets to operate across two    frequency bands, for example GSM 900 and GSM 1800.     “duopoly system”    is a system allowing only two national operators,    which in Indonesia’s case are Telkom and Indosat, to    provide fixed-line telecommunication services.     “earth station”    is the antenna and associated equipment used to    receive or transmit telecommunication signals via satellite.     “existing installations”    refer to telecommunications facilities, including    telephone lines, network infrastructure and related assets in    existence in each KSO Division as of the beginning of each KSO    Period plus certain facilities and equipment constructed or    installed by TELKOM in the KSO Units after such dates to be    managed by a KSO Investor.     “fixed cellular”    refers to a form of fixed wireless technology    which uses conventional cellular network configurations to link    a subscriber at a fixed location to a local exchange.     “fixed wireless”    refers to a local wireless transmission link    using cellular, microwave or radio technology to link a    subscriber at a fixed location to a local exchange.     “fixed wireline”    refers to a fixed path (wire or cable) linking a    subscriber at a fixed location to a local exchange, usually with    an individual phone number.     “frame relay”    is a packet-switching protocol (in which messages    are divided into packets before they are sent) for connecting    devices on a computer network that spans a relatively large    geographical area.     “Government”    refers to the Government of the Republic of    Indonesia.    
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 “GPRS”    (General Packet Radio Service) is 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) is a    European standard for digital cellular telephone.     “IDD”    (International Direct Dialing) is a service that    allows a subscriber to make an international call without the    assistance or intervention of an operator from any telephone    terminal.     “installed lines”    refer to complete lines fully built-out to the    distribution point and ready to be connected to subscribers.     “intelligent network” or “IN”    is 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.     “ISDN”    (Integrated Services Digital Network) is a    network that provides end-to-end digital connectivity and allows    simultaneous transmission of voice, data and video and provides    high-speed internet connectivity.     “Kbps”    (Kilobits per second) is a measure of speed for    digital signal transmission expressed in thousands of bits per    second.     “KSO”    (Kerjasama Operasi) or Joint Operating Scheme, is    a unique type of Build, Operate and Transfer arrangement with a    consortium of partners in which the consortium invests and    operates TELKOM facilities in regional divisions. The consortium    partners are owned by international operators and private    domestic companies, or in cases where TELKOM has acquired the    consortium partner, by TELKOM.     “KSO Agreements”    refer to the agreements, as amended from time to    time, governing the operation of the network in the relevant KSO    region for the KSO Period.     “KSO Period”    refers to period covered by the KSO Agreement.     “KSO Unit”    refers to a regional division of TELKOM managed    and operated — pursuant to the relevant KSO Agreement.     “leased line”    is a dedicated telecommunications transmissions    line linking one fixed point to another, rented from an operator    for exclusive use.     “lines in service”    refer to revenue-generating lines connected to    subscribers, including payphones, but not including mobile    cellular subscribers or lines used internally by TELKOM.     “local call”    is the call among subscribers in the same    numbering area without any prefix number being required.     “local exchange capacity”    refers to the aggregate number of lines at a    local exchange connected and available for connection to outside    plant.    
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 “MHz”    (Megahertz) is a unit of measure of frequency. 1    MHz is equal to one million cycles per second.     “microwave transmission”    is a transmission consisting of electromagnetic    waves in the radio frequency spectrum above 890 million    cycles per second and below 20 billion cycles per second.     “MoC”    refers to the Ministry of Communications.     “Modern License”    is an operational license, contemplated in the    Telecommunication Law, which replaces the existing operational    license for basic telecommunications services.     “MoF”    refers to the Ministry of Finance.     “MTR”    (Minimum TELKOM Revenues) is the specified    minimum amount payable monthly by each KSO Unit to TELKOM under    the KSO Agreements.     “NMT-450”    (Nordic Mobile Telephone) is a form of analog    mobile cellular service primarily installed in vehicles.     “optical fiber”    refers to cables using optical fiber and laser    technology whereby modulating light beams representing data are    transmitted through thin filaments of glass.     “outside plant”    is the equipment and facilities used to connect    subscriber premises to the local exchange.     “PBH”    (Pola Bagi Hasil) is a type of Build, Transfer    and Operate arrangement scheme between TELKOM and domestic    private companies. Under this scheme the private company invests    in the telecommunication facilities to be operated by TELKOM.     “PSDN”    (Packet Switched Data Networks) is a network    using a switch device and sending packets of data through the    network to some remote location.     “PSTN”    (Public Switched Telephone Network) is a    telephone network operated and maintained by TELKOM and the KSO    Units for and on behalf of TELKOM.     “satellite transponder”    is the radio relay equipment embedded on a    satellite that receives signals from earth and amplifies and    transmits the signal back to earth.     “SIM” or “SIM card”    (Subscriber Identity Module) is a    “smart” card designed to be inserted into a mobile    cellular telephone that uniquely identifies a GSM network    subscription and that contains subscriber-related data such as    phone numbers, service details and memory for storing messages.     “SMS”    Short Messaging Service, a technology allowing    the exchange of text messages between mobile cellular phones.     “switch”    is 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.    
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 “trunk exchange”    is a switch that has the function of connecting    one telephony switch to another telephony switch, which can be    either a local or trunk switch.     “USO”    (Universal Service Obligation) is the service    obligation imposed by the Government on all providers of    telecommunications services for the purpose of providing public    services in Indonesia.     “VoIP”    (Voice over Internet Protocol) is a means of    sending voice information using the Internet Protocol.     “VSAT”    (Very Small Aperture Terminal) is a relatively    small antenna, typically 1.5 to 3.0 meters in diameter, placed    in the user’s premises and used for two-way communications    by satellite.     “WAP”    (Wireless Application Protocol) is an open and    global standard of technology platform that enables mobile users    to access and interact with mobile information services such as    e-mail, Web sites, financial information, on-line banking,    information and entertainment (infotainment), games and micro    payments.    
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**FORWARD LOOKING STATEMENTS**
     This document contains certain forward lookingstatements within the meaning of Section 27A of theSecurities Act of 1933, as amended (the “SecuritiesAct”), and Section 21E of the Securities Exchange Actof 1934, as amended (the “Exchange Act”), and thePrivate Securities Litigation Reform Act of 1995, with respectto the financial condition, results of operations and businessof Perusahaan Perseroan (Persero) P.T. TelekomunikasiIndonesia (“TELKOM” or the “Company”) andits subsidiaries and certain plans and objectives of the Companyor the Company and its subsidiaries, wherever applicable, withrespect to these items — in particular, among otherstatements, certain statements in “Item 5. Operatingand Financial Review and Prospects” including, withoutlimitation, those concerning the Company’s expectations andplans, strategy, management’s objectives, trends in marketshares, market standing, overall market trends, risk management,exchange rates and revenues and general and administrationexpenses, and forward looking statements concerning theCompany’s operations, performance and financial condition.Such statements can be generally identified by the use of termssuch as “believes,” “expects,”“may,” “will,” “would,”“could,” “plans,” or“anticipates,” and the negatives of such terms orcomparable terms. By their nature, forward looking statementsinvolve risk and uncertainty because they are related to eventswhich depend on circumstances that will occur in the future.There are a number of factors that could cause actual resultsand developments to differ materially from those expressed orimplied by these forward looking statements. Importantinformation regarding risks and uncertainty is set forthelsewhere in this annual report, including in“Item 3.D. Risk Factors”, “Item 5.E.Off-Balance Sheet Arrangements”, “Item 5.F.Tabular Disclosure of Contractual Obligations” and“Item 11. Quantitative and Qualitative DisclosuresAbout Market Risk”.
**CONVENTIONS**
     In this Annual Report, unless otherwise specifiedor the context otherwise requires, all references to“Indonesia” are references to the Republic ofIndonesia and all references to the “U.S.” and“United States” are references to the United States ofAmerica. All references to the “Government” herein arereferences to the government of the Republic of Indonesia.References herein to “Rupiah” and “Rp.” areto the lawful currency of Indonesia and all references to“US Dollars” or “US$” are to the lawfulcurrency of the United States of America. For convenience,unless otherwise specified, certain Rupiah amounts have beentranslated into US Dollar amounts, based on the prevailingexchange rate of Rp.8,950 = US$1.00, being the middlemarket spot rate of exchange for Rupiah against US Dollar quotedby Reuters on December 31, 2002. Such translations shouldnot be construed as representations that the Rupiah or US Dollaramounts referred to could have been, or could be, converted intoRupiah or US Dollars, as the case may be, at that or any otherrate or at all. The middle market spot rate of exchange forRupiah against US Dollar quoted by Bank Indonesia onDecember 31, 2002 was Rp.8,940 to US$1.00. See“Exchange Rate Information” for further informationregarding rates of exchange between Rupiah and US Dollars.
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**PART I**
**ITEM 1.     IDENTITYOF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**
     Not applicable.
**ITEM 2.     OFFERSTATISTICS AND EXPECTED TIMETABLE**
     Not applicable.
**ITEM 3.     KEYINFORMATION**
**A.     Selectedfinancial data**
     TELKOM’s consolidated financial statementsfor the year 1998, and the Company’s consolidated financialstatements for the year 1999, were audited by KAP Prasetio,Utomo & Co., the member firm of Arthur Andersen & Co. SCin Indonesia. The Company’s consolidated financialstatements for the years 2000 and 2001 were audited by KAP HansTuanakotta & Mustofa, the member firm of Deloitte ToucheTohmatsu in Indonesia. The Company’s consolidated financialstatements for the year 2002 have been audited by KAPDrs. Hadi Sutanto & Rekan, the member firm ofPricewaterhouseCoopers in Indonesia. All such consolidatedfinancial statements were prepared in accordance with IndonesianGAAP, which differs in certain significant respects fromU.S. GAAP. See “Item 5. Operating and FinancialReview and Prospects — Summary of Material Differencesbetween Indonesian GAAP and U.S. GAAP” andNote 57 to the Company’s consolidated financialstatements, which provide a description of the significantdifferences between Indonesian GAAP and U.S. GAAP and areconciliation to the amount of U.S. GAAP net income andstockholders’ equity of Telkom for and as of the end ofeach of the periods indicated in the consolidated financialstatements.
     In addition, subsequent to the disclosure of ourconsolidated financial statements in the Annual Report onForm 20-F for 2002 and Amendment No. 1 to the AnnualReport that was filed with the SEC on June 11, 2003, TELKOMrestated its Indonesian GAAP consolidated financial statementsand the related reconciliation with U.S. GAAP for 1998,1999, 2000, 2001 and 2002. These restatements, reflected in thisAmendment No. 2 to the Annual Report, impacted our netincome, earnings per share and stockholders’ equity asdiscussed in footnotes 4 and 5 to the table below. Seealso “Item 5. Operating and Financial Review andProspects — Restatement of Information PreviouslyReported” and Notes 4 and 57 to our consolidatedfinancial statements in Item 18 for a further discussion ofthese adjustments.
     Following the dissolution of Andersen Worldwidein 2002, KAP Prasetio, Utomo & Co. ceased businessoperations in Indonesia in August 2002. As a consequence, KAPPrasetio, Utomo & Co. has not reissued an audit opinion inrespect of the 1998 and 1999 consolidated financial statementsand, therefore, the information included in the relevantselected financial information for 1998 and 1999 is derived fromunaudited consolidated financial statements.
     For the year 2002, six companies wereconsolidated within the Company’s consolidated financialstatements, namely: PT Telekomunikasi Selular(“Telkomsel”, 65.0%), PT Dayamitra Telekomunikasi(“Dayamitra”, 90.32%), PT Indonusa Telemedia(“Indonusa”, 57.5%), PT Infomedia Nusantara(“Infomedia”, 51.0%), PT Graha Sarana Duta(“GSD”, 99.99%), and PT Pramindo Ikat Nusantara(“Pramindo”, 100.0%).
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     The following tables set forth a summary of thefinancial information of TELKOM as of and for the yearsspecified. This information should be read in conjunction with“Item 5. Operating and Financial Review andProspects” and is qualified in its entirety by reference toTELKOM’s consolidated financial statements and the relatednotes thereto included elsewhere in this Annual Report.                              **Year Ended December 31,****1998****1999****2000****2001****2002****2002****(unaudited)****(unaudited)****(as restated)****(as restated)****(as restated)****(as restated)****US$****(Rp. in billion, except for data relating to shares, Dividends and ADS)****Consolidated Income Statement Data**                        Indonesian GAAP(4)                         Operating revenues(1)                          Telephone                               Fixed lines                                Local and domestic long-distance usage      2,903   3,571   4,097   5,226   5,448   609     Monthly subscription charges      683   799   887   998   1,475   165     Installation charges      106   68   75   98   130   14     Others      113   91   119   93   211   24                         Total fixed lines revenues      3,805   4,529   5,178   6,415   7,264   812    Cellular                                Air time charges      852   1,458   2,484   3,988   5,454   610     Monthly subscription charges      212   236   356   581   593   66     Features      5   4   7   10   8   1     Connection fee charges      20   51   43   129   172   19                         Total cellular revenues      1,089   1,749   2,890   4,708   6,227   696    Total telephone revenues      4,894   6,278   8,068   11,123   13,491   1,508   Joint Operation Scheme                               Minimum TELKOM Revenue (MTR)      1,434   1,453   1,557   1,474   1,320   147    Share in distributable TELKOM Revenue (DTR)      143   209   695   733   801   89    Amortization of unearned initial investor payments      15   15   15   13   7   1      Total revenue under Joint Operation Scheme      1,592   1,677   2,267   2,220   2,128   237   Interconnection      412   706   981   1,424   2,831   316   Network      354   343   340   415   316   35   Data and Internet      32   54   108   673   1,552   173   Revenue-Sharing Arrangement      285   360   288   264   264   30   Other telecommunications-related services      21   19   138   165   221   25                       Total Operating Revenues      7,590   9,437   12,190   16,284   20,803   2,324                     Operating expenses                              Personnel      1,171   1,349   1,770   2,281   4,388   490   Depreciation      2,468   2,627   2,419   2,870   3,474   388   Operation, maintenance and telecommunication    services      726   1,146   1,386   2,150   2,290   256   General and administrative      675   571   872   1,343   1,146   128   Marketing      51   76   147   220   375   42                       Total Operating Expenses      5,091   5,769   6,594   8,864   11,673   1,304                    
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                          **Year Ended December 31,****1998****1999****2000****2001****2002****2002****(unaudited)****(unaudited)****(as restated)****(as restated)****(as restated)****(as restated)****US$****(Rp. in billion, except for data relating to shares, Dividends and ADS)**Operating Income      2,499   3,668   5,596   7,420   9,130   1,020 Other income (charges)                             Gain on sale of long term investment in Telkomsel      —   —   —   —   3,196   357  Interest expense      (981)  (1,492)  (817)  (1,330)  (1,583)  (177) Interest income      744   762   692   572   480   54  Gain (loss) on foreign exchange — net      (1,219)  326   (944)  (379)  557   62  Equity in net income (loss) of associated    companies      (62)  137   (232)  (86)  5   1  Other — net      178   101   313   353   (36)  (4)Other Income (Charges) — net      (1,340)  (166)  (988)  (870)  2,619   293 Income Before Tax      1,159   3,502   4,608   6,550   11,749   1,313 Tax expense      (386)  (1,004)  (1,520)  (2,007)  (2,899)  (324)Income before minority interest in net income of    subsidiaries      773   2,498   3,088   4,543   8,850   989 Minority interest in net income of subsidiaries      (15)  (162)  (313)  (475)  (810)  (91)Net Income      758   2,336   2,775   4,068   8,040   898 Weighted average shares outstanding (millions)      9,333   9,644   10,080   10,080   10,080      Net income per share      81.17   242.26   275.30   403.61   797.59      Net income per ADS      1,623.49   4,845.29   5,505.96   8,072.20   15,951.80      Dividend declared per share      48.48   50.99   107.76   88.16   210.82     U.S. GAAP(4)(5)                         Net income      844   2,679   2,216   4,298   8,587      Net income per share      90.44   277.80   219.87   426.41   851.91      Net income per ADS      1,808.76   5,555.90   4,397.47   8,528.17   17,038.21                               **As of December 31,****1998****1999****2000****2001****2002****2002****(unaudited)****(unaudited)****(as****(as****(as****(as****restated)****restated)****restated)****restated)****US$****(Rp. in billion)****Consolidated Balance Sheet Data**                        Indonesian GAAP(4)                         Total assets      26,040   28,574   32,019   33,036   44,307   4,951  Current liabilities(2)  3,650   4,058   4,138   9,543   9,708   1,085  Other liabilities      2,567   2,630   3,048   3,447   5,383   602  Long-term debt      8,537   8,541   9,546   9,730   12,006   1,341  Total liabilities      14,754   15,229   16,732   22,720   27,097   3,028  Minority interest      360   534   814   1,235   2,596   290  Capital stock(3)  4,667   5,040   5,040   5,040   5,040   563  Total stockholders’ equity      10,927   12,810   14,473   9,081   14,614   1,633 U.S. GAAP(4)                         Total assets      24,434   27,236   30,900   32,449   44,623   4,986  Total stockholders’ equity      9,153   11,419   12,928   7,766   13,911   1,554 

Notes:(1) For the year ended 2002, TELKOM has reclassified    its revenue into eight major revenue categories: fixed-line,    cellular, joint operation scheme (“KSO”),    interconnection, network, data and internet, revenue-sharing    arrangements and other telecommunications services. For the    purpose of comparability, TELKOM has also reclassified its    revenues for prior periods.    (2) Includes current maturities of long-term debt.    (3) Issued and Paid-Up Capital Stock consists of one    Series A Dwiwarna share having a par value of Rp.500 and    10,079,999,639 Series B shares having a par value of Rp.500    from an authorized capital stock comprising one series A    Dwiwarna share and 39,999,999,999 Series B shares.    
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(4) Indonesian GAAP amounts for 2000, 2001, 2002 and    prior years reflect adjustments related to long service awards,    post-retirement healthcare benefits, deferred taxes, acquisition    accounting, operating revenues, trade accounts payable,    correction of loan balance, correction of taxes payable and    certain other items, including the settlement of our dispute    with AriaWest. See “Item 5. Operating and Financial    Review and Prospects — Restatement of Information    Previously Reported” and Note 4 to the Company’s    consolidated financial statements.    (5) U.S. GAAP amounts reflect adjustments    resulting from differences in the accounting treatment of    termination benefits, foreign exchange differences on property    under construction, interest capitalized on property under    construction, revenue sharing arrangements, revaluation of    property, plant and equipment, pension, equity in net income/    (loss) of associated companies, amortization of land rights,    stock issuance costs, employee bonuses, depreciation of    equipment to be installed, revenue recognition, goodwill,    capital leases, acquisition of a subsidiary, changes in equity    of associates and deferred income taxes. See “Item 5.    Operating and Financial Review and Prospects — Summary    of Material Differences between Indonesian GAAP and    U.S. GAAP” and Note 57(1) to the Company’s    consolidated financial statements.    
**Exchange Rate Information**
     Prior to August 14, 1997, Bank Indonesiamaintained the value of the Rupiah based on a basket ofcurrencies of Indonesia’s main trading partners. In July1997, the exchange rate band was widened, and on August 14,1997, Bank Indonesia announced it would no longer intervene inmaintaining the exchange rate at any pre-determined level.
     The following table shows the exchange rate ofRupiah to US Dollar based on the middle exchange rates at theend of each month for the periods indicated. The Rupiah middleexchange rate is calculated based on Bank Indonesia buying andselling rates. No representations are made that the Rupiah or USDollar amounts referred to herein could have been or could beconverted into US Dollar or Rupiah, as the case may be, at anyparticular rate or at all.
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                  **At period****Year****end****Average(1)****High(2)****Low(2)****(Rp. per US$1.00)**1998      8,025   9,875   14,900   7,300 1999      7,100   7,809   8,950   6,726 2000      9,595   8,534   9,595   7,425  First Quarter      7,590   7,507   7,590   7,425  Second Quarter      8,735   8,433   8,620   7,945  Third quarter      8,780   8,691   9,003   8,290  Fourth quarter      9,595   9,507   9,595   9,395 2001      10,400   10,266   11,675   8,865  First Quarter      10,400   9,895   10,400   9,450  Second Quarter      11,440   11,391   11,440   11,058  Third quarter      9,675   9,355   9,675   10,350  Fourth quarter      10,400   10,422   10,435   10,400 2002      8,940   9,316   10,473   8,460  First Quarter      9,655   10,192   10,473   9,542  Second Quarter      8,730   9,109   9,775   8,460  Third quarter      9,015   8,949   9,218   8,695  Fourth quarter      8,940   9,058   9,326   8,815 2003      8,465   8,573   9,120   8,165  First Quarter      8,919   8,907   9,120   8,836  Second Quarter      8,285   8,488   8,906   8,165  Third Quarter      8,389   8,430   8,665   8,166  Fourth Quarter      8,465   8,471   8,583   8,365  July      8,505   8,336   8,665   8,166  August      8,535   8,503   8,618   8,380  September      8,389   8,462   8,503   8,389  October      8,495   8,441   8,583   8,365  November      8,537   8,496   8,537   8,474  December      8,465   8,488   8,509   8,447  January 16, 2004(3)  8,363   —   —   — 

Notes:(1) The average of the middle exchange rate announced    by Bank Indonesia applicable for the period.    (2) The high and low amounts are determined based    upon the daily middle exchange rate announced by Bank Indonesia    during the applicable period.    (3) There are no average, high and low rates    applicable for the exchange rate as of January 16, 2004 as    this is a daily rate.    *Source:* BankIndonesia
    The exchange rates used for translation ofmonetary assets and liabilities denominated in foreigncurrencies are the buy and sell rates published by BridgeTelerate and Reuters in 2001 and 2002 respectively. The buy andsell rates published by Bridge Telerate were Rp.10,400 andRp.10,450 to US$1 as at December 31, 2001. The Reuters buyand sell rates, applied respectively to monetary assets andliabilities, were Rp.8,940 and Rp.8,960 to US$1 as ofDecember 31, 2002. The Company does not guarantee thatassets and liabilities denominated in foreign currencies can beconverted into Indonesian Rupiah at the rates of exchange as ofDecember 31, 2002.
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     The financial statements are stated in Rupiah.The translations of Rupiah amounts into US Dollars are includedsolely for the convenience of the readers and have been madeusing the average of the market buy and sell rates of Rp.8,950to US$1 published by Reuters on December 31, 2002. Thetranslations should not be construed as representations that theRupiah amounts have been, could have been, or can in the futurebe, converted into US Dollars at this or any other rate ofexchange.
**B.     Capitalizationand Indebtedness**
     Not applicable.
**C.     Reason for theOffer and Use of Proceeds**
     Not applicable.
**D.     RiskFactors**
     ***TELKOM is filing this amended annual reportlate and may face an SEC enforcement action, or other legalliability or adverse consequences.***
     TELKOM was unable to meet its June 30, 2003deadline to file a fully compliant Annual Report onForm 20-F for 2002 because the audit firm it had originallyappointed to perform its 2002 audit was not qualified for SECpurposes, and TELKOM’s SEC-qualified 2002 auditors, KAPDrs. Hadi Sutanto & Rekan, the member firm ofPricewaterhouseCoopers in Indonesia, did not begin their auditwork until their appointment in July 2003. TELKOM filed anon-compliant Annual Report on April 17, 2003 and thenfiled an amended Annual Report on June 11, 2003 to:
 • remove the 2002 reports of TELKOM’s prior    auditors, KAP Eddy Pianto, and the auditors of TELKOM’s    subsidiary, Telkomsel;      • identify the consolidated financial statements    therein for 2002 as “unaudited” and indicate that    TELKOM’s consolidated financial statements therein for 2002    had not been audited by an independent accounting firm qualified    in accordance with SEC requirements;      • furnish an explanation of the foregoing;      • describe the review by the SEC’s Division of    Corporation Finance of TELKOM’s Annual Report on    Form 20-F for 2002 and of TELKOM’s public statements    regarding its annual report, and the referral of those matters    to the SEC’s Division of Enforcement;      • discuss the material consequences of the    deficiencies in its Annual Report, of TELKOM’s public    statements regarding such Annual Report and of an SEC    enforcement action regarding the same; and      • describe TELKOM’s plan to bring its Annual    Report into full compliance with applicable SEC regulations.    
     Because of the foregoing and because this AnnualReport was filed after the June 30, 2002 deadline, TELKOMmay face an SEC enforcement action under U.S. securitieslaw and incur other legal liability and adverse consequencessuch as a delisting of its ADSs from the New York StockExchange. In addition, the staff of the SEC has described apress release that TELKOM issued and furnished to the SEC onForm 6-K in May 2003 as “grossly understating thenature and severity of the staff’s concerns” regardingmatters related to TELKOM’s filing of a non-compliantAnnual Report. Such press release could also form the basis ofan SEC enforcement action and other legal liability. TELKOMcannot at this time predict the likelihood or severity of an SECenforcement action or any other legal liability or adverseconsequences.
     As a result of TELKOM’s failure to timelyfile a fully compliant Annual Report on Form 20-F for 2002with the SEC and our May 2003 press release relating thereto,TELKOM may have been in breach of certain covenants in itsCitibank and Bank Central Asia (BCA) debt facilities thatrequire TELKOM,
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among other things, to comply with all laws andregulations applicable to it and deliver financial statements tothe lenders. TELKOM obtained written waivers from both Citibank,acting as agent for the lenders under the relevant facilityagreements, and BCA with respect to such breaches. However, anyof the adverse consequences referred to in the foregoingparagraph could give rise to defaults under one or more ofTELKOM’s debt facilities and cross defaults under otherdebt facilities with respect to such defaults. If TELKOM wereunable to obtain waivers of any such defaults, indebtednessoutstanding under such debt facilities could become immediatelydue and payable, which could have a material adverse effect onTELKOM’s financial condition and results of operations.
**Risks Relating to Indonesia** **     *****Current political and social events in    Indonesia may adversely impact business activity in    Indonesia.***
     Since 1998, Indonesia has experienced a processof democratic change, resulting in political and social eventsthat have highlighted the unpredictable nature ofIndonesia’s changing political landscape. These events haveresulted in political instability, as well as general social andcivil unrest on a number of occasions in the past few years. Forexample, in June 2001, demonstrations and strikes affectedat least 19 cities after the Government mandated a 30%increase in fuel prices. Similar demonstrations occurred inJanuary 2003, when the Government again tried to increase fuelprices, as well as electricity and telephone charges. In bothinstances, the Government was forced to drop or substantiallyreduce such proposed increases.
     Recently, hostilities in the province of Acehhave reached new heights. A prior peace pact, known as theCessation of Hostilities Agreement, has failed to maintain peacebetween the Free Aceh Movement (GAM) militia and the Government,and the Joint Security Committee formed by the two sides hasbeen disbanded. Increasing tension in Aceh has led to a recentmilitary build-up in the province and continued outbreaks ofviolence, arson and social unrest. Human rights violators,including those from high-ranking military positions, haverecently begun to be more actively prosecuted in Indonesia.However, the success of these prosecutions has been mixed.
     During the years 2002 and 2003, several bombingincidents took place in Indonesia, including in Bali, at theJW Marriott hotel in Jakarta and at the airport, shoppingcenters and places of worship. Terrorist acts may be directed atforeigners in Indonesia or in relation to political matters suchas the national general elections scheduled for 2004.
     In the lead-up to the national general electionscheduled for 2004, in which Indonesians will for the first timedirectly elect the President, Vice-President and representativesin the Indonesian parliament via a proportional open votingsystem, increased political activity can be expected inIndonesia. Based on prior experience in recent general electionsin Indonesia, it can be expected that this campaigning may bringa degree of political and social uncertainty to Indonesia duringthe period leading up to the general election. As a result, thebusiness community may also be adversely affected, as foreignand domestic investors may exercise caution and scale down orpostpone business activity during this period.
     Political and related social developments inIndonesia have been unpredictable in the past, and there can beno assurance that social and civil disturbances will not occurin the future and on a wider scale, or that any suchdisturbances will not, directly or indirectly, have a materialadverse effect on us or on an investment in the ADSs or CommonStock and could continue to have, a material adverse effect oninvestment and confidence in, and the performance of, theIndonesian economy, and in turn our business.
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 **     *****Declines or volatility in Indonesia’s    currency exchange rates can have a material adverse impact on    business activity in Indonesia.***
     The Government’s exchange rate policies andany future changes in the value of the Rupiah against theUS Dollar or other currencies could adversely affectTELKOM’s financial condition and results of operations. OnAugust 14, 1997, Bank Indonesia permitted the exchange ratefor the Rupiah to float without announcing a level at which itwould intervene. From August 1997 to mid-1998, the month-endvalue of the Rupiah relative to the US Dollar declined fromapproximately Rp.2,600 per US Dollar to as low asapproximately Rp.15,000 per US Dollar. There can be noassurance that the Rupiah will not be subject to continueddepreciation or volatility, that the current exchange ratepolicy will remain the same, that the Government will act whennecessary to stabilize, maintain or increase the value of theRupiah, or that any such action, if taken, will be successful.
     Continued depreciation or volatility of theRupiah against the US Dollar or other currencies couldadversely affect general economic conditions in Indonesia.Rupiah depreciation would also drive up the Rupiah cost ofTELKOM’s capital expenditure program since most of theequipment to be used in the expansion of TELKOM’s networkcapacity is sourced off-shore and priced in foreign currencies,mainly in US Dollars and Euros, while almost all ofTELKOM’s revenues are in Rupiah. Changes in the currentexchange rate policy may result in significantly higher domesticinterest rates, liquidity shortages, capital or exchangecontrols or the withholding of additional financial assistanceby multilateral institutions. The foregoing consequences, ifthey occur, could have a material adverse effect onTELKOM’s business. As at December 31, 2002, theexchange rate of Rupiah to US Dollar, based on the Reutersaverage buy and sell rates, was Rp.8,950 per US Dollar.
     Fluctuations in the exchange rate between theRupiah and the US Dollar could affect, among other things, thedollar value of any amounts a holder or beneficial owner of ADSswill receive in the event we issue dividends, the US Dollarvalue of the proceeds a holder or beneficial owner would receiveupon the sale in Indonesia of shares of the Common Stock and thesecondary market price of the ADSs. **     *****Indonesia relies heavily on aid from the    International Monetary Fund and loans from the World Bank and    the consequences of the withdrawal of such aid are    unpredictable.***
     In 1997, having substantially depleted itsforeign currency reserves, the Government turned to theInternational Monetary Fund (“IMF”) for financialassistance to confront the economic crisis in Indonesia, and inOctober 1997, the IMF agreed to provide financial assistance toIndonesia contingent upon the implementation of numerouseconomic reforms. The IMF has disbursed funds to the Governmentsince late 1997, although some disbursements have been delayed.When the IMF has withheld disbursement of funds, it has done soon the basis that the Government has not adequately compliedwith the terms of its then-current letter of intent, such asrequirements to complete certain asset sales and implementationof various reforms.
     The Government announced in 2002 that it intendsto discontinue its reliance on financial assistance from theIMF. Given the Government’s fiscal deficit and modestforeign exchange reserves, the discontinuance by the IMF of thedisbursement of funds to the Government could cause theGovernment to be unable to fund subsidies for staples such asfood and fuel, which, in turn, could have extremely seriouspolitical and social consequences. Other consequences of anysuch discontinuance are not known at this stage. There can be noassurance that the Government would be able to obtainalternative funding in the event the IMF ends its disbursementsof funds.
     The members of the Paris Club are anotherimportant source of funding for the Government. The Paris Clubis an informal voluntary group of 19 creditor countries thatseeks to coordinate solutions for payment difficultiesexperienced by debtor nations. As of December 31, 2002,lending from the Paris Club members to the Government accountedfor approximately one-third of the Government’s total debt.In April 2002, the Paris Club decided to reschedule theGovernment’s approximately US$5.4 billion of principaland interest that is due to certain creditors between April 2002and December 2003 by extending the Government’s paymentperiod.
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     In addition to the IMF and the Paris Club, theWorld Bank has been an important source of funds for Indonesia.As of February 2003, the World Bank had provided a net amount offinanced projects amounting to US$3.5 billion, withdisbursed projects totaling US$2 billion. The World Bankhas cited the slow pace of institutional reforms in Indonesia,as well as concern that the Government’s decentralizationplan, particularly the empowerment of provincial governments toborrow, could lead to the central Government’s inability toservice its debts. The World Bank’s lending program issubject to regular compliance reviews and can be reduced orwithdrawn at any time. The impact of any reduction orelimination of lending from the World Bank to Indonesia cannotbe assessed, but is likely to be materially adverse. **     *****Indonesia’s high level of sovereign    debts may result in it being unable to service its debt    obligations when they become due.***
     Indonesia’s high level of sovereign debtshas forced it to negotiate with its major creditors severaltimes since the 1997 financial crisis. For example, theGovernment held a round of talks with the Paris Club donorcountries and the IMF in April 2002 to discuss the reschedulingof Indonesia’s debt due in 2002. In such talks, theGovernment sought to restructure not just debt principal, butinterest payments as well, totaling US$2.6 billion.Although the meeting resulted in the restructuring of debtprincipal payments, no assurance can be given as toIndonesia’s capacity to meet its rescheduled debt payments.No further meetings have been held since that time. Furtherdecisions to renegotiate existing indebtedness may affectIndonesia’s sovereign credit rating and could have amaterial adverse impact on investor confidence in Indonesia. **     *****Indonesia’s sovereign debt rating    continues to be reviewed and revised by international rating    agencies.***
     Beginning in 1997, certain recognized statisticalrating organizations, including Moody’s Investors Service,Inc. (“Moody’s”) and Standard & Poor’sRating Services (“S&P”), downgradedIndonesia’s sovereign rating and the credit ratings ofvarious credit instruments of the Government and a large numberof Indonesian banks and other companies. As ofSeptember 30, 2003, the Government’s long-term foreigncurrency debt and its short-term foreign currency debt wererated “B2” and “NP”, respectively, byMoody’s. As of October 8, 2003, the Government’slong-term foreign currency debt and its short-term foreigncurrency debt were rated “B” and “B”,respectively, by S&P. These ratings reflect an assessment ofthe Government’s overall ability to pay its obligations andits willingness to meet its financial commitments as they comedue. No assurance can be given that Moody’s, S&P or anyother international credit rating agency will not downgrade thecredit ratings of Indonesia or Indonesian companies. Any suchdowngrade would have an adverse impact on liquidity in theIndonesian financial markets and the ability of Indonesiancompanies, including TELKOM, to raise additional financing andthe interest rates at which such additional financing isavailable.
**Risks relating to TELKOM and itssubsidiaries** **     *****TELKOM’s expansion plans may strain    key resources and thereby adversely affect its business,    financial condition and prospects.***
     To remain competitive and position TELKOM ingaining market share, TELKOM has identified its primary businessobjective as becoming a full service and network provider. Toachieve this objective, TELKOM has determined that it shouldincrease its focus on multimedia and other types of services inaddition to its present core business concentration on local,domestic long-distance and mobile cellular services. TELKOM alsoexpects to commence providing IDD services upon receipt of alicense from the Government. Although TELKOM has prepared thesystem to implement IDD, there is no certainty regarding whenTelkom will receive such license. The implementation of measuresdesigned to achieve this objective could strain TELKOM’smanagerial, financial and other resources, which could adverselyaffect TELKOM’s business, financial condition and prospects.
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 **     *****Failure to amicably resolve KSO disputes    may in some areas result in limited network expansion in some    regions and impede TELKOM’s access to subscribers and    ability to compete effectively.***
     Under certain KSO Agreements, part ofTELKOM’s fixed line network is managed by TELKOM’s KSOpartner. As a result of the Indonesian economic crisis thatbegan in 1997, certain KSO partners have experienced substantialdifficulties in fulfilling their obligations to TELKOM under theKSO Agreements, leading to disputes between TELKOM and certainKSO partners. TELKOM has explored various options to resolve theKSO issues and has also sought to negotiate the acquisition ofall or a majority of shares of certain KSO partners. In 2001,TELKOM acquired a 90.32% equity interest in PT DayamitraTelekomunikasi Indonesia (“Dayamitra”), the KSOpartner for KSO VI. On April 19, 2002, TELKOM enteredinto a conditional sale and purchase agreement for the purchaseof all of the outstanding equity interests in PT PramindoIkat Nusantara (“Pramindo”), the KSO partner forKSO I, to be completed in three stages. As part of theinitial closing, it acquired legal ownership of 30% of theshares of Pramindo in August 2002, and obtained control overPramindo, subject to certain conditions, including that Telkomcontinues to meet its payment obligations under the terms of thepromissory notes issued as consideration for the purchase priceand the protective rights retained by the selling stockholders.Under the agreement, the legal ownership of a further 15% of theshares of Pramindo was transferred on September 30, 2003,and the legal ownership to the remaining 55% of the shares isexpected to be transferred on December 15, 2004. OnJuly 31, 2003, TELKOM purchased all of the outstandingequity interests in PT AriaWest International(“AriaWest”), the KSO partner for KSO III.
     On January 20, 2004, TELKOM andPT Mitra Global Telekomunikasi Indonesia (“MGTI”)entered into an agreement to amend and restate the KSO Agreementwith respect to Regional Division IV. Under this amendmentagreement, for the remaining KSO period, TELKOM will be entitledat its sole discretion and expense to construct newtelecommunications facilities in Regional Division IV andMGTI will receive fixed monthly payments derived from revenuesgenerated by the Regional Division IV operations.
     Because the KSO partners are responsible for thenetwork development and have operational responsibility in theKSO regions, the failure to amicably resolve the issues in aparticular KSO region may result in limited network expansionand impede TELKOM’s access to subscribers and its abilityto compete effectively in that region. **     *****TELKOM’s controlling    stockholder’s interests may differ from those of    TELKOM’s other stockholders.***
     The Government has an aggregate interest ofapproximately 51.19% of the issued and outstanding shares ofTELKOM and has control of TELKOM and the ability to determinethe outcome of substantially all actions requiring the approvalof TELKOM shareholders. The Government is also the holder of theDwiwarna share of TELKOM, which has special voting rights andveto rights over certain matters, including the election andremoval of the Directors and Commissioners of TELKOM. Throughthe MoC, the Government also exercises regulatory power over theIndonesian telecommunications industry. There might besituations where the objectives of the Government, asTELKOM’s regulator and its controlling shareholder,conflict with TELKOM’s business goals. In addition, therecan be no assurance that the Government will not directopportunities to other telecommunications service providers inwhich it holds an interest. **     *****Certain systems failures could, if they    occur, adversely affect TELKOM’s results of    operations.***
     TELKOM’s telecommunications services arecurrently carried through its fixed-line, cellular and datanetworks. All types of networks use last mile access, regionalmetro junction, and long haul transmission networks as a commonnetwork resource. For last mile access, TELKOM operates CopperAccess Network, Optical Access Network and Wireless AccessNetwork. The regional metro junction
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and long haul transmission network operated byTELKOM consists of optical fiber cable, microwave, submarinecable and satellite transmission links.
     Any failure of this integrated network,TELKOM’s servers, or any link in the transmission chainthat results in an interruption in TELKOM’s operations orthe provision of any service, whether from operationaldisruption, natural disaster or otherwise, could damageTELKOM’s ability to attract and retain subscribers andadversely affect its results of operations, financial conditionand prospects. **     *****TELKOM’s regulators and other    telecommunications operators may challenge TELKOM’s ability    to apply PSTN tariffs to its new CDMA-based fixed wireless phone    service, which is marketed under the brand name    TELKOMFlexi.***
     In December 2002, TELKOM introduced newCDMA-based fixed wireless phone service, which is marketed underthe brand name TELKOMFlexi. This service is currently offered in38 cities, 25 of which are financed entirely by TELKOM (innon-BOT areas) and the remaining 13 are financed through theBuild, Operate and Transfer (BOT) scheme (in BOT areas).CDMA-based fixed wireless technology enables rapid developmentof telephone networks and reduces the capital expenditures perline by obviating the need for the installation of undergroundcables. TELKOMFlexi offers customers the ability to use awireless handset with limited mobility (within a local codearea). Customers have all features offered by cellular servicesexcept roaming to other local area codes. Customers are chargedPSTN tariff rates for this service, which are substantiallylower than tariffs for cellular services. Telecommunicationsregulators, cellular operators and cellular trade associationshave sought and may in the future seek to impose limitations onTELKOM’s ability to provide fixed wireless services at PSTNrates. If any such limitations are imposed, TELKOM could losepart or all of the benefit of its investment in the network thatsupports the TELKOMFlexi service. TELKOM may also be subject todisputes with its regulators or competitors. **     *****TELKOM may need to raise funds required for    certain future expenditure requirements and the terms of any    debt financing may subject TELKOM to restrictive    covenants.***
     TELKOM may need to raise significant additionalfunds in order to support its growth, undertake acquisitions,meet unexpected contingencies and develop new or enhancedservices and products. It may also need to respond tocompetitive pressures, acquire complementary businesses ortechnologies or take advantage of opportunities. TELKOM cannotbe certain that such additional funding, if needed, will beavailable on acceptable terms. Furthermore, any debt financing,if available, may involve restrictive covenants, which may limitTELKOM’s operating flexibility with respect to certainbusiness matters. If adequate funds are not available onacceptable terms, TELKOM may be unable to develop or enhance itsservices. It may also be unable to take advantage of futureopportunities or respond to competitive pressures, any of whichcould have a material adverse effect on TELKOM’s business,results of operations and financial condition. **     *****TELKOM’s ability to develop adequate    financing arrangements is critical to support its capital    expenditures.***
     The telecommunications industry is capitalintensive in nature. In order to satisfy customer demand andprovide service and technology that is comparable to, andcompatible with, other telecommunications service providers,TELKOM must continue to expand and modernize its network, whichinvolves substantial capital investment. TELKOM historically hasrelied heavily on two-step loans obtained through the Governmentand third-party financing, including vendor financing, tosupport the development of its fixed line network. If TELKOM isunable to obtain adequate vendor or other third-party financingfor its planned capital expenditures or otherwise fund suchexpenditures through other financing arrangements, includinginternal cash flows, TELKOM may have to forego, delay orpostpone certain of its planned capital expenditures. This mayprevent TELKOM from being able to expand sufficiently andupgrade its network.
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 **     *****Employee unions may negatively affect    TELKOM’s business.***
     Laws permitting the formation of labor unions,combined with weak economic conditions, have resulted, and maycontinue to result, in labor unrest and activism in Indonesia.On February 25, 2003, the Indonesian Parliament passed anew employment law, Law No. 13 of 2003 (the“Employment Law”), which took effect on March 25,2003. The Employment Law covered the increment of severanceamount, service and compensation payment payable to terminatedemployees as well as to allow employees to unionize withoutintervention from employers. The Employment Law and newimplementation regulations that may be issued thereunder maysubstantially affect labor relations in Indonesia. In May 2000,TELKOM employees formed a union named “Serikat KaryawanTELKOM” or “SEKAR”. Membership with SEKAR is notcompulsory. TELKOM believes that its relations with SEKAR aregood. However, there can be no assurance that the activities ofemployee unions will not materially and adversely affectTELKOM’s business, financial condition and prospects. **     *****New technologies may adversely affect    TELKOM’s ability to remain competitive.***
     The telecommunications industry is characterizedby rapid and significant changes in technology. TELKOM may faceincreasing competition from technologies currently beingdeveloped or that may be developed in the future. Newtechnologies, services or standards could require significantchanges to its business model, the development of new productsor the provision of additional services. In addition, TELKOM mayneed to substantially upgrade its network to implementconvergent technologies and update and expand its billing andcredit control systems to accommodate growth in its business andthe adoption of new technologies and services. New products andservices may be expensive to develop and may result in theintroduction of additional competitors into the marketplace.TELKOM cannot accurately predict how emerging and futuretechnological changes will affect its operations or thecompetitiveness of its services. Similarly, TELKOM cannotprovide any assurances that the technologies it adopts will notsoon thereafter become obsolete or subject to intensecompetition from new technologies in the future. **     *****TELKOM operates in a legal and regulatory    environment that is undergoing significant reforms and such    reforms may adversely affect TELKOM’s    business.***
     There are a number of uncertainties in thecurrent regulatory environment for the Indonesiantelecommunications industry. In particular, theTelecommunications Law No. 36 of 1999(“Telecommunications Law”) provides key guidelines forindustry reforms, including industry liberalization,facilitation of new entrants and changes to the industry’scompetitive structure. The Telecommunications Law only outlinesthe framework and substantive principles for the liberalizationof the telecommunications industry. TELKOM believes that thereis uncertainty in the Indonesian regulatory environment withregard to, among other things:
 • *Interconnection:*TELKOM is obligated to allow other    operators to interconnect their networks with those of TELKOM    subject to entering into interconnection agreements with those    other operators. Currently, TELKOM’s ability to negotiate    such interconnection agreements is limited by the provisions set    forth in various Ministerial Decrees governing interconnection    rates. Following the enactment of the Telecommunications Law, a    restructuring of the interconnection policy has been proposed    based upon a cost-based tariff as mutually determined by the    operators rather than the revenue sharing scheme as currently    implemented. As of the date of this Annual Report, the    Government has not finalized regulations regarding the    implementation of the new interconnection policy.      • *Licenses:*The    Government is in the process of amending certain TELKOM licenses    to comply with the Telecommunications Law and to establish the    so-called Modern License. The Government, with due regard to    prevailing laws and regulations, may amend the terms of    TELKOM’s licenses and business authority at its discretion.    Any breach of the terms and conditions of its licenses or    business authority or failure to comply with applicable    regulations may result in such    
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 licenses or business authority being revoked. Any    revocation or unfavorable amendment of the licenses or business    authority, or any failure to renew them on comparable terms,    could have a materially adverse effect on TELKOM’s    business, financial condition, results of operations and    prospects.      • *Tariffs:*In 1995,    the Government implemented regulations providing a formula to    establish the tariff adjustment for domestic fixed line    telecommunications services. However, such annual tariff review    adjustment has not been applied on a consistent basis. In    addition, amendments to the current price cap policy allow    operators to calculate yearly tariff adjustments beginning    January 1, 2002, based on a formula to be stipulated by the    Government. On January 29, 2002, the Government issued a    letter to TELKOM stipulating a 45.49% increase in domestic fixed    line telephone tariffs to be implemented over three years    (2002 — 2004). For the year 2002, the first tariff    increase, with an average 15% increase, has been implemented. In    January 2003, the Government postponed the second tariff    increase due to numerous public protests. There is no assurance    as to when or whether the 2004 tariff increase will be    implemented by the Government. The 2003 tariff increment has    been suspended by the Government.      • *Indonesian Telecommunications Regulatory    Body* (ITRB): The Telecommunications    Law contemplates the establishment of a new independent    regulatory body to regulate, monitor, and control the    telecommunications industry. The ITRB comprises officials from    the Directorate General of Post and Telecommunication and the    Committee of Telecommunications Regulations and was officially    established on July 11, 2003. There can be no assurance    that the ITRB will not take actions that may be detrimental to    TELKOM’s business or prospects.      • *Competition in the Fixed Line Domestic    Telecommunications Market:*Historically, TELKOM has had the    exclusive right to provide fixed line domestic    telecommunications services in Indonesia. Pursuant to    regulations introduced to implement the Telecommunications Law,    the Government plans to terminate TELKOM’s monopoly in    providing fixed line domestic telecommunications services. It    has issued Indosat a principal license to provide local    telephone services from August 2002, an operational license for    local telephone services, and announced that Indosat is expected    to receive a license to provide domestic long-distance telephone    services creating a “duopoly system” in    Indonesia’s fixed line domestic telecommunications market.    Competition in the fixed line market could lead to a decline in    TELKOM’s existing subscriber base as subscribers choose to    receive services from other providers.      • *Compensation Risk:*The Telecommunications Law provides    that TELKOM and Indosat will be compensated for the early    termination of their exclusive rights. TELKOM previously had    exclusive rights to provide fixed local and domestic    long-distance services in Indonesia. TELKOM’s exclusive    right to provide fixed local telecommunications services has    been terminated by the Government as of August 2002 and    currently TELKOM’s exclusive right is limited to domestic    long-distance services. TELKOM’s exclusive right to provide    domestic long-distance services was expected to be terminated by    the end of 2003. However, to date, the exclusive right has not    been terminated. The Government has determined the scheme of    compensation for the termination of TELKOM’s exclusive    rights, which will consist of (i) expedited issuance of an    IDD license to TELKOM; (ii) approval of the reissuance and    transfer of TELKOM’s DCS 1800 license to Telkomsel, which    took place on July 12, 2002; and (iii) a cash payment    to be determined by the Government according to the valuation of    an independent appraiser. TELKOM’s KSO partners may be    entitled in certain circumstances to a portion of the cash    compensation component payable to TELKOM for the termination of    its exclusive rights. The Government has appointed a reputable    independent appraiser to resolve any difference of opinion    regarding the value of the compensation, and the independent    appraiser has finalized its work and submitted the result to the    Government. However, to date, TELKOM has not received formal    notice from the Government as to the final amount of    compensation to be received by it.    
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 • *USO Risk:*All    telecommunications network operators and service providers are    bound by a Universal Service Obligation, or USO, which requires    provision of certain telecommunications facilities and    infrastructure in rural and remote areas. As a local network    provider, TELKOM is obligated to build and operate    telecommunications networks in the USO areas. Historically,    TELKOM has been obligated to contribute 5% of its capital    expenditures to its USO requirements. TELKOM has typically    experienced financial losses in providing such network capacity    in rural and remote areas. To date, the Government has not    finalized the new USO regulation for telecommunications    operators in Indonesia.    
     There can be no assurance that the amendment orinterpretation or implementation of current laws andregulations, or the introduction of additional laws orregulations, will not adversely affect TELKOM’s business,financial condition and prospects. **     *****TELKOM’s increasingly important    cellular operations face significant constraints and competitive    pressures.***
     TELKOM provides cellular telecommunicationsservices primarily through its subsidiary Telkomsel (GSM 900 Mhzand 1800 Mhz). Telkomsel has experienced rapid growth in itssubscriber-base in recent years, and its revenue has become anincreasingly large component of TELKOM’s consolidatedrevenue. Telkomsel’s future growth depends upon its abilityto manage capacity and spectrum constraints. Telkomsel hasexperienced such constraints in the past and may face suchconstraints in the future, which may result in networkcongestion, reduced service quality and an inability to increaseand retain its subscriber-base and as a result may impede futuregrowth. Telkomsel is seeking to substantially increase thecapacity of its cellular network over the next three years.However, spectrum and capacity are subject to regulatoryapproval and allocation.
     The Indonesian cellular telecommunications marketis highly competitive. Currently, Telkomsel competes primarilywith Indosat and Excelcomindo in attracting and retainingsubscribers for its mobile cellular telecommunications services.There are also several other new competitors, including new CDMAcellular operators. Competition between Telkomsel and all ofthese operators is based on various factors such as pricing,network quality and coverage, range of services offered andcustomer service. **     *****TELKOM’s satellites have a limited    life and substantial risk exists for TELKOM-1 and Palapa B-4 to    be damaged or interrupted during operation, and satellite loss    or reduced performance may adversely affect our financial    condition, results of operations and ability to provide certain    services.***
     TELKOM’s TELKOM-1 and Palapa B-4 satelliteshave a limited operational life. A number of factors affect theoperational lives of satellites, including the quality of theirconstruction, the durability of their component parts, theamount of fuel on board, the launch vehicle used and the mannerin which the satellite is monitored and operated. The satellitescould fail before the end of their useful lives, and repairingthese satellites while in orbit is not feasible. TELKOMcurrently maintains in-orbit insurance covering the loss of theTELKOM-1 and Palapa B4 satellites, providing for paymentsof US$64.7 million for TELKOM-1 and US$6.0 million forPalapa B-4 in the event of a total loss of the satellite.TELKOM plans to launch a new TELKOM-2 satellite in November 2004to replace the existing Palapa B4 satellite (which isexpected to be taken out of service around the end of 2004). Theloss of existing satellites and the failure to launch the newsatellite may have a material adverse effect on our financialcondition, results of operations and ability to provide certainservices. **     *****TELKOM is subject to Indonesian accounting    and corporate disclosure standards that differ in significant    respects from those applicable in other countries.***
     There may be less publicly-available informationabout Indonesian public companies, including TELKOM, than isregularly disclosed by public companies in countries with moremature securities
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markets. TELKOM’s audited consolidatedfinancial statements have been prepared in accordance withIndonesian GAAP, which differs in certain material respects fromU.S. GAAP. See “Item 5. Operating and FinancialReview and Prospects — Summary of Material Differencesbetween Indonesian GAAP and U.S. GAAP” andNote 57 to the Company’s consolidated financialstatements. **     *****You are unable to pursue claims against    Prasetio, Utomo & Co., a member firm of Arthur    Andersen, which was the former auditor for    Telkomsel.***
     Prasetio, Utomo & Co., formerly a memberfirm of Arthur Andersen, no longer exists as a legal entity inIndonesia following its dissolution in 2002. Accordingly, youwill not be able to seek or recover damages from Prasetio,Utomo & Co. or Arthur Andersen in connection with itsaudit report for Telkomsel included in this Annual Report. **     *****TELKOM is incorporated in Indonesia, and it    may not be possible for investors to effect service of process    or to enforce judgments obtained in the United States against    Telkom.***
     TELKOM is a limited liability companyincorporated in Indonesia, operating within the framework ofIndonesian laws relating to public companies, and all ofTELKOM’s significant assets are physically located inIndonesia. In addition, the majority of TELKOM’sCommissioners and Directors reside in Indonesia and asubstantial portion of the assets of such persons is locatedoutside the United States. As a result, it may not be possiblefor investors to effect service of process, including judgments,on TELKOM or such persons within the United States, or toenforce against TELKOM or such persons in the United Statesjudgments obtained in United States courts, including judgmentspredicated upon the civil liability provisions of the UntiedStates federal securities laws or the securities laws of anystate within the United States, or upon other bases.
     TELKOM has been advised by its Indonesian legaladvisor that judgments of United States courts, includingjudgments predicated upon the civil liability provisions of theUnited States federal securities laws, are not enforceable inIndonesian courts, although such judgments could be admissibleas non-conclusive evidence in a proceeding on the underlyingclaim in an Indonesian court. There is doubt as to whetherIndonesian courts will enter judgments in original actionsbrought in Indonesian courts predicated solely upon the civilliability provisions of the United States federal securitieslaws. As a result, holders of ADSs or Common Stock would berequired to pursue claims against TELKOM or its Commissionersand Directors in an Indonesian court. **     *****Forward-looking statements reflect current    expectations and may not be correct.***
     This document contains various forward-lookingstatements, including statements regarding our expectations andprojections for future operating performance and businessprospects. The words “believe”, “expect”,“anticipate”, “estimate”,“project” and similar words identify forward-lookingstatements. In addition, all statements other than statements ofhistorical facts included herein are forward-looking statements.These statements reflect TELKOM’s current expectations.Although TELKOM believes that the expectations reflected in theforward-looking statements are reasonable, TELKOM can give noassurance that such expectations will prove to be correct. Theyare subject to a number of risks and uncertainties, includingchanges in the economic, social and political environments inIndonesia. In light of the many risks and uncertaintiessurrounding Indonesia, investors in the ADSs or the commonshares should bear in mind that TELKOM cannot guarantee that theforward-looking statements described herein will transpire. Allsubsequent written and oral forward-looking statementsattributable to TELKOM or persons acting on our behalf areexpressly qualified in their entirety by reference to theserisks.
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**ITEM4.     INFORMATION ON THECOMPANY**
**A.  History and development of theCompany**
     Perusahaan Perseroan (Persero)P.T. Telekomunikasi Indonesia Tbk. (“TELKOM” orthe “Company”), a majority state-owned company, is theprincipal provider of fixed-line services in Indonesia.TELKOM’s majority-owned subsidiary Telkomsel is also thelargest Indonesian mobile cellular operator, as measured bysubscribers and revenues. The Company also provides a wide rangeof other telecommunications services including interconnection,network, data and internet services, and othertelecommunications services. Pursuant to its Articles ofAssociation, TELKOM was established for an unlimited period oftime. The Company’s purposes and objectives are to operatetelecommunications networks and provide telecommunications andinformation services.
     In 1884, the Dutch colonial governmentestablished a private company to provide postal services anddomestic telegraph services and, subsequently, internationaltelegraph services. Telephone services were first made availablein Indonesia in 1882 and, until 1906, were provided byprivately-owned companies pursuant to a 25-year governmentlicense. In 1906, the Dutch colonial government formed agovernment agency to assume control of all postal andtelecommunications services in Indonesia. In 1961, most of theseservices were transferred to a newly-established state-ownedcompany to provide postal and telecommunications services inIndonesia, apart from services in Sumatera, which weretransferred in the 1970’s. The Government separated postaland telecommunications services in 1965 into two state-ownedcompanies, PN Pos and Giro, and PN Telekomunikasi. In 1974, PNTelekomunikasi was further divided into two state-ownedcompanies, Perusahaan Umum Telekomunikasi (“Perumtel”)to provide domestic and international telecommunicationsservices and PT Inti, to provide telecommunicationsequipment manufacturing. In 1980, the internationaltelecommunications business was transferred to Indosat.
     In 1991, Perumtel was transformed into a“Persero”, or state-owned limited liabilitycorporation with commercial purposes, and renamed PerusahaanPerseroan (Persero) P.T. Telekomunikasi Indonesia, known asTELKOM. Prior to 1995, TELKOM’s business operations weresegregated into twelve regional operating units, known as“Witels,” which were centrally controlled fromTELKOM’s headquarters in Bandung, West Java. Each Witel hada management structure responsible for all aspects ofTELKOM’s business in their respective regions, from theprovision of telephone services to property management andsecurity. The Company has its place of domicile in Indonesia andits registered office at No. 1, Jalan Japati, Bandung,40133, Indonesia, Tel. No. (62) (22) 452-1510.
     During 1995, TELKOM restructured its operationsby converting all twelve Witels into seven regional divisions(Division I Sumatera; Division II Jakarta and the surroundingareas; Division III West Java; Division IV Central Java;Division V East Java; Division VI Kalimantan; and Division VIIEastern part of Indonesia) and one Network Division. The Companyalso entered into KSO Agreements pursuant to which ittransferred the right to operate of five of its seven regionaldivisions (regional divisions I, III, IV, VI, and VII) toprivate sector consortia, each of which involved one or moreprominent international telecommunications operators. The KSOAgreements provided for the relevant KSO partner to manage andoperate the regional division for a fixed term, undertake theconstruction of a specified number of fixed lines and, at theend of the fixed term, transfer the existing and newtelecommunications facilities in the region to TELKOM for anagreed amount of compensation. The KSO Agreements also providedfor TELKOM and the KSO partner to share revenues generatedduring the term of the agreement.
     On November 14, 1995, the Government soldTELKOM shares through an initial public offering. TELKOM sharesare listed on the Jakarta Stock Exchange and the Surabaya StockExchange, and its shares, in the form of ADSs, are listed on theNew York Stock Exchange and the London Stock Exchange. Itsshares have also been publicly offered without listing on theTokyo Stock Exchange. TELKOM is currently one of the largestcompanies by market capitalization in Indonesia, with a marketcapitalization of approximately Rp.514,800 billion as ofJanuary 20, 2004. The Government currently has an aggregateinterest of approximately 51.19% of the issued and outstandingshares of TELKOM.
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The Government also holds the Dwiwarna share ofTELKOM, which has special voting and veto rights over certainmatters.
     Following the Indonesian economic crisis thatbegan in mid-1997, certain KSO partners experienced difficultiesin fulfilling their obligations to TELKOM leading to certaindisputes. As a result, TELKOM has in recent years acquired orentered into agreements to acquire control of its KSO partnersin regions I, III and VI. In 2001, TELKOM acquired 90.32%of the shares of its KSO partner for Regional Division VI,PT Dayamitra Telekomunikasi (“Dayamitra”), andpurchased a call option and granted a put option with respect tothe remaining shares of Dayamitra. In 2002, TELKOM entered intoan agreement to acquire 100% of the shares of its KSO partner inRegional Division I, PT Pramindo Ikat Nusantara(“Pramindo”). Under the terms of its agreement withPramindo, TELKOM agreed to acquire the shares of Pramindo inthree tranches, August 2002 (30%), September 2003 (15%) andDecember 2004 (55%). TELKOM obtained management control ofPramindo in August 2002. In 2003, TELKOM acquired 100% of theshares of its KSO partner for Regional Division III,PT AriaWest International (“AriaWest”). For amore complete description of the foregoing transactions andTELKOM’s KSO arrangements, see “Item 10C.Additional Information — Material Contracts” and“Item 4B. Information on the Company —Business Overview — Joint Operation Scheme (KSO)”.
     In 1999, the Government passed TelecommunicationsLaw No. 36 which became effective in September of 2000. TheTelecommunications Law provides key guidelines for industryreforms, including industry liberalization, facilitation of newentrants and enhanced competition. Under the priortelecommunications law, TELKOM and PT Indonesian SatelliteCorporation (“Indosat”) maintained joint ownership inmost telecommunications companies in Indonesia. The Governmentsreforms called for the progressive elimination of these jointshareholdings to promote competition. As a result, in 2001,TELKOM acquired Indosat’s 35% interest in Telkomsel,resulting in TELKOM owning 77.72% of the shares of Telkomsel,and Indosat acquired TELKOM’s 22.5% interest in Satelindoand 37.2% interest in Lintasarta. In 2002, TELKOM sold 12.72% ofTelkomsel to Singapore Telecom Mobile Pte Ltd (“SingTelMobile”), resulting in TELKOM’s ownership beingreduced to 65% of the shares of Telkomsel. For a more completedescription of the foregoing transactions, see“Item 10.C. Additional Information —Material Contracts”.
     Pursuant to the Telecommunications Law, theGovernment as of August 1, 2001 terminated the exclusiverights of TELKOM to provide fixed-line services in Indonesia andIndosat to provide international direct dial services. Thetermination of these exclusive rights once fully implemented isexpected to result in TELKOM and Indosat providing newtelecommunications services in competition with each other.
     For a description of the important events in thedevelopment of the Company’s business since the beginningof the Company’s last three financial years to the date ofthis Annual Report, see “Item 5A. Operating andFinancial Review and Prospects — OperatingResults — Overview”. A description of theCompany’s principal capital expenditures and divestitures,since the beginning of the Company’s last three financialyears to the date of this Annual Report is set forth in“Item 5B. Operating and Financial Review andProspects — Liquidity and Capital Resources”.Information concerning the principal capital expenditures anddivestitures currently in progress is also described in“Item 5B. Operating and Financial Review andProspects — Liquidity and Capital Resources”.
**B.     BusinessOverview**
**General**
     TELKOM is the main provider of fixed-linetelecommunications services in Indonesia and is the majorityowner of Telkomsel, which is the largest Indonesian mobilecellular operator, as measured by subscribers and revenue. TheCompany also provides a wide range of other telecommunications
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services including interconnection, network, dataand internet services, and other telecommunications services.TELKOM reports revenues in the following categories:
 • Fixed-line (which consists of fixed wireline and    fixed wireless);      • Cellular;      • Joint Operation Scheme (KSO);      • Interconnection;      • Network;      • Data and Internet;      • Revenue Sharing Arrangements; and      • Other Telecommunications-related Services    (including revenues from telephone directory services).    
     These revenue categories are all reported as partof the “Fixed Line” segment in the consolidatedfinancial statements with the exception of the cellular businesswhich is reported as a separate segment.
     For 2002, no single customer, other thaninterconnection customers, accounted for more than 1% ofTELKOM’s total operating revenues, and TELKOM’s top100 customers, other than interconnection customers,together accounted for more than 5% of its total operatingrevenues. For the purpose of calculating operating revenues,TELKOM treats each state-owned enterprise owned by theGovernment as a single customer.
     TELKOM’s business does not experiencesignificant seasonality.
**Fixed-Line Services**
     Fixed-line services are comprised mainly of localand domestic long-distance services. TELKOM is the principalprovider of fixed-line services in Indonesia. In 2002, TELKOMprovided fixed-line services in Divisions I, II, V and VI.In 2002, revenues from fixed-line services in these divisionscontributed Rp.7,264.1 billion (US$811.6 million), or34.9% of total operating revenues. Beginning July 31, 2003,when TELKOM acquired KSO investor, PT AriaWestInternational (“AriaWest”), TELKOM began providingfixed-line services in Division III. Fixed-line services inDivisions IV and VII continue to be provided through KSO jointventure arrangements and revenue to TELKOM from these KSOs arereported under Joint Operation Scheme. See“— Joint Operation Scheme” below.
     Fixed-line subscribers pay one-time installationcharges, ongoing monthly subscription charges and usage chargesfor local and domestic long-distance services. Usage charges aregenerally uniform nationwide and are based on call distance,call duration and the time of day at which calls are made. Inaddition, subscribers are provided with a number of value-addedfeatures, such as voicemail and information services and billingand directory assistance, which are billed on a monthly basis.
     TELKOM has historically been the principalprovider of fixed-line services and Indosat has historicallybeen the principal provider of international direct dialservices in Indonesia. However, the Government as ofAugust 1, 2002 has terminated TELKOM’s exclusiverights to provide local fixed-line services and Indosat’sexclusive rights to provide international direct dial services.This may result in Telkom and Indosat engaging in competitionwith each other.
*     CDMA FixedWireless*
     TELKOM began offering a limited mobility (withina local area code) CDMA-based fixed wireless phone service underthe brand name “TELKOMFlexi” in December 2002.TELKOM’s rollout of this service began in the three citiesof Surabaya, Denpasar and Balikpapan and is now also availablein 35 other cities. TELKOM’s rollout of this limitedmobility fixed wireless service is occurring concurrently
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with its use of CDMA fixed wireless technologyfor the development of its fixed-line network. CDMA-based fixedwireless technology enables rapid development of telephonenetworks and the reduction of capital expenditures per line byreducing and often eliminating the need for layout of cables.TELKOM intends to continue to rapidly develop its CDMA-basedfixed wireless network and expand its TELKOMFlexi service toother cities and regions in Indonesia. As of December 31,2002, TELKOM had 396 BTSs and 829,547 line units deployed, ofwhich 380 BTSs and 775,647 line units were financed by TELKOMitself and 16 BTSs and 53,900 line units were established underthe BOT scheme. As of December 31, 2003, TELKOM hasachieved sales of 452,185 TELKOMFlexi Line Units (consisting of443,977 Line Units in non-BOT areas and 8,208 Line Units in BOTareas).
     TELKOMFlexi revenues are reported underfixed-line services. These revenues are being reported asfixed-line revenues because this business is being conductedpursuant to TELKOM’s fixed-line license. See“— Regulation” below.
     TELKOMFlexi subscribers have the option ofpostpaid and prepaid services. Postpaid subscribers pay one-timeactivation charges, ongoing monthly subscription charges andusage charges for local domestic-long distance and internationalservices, which charges are generally the same as those paid byfixed-line subscribers. Prepaid subscribers purchase SIM-cardsand refill vouchers in amounts of Rp.50,000, Rp.100,000 andRp.150,000 and pay only usage charges, which are higher thanthose paid by postpaid subscribers. For prepaid services, acustomer purchasing a Rp.80,000 SIM card or a Rp.50,000 refillvoucher is counted as a subscriber for two months, a Rp.100,000voucher or refill is counted as a subscriber for three monthsand a Rp.150,000 voucher or refill is counted as a subscriberfor four months. Each time a customer purchases a refill suchtwo, three and four month period is recalculated.
     TELKOMFlexi subscribers are also provided with anumber of value-added features, such as SMS, voicemail andinformation services, such as billing and directory assistance.The revenues from these services are reported in the Data andInternet category. See “— Data and InternetServices” below.
*     IDDServices*
     TELKOM is preparing to offer IDD services. TELKOMexpects to receive its formal “Modern License” fromthe Government to provide these services as compensation forloss of exclusivity for local and DLD services. IDD revenueswill be reported under fixed-line services. Through its VoIPservices, TELKOM already provides international long-distanceservices. Revenues from VoIP services are, however, recordedunder “Data and Internet Services,” because thisservice relies on data transmission over the internet. See“— Data and Internet Services” below. ***Cellular Services***
     TELKOM provides its mobile cellular servicesmainly through its 65%-owned subsidiary Telkomsel. Cellularrevenues grew by 32.3% from Rp.4,708.0 billion, or 28.9% ofTELKOM’s total operating revenues, for the year endedDecember 31, 2001 to Rp.6,226.8 billion(US$695.7 million), or 29.9% of TELKOM’s totaloperating revenues, for the year ended December 31, 2002.Over the same period, the number of Telkomsel’s mobilecellular subscribers has increased from approximately3.3 million at the end of 2001 to approximately6.0 million at the end of 2002. Based on data developed byTelkomsel from various sources, Telkomsel had an estimated 52.8%share of the GSM cellular market in Indonesia at the end of 2002.
     Telkomsel provided GSM cellular services inIndonesia through its own network and internationally through167 international roaming partners in 70 countries as of the endof 2002. Telkomsel currently has the largest network of any ofthe cellular operators in Indonesia, providing coverage to over85% of Indonesia’s population and more than 600 cities.
     Telkomsel provides its subscribers with theoption of a prepaid service under the brand name “SimPATINusantara,” or a postpaid service under the brand name“KartuHALO.” Telkomsel also offers tailor-madepostpaid services for corporate customers and a post-paid familyservice under the
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brand name “HALOkeluarga”. Postpaidsubscribers pay one-time activation charges, ongoing monthlysubscription charges and usage charges for local, domestic-longdistance and international services.
     Prepaid customers purchase a starter package, theprice of which starts at Rp.75,000, depending on the value ofthe pre-paid voucher included in the package. The Rp.75,000starter package contains a SimPATI SIM card worth Rp.50,000. TheRp.100,000 and Rp.150,000 starter packages contain SimPATI SIMcards worth Rp.50,000 and Rp.100,000, respectively. Customerscan buy pre-paid vouchers ranging in value from Rp.50,000 toRp.1,000,000 to increase the value of their SIM cards. Thecustomer’s prepaid account can be topped up electronicallyor by supplemental refill vouchers. When refill vouchers arepurchased, subscribers call an automated telephone number andenter a 14-digit code printed on their voucher in order toactivate or supplement their account with the new prepaidamount. The prepaid customer credits have a predetermined expirydate and irrespective of usage will expire on such date. SimPATIstarter packages and refill vouchers may be purchased at any ofTelkomsel’s service centres and distribution outlets.Electronic refills may also be purchased at selected automaticteller machines, via telephone banking or over the Internet.Provided that they meet certain credit-related eligibilityrequirements, SimPATI customers may sign up for Telkomsel’spost-paid KartuHALO services at any time without having tochange their telephone numbers. While SimPATI customers do notpay an activation fee or monthly subscription charges, they payhigher usage charges than postpaid subscribers.
     Telkomsel also offers cellular users value addedservices such as SMS, international roaming, GPRS, MMS,multi-party calling, call forwarding, call waiting, callernumber display and non-display, mobile banking, SMS to e-mailservices and other personal mobile data services, the revenuesfrom which are reported in the Data and Internet category. See“— Data and Internet Services” below.
     The following table sets forth selectedhistorical information on Telkomsel’s subscriber base forthe periods indicated:              **As of or for the year ended****December 31,****2000****2001****2002**Cellular subscribers(1)             KartuHALO (Postpaid)      657,436   865,211   923,005  SimPATI (Prepaid)      1,029,903   2,386,821   5,087,767 Deactivations(2)             KartuHALO (Postpaid)      112,840   177,514   279,648  SimPATI (Prepaid)      113,763   120,403   470,298 Average monthly churn rate(3)             KartuHALO (Postpaid)      1.8%  2.0%  2.5% SimPATI (Prepaid)      1.3%  0.7%  1.1%ARPU(4)             KartuHALO (Postpaid) (Rp.’000)      281   287   298  SimPATI (Prepaid) (Rp.’000)      103   111   103 

(1) Prepaid subscribers may purchase SIM-cards and    refill vouchers with values ranging from Rp.50,000 to as much as    Rp.1,000,000. The following table shows the respective active    periods for Telkomsel’s prepaid packages:       **Value of Voucher or SIM Card****Period during which subscribers will have access to services**Rp.50,000     60 days    Rp.100,000     90 days    Rp.150,000     150 days    Rp.200,000     180 days    Rp.300,000     210 days    Rp.500,000     240 days    Rp.1,000,000     270 days    (2) Includes voluntary and involuntary deactivations.    
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(3) The average monthly churn rate for a year is    computed by adding the monthly churn rates during the year and    dividing by 12. The monthly churn rate is computed by dividing    the number of subscribers deactivated during the month by the    number of subscribers at the beginning of the month.    (4) Refers to Average Revenue per User which is    calculated by taking the sum of the ARPU for each month of the    year and dividing by 12. ARPU is computed by dividing total    cellular revenues for either postpaid or prepaid subscribers    (excluding connection fees, interconnect revenues, international    roaming revenues from visitors and dealer discounts) for each    month by the respective average number of postpaid or prepaid    cellular subscribers for that month.     ***Joint Operation Scheme***
     TELKOM and its KSO partner, PT Mitra GlobalTelekomunikasi Indonesia, provide fixed-line and other servicesin Regional Division IV, and TELKOM and its KSO partner,PT Bukaka SingTel International, provide fixed-line andother services in Regional Division VII. Until July 31,2003, when TELKOM acquired AriaWest, TELKOM and AriaWestprovided fixed-line and other services in Regional Division III.In 2002, TELKOM’s revenues from KSO divisions in RegionalDivisions III, IV and VII contributedRp.2,128.1 billion (US$237.8 million), or 10.2% oftotal operating revenues.
     TELKOM’s portion of KSO revenues for thelast three years (2000 — 2002) are indicated in thefollowing table:                          **2000****2001****2002****KSO Division****MTR****DTR****MTR****DTR****MTR****DTR****(Rp. in billion)****(Rp. in billion)****(Rp. in billion)**Division I (Sumatera)(2)  488.2   206.5   497.9   259.8   296.3   197.3 Division III (West Java and Banten)      344.0   79.9   366.3   117.8   390.1   157.8 Division IV (Central Java)      355.8   107.9   371.3   133.6   387.5   183.2 Division VI (Kalimantan)(1)  137.0   101.9   —   —   —   — Division VII (Eastern Indonesia)      231.7   198.9   238.7   221.8   245.8   262.7                     Total      1,556.7   695.1   1,474.2   733.0   1,319.7   801.0                    

 Notes:
(1) TELKOM consolidated Regional Division VI    (Kalimantan) as of and for the year ended December 31,    2001, following the acquisition of a 90.32% equity interest in    Dayamitra on May 17, 2001. TELKOM consolidated    Rp.260.3 billion and Rp.323.4 billion of operating    revenues from Regional Division VI (Kalimantan) in 2001 and    2002, respectively.    (2) TELKOM consolidated Regional Division I    (Sumatera) from August 2002, following an agreement to acquire    100% of the equity interest in, and control of, Pramindo on    August 15, 2002. The numbers included in this table for    Regional Division I (Sumatera) represent the revenues    generated by Regional Division I from January 1, 2002    to July 31, 2002. TELKOM consolidated Rp.364.4 billion    of operating revenues from Regional Division I (Sumatera)    from August 1, 2002 through December 31, 2002.    
    TELKOM entered into agreements to establish theKSOs in 1995 and pursuant to such agreements transferred theright to operate Regional Divisions I, III, IV, VI,and VII to private sector consortia, each of which involvedone or more prominent international telecommunicationsoperators. TELKOM retained the right to operatedivisions II and V, its two largest divisions. The KSOAgreements provided for the relevant KSO partner to manage andoperate the Regional Division for a fixed term, undertake theconstruction of a specified number of fixed lines and, at theend of the fixed term, transfer the existing and newtelecommunications facilities in the region to TELKOM for apre-determined agreed amount of compensation. The KSO Agreementsalso provided for TELKOM and the KSO partner to share revenuesgenerated during the term of the agreement.
     Following the Indonesian economic crisis thatbegan in mid-1997, certain KSO partners experienced difficultiesin fulfilling their obligations to TELKOM. In order to assistthe KSO partners in meeting their obligations and to maintainthe continuity of the KSO Agreements, all of the KSO partnersentered into a memorandum of understanding (the “MOU”)with TELKOM on June 5, 1998 which reduced the minimum lineconstruction obligations of the KSO partners, decreasedTELKOM’s share of KSO revenues for 1998 and 1999, andcancelled TELKOM’s option to purchase the assets of the
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KSO before the end of the KSO period. BeginningJanuary 1, 2000, the parties have reverted to the terms ofthe original KSO agreements with respect to MTR and DTRpayments. Due to the severity of the crisis, these measures didnot solve the significant difficulties faced by the KSO partnersand TELKOM has in recent years acquired or entered intoagreements to acquire control of its KSO partners in regionsI, III and VI.
     On May 17, 2001, TELKOM acquired 90.32% ofthe shares of its KSO partner for Regional Division VI,PT Dayamitra Telekomunikasi (“Dayamitra”), andpurchased a call option and granted a put option with respect tothe remaining shares of Dayamitra, for an aggregateconsideration of approximately US$130.8 million. An initialpayment of US$18.3 million was made on May 17, 2001,US$8.9 million was paid on August 10, 2001 as apost-closing, working capital adjustment to the purchase priceand the balance of US$103.6 million was agreed to be paidin eight quarterly installments of approximatelyUS$13.0 million between August 17, 2001 andMay 17, 2003.
     On April 19, 2002, TELKOM entered into aConditional Sale and Purchase Agreement to acquire 100% of theissued and paid up share capital of its KSO partner in RegionalDivision I, PT Pramindo Ikat Nusantara(“Pramindo”). Under the terms of the agreement, TELKOMagreed to acquire the shares of Pramindo in three tranches: inAugust 2002 (30%), September 2003 (15%) and December 2004 (55%).TELKOM has provided US$384.4 million in its accounts as theaggregate consideration for this transaction. Of theUS$384.4 million, TELKOM made an initial payment ofUS$9.3 million (Rp.82 billion) in August 2002 andissued promissory notes (series I and II) dated August2002 for the remaining amount. The agreement grants the sellingshareholders a number of protective rights and is conditionalupon TELKOM meeting its payment obligations under the promissorynotes. The series I promissory notes have a face value ofapproximately US$372.2 million, while the aggregate amountof the series II promissory notes is estimated to beapproximately US$2.9 million. The promissory notes arepayable in ten unequal quarterly installments through December2004 which are funded by monthly amounts transferred by TELKOMto an escrow account. Under the agreement, TELKOM also provideda loan of US$86 million (Rp.765 billion) to Pramindowhich was used to repay loans from the IFC, one of the sellingshareholders. TELKOM also made an additional payment ofRp.250 billion in respect of a working capitalreimbursement to the selling shareholders. TELKOM obtainedcontrol of Pramindo as of the closing in August 2002. OnJanuary 29, 2004, TELKOM signed a short-term loan agreementwith ABN AMRO Bank NV Jakarta in the amount of approximatelyUS$130 million. TELKOM intends to use the loan torepurchase the series I promissory notes that are due onJune 15, 2004, September 15, 2004 andDecember 15, 2004 as the interest rate applicable to theloan is less than the interest rate of the promissory notes.
     On July 31, 2003, TELKOM acquired 100% ofthe shares of its KSO partner for Regional Division III,PT AriaWest International (“AriaWest”), andentered into a settlement agreement pursuant to which Telkom andAriaWest irrevocably settled, discharged and released claims andcounterclaims in their ICC arbitration proceeding for anaggregate consideration of US$58.67 million in cash(US$20 million of which was paid when the purchaseagreement was signed on May 8, 2002 and the remainingUS$38.67 million was paid on July 31, 2003) andUS$109.1 million in promissory notes. The promissory notes,which are interest-free, are payable in 10 semi-annualinstallments. At the same time, in consideration of the releaseof AriaWest’s outstanding obligations to its lenders,TELKOM also repaid approximately US$99 million ofAriaWest’s debt (on behalf of AriaWest) and entered into anew loan agreement for approximately US$197 million withAriaWest’s lenders. As a result of the acquisition ofAriaWest and the settlement of the ICC arbitration, TELKOM hasreversed the provision of Rp.511.9 billion which waspreviously made with respect to certain receivables from KSOUnit III and accrued the settlement amount ofRp.179.0 billion in its consolidated financial statements.
     The ICC arbitration proceeding, which was settledas of July 31, 2003, involved claims by AriaWest thatTELKOM was in material breach of provisions of the KSO Agreementwith AriaWest based on, among other things, (i) the allegedloss of certain exclusive rights granted to AriaWest by theGovernment with respect to the provision of certaintelecommunication services in West Java; (ii) the allegedfailure of TELKOM to transfer control of the KSO Unit’sfinances, employees and management
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to AriaWest, and TELKOM’s allegedinterference with AriaWest’s efforts to exercise managementcontrol over the KSO Unit; (iii) the alleged failure ofTELKOM to pay amounts identified in a forensic audit forAriaWest as being unaccounted for, lost or otherwiseunreasonably disbursed by the KSO Unit during the periodDecember 1, 1995 through September 11, 2000;(iv) TELKOM’s acts and omissions which allegedlycaused the Government to reduce telecommunications tariffs in1999 and to impose a zero tariff increase in 2000; (v) thealleged wrongful termination by TELKOM of the KSO Agreement withAriaWest and, subsequent to termination, alleged wrongfulimposition of interim management measures;(vi) TELKOM’s alleged failure to negotiate the termsof certain construction projects proposed by AriaWest andcertain amendments to the KSO Agreement requested by AriaWest;and (vii) TELKOM’s alleged failure to cause the KSOUnit to pay AriaWest certain disputed sums as reimbursement forcash outlays by AriaWest or other funds claimed by AriaWest.AriaWest sought at least US$1.3 billion in damages in thearbitration, although it did not specify the amount of damagesassociated with most of its claims. TELKOM objected to theICC’s jurisdiction over AriaWest’s claims relating tothe alleged loss of AriaWest’s exclusive rights and tariffadjustment and, wholly apart from its jurisdictional objections,TELKOM denied all of AriaWest’s claims. TELKOM alsoasserted claims against AriaWest for material breaches of theKSO Agreement. Although TELKOM had not completed estimating theamount of its losses, damages and costs, TELKOM was seekingdamages in connection with two of its counterclaims of at leastRp.412 billion in Minimum Telkom Revenue and more thanRp.98 billion in Distributable KSO Revenue due to TELKOM asof July 9, 2001, the date TELKOM terminated the KSOAgreement, exclusive of late payment fees and interest.
     In 2001, TELKOM entered into an agreement withIndosat pursuant to which Indosat agreed, subject to thesatisfaction of certain conditions precedent, to acquireTELKOM’s assets in Regional Division IV forUS$375 million. This agreement was part of thecross-ownership transaction in 2001. In February of 2001, TELKOMand Indosat announced the cancellation of the acquisition ascertain conditions precedent had not been satisfied. As a resultof the cancellation of the acquisition, TELKOM paidUS$198 million to Indosat. On January 20, 2004, TELKOMand PT Mitra Global Telekomunikasi Indonesia(“MGTI”) entered into an agreement to amend andrestate the KSO Agreement with respect to RegionalDivision IV. Under this amendment agreement, for theremaining KSO period, TELKOM will be entitled at its solediscretion and expense to construct new telecommunicationsfacilities in Regional Division IV and MGTI will receivefixed monthly payments derived from revenues generated by theRegional Division IV operations.
     On June 11, 2002, TELKOM and its KSO partnerfor Regional Division VII, PT Bukaka SingTelInternational (“Bukaka SingTel”), entered into aMemorandum of Understanding pursuant to which they agreed tocooperate in providing infrastructure for fixed wireless accessusing CDMA 2000 IX in KSO VII region. To date, theterms of such Memorandum of Understanding have not yet beenimplemented in a definitive agreement.
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     The following table sets forth certaininformation regarding the KSOs as of December 31, 2002,which has been derived from the KSO Agreements, amendments tothe KSO Agreements and other related sources.           **Division I*****Division III****Division IV****Division VI****Division VII**KSO Partner     Pramindo Ikat Nusantara     AriaWest International     Mitra Global Telekomunikasi Indonesia     Dayamitra Telekomunikasi     Bukaka SingTel     Shareholders in the KSO:              Foreign telecommunications operator     France Cables et Radio SA (28.00%)     MediaOne International BV (35.00%)     Telstra Global Ltd. (20.37%) and Nippon Telegraph    and Telephone Corporation (15.27%)     TM Communications (H.K.) Ltd. (9.68%)     Singapore Telecommunication International    Pte. Ltd. (40.00%)    Indonesian and Other Shareholders     PT Telekomunikasi Indonesia, Tbk (30.00%);    PT Astratel Nusantara (24.50%); Indosat (9.10%); Marubeni    Corporation (5.60%); International Finance Corporation (2.10%);    NMP Singapore Pte. Ltd. (0.70%)     PT Aria Infotek (52.50%); The Asian    Infrastructure Fund (12.50%)     PT Widya Duta Informindo (31.31%); Indosat    (30.55%); Itochu Corporation (1.25%); Sumitomo Corporation    (1.25%)     PT Telekomunikasi Indonesia, Tbk (90.32%)     PT Bukaka Telekomindo International (60.00%)    MTR (in Rp. billions) # 507.9     390.1     387.5     141.3     245.8    Revenue Sharing (TELKOM : KSO Partners)     30 : 70     30 : 70     30 : 70     30 : 70     35 : 65    End of KSO Period     2010     2010     2010     2010     2010    
   * Note:     Under Indonesian GAAP, TELKOM is required to    consolidate Pramindo Ikat Nusantara due to TELKOM’s control    of the company.    #  Note: The numbers included here are gross MTR revenues    before elimination for consolidation purposes of MTR revenues    from Pramindo (Regional Division I) and Dayamitra    (Regional Division VI).    
    The KSO Agreements provide for the relevantKSO partner to manage and operate the Division until the end ofthe KSO period, undertake the construction of a specified numberof fixed lines and, at the end of the fixed term, transfer thenew telecommunications facilities in the Regional Division toTELKOM for an agreed amount of compensation. The KSO Agreementsalso provide for TELKOM to receive a one-time initial paymentfrom the KSO partners and guaranteed minimum monthly payments,or Minimum Telkom Revenues or MTR, and additional monthlyrevenue sharing payments, or Distributable Telkom Revenues orDTR, from the revenues of the KSO Unit after payment of MTR andcertain operating expenses. The KSO partners were grantedlicenses to enter into KSO arrangements with TELKOM to providefixed-line services in the respective regions. ***Interconnection Services***
     TELKOM receives revenues from othertelecommunications operators providing fixed-line, cellular,international long-distance and other services that interconnectwith TELKOM’s network. In 2002, revenues frominterconnection services contributed Rp.2,831.3 billion(US$316.3 million), or 13.6% of total operating revenues.
     TELKOM enters into interconnection agreementswith one to three year terms with other telecommunicationsnetwork operators, including Indosat and Satelindo,Indonesia’s IDD service providers and the cellularoperators, establishing the fees payable by the respectiveoperators and the procedures for routing calls through thenetworks of the respective operators. Most of the short term(one-year) interconnection agreements are entered into withtelecommunications network operators.
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     TELKOM’s interconnection traffic volumes areset forth in the following table for the periods indicated:                        **Year ended December 31,****1998****1999****2000****2001****2002****(millions of minutes)****Mobile Cellular    Interconnection(1)**                    Digital                         Incoming paid minutes      920.8   1,396.8   1,968.6   2,284.9   2,757.9  Outgoing paid minutes      604.8   873.2   1,687.1   2,645.8   3,807.5 Analog                         Incoming paid minutes      119.7   62.9   71.8   70.5   73.0  Outgoing paid minutes      62.0   24.7   34.0   43.5   47.0                   Subtotal      1,707.3   2,357.6   3,761.5   5,044.7   6,685.4 **Fixed Wireless    Interconnection(2)**                     Incoming paid minutes      34.2   41.9   72.5   83.7   100.2  Outgoing paid minutes      29.5   33.1   39.3   30.5   36.3                   Subtotal      63.7   75.0   111.8   114.2   136.5                    Total wireless paid minutes      1,771.0   2,432.6   3,873.3   5,158.9   6,821.9 **Fixed Wireline    Interconnection(3)**                     Incoming paid minutes      7.4   26.1   30.1   31.9   28.2  Outgoing paid minutes      0.4   2.9   3.3   4.2   3.3                   Total paid minutes      7.8   29.0   33.4   36.1   31.5 **Satellite Phone Interconnection**                     Incoming paid minutes      —   —   —   2.4   12.6  Outgoing paid minutes      —   —   —   0.5   5.6                   Total paid minutes      —   —   —   2.9   18.2 **International    Interconnection(4)**                     Incoming paid minutes      408.2   403.2   345.8   286.8   303.3  Outgoing paid minutes      309.7   251.1   250.6   241.9   200.3                   Total paid minutes      717.9   654.3   596.4   528.7   503.6 **Total**                     Incoming paid minutes      1,490.3   1,930.9   2,488.8   2,760.2   3,275.2  Outgoing paid minutes      1,006.4   1,185.0   2,014.3   2,966.4   4,100.0  Total paid minutes      2,496.7   3,115.9   4,503.1   5,726.6   7,375.2 

(1) Includes interconnection with Telkomsel.    TELKOM’s paid minutes from Telkomsel for 1998-2002 are set    forth in the following table.                         **Year ended December 31,****1998****1999****2000****2001****2002****(millions of minutes)**Incoming paid minutes      479.4   706.0   1,025.0   1,289.9   1,672.6 Outgoing paid minutes      325.1   430.0   771.0   1,266.0   2,001.6 
(2) Fixed wireless interconnection minutes are    derived from interconnection with the network of PT Radio    Telepon Indonesia (“Ratelindo”).    (3) For 1998, consists only of four months ended    December 31, 1998. Fixed wireline interconnection minutes    are derived from interconnection with PT Batam Bintan    Telekomunikasi (“BBT”).    
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(4) International interconnection minutes are derived    from interconnection with Indosat’s and Satelindo’s    international networks, which does not include minutes from    mobile cellular and fixed wireless operators that interconnect    directly with international gateways.    
***     NetworkServices***
     TELKOM provides satellite transponder leasing,satellite broadcasting, VSAT, audio distribution,satellite-based leased lines and terrestrial-based leased linesas network services. In 2002, revenues from network servicescontributed Rp.316.1 billion (US$35.3 million), or1.5% of total operating revenues. TELKOM’s customers fornetwork services include businesses and other telecommunicationsoperators. Customers may enter into agreements which can be forservices as brief as a few minutes in the case of broadcasts orlong-term agreements for services over the course of one to fiveyears.
**     *Data andInternet Services***
     TELKOM provides SMS for fixed line, fixedwireless and cellular phones, multimedia dial-up Internet accessand other multimedia services, VoIP services for internationalcalls and ISDN lines. In 2002, revenues from data and internetservices contributed Rp.1,551.6 billion(US$173.4 million), or 7.5% of total operating revenues.The Company is also in the process of developing a broadbandaccess network utilizing ADSL, hybrid fiber coaxial cables andsatellites.
     In 2002, an average of 296,963 telephonesubscribers accessed our TELKOMNet Instant dial-up Internetservice per month, representing an increase of 60.3% over theprior year. Subscribers utilized a total of 1.72 billionminutes of dial-up service in 2002.
     In September 2002, TELKOM commenced premium VoIPinternational calling service under the name“TELKOMGlobal-017” and standard VoIP internationalcalling service under the name “TELKOMSave” and TELKOMis currently providing both services in several cities inIndonesia. Its VoIP services currently allow subscribers accessto 493 destination points in 253 countries through agreementswhich TELKOM has entered into with Global Communications Inc.and Singapore Telecommunications Limited that allow TELKOM toaccess their international networks. VoIP is a low-cost phoneservice that is accessed by dialing a special internationallong-distance prefix (in TELKOM’s case, 017). The Companyplans to increase the number of access points in Indonesia andabroad from which its customers are able to access its VoIPservices. In 2002, an average of 66,058 telephone subscribersused either TELKOM Save or TELKOMGlobal each month, representingan increase of 19.9% over the prior year.
     Certain information about TELKOM VoIP services isset forth in the following table:     **Item****TELKOMGlobal 017****TELKOMSave**Tariff     60% of normal IDD rate     Up to 40% of normal IDD rate    Dial     One stage     Two stage    Quality/ Technology     Premium VoIP     Standard VoIP    
**     *Revenue-SharingArrangements (PBHs)***
     In 2002, revenues from revenue-sharingarrangements amounted to Rp.263.8 billion(US$29.5 million), or 1.3% of TELKOM’s total operatingrevenues. TELKOM currently has approximately 17 revenue sharingarrangements. Under such arrangements, investors finance thecosts of developing and constructing telecommunicationsfacilities, and TELKOM and the investors share the revenues fromsuch facilities for a fixed period of time. Generally, duringthe revenue sharing period TELKOM manages and operates thefacilities and bears the cost of repairs and maintenance, thoughthe investors retain legal ownership to the property, plant andequipment constructed during this period. At the end of eachrevenue-sharing period, the investors transfer the ownership ofthe facilities to TELKOM. The revenue-sharing arrangementsgenerally provide for investors to receive all revenues frominstallation charges and for the investors and TELKOM to sharerevenues from usage and
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subscription charges. However, TELKOM is nolonger interested in entering into revenue sharing arrangementson the terms outlined above, as TELKOM is seeking to improve theterms of such revenue sharing arrangements.
**     *OtherTelecommunications-related Services***
     TELKOM also provides a variety of other services,such as:
 • telephone directory, which TELKOM provides    through its majority-owned subsidiary, Infomedia;      • cable and pay television and related services,    which it provides through its majority-owned subsidiary,    Indonusa; and      • telex and telegram services.    
     In 2002, revenues from othertelecommunications-related services amounted toRp.221.0 billion (US$24.7 million), or 1.1% ofTELKOM’s total operating revenues.
**Network Infrastructure**
**     *Fixed-lineNetwork and Backbone***
     *Fixed-Line Network.*TELKOM’s fixed-line networkcomprises a hierarchy of exchanges ranging from local exchangesthrough trunk exchanges. Each local exchange is connected to thesubscriber’s premises by equipment and facilities calledoutside plant. Outside plant includes wireline (optical fiberand copper) and wireless local transmission links and thedistribution facilities joining them. All of TELKOM’sswitching facilities at the local and trunk exchanges are nowdigital. TELKOM believes that this substantially increasesnetwork efficiency, performance, and call routing flexibility.
     TELKOM’s total number of fixed-lines inservice in all divisions, including those lines in KSO divisionswhich are owned by the KSO partners and will be transferred toTELKOM at the end of the KSO period, has increased fromapproximately 7.22 million as of December 31, 2001 toapproximately 7.75 million as of December 31, 2002, ofwhich approximately 5.97 million were for residentialcustomers, approximately 1.36 million were for businesscustomers, approximately 19,800 were for social customers, whichinclude churches, hospitals, schools and government offices, andapproximately 400,000 were for public telephones, includingkiosk phones, or public phones.
     The following table sets forth statisticsrelating to TELKOM’s fixed-line network since 1998:                       **As of or for the Year Ended December 31,****1998(5)****1999(5)****2000(5)****2001(6)****2002(7)****Operating Statistics**                    Exchange capacity                         Non-KSO Divisions      4,324,024   4,449,552   4,515,615   5,135,108   6,643,688  KSO Divisions(8)  3,827,993   3,909,179   3,946,407   3,669,336   2,459,950                   Total      8,152,017   8,358,731   8,462,022   8,804,444   9,103,638 Installed lines                         Non-KSO Divisions      3,907,036   3,957,815   4,086,298   4,725,268   6,165,770  KSO Divisions(8)  3,290,063   3,471,447   3,581,779   3,316,406   2,234,892                   Total      7,197,099   7,429,262   7,668,077   8,041,674   8,400,662 Lines in service(1)                     Non-KSO Divisions      3,014,824   3,256,992   3,610,363   4,270,243   5,710,427  KSO Divisions      2,556,820   2,823,201   3,052,242   2,948,695   2,039,608                   Total      5,571,644   6,080,193   6,662,605   7,218,938   7,750,035 
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                         **As of or for the Year Ended December 31,****1998(5)****1999(5)****2000(5)****2001(6)****2002(7)**Lines in service per 100 inhabitants                         Non-KSO Divisions      4.95   5.3   5.7   5.6   4.64  KSO Divisions(8)  1.78   1.9   2.0   2.0   2.00                     Combined      2.73   2.9   3.1   3.25   3.45 Subscriber lines                         Non-KSO Divisions      2,888,479   3,101,885   3,394,075   4,005,106   5,394,940  KSO Divisions(8)  2,466,514   2,709,066   2,923,223   2,831,168   1,952,226                     Total      5,354,993   5,810,951   6,317,298   6,836,274   7,347,166 Public telephones                         Non-KSO Divisions      126,345   155,107   216,288   265,137   315,487  KSO Divisions(8)  90,306   114,135   129,019   117,527   87,382                     Total      216,651   269,242   345,307   382,664   402,869 Leased lines in service                         Non-KSO Divisions(2)  1,371   2,446   3,300   4,973   8,193  KSO Divisions(8)  1,760   2,143   2,702   2,631   1,879                     Total      3,131   4,589   6,002   7,604   10,072 Subscriber Pulse Production(3)(4)    (millions)                         Non-KSO Divisions      25,095   25,077   28,231   34,342   44,340  KSO Divisions(8)  20,810   22,182   24,628   24,047   16,788                     Total      45,905   47,259   52,859   58,389   61,128 Call completion rate (%)                         Local                          Non-KSO Divisions      68.1   72.0   77.0   75.8   75.8   KSO Divisions      68.1   70.1   71.4   72.5   75.5                    Combined      68.1   70.6   73.0   73.9   75.6  Domestic long-distance                          Non-KSO Divisions      62.1   64.0   69.3   65.4   65.5   KSO Divisions      62.0   62.4   64.5   85.6   68.1                    Combined      62.0   63.0   65.8   65.7   66.6  Fault rate(4)                      Non-KSO Divisions      0.92   0.39   0.42   0.8   4.6   KSO Divisions      2.24   2.02   1.69   3.1   8.9                    Combined      3.81   4.25   4.08   3.94   5.19  Lines in service per employee                          Non-KSO Divisions      157   171   191   209   233   KSO Divisions(8)  135   149   163   174   201                    Combined      146   160   177   193   223 

(1) Lines in service comprise subscriber lines and    public telephone lines, and include the following number of    lines in service operated by TELKOM pursuant to revenue sharing    arrangements as of December 31, 1998: 406,487, 1999:    405,643, 2000: 409,818, 2001: 430,477 and 2002: 443,316.    (2) Excludes leased lines for TELKOM’s network    and multimedia businesses.    
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(3) Consists of pulses generated from local and    domestic long-distance calls, excluding calls made from pay    phones and cellular phones.    (4) Faults per 100 connected lines per month. The    calculation formula was changed in January 2002 to include    indoor installation and mass fault. The previous measure of    fault consisted of exchange and outdoor cable fault.    (5) For 1998, 1999 and 2000, Non-KSO Divisions refer    to Divisions II and V, while KSO Divisions refer to Divisions    I, III, IV, VI and VII.    (6) For 2001, Non-KSO Divisions refer to Divisions    II, V, and VI, while KSO Divisions refer to Divisions    I, III, IV, and VII.    (7) For 2002, Non-KSO Divisions refer to Divisions    I, II, V, and VI, while KSO Divisions refer to Divisions    III, IV, and VII.    (8) Includes lines in KSO Divisions    I, III, IV, VI and VII which are owned by the KSO    partners and will be transferred to TELKOM at the end of the KSO    period.    
    The following table sets forth certaininformation relating to the Company’s (including KSOs)fixed-line network in each of its operating divisions as ofDecember 31, 2002:                                 **Division I****Division II****Division III****Division IV****Division V****Division VI****Division VII****(West Java****and****(Central****(East****(East****(Sumatera)****(Jakarta)****Banten)****Java)****Java)****(Kalimantan)****Indonesia)****Total**Local Exchange Capacity      1,264,324   3,316,552   879,004   770,289   1,660,456   402,356   810,657   9,103,638 Total Lines in Service      1,115,875   2,824,556   672,597   646,701   1,427,660   342,336   720,310   7,750,035 Capacity Utilization (%)      88.26   85.17   76.52   83.96   85.98   85.08   88.86   85.13 Installed Lines      1,193,793   3,079,884   726,219   728,752   1,521,452   370,641   779,921   8,400,662 Installed Lines Utilization Rate      93.47   91.71   92.62   88.74   93.84   92.36   92.36   92.26 Employees(1)  5,302   8,433   2,773   3,033   4,282   1,299   4,329   34,678 Population (millions)(2)  47.36   26.01   25.89   44.16   36.22   13.40   31.85   224.89 Line Penetration(%)(3)  2.36   10.86   2.60   1.46   3.94   2.55   2.26   3.45 

(1) Includes employees seconded to KSOs in Divisions    III, IV and VII.    (2) *Source:*Indonesian    Central Bureau of Statistics (estimated figures).    (3) Based on the estimated population figures.    
    *Backbone.*TELKOM’s telecommunicationsnetwork consists of transmission and switching facilitiesconnecting several network access nodes. The transmission linksbetween nodes and switching facilities include microwave,submarine cable, satellite, optical fiber and other transmissiontechnology. The following table sets forth certain informationon the transmission capacity of TELKOM’s backbonetransmission facilities as of December 31, 2002.          **Capacity****Percentage****(number of****of total****Transmission medium****circuits)****capacity**Optical fiber cable      221,460   56.2 Microwave      115,626   29.3 Submarine cable      45,600   11.6 Satellite      11,450   2.9         Total      394,136   100.00        
     For more information on TELKOM’s satellites,see “Other Network Infrastructure” below.
**     *WirelessNetwork***
     *Telkomsel.*Since itsincorporation in 1995, Telkomsel has been providing GSM cellularservices throughout Indonesia through its own network. Telkomselhas the largest network coverage of any of the cellularoperators in Indonesia, providing coverage to more than 85% ofIndonesia’s population and more than 600 cities. Telkomselcurrently operates a nationwide GSM/DCS cellular network using atotal of 30 MHz of radio frequency bandwidth. This consistsof 7.5 MHz in the 900 MHz band and
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22.5 MHz in the 1800 MHz band,including the additional 15 MHz that was transferred fromTELKOM to Telkomsel. Both networks operate as a singleintegrated dual band network. Telkomsel has rolled out GPRSservices in several major cities in Sumatera, Java, Bali,Kalimanta and Sulawesi since October 2002.
     The Telkomsel network is an integrated network of(i) base transceiver stations containing transmitters,receivers and other equipment that communicate by radio signalswith cellular telephone handsets within the range of the basetransceiver station, (ii) digital switch centres that routecalls to the proper destinations and (iii) transmissionfacilities that link the digital switch centres to other cellsites. The various components of the network are connectedprimarily by microwave transmission, trunk lines owned byTelkomsel and other fixed lines. In addition, through agreementswith TELKOM, Telkomsel leases certain of TELKOM’sfacilities, including leased lines, integrated management systemand information system facilities, land, sites and towers.
     In 2002, Telkomsel expanded its network capacityby adding, among other equipment, 1,488 BTSs and 13,080transmitting and receiving exchanges. As of December 31,2002, Telkomsel’s digital network had 3,483 BTSs, 37cellular switching centers, 130 base station controllersand 28,061 transmitting and receiving exchanges. In the firstthree quarters of 2003, Telkomsel added an additional1,111 BTSs, 8,984 transmitting and receiving exchanges andswitching capacity for an additional 5,390,000 subscribers.
     For each of the years ended December 31,2000, 2001, and 2002, Telkomsel made capital expenditures forthe development and expansion of its cellular network ofUS$90 million, US$233 million and US$494 million,respectively. During 2003, Telkomsel budgeted capitalexpenditures for the development and expansion of its cellularnetwork totaling approximately Rp.5,903.0 billion(US$621.0 million), against actual capital expenditures ofapproximately US$559 million.
     Prior to 2002, TELKOM (through its businessdivision, Telkom Mobile) and Telkomsel, had been independentlyworking on the construction of separate DCS 1800 networks.TELKOM had been granted 15 MHz of radio frequency bandwithin the 1800 MHz band. In January 2002, Telkomsel entered into aco-operation agreement with TELKOM (the “Co-operationAgreement”), the purpose of which was to set the frameworkfor the transfer of TELKOM’s mobile telecommunicationsbusiness and its DCS 1800 licence to Telkomsel, and forTelkomsel to assume certain obligations and assets of TELKOMconnected with the DCS 1800 network, including the assumption ofTELKOM’s rights and obligations under a supply contractwith Siemens. Pursuant to the Co-operation Agreement, onApril 3, 2002, Telkomsel purchased TELKOM’s assetsrelating to Telkom Mobile and TELKOM transferred its TelkomMobile employees to Telkomsel. Telkomsel also assumed all ofTELKOM’s rights and obligations under various contractsconnected with its Telkom Mobile business.
     Under the terms of the Co-operation Agreement,TELKOM procured to have its DCS 1800 licence cancelled andre-issued to Telkomsel so that Telkomsel would have 15 MHz ofradio frequency in addition to its own 7.5 MHz of radiofrequency in the 1800 MHz band. The MoC re-issued the license toTelkomsel on July 12, 2002.
     In addition, in order to operate a cellularservice using its own allocated frequency in the 1800 MHz band,Telkomsel’s network is required by the relevant regulationsto undergo feasibility testing by the MoC, following which, ifsuccessful, a certificate will be issued to Telkomsel permittingit to operate the network. At present, Telkomsel has constructedDCS 1800 networks in Jakarta and several other Indonesiancities. The Jakarta network underwent feasibility testing in2001. Telkomsel, which commenced operation of its Jakarta DCS1800 network in order for the feasibility test to be conducted,is currently continuing to operate the network while awaitingthe issue of the requisite feasibility certificate.
     Telkomsel has also applied for feasibilitytesting in the nineteen other cities in which it has constructedDCS 1800 networks. It is currently awaiting a response from theMoC. In the meantime, in
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anticipation of the feasibility tests, Telkomselhas commenced operation of the DCS 1800 service in each of thesecities.
     *CDMA Fixed Wireless.*TELKOM began offering a limitedmobility CDMA-based fixed wireless phone service under the brandname “TELKOMFlexi” in December 2002. TELKOM currentlyoffers its TELKOMFlexi service in 38 cities. TELKOM’srollout of this limited mobility fixed wireless service isoccurring concurrent with its use of CDMA fixed wirelesstechnology for the development of its fixed-line network.CDMA-based fixed wireless technology enables rapid developmentof telephone networks and the reduction of capital expendituresper line by reducing and often eliminating the need for layoutof cables. TELKOM intends to continue to rapidly develop itsCDMA-based fixed wireless network.
     As of December 31, 2002, TELKOM had 396 BTSsand 829,547 line units deployed, of which 380 BTSs and 775,647line units were financed by TELKOM itself and 16 BTSs and 53,900line units were established under the BOT scheme. As ofDecember 31, 2002, TELKOMFlexi has 8,529 line unitsdeployed. As of December 31, 2003, TELKOM has achievedsales of 452,185 TELKOMFlexi Line Units (consisting of 443,977Line Units in non-BOT areas and 8,208 Line Units in BOT areas).
***     DataNetworks***
     TELKOM began operating data network services in1997 and has since continued to develop and expand its networkprogressively. As of December 31, 2002, TELKOM’sIP-based network covered most of the metropolitan areas ofIndonesia, with points of presence (POP) in 132 locations. TheIP-based network served as the backbone network for high qualityvirtual private network (VPN) and for internet serviceproviders. TELKOM has installed remote access servers in 59locations in Indonesia and offers dial-up internet servicesunder the name of “TELKOMNet Instan”. For corporatecustomers remaining high performance and secured virtual privatenetwork, TELKOM provides a premium service known as VPN Gold.
***     Other NetworkInfrastructure***
     The Company also operates the TELKOM-1 and aPalapa B-4 satellites and 155 earth stations including onesatellite control system. TELKOM-1 has 36 transpondersincluding 12 extended C-band transponders and 24 standard C-bandtransponders, while Palapa B-4 has 24 standard C-bandtransponders. TELKOM uses its satellites for the followingpurposes:
 • Network backbone transmission;      • Rural telecommunications services;      • Back-up transmission capacity for the national    telecommunications network;      • Satellite broadcasting, VSAT, and multimedia    services;      • Satellite transponder capacity leasing;      • Satellite-based lease line; and      • Teleport (earth station satellite uplinking and    downlinking services to and from other satellites).    
**Network and Satellite Development.**
***     Fixed-lineNetwork Development***
     TELKOM continues to develop and expand itsnetwork infrastructure. In December 2002, TELKOM signedagreements with a consortium led by Samsung Electronics and aconsortium led by Ericsson, and in March 2003, TELKOM signed anagreement with Motorola, Inc. for the development of a total of1.6 million lines based on CDMA fixed wireless technology.These projects are expected to be completed by the middle of2006. See “Item 10C. AdditionalInformation — Material Contracts.”
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     TELKOM also has several ongoing networkdevelopments projects, which include the development of:
 • fiber optic backbone infrastructure in Sumatera    to provide additional backbone capacity and to extend the    backbone to the island of Batam, which will facilitate    connections in the future from Batam to nearby Singapore;      • fiber optic regional junction in Surabaya, East    Java; TELKOM has finished a detailed survey and is currently    conducting a design review; and      • fiber optic regional junction in greater Jakarta.    
     To further develop its other communicationsservices, TELKOM also plans to:
 • Implement soft switch technologies to move    towards a next generation network;      • Expand the broadband access network utilizing    ADSL, which currently only covers Division II (Jakarta) and    Division V (East Java);      • Enhance its network through the progressive    replacement of its old copper access network with optical access    network;      • Develop and promote additional advanced telephony    services and features; and      • Continue network integration and quality    improvement.    
***     IDD NetworkDevelopment***
     TELKOM has been making preparations to provideIDD and its derivative services. It expects to receive its“Modern License” by the beginning of 2004. TELKOM hasalso upgraded switches in Batam, Jakarta and Surabaya to haveinternational gateway capabilities. Since 2002, TELKOM operatesmicrowave links to connect Batam Island (Indonesia) and SentosaIsland (Singapore) and Batam island (Indonesia) and Johor(Malaysia). Due to the high demand for international bandwidthin the Asean region, TELKOM, Singapore Telecom and CAT Telecomagreed to build a submarine fiber optic cable to connectIndonesia (Batam), Singapore (Changi) and Thailand (Songkhla),which is known as TIS Cable System, and the cable was ready forservice in November 2003. TELKOM also extended its internationalcable by purchasing bandwidth capacity to connect Hong Kong andexpects to enter into a similar agreement to purchase bandwidthcapacity to connect the US by the beginning of 2004. TELKOM isdeveloping the ground segment to connect the Intelsat Satellite.These steps will provide more flexibility for TELKOM tointerconnect with foreign operators. In order to makeinterconnection with foreign operators, TELKOM is entering intoagreements with dominant operators in some potential countries.
***     TELKOM-2Satellite***
     TELKOM has signed a US$73 million contractwith Orbital Sciences Corporation to build the TELKOM-2satellite based on Orbital’s STAR-2 platform, to replaceTELKOM’s existing Palapa B-4 satellite, whose operationallifespan expires in late 2004. The TELKOM-2 satellite is to havea capacity of 24 standard C-band transponders, with transponderspecifications similar to those of the TELKOM-1 satellite.TELKOM-2 is to be designed for a 15 years in-orbit life andis expected to provide increased coverage of the Asian regionand the Indian subcontinent when compared to Palapa B-4. TELKOMbelieves that the satellite will support TELKOM’s networkfor voice, video and data communications.
     The Company plans to launch TELKOM-2 betweenNovember 1, 2004 and January 31, 2005. OnNovember 8, 2002, TELKOM signed a US$62.9 millionagreement with Arianespace S.A., which covers the cost of thelaunch of TELKOM-2.
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