##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF

THE SECURITIES EXCHANGE ACT OF 1934




|                                            |                               
|------------------------------------------- | ------------------------------
|For the fiscal year ended December 31, 2003 | Commission file number 1-14406



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Perusahaan Perseroan (Persero)

P.T. Telekomunikasi Indonesia
Tbk.


(Exact name of Registrant as specified in its
charter)


Telecommunications Indonesia

(a state-owned public limited liability
company)


(Translation of Registrants name into
English)




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Republic of Indonesia

(State or other jurisdiction of incorporation or
organization)


Jalan Japati, 1

Bandung 40133


Indonesia


(62) (22) 452-1510


(62) (21) 521-5109*


(Address of Registrants principal executive
offices)




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

|                                                                                            |  |                          |                           | 
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------------------------- | 
|                                                                                            |  | Name of each exchange on
|Title of 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 registered
pursuant to Section 12(g) of the Act.

None


Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.

None


Indicate the number of outstanding shares of each
of the issuers classes of capital or common stock as of
the close of the period covered by the annual report:

|                                                    |  |               
|--------------------------------------------------- |  | --------------
|Series A 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 by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past 90 days.

Yes
X    No

Indicate by check mark which financial statement
item 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.





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TABLE OF CONTENTS

|                                                 |  |                                                                                   |   |      |     | 
|------------------------------------------------ |  | --------------------------------------------------------------------------------- | - | ---- | --- | 
|                                                 |  |                                                                                   |   | Page
|                                                 |  |                                                                                   |   |     
|DEFINITIONS                                      |  |                                                                                   | 1 |     
|FORWARD LOOKING
    STATEMENTS                   |  |                                                                                   | 6 |     
|CONVENTIONS                                      |  |                                                                                   | 6 |     
|PART I                                           |  |                                                                                   |   |     
|Item    1.                                       |  | IDENTITY OF DIRECTORS,
    SENIOR MANAGEMENT AND ADVISERS*                        |   |      | 7   | 
|Item    2.                                       |  | OFFER STATISTICS AND
    EXPECTED TIMETABLE*                                      |   |      | 7   | 
|Item    3.                                       |  | KEY INFORMATION                                                                   |   |      | 7   | 
|Item    4.                                       |  | INFORMATION ON THE
    COMPANY                                                    |   |      | 22  | 
|Item    5.                                       |  | OPERATING AND FINANCIAL
    REVIEW AND PROSPECTS                                  |   |      | 72  | 
|Item    6.                                       |  | DIRECTORS, SENIOR MANAGEMENT
    AND EMPLOYEES                                    |   |      | 125 | 
|Item    7.                                       |  | MAJOR STOCKHOLDERS AND
    RELATED PARTY TRANSACTIONS                             |   |      | 134 | 
|Item    8.                                       |  | FINANCIAL INFORMATION                                                             |   |      | 143 | 
|Item    9.                                       |  | THE OFFER AND LISTING                                                             |   |      | 145 | 
|Item   10.                                       |  | ADDITIONAL INFORMATION                                                            |   |      | 148 | 
|Item   11.                                       |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURE ABOUT MARKET RISK                     |   |      | 163 | 
|Item   12.                                       |  | DESCRIPTION OF SECURITIES
    OTHER THAN EQUITY SECURITIES*                       |   |      | 167 | 
|PART II                                          |  |                                                                                   |   |     
|Item   13.                                       |  | DEFAULTS, DIVIDEND
    ARREARAGES AND DELINQUENCIES*                              |   |      | 167 | 
|Item   14.                                       |  | MATERIAL MODIFICATIONS TO
    THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS* |   |      | 167 | 
|Item   15.                                       |  | CONTROL AND PROCEDURES                                                            |   |      | 167 | 
|Item   16.                                       |  | RESERVED                                                                          |   |      | 169 | 
|Item 16A.                                        |  | AUDIT COMMITTEE FINANCIAL
    EXPERT                                              |   |      | 169 | 
|Item 16B.                                        |  | CODE OF ETHICS                                                                    |   |      | 170 | 
|Item 16C.                                        |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                        |   |      | 170 | 
|Item 16D.                                        |  | EXEMPTIONS FROM THE LISTING
    STANDARDS FOR AUDIT COMMITTEES*                   |   |      | 171 | 
|Item 16E.                                        |  | PURCHASES OF EQUITY
    SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS*       |   |      | 171 | 
|PART III                                         |  |                                                                                   |   |     
|Item   17.                                       |  | CONSOLIDATED FINANCIAL
    STATEMENTS*                                            |   |      | 172 | 
|Item   18.                                       |  | CONSOLIDATED FINANCIAL
    STATEMENTS                                             |   |      | 172 | 
|Item   19.                                       |  | EXHIBITS                                                                          |   |      | 172 | 
|EX-4.10 First Amend Contract DD Dec 15, 2003    
|EX-4.22 Co-operation Agreement DD Jan 14, 2003  
|EX-4.28 Amend#6 to Dev't Contract DD Oct 9, 2003
|Ex-4.29 Amend#7 to Dev't Contract DD Dec 4, 2003
|Ex-4.36 Amend#3 Partnership Agmt DD Dec 11, 2003
|Ex-4.42 Supply Contract DD May 14, 2004         
|Ex-4.43 Loan Agreement DD Jan 28, 2004          
|Ex-4.44 Letter Agreement DD Dec 11, 2003        
|Ex-4.45 Indemnity Agreement dated June 29, 2004 
|Ex-12.1 Certification to Section 302            
|Ex-12.2 Certification to Section 302            
|Ex-13.1 Certification to Section 906            
|Ex-13.2 Certification to Section 906            





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|  |                                            
|- | -------------------------------------------
|* | Omitted because the item is not applicable.

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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 or Revenue Sharing
    Arrangement |  | (Pola Bagi Hasil) is a type of Build, Operate and
    Transfer 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.                                                                                                                                            
|                                          
|RUIM or RUIM card                      |  | (Removable Unit Identity Card) is a
    smart card designed to be inserted into a fixed
    wireless telephone that uniquely identifies a CDMA network
    subscription and that contains subscriber-related data such as
    phone numbers, service details and memory for storing messages.
|                                          
|satellite transponder                    |  | 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.  

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|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SMS            |  | Short Messaging Service, a technology allowing
    the exchange of text messages between mobile cellular phones and
    between fixed wireless 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.                                                                                                                                                                                                                                         
|                
|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.                                                                                                                                                                                                                                                                                                                                                          
|                
|VPN            |  | (Virtual Private Network) is a secure private
    network connection, built on top of publicly-accessible
    infrastructure, such as the Internet or the public telephone
    network. VPNs typically employ some combination of encryption,
    digital certificates, strong user authentication and access
    control to provide security to the traffic they carry. They
    usually provide connectivity to many machines behind a gateway
    or firewall.
|                
|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 looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities
Act) and Section 21E of the Securities Exchange Act
of 1934, as amended (the Exchange Act) and the
Private Securities Litigation Reform Act of 1995, with respect
to the financial condition, results of operations and business
of Perusahaan Perseroan (Persero) P.T. Telekomunikasi
Indonesia Tbk. (TELKOM or the Company)
and its subsidiaries and certain plans and objectives of the
Company or the Company and its subsidiaries, wherever
applicable, with respect to these items  in
particular, among other statements, certain statements in
Item 5. Operating and Financial Review and
Prospects including, without limitation, those concerning
the Companys expectations and plans, strategy,
managements objectives, trends in market shares, market
standing, overall market trends, risk management, exchange rates
and revenues and general and administration expenses and forward
looking statements concerning the Companys operations,
performance and financial condition. Such statements can be
generally identified by the use of terms such as
believes, expects, may,
will, would, could,
plans, or anticipates, and the negatives
of such terms or comparable terms. By their nature, forward
looking statements involve risk and uncertainty because they are
related to events which depend on circumstances that will occur
in the future. There are a number of factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward looking statements.
Important information regarding risks and uncertainty is set
forth elsewhere in this annual report, including in Item 3.
Key Information  D. Risk Factors,
Item 5. Operating and Financial Review and
Prospects  E. Off-Balance Sheet Arrangements,
Item 5. Operating and Financial Review and
Prospects  F. Tabular Disclosure of Contractual
Obligations and Item 11. Quantitative and
Qualitative Disclosures About Market Risk.




CONVENTIONS

In this Annual Report, unless otherwise specified
or the context otherwise requires, all references to
Indonesia are references to the Republic of
Indonesia and all references to the U.S. and
United States are references to the United States of
America. All references to the Government herein are
references to the government of the Republic of Indonesia.
References herein to Rupiah and Rp. are
to the lawful currency of Indonesia and all references to
US Dollars or US$ are to the lawful
currency of the United States of America. For convenience,
unless otherwise specified, certain Rupiah amounts have been
translated into US Dollar amounts, based on the prevailing
exchange rate of Rp.8,440 = US$1.00, being the middle
market spot rate of exchange for Rupiah against US Dollar quoted
by Reuters on December 31, 2003. Such translations should
not be construed as representations that the Rupiah or US Dollar
amounts referred to could have been, or could be, converted into
Rupiah or US Dollars, as the case may be, at that or any other
rate or at all. The average middle market spot rate of exchange
for Rupiah against US Dollar quoted by Bank Indonesia on
December 31, 2003 was Rp.8,465 to US$1.00. See Item 3.
Key Information  A. Selected financial
data  Exchange Rate Information for further
information regarding rates of exchange between Rupiah and US
Dollars.

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##### Table of Contents






PART I




ITEM 1.     IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.




ITEM 2.     OFFER
STATISTICS AND EXPECTED TIMETABLE

Not applicable.




ITEM 3.     KEY
INFORMATION

A.     Selected
financial data

TELKOMs consolidated financial statements
for the year 1999 were audited by KAP Prasetio, Utomo & Co.,
the member firm of Arthur Andersen & Co. SC in Indonesia.
The Companys consolidated financial statements for the
years 2000 and 2001 were audited by KAP Hans Tuanakotta
Mustofa & Halim (formerly KAP Hans
Tuanakotta & Mustofa), the member firm of Deloitte
Touche Tohmatsu in Indonesia. The Companys consolidated
financial statements for the year 2002 have been audited by KAP
Drs. Haryanto Sahari & Rekan (formerly KAP
Drs. Hadi Sutanto & Rekan), the member firm of
PricewaterhouseCoopers in Indonesia. The Companys
consolidated financial statements for the year 2003 have been
audited by KAP Siddharta Siddharta & Widjaja, the member
firm of KPMG International in Indonesia. All such consolidated
financial statements were prepared in accordance with Indonesian
GAAP, which differs in certain significant respects from
U.S. GAAP. See Item 5. Operating and Financial
Review and Prospects  Summary of Significant
Differences between Indonesian GAAP and U.S. GAAP and
Note 58 to the Companys consolidated financial
statements, which provide a description of the significant
differences between Indonesian GAAP and U.S. GAAP and a
reconciliation to the amount of U.S. GAAP net income and
stockholders equity of TELKOM for and as of the end of
each of the periods indicated in the consolidated financial
statements.

Following the dissolution of Andersen Worldwide
in 2002, KAP Prasetio, Utomo & Co. ceased business
operations in Indonesia in August 2002. As a consequence, KAP
Prasetio, Utomo & Co. has not reissued an audit opinion in
respect of the 1999 consolidated financial statements and,
therefore, the information included in the relevant selected
financial information for 1999 is derived from unaudited
consolidated financial statements.

For the year 2003, ten companies were
consolidated into the Companys consolidated financial
statements, namely: PT AriaWest International
(AriaWest, 100.00%), PT Multimedia Nusantara
(Metra, 100.00%), PT Graha Sarana Duta
(GSD, 99.99%), PT Pramindo Ikat Nusantara
(Pramindo, 100.00%), PT Indonusa Telemedia
(Indonusa, 90.39%), PT Dayamitra Telekomunikasi
(Dayamitra, 90.32%), PT Telekomunikasi Selular
(Telkomsel, 65.00%), PT Napsindo Primatel
Internasional (Napsindo, 60.00%), PT Infomedia
Nusantara (Infomedia, 51.00%) and PT Pro
Infokom Indonesia (PII, 51.00%).

7



---



##### Table of Contents



The following tables set forth a summary of the
financial information of TELKOM as of and for the years
specified. This information should be read in conjunction with
Item 5. Operating and Financial Review and
Prospects and is qualified in its entirety by reference to
TELKOMs consolidated financial statements and the related
notes thereto included elsewhere in this Annual Report.

|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |     |       |     |       | 
|---------------------------------- | --------------------- | ---------------------------------------------------------- | -------------------------------------------------- | -------------------------------------- | ------------------------------------------- | --------- | ----- | --------- | ----- | --------- | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | --- | ----- | --- | ----- | 
|                                   |                       |                                                           
|                                   |                       | Year Ended December 31,                                   
|                                   |                       |                                                           
|                                   |                       | 1999                                                       |                                                    | 2000                                   |                                             | 2001      |       | 2002      |       | 2003      |       | 2003 
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |      
|                                   |                       | (unaudited)                                                |                                                    | (audited)                              |                                             | (audited) |       | (audited) |       | (audited) |       |      
|                                   |                       |                                                            |                                                    |                                       
|                                   |                       | (Rp. in billion, except for data relating to shares,       |                                                    | (US$ million)                         
|                                   |                       |                                                            |                                                    |                                       
|                                   |                       | Dividends and ADS)                                         |                                                    |                                       
|Consolidated Income Statement Data |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|Indonesian GAAP                    |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   | Operating revenues(1) |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |    
|                                   |                       | Telephone                                                  |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |     |      
|                                   |                       |                                                            | Fixed lines                                        |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |     |       |    
|                                   |                       |                                                            |                                                    | Local and domestic long-distance usage |                                             |           | 3,571 |           |       |           | 4,097 |       |       |        | 5,226 |       |       |        | 5,448 |       |       |        | 6,562 |       |     |       | 777 |      
|                                   |                       |                                                            |                                                    | Monthly subscription charges           |                                             |           | 799   |           |       |           | 887   |       |       |        | 998   |       |       |        | 1,475 |       |       |        | 1,949 |       |     |       | 231 |      
|                                   |                       |                                                            |                                                    | Installation charges                   |                                             |           | 68    |           |       |           | 75    |       |       |        | 98    |       |       |        | 130   |       |       |        | 223   |       |     |       | 27  |      
|                                   |                       |                                                            |                                                    | Others                                 |                                             |           | 91    |           |       |           | 119   |       |       |        | 93    |       |       |        | 211   |       |       |        | 163   |       |     |       | 19  |      
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   |                       |                                                            |                                                    |                                        | Total fixed lines revenues                  |           |       | 4,529     |       |           |       | 5,178 |       |        |       | 6,415 |       |        |       | 7,264 |       |        |       | 8,897 |     |       |     | 1,054 | 
|                                   |                       |                                                            | Cellular                                           |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |     |       |    
|                                   |                       |                                                            |                                                    | Air time charges                       |                                             |           | 1,458 |           |       |           | 2,484 |       |       |        | 3,988 |       |       |        | 5,454 |       |       |        | 7,678 |       |     |       | 910 |      
|                                   |                       |                                                            |                                                    | Monthly subscription charges           |                                             |           | 236   |           |       |           | 356   |       |       |        | 581   |       |       |        | 593   |       |       |        | 581   |       |     |       | 68  |      
|                                   |                       |                                                            |                                                    | Features                               |                                             |           | 4     |           |       |           | 7     |       |       |        | 10    |       |       |        | 8     |       |       |        | 6     |       |     |       | 1   |      
|                                   |                       |                                                            |                                                    | Connection fee charges                 |                                             |           | 51    |           |       |           | 43    |       |       |        | 129   |       |       |        | 172   |       |       |        | 194   |       |     |       | 23  |      
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   |                       |                                                            |                                                    |                                        | Total cellular revenues                     |           |       | 1,749     |       |           |       | 2,890 |       |        |       | 4,708 |       |        |       | 6,227 |       |        |       | 8,459 |     |       |     | 1,002 | 
|                                   |                       |                                                            | Total telephone revenues                           |                                        |                                             | 6,278     |       |           |       | 8,068     |       |       |       | 11,123 |       |       |       | 13,491 |       |       |       | 17,356 |       |       |     | 2,056 |    
|                                   |                       | Joint Operation Schemes                                    |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |     |      
|                                   |                       |                                                            | Minimum TELKOM Revenues (MTR)                      |                                        |                                             | 1,453     |       |           |       | 1,557     |       |       |       | 1,474  |       |       |       | 1,320  |       |       |       | 900    |       |       |     | 107   |    
|                                   |                       |                                                            | Share in Distributable KSO Revenues (DKSOR)        |                                        |                                             | 209       |       |           |       | 695       |       |       |       | 733    |       |       |       | 801    |       |       |       | 583    |       |       |     | 69    |    
|                                   |                       |                                                            | Amortization of unearned initial investor payments |                                        |                                             | 15        |       |           |       | 15        |       |       |       | 13     |       |       |       | 7      |       |       |       | 3      |       |       |     | 0     |    
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   |                       |                                                            |                                                    |                                        | Total revenue under Joint Operation Schemes |           |       | 1,677     |       |           |       | 2,267 |       |        |       | 2,220 |       |        |       | 2,128 |       |        |       | 1,486 |     |       |     | 176   | 
|                                   |                       | Interconnection  Net                                      |                                                    |                                        | 706                                         |           |       |           | 981   |           |       |       | 1,424 |        |       |       | 2,831 |        |       |       | 4,162 |        |       |       | 493 |      
|                                   |                       | Network                                                    |                                                    |                                        | 343                                         |           |       |           | 340   |           |       |       | 415   |        |       |       | 316   |        |       |       | 518   |        |       |       | 62  |      
|                                   |                       | Data and Internet                                          |                                                    |                                        | 54                                          |           |       |           | 108   |           |       |       | 673   |        |       |       | 1,552 |        |       |       | 3,109 |        |       |       | 368 |      
|                                   |                       | Revenue-Sharing Arrangement                                |                                                    |                                        | 360                                         |           |       |           | 288   |           |       |       | 264   |        |       |       | 264   |        |       |       | 258   |        |       |       | 31  |      
|                                   |                       | Other telecommunications-related services                  |                                                    |                                        | 19                                          |           |       |           | 138   |           |       |       | 165   |        |       |       | 221   |        |       |       | 227   |        |       |       | 27  |      
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   |                       |                                                            | Total Operating Revenues                           |                                        |                                             | 9,437     |       |           |       | 12,190    |       |       |       | 16,284 |       |       |       | 20,803 |       |       |       | 27,116 |       |       |     | 3,213 |    
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   | Operating expenses    |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |       |    
|                                   |                       | Personnel                                                  |                                                    |                                        | 1,349                                       |           |       |           | 1,770 |           |       |       | 2,281 |        |       |       | 4,388 |        |       |       | 4,440 |        |       |       | 526 |      
|                                   |                       | Depreciation                                               |                                                    |                                        | 2,627                                       |           |       |           | 2,419 |           |       |       | 2,870 |        |       |       | 3,474 |        |       |       | 4,779 |        |       |       | 566 |      
|                                   |                       | Operations, maintenance and telecommunication
    services |                                                    |                                        | 1,146                                       |           |       |           | 1,386 |           |       |       | 2,150 |        |       |       | 2,290 |        |       |       | 3,339 |        |       |       | 396 |      
|                                   |                       | General and administrative                                 |                                                    |                                        | 571                                         |           |       |           | 872   |           |       |       | 1,343 |        |       |       | 1,146 |        |       |       | 2,079 |        |       |       | 246 |      
|                                   |                       | Marketing                                                  |                                                    |                                        | 76                                          |           |       |           | 147   |           |       |       | 220   |        |       |       | 375   |        |       |       | 503   |        |       |       | 60  |      
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      
|                                   |                       |                                                            | Total Operating Expenses                           |                                        |                                             | 5,769     |       |           |       | 6,594     |       |       |       | 8,864  |       |       |       | 11,673 |       |       |       | 15,140 |       |       |     | 1,794 |    
|                                   |                       |                                                            |                                                    |                                        |                                             |           |       |           |       |           |       |       |       |        |       |       |       |        |       |       |       |        |       |      

8



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##### Table of Contents



|                                                                  |                                                         |                                                      |        |               |   |           |        |           |   |           |        |          |   |  |        |           |   |  |        |           |   |  |       |      |  
|----------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------- | ------ | ------------- | - | --------- | ------ | --------- | - | --------- | ------ | -------- | - |  | ------ | --------- | - |  | ------ | --------- | - |  | ----- | ---- | -
|                                                                  |                                                         |                                                     
|                                                                  |                                                         | Year Ended December 31,                             
|                                                                  |                                                         |                                                     
|                                                                  |                                                         | 1999                                                 |        | 2000          |   | 2001      |        | 2002      |   | 2003      |        | 2003    
|                                                                  |                                                         |                                                      |        |               |   |           |        |           |   |           |        |         
|                                                                  |                                                         | (unaudited)                                          |        | (audited)     |   | (audited) |        | (audited) |   | (audited) |        |         
|                                                                  |                                                         |                                                      |        |              
|                                                                  |                                                         | (Rp. in billion, except for data relating to shares, |        | (US$ million)
|                                                                  |                                                         |                                                      |        |              
|                                                                  |                                                         | Dividends and ADS)                                   |        |              
|Operating Income                                                  |                                                         |                                                      | 3,668  |               |   |           | 5,596  |           |   |           | 7,420  |          |   |  | 9,130  |           |   |  | 11,976 |           |   |  | 1,419 |     
|Other income (expense)                                            |                                                         |                                                      |        |               |   |           |        |           |   |           |        |          |   |  |        |           |   |  |        |           |   |  |       |     
|                                                                  | Gain on sale of long-term investment in Telkomsel       |                                                      |        |              |   |           |        |          |   |           |        |         |   |  |        | 3,196     |   |  |        |          |   |  |       |     |  
|                                                                  | Interest expense                                        |                                                      |        | (1,492        | ) |           |        | (817      | ) |           |        | (1,330   | ) |  |        | (1,583    | ) |  |        | (1,383    | ) |  |       | (164 | )
|                                                                  | Interest income                                         |                                                      |        | 762           |   |           |        | 692       |   |           |        | 572      |   |  |        | 480       |   |  |        | 366       |   |  |       | 44   |  
|                                                                  | Gain (loss) on foreign exchange  net                   |                                                      |        | 326           |   |           |        | (944      | ) |           |        | (379     | ) |  |        | 557       |   |  |        | 126       |   |  |       | 15   |  
|                                                                  | Equity in net income (loss) of associated
    companies |                                                      |        | 137           |   |           |        | (232      | ) |           |        | (86      | ) |  |        | 5         |   |  |        | 3         |   |  |       | 0    |  
|                                                                  | Other  net                                             |                                                      |        | 101           |   |           |        | 313       |   |           |        | 353      |   |  |        | (36       | ) |  |        | 364       |   |  |       | 43   |  
|Other Income (Expense)  net                                      |                                                         |                                                      | (166   | )             |   |           | (988   | )         |   |           | (870   | )        |   |  | 2,619  |           |   |  | (524   | )         |   |  | (62   | )   
|Income Before Tax                                                 |                                                         |                                                      | 3,502  |               |   |           | 4,608  |           |   |           | 6,550  |          |   |  | 11,749 |           |   |  | 11,452 |           |   |  | 1,357 |     
|Tax expense                                                       |                                                         |                                                      | (1,004 | )             |   |           | (1,520 | )         |   |           | (2,007 | )        |   |  | (2,899 | )         |   |  | (3,861 | )         |   |  | (458  | )   
|Income before minority interest in net income of
    subsidiaries |                                                         |                                                      | 2,498  |               |   |           | 3,088  |           |   |           | 4,543  |          |   |  | 8,850  |           |   |  | 7,591  |           |   |  | 899   |     
|Minority interest in net income of Subsidiaries                   |                                                         |                                                      | (162   | )             |   |           | (313   | )         |   |           | (475   | )        |   |  | (810   | )         |   |  | (1,503 | )         |   |  | (178  | )   
|Net Income                                                        |                                                         |                                                      | 2,336  |               |   |           | 2,775  |           |   |           | 4,068  |          |   |  | 8,040  |           |   |  | 6,087  |           |   |  | 721   |     
|Weighted average shares outstanding (millions)                    |                                                         |                                                      | 9,644  |               |   |           | 10,080 |           |   |           | 10,080 |          |   |  | 10,080 |           |   |  | 10,080 |           |   |  |       |     
|                                                                  | Net income per share                                    |                                                      |        | 242.26        |   |           |        | 275.30    |   |           |        | 403.61   |   |  |        | 797.59    |   |  |        | 603.89    |   |  |       |      |  
|                                                                  | Net income per ADS                                      |                                                      |        | 4,845.29      |   |           |        | 5,505.96  |   |           |        | 8,072.20 |   |  |        | 15,951.80 |   |  |        | 12,077.83 |   |  |       |      |  
|                                                                  | Dividend declared per share                             |                                                      |        | 50.99         |   |           |        | 107.76    |   |           |        | 88.16    |   |  |        | 210.82    |   |  |        | 331.16    |   |  |       |      |  
|U.S. GAAP(2)                                                      |                                                         |                                                      |        |               |   |           |        |           |   |           |        |          |   |  |        |           |   |  |        |           |   |  |       |     
|                                                                  | Net income                                              |                                                      |        | 2,679         |   |           |        | 2,216     |   |           |        | 4,298    |   |  |        | 8,587     |   |  |        | 5,791     |   |  |       |      |  
|                                                                  | Net income per share                                    |                                                      |        | 277.80        |   |           |        | 219.87    |   |           |        | 426.41   |   |  |        | 851.91    |   |  |        | 574.47    |   |  |       |      |  
|                                                                  | Net income per ADS                                      |                                                      |        | 5,555.90      |   |           |        | 4,397.47  |   |           |        | 8,528.17 |   |  |        | 17,038.21 |   |  |        | 11,489.40 |   |  |       |      |  

|                                |                            |                    |  |               |  |           |  |           |  |           |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|------------------------------- | -------------------------- | ------------------ |  | ------------- |  | --------- |  | --------- |  | --------- |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                                |                            |                   
|                                |                            | As of December 31,
|                                |                            |                   
|                                |                            | 1999               |  | 2000          |  | 2001      |  | 2002      |  | 2003      |  | 2003  
|                                |                            |                    |  |               |  |           |  |           |  |           |  |       
|                                |                            | (unaudited)        |  | (audited)     |  | (audited) |  | (audited) |  | (audited) |  |       
|                                |                            |                    |  |              
|                                |                            | (Rp. in billion)   |  | (US$ million)
|Consolidated Balance Sheet Data |                            |                    |  |               |  |           |  |           |  |           |  |        |  |  |  |        |  |  |  |        |  |  |  |      
|Indonesian GAAP                 |                            |                    |  |               |  |           |  |           |  |           |  |        |  |  |  |        |  |  |  |        |  |  |  |      
|                                | Total assets               |                    |  | 28,574        |  |           |  | 32,019    |  |           |  | 33,036 |  |  |  | 44,307 |  |  |  | 50,283 |  |  |  | 5,957 | 
|                                | Current liabilities(3)     |                    |  | 4,058         |  |           |  | 4,138     |  |           |  | 9,543  |  |  |  | 9,708  |  |  |  | 11,201 |  |  |  | 1,327 | 
|                                | Other liabilities          |                    |  | 2,630         |  |           |  | 3,048     |  |           |  | 3,447  |  |  |  | 5,383  |  |  |  | 6,227  |  |  |  | 738   | 
|                                | Long-term debt             |                    |  | 8,541         |  |           |  | 9,546     |  |           |  | 9,730  |  |  |  | 12,006 |  |  |  | 11,834 |  |  |  | 1,402 | 
|                                | Total liabilities          |                    |  | 15,229        |  |           |  | 16,732    |  |           |  | 22,720 |  |  |  | 27,097 |  |  |  | 29,262 |  |  |  | 3,467 | 
|                                | Minority interest          |                    |  | 534           |  |           |  | 814       |  |           |  | 1,235  |  |  |  | 2,596  |  |  |  | 3,708  |  |  |  | 439   | 
|                                | Capital stock(4)           |                    |  | 5,040         |  |           |  | 5,040     |  |           |  | 5,040  |  |  |  | 5,040  |  |  |  | 5,040  |  |  |  | 597   | 
|                                | Total stockholders equity |                    |  | 12,810        |  |           |  | 14,473    |  |           |  | 9,081  |  |  |  | 14,614 |  |  |  | 17,313 |  |  |  | 2,051 | 
|U.S. GAAP(2)                    |                            |                    |  |               |  |           |  |           |  |           |  |        |  |  |  |        |  |  |  |        |  |  |  |      
|                                | Total assets               |                    |  | 27,236        |  |           |  | 30,900    |  |           |  | 32,449 |  |  |  | 44,623 |  |  |  | 51,347 |  |  |  | 6,084 | 
|                                | Total stockholders equity |                    |  | 11,419        |  |           |  | 12,928    |  |           |  | 7,766  |  |  |  | 13,911 |  |  |  | 16,285 |  |  |  | 1,929 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Beginning 2002, TELKOM 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 purposes of comparability,
    TELKOM has also reclassified its revenues for prior periods.                                                                                                                                                                                                                                                                                               
|(2) | U.S. GAAP amounts reflect adjustments
    resulting from differences in the accounting treatment of
    termination benefits, foreign exchange differences capitalized
    to property under construction, interest capitalized on property
    under construction, revenue-sharing arrangements, revaluation of
    property, plant and equipment, pension, equity in net income or
    loss of associated companies, land rights, equipment to be
    installed, revenue recognition, goodwill, capital leases,
    acquisition of Dayamitra, reversal of difference due to change
    of equity in associated companies, asset retirement obligations,
    and deferred

9



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##### Table of Contents



| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | income taxes. See Item 5. Operating
    and Financial Review and Prospects  A. Operating
    Results  Summary of Significant Differences between
    Indonesian GAAP and U.S. GAAP and Note 58(1) to
    the Companys consolidated financial statements.

|    |                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Includes current maturities of long-term debt.                                                                                                                                                                                                                                                   
|(4) | 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.

Exchange Rate Information

Prior to August 14, 1997, Bank Indonesia
maintained the value of the Rupiah based on a basket of
currencies of Indonesias main trading partners. In July
1997, the exchange rate band was widened and on August 14,
1997, Bank Indonesia announced it would no longer intervene in
maintaining the exchange rate at any pre-determined level.

The following table shows the exchange rate of
Rupiah to US Dollar based on the middle exchange rates at the
end of each month for the periods indicated. The Rupiah middle
exchange rate is calculated based on Bank Indonesia buying and
selling rates. No representations are made that the Rupiah or US
Dollar amounts referred to herein could have been or could be
converted into US Dollar or Rupiah, as the case may be, at any
particular rate or at all.

|     |                |                   |        |            |  |         |        |        |  |  |        |        |  |  |       |        | 
|---- | -------------- | ----------------- | ------ | ---------- |  | ------- | ------ | ------ |  |  | ------ | ------ |  |  | ----- | ------ | 
|     |                | At period         |        |            |  |         |        |       
|Year |                | end               |        | Average(1) |  | High(2) |        | Low(2)
|     |                |                   |        |            |  |         |        |       
|     |                |                  
|     |                | (Rp. per US$1.00)
|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      |  |         |        | 8,427  |  |  |        | 8,665  |  |  |       | 8,166  | 
|     | Fourth Quarter |                   |        | 8,465      |  |         |        | 8,471  |  |  |        | 8,583  |  |  |       | 8,365  | 

10



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|     |               |                   |  |            |  |         |  |        |  |  |  |       |  |  |  |       | 
|---- | ------------- | ----------------- |  | ---------- |  | ------- |  | ------ |  |  |  | ----- |  |  |  | ----- | 
|     |               | At period         |  |            |  |         |  |       
|Year |               | end               |  | Average(1) |  | High(2) |  | Low(2)
|     |               |                   |  |            |  |         |  |       
|     |               |                  
|     |               | (Rp. per US$1.00)
|2004 |               |                   |  |            |  |         |  |        |  |  |  |       |  |  |  |      
|     | First Quarter |                   |  | 8,587      |  |         |  | 8,460  |  |  |  | 8,645 |  |  |  | 8,323 | 
|     | January       |                   |  | 8,441      |  |         |  | 8,386  |  |  |  | 8,574 |  |  |  | 8,323 | 
|     | February      |                   |  | 8,447      |  |         |  | 8,425  |  |  |  | 8,452 |  |  |  | 8,390 | 
|     | March         |                   |  | 8,587      |  |         |  | 8,569  |  |  |  | 8,645 |  |  |  | 8,442 | 
|     | April         |                   |  | 8,661      |  |         |  | 8,608  |  |  |  | 8,661 |  |  |  | 8,574 | 
|     | May           |                   |  | 9,210      |  |         |  | 8,965  |  |  |  | 9,225 |  |  |  | 8,679 | 
|     | June 24, 2004 |                   |  | 9,410      |  |         |  |       |  |  |  |      |  |  |  |      | 



---



|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

|        |               
|------- | --------------
|Source: | Bank Indonesia

The exchange rates used for translation of
monetary assets and liabilities denominated in foreign
currencies are the buy and sell rates published by Bridge
Telerate in 2001 and Reuters in 2002 and 2003. The buy and sell
rates published by Bridge Telerate were Rp.10,400 and Rp.10,450
to US$1 as at December 31, 2001. The Reuters buy and sell
rates, applied respectively to monetary assets and liabilities,
were Rp.8,940 and Rp.8,960 to US$1 as of December 31, 2002,
and Rp.8,430 and Rp.8,450 to US$1 as of December 31, 2003.
The Company does not guarantee that assets and liabilities
denominated in foreign currencies can be converted into
Indonesian Rupiah at the rates of exchange as of
December 31, 2003.

The consolidated financial statements are stated
in Rupiah. The translations of Rupiah amounts into
US Dollars are included solely for the convenience of the
readers and have been made using the average of the market buy
and sell rates of Rp.8,440 to US$1 published by Reuters on
December 31, 2003. The convenience translations should not
be construed as representations that the Rupiah amounts have
been, could have been, or can in the future be, converted into
US Dollars at this or any other rate of exchange.

B.     Capitalization
and Indebtedness

Not applicable.

C.     Reason for the
Offer and Use of Proceeds

Not applicable.

D.     Risk
Factors



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | TELKOM did not file a fully compliant 2002
    Annual Report on Form 20-F until February 9, 2004 and
    may face an SEC enforcement action, or other legal liability or
    adverse consequences.

TELKOM was unable to meet its June 30, 2003
deadline to file a fully compliant Annual Report on
Form 20-F for 2002 because the audit firm it had originally
appointed to perform its 2002 audit was not qualified for SEC
purposes, and TELKOMs SEC-qualified 2002 auditors, KAP
Drs. Haryanto Sahari & Rekan (formerly KAP
Drs. Hadi Sutanto & Rekan), the member firm of
PricewaterhouseCoopers in Indonesia, did not begin their audit
work until their appointment in July 2003. TELKOM filed a
non-compliant Annual Report on April 17, 2003 and then
filed an amended non-compliant 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;

11



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                       

TELKOM did not file Amendment No. 2 to its
2002 Annual Report until February 9, 2004, which was over
7 months past the June 30, 2003 filing deadline.
Amendment No. 2 to TELKOMs 2002 Annual Report
contained audited consolidated financial statements as of and
for the years ended December 31, 2000, 2001 and 2002 which
restated previously filed audited consolidated financial
statements as of and for the years ended December 31, 2000
and 2001 and previously filed unaudited consolidated financial
statements as of and for the year ended December 31, 2002,
and revised or updated various disclosures. Such restated
consolidated financial statements (and the related selected
financial information) reflected certain adjustments and
modified certain disclosures for several items under Indonesian
GAAP and with respect to the reconciliation of those items to US
GAAP.

Because of the foregoing and because TELKOM did
not file a compliant Annual Report on Form 20-F until after
the June 30, 2002 deadline, TELKOM may face an SEC
enforcement action under U.S. securities law and incur
other legal liability and adverse consequences such as a
delisting of its ADSs from the New York Stock Exchange. In
addition, the staff of the SEC described a press release that
TELKOM issued and furnished to the SEC on Form 6-K in May
2003 as grossly understating the nature and severity of
the staffs concerns regarding matters related to
TELKOMs filing of a non-compliant Annual Report. Such
press release could also form the basis of an SEC enforcement
action and other legal liability. TELKOM cannot at this time
predict the likelihood or severity of an SEC enforcement action
or any other legal liability or adverse consequences.

As a result of TELKOMs failure to timely
file a compliant Annual Report on Form 20-F for 2002 with
the SEC by the June 30, 2003 deadline and the May 2003
press release relating thereto, TELKOM may have been in breach
of certain covenants in its Citibank and Bank Central Asia (BCA)
debt facilities that require TELKOM, among other things, to
comply with all laws and regulations applicable to it and
deliver financial statements to the lenders. TELKOM has obtained
written waivers from both Citibank, acting as agent for the
lenders under the relevant facility agreements, and BCA with
respect to such breaches. Nevertheless, any of the adverse
consequences referred to in the immediately preceding paragraph
(such as, but not limited to, an SEC enforcement action) could
give rise to defaults under one or more of TELKOMs debt
facilities and cross defaults under other debt facilities with
respect to such defaults. If TELKOM were unable to obtain
waivers of any such defaults, indebtedness outstanding under
such debt facilities could become immediately due and payable,
which could have a material adverse effect on TELKOM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 process
of democratic change, resulting in political and social events
that have highlighted the unpredictable nature of
Indonesias changing political land-

12



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##### Table of Contents



scape. These events have resulted in political
instability, as well as general social and civil unrest on a
number of occasions in the past few years. For example, in June
2001, demonstrations and strikes affected at least 19 cities
after the Government mandated a 30% increase in fuel prices.
Similar demonstrations occurred in January 2003, when the
Government again tried to increase fuel prices, as well as
electricity and telephone charges. In both instances, the
Government was forced to drop or substantially reduce such
proposed increases.


Recently, hostilities in the province of Aceh
have reached new heights. A prior peace pact, known as the
Cessation of Hostilities Agreement, has failed to maintain peace
between the Free Aceh Movement (GAM) militia and the Government
and the Joint Security Committee formed by the two sides has
been disbanded. Increasing tension in Aceh has led to a recent
military build-up in the province and continued outbreaks of
violence, arson and social unrest. Human rights violators,
including those from high-ranking military positions, have
recently begun to be more actively prosecuted in Indonesia.
However, the success of these prosecutions has been mixed.

During the years 2002 and 2003, several bombing
incidents took place in Indonesia, including in Bali, at the JW
Marriott hotel in Jakarta and at the airport, shopping centers
and places of worship. Terrorist acts may be directed at
foreigners in Indonesia or in relation to political matters such
as the July 2004 Presidential and Vice-Presidential elections.

In April 5, 2004, Indonesians for the first
time directly elected representatives to the Indonesian
parliament via proportional voting with an open list of
candidates. As of the date hereof, the tallying of votes and the
overall results of the parliamentary election have been
generally peaceful, and business and investment activity in
Indonesia do not appear to have been adversely affected. We
expect, however, that in the lead-up to the July 2004
Presidential and Vice-Presidential elections, increased
political activity and campaigning may result in a degree of
political and social uncertainty with regard to Indonesia and
economic activity may be adversely affected, as both foreign and
domestic investors may become cautious and scale down or
postpone business activity during this period.

Political and related social developments in
Indonesia have been unpredictable in the past and there can be
no assurance that social and civil disturbances will not occur
in the future and on a wider scale, or that any such
disturbances will not, directly or indirectly, have a material
adverse effect on us or on an investment in the ADSs or Common
Stock. Further, these social and civil disturbances could
continue to have a material adverse effect on investment and
confidence in and the performance of, the Indonesian economy and
in turn our business.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and
any future changes in the value of the Rupiah against the
US Dollar or other currencies could adversely affect
TELKOMs financial condition and results of operations. On
August 14, 1997, Bank Indonesia permitted the exchange rate
for the Rupiah to float without announcing a level at which it
would intervene. From August 1997 to mid-1998, the month-end
value of the Rupiah relative to the US Dollar declined from
approximately Rp.2,600 per US Dollar to as low as
approximately Rp.15,000 per US Dollar. There can be no
assurance that: (a) the Rupiah will not be subject to
continued depreciation or volatility; (b) the current
exchange rate policy will remain the same; (c) the
Government will act when necessary to stabilize, maintain or
increase the value of the Rupiah, or that any such action, if
taken, will be successful.

Continued depreciation or volatility of the
Rupiah against the US Dollar or other currencies could adversely
affect general economic conditions in Indonesia. Rupiah
depreciation would also drive up the Rupiah cost of
TELKOMs capital expenditure program since most of the
equipment to be used in the expansion of TELKOMs network
capacity is sourced off-shore and priced in foreign currencies,
mainly in US Dollars and Euros, while almost all of
TELKOMs revenues are in Rupiah. Changes in the current
exchange rate policy may result in significantly higher domestic
interest rates, liquidity shortages, capital or exchange
controls or the withholding of additional financial assistance
by multilateral

13



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##### Table of Contents



institutions. The foregoing consequences, if they
occur, could have a material adverse effect on TELKOMs
business. As of December 31, 2003, the average exchange
rate of Rupiah to US Dollar, based on the Reuters middle
buy and sell rates, was Rp.8,440 per US Dollar.


Fluctuations in the exchange rate between the
Rupiah and the US Dollar could affect, among other things,
the dollar value of any amounts a holder or beneficial owner of
ADSs will receive in the event we issue dividends, the
US Dollar value of the proceeds a holder or beneficial
owner would receive upon the sale in Indonesia of shares of the
Common Stock and the secondary market price of the ADSs.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Indonesia ended its Extended Financing
    Facility with the International Monetary Fund and the
    consequences thereof are unpredictable.

In December 2003, the Government ended its
Extended Financing Facility (EFF) program with the
International Monetary Fund (IMF) and began to
drawdown on its gross foreign reserves, as well as on its
outstanding balances at the IMF. Considering the
Governments current fiscal deficit and modest foreign
exchange reserves, the end of the EFF has raised concerns about
the ability of the Government to fund subsidies for staples such
as food and fuel, which, in turn, could have extremely serious
political and social consequences. The end of the EFF also
brings with it the end of the Governments ability to
reschedule Indonesias Paris Club bilateral foreign loans.
Other consequences of ending the EFF are not known at this
stage. While the Government has sought to address these concerns
by issuing a White Paper setting forth its fiscal strategy and
policy objectives for 2004, there can be no assurance that the
Governments strategy will be successful or that its
objectives will be met in full or in part.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Indonesia no longer has access to the Paris
    Club but continues to rely on loans from official
    creditors.

Since the financial crisis of 1997, the members
of the Paris Club have been an important source of funding for
the Government. The Paris Club is an informal voluntary group of
19 creditor countries that coordinates solutions for payment
difficulties experienced by debtor nations. As of
December 31, 2003, lending from the Paris Club members to
the Government accounted for approximately 36% of the
Governments total foreign debt. The last debt rescheduling
took place in April 2002 when the Paris Club rescheduled
approximately US$5.4 billion of principal and interest due
from the Government between April 2002 and December 2003. This
was done by extending the period within which the amounts could
be repaid.

In addition to the Paris Club, the World Bank and
the Asian Development Bank have been major sources of financing.
As of December 2003, these Banks had outstanding loans to the
Indonesian government of approximately US$18.3 billion.
Disbursements from these sources have been slower than expected
in recent years due to the slow pace of institutional reforms in
Indonesia and concerns regarding the Governments
decentralization plan. Currently, regional governments in
Indonesia are not allowed to borrow in foreign currency and any
change to Indonesian law allowing them to borrow in foreign
currency could be a source of potential debt service problems.
The World Bank and Asian Development Bank lending programs are
subject to regular compliance reviews and can be reduced or
withdrawn at any time. The impact of any elimination of lending
cannot be 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 debts
has forced it to negotiate with its major creditors several
times since the 1997 financial crisis. For example, the
Government held a round of talks with the Paris Club donor
countries and the IMF in April 2002 to discuss the rescheduling
of Indonesias debt due in 2002. In these talks, the
Government sought to restructure not just debt principal, but
interest payments as well, totaling US$2.6 billion. The
meeting resulted in the rescheduling of debt principal payments

14



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##### Table of Contents



only, but no assurance can be given as to
Indonesias capacity to meet these rescheduled debt
payments. While no further rescheduling has taken place, future
decisions to renegotiate Indonesias existing sovereign
indebtedness cannot be ruled out. Such decisions may affect
Indonesias sovereign credit rating and could have a
material 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 statistical
rating organizations, including Moodys Investors Service,
Inc. (Moodys) and Standard &
Poors Rating Services (S&P), downgraded
Indonesias sovereign rating and the credit ratings of
various credit instruments of the Government and a large number
of Indonesian banks and other companies. As of April 2,
2004, the Governments long-term foreign currency debt and
its short-term foreign currency debt were rated B2
and B2, respectively, by Moodys and rated
B and B, respectively, by S&P. These
ratings reflect an assessment of the Governments overall
ability to pay its obligations and its willingness to meet its
financial commitments as they come due. No assurance can be
given that Moodys, S&P or any other international
credit rating agency will not downgrade the credit ratings of
Indonesia or Indonesian companies. Any such downgrade would have
an adverse impact on liquidity in the Indonesian financial
markets and the ability of Indonesian companies, including
TELKOM, to raise additional financing and the interest rates at
which such additional financing is available.

Risks relating to TELKOM and its
subsidiaries



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | TELKOMs expansion plans may strain
    key resources and thereby adversely affect its business,
    financial condition and prospects.

To remain competitive and position TELKOM in
gaining market share, TELKOM has identified its primary business
objective as becoming a full service and network provider. To
achieve this objective, TELKOM has determined that it should
increase its focus on multimedia and other types of services in
addition to its present core business concentration on local,
domestic long-distance and mobile cellular services. TELKOM has
also received its commercial license to provide IDD services and
has begun offering IDD services beginning June 7, 2004. The
implementation of measures designed to achieve these objectives
could strain TELKOMs managerial, financial and other
resources, which could adversely affect TELKOMs business,
financial condition and prospects.



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

As a result of the Indonesian economic crisis
that began in 1997, certain KSO partners experienced substantial
difficulties in fulfilling their obligations to TELKOM under the
KSO Agreements, leading to disputes between TELKOM and certain
KSO partners. TELKOM has explored various options to resolve the
KSO issues and has negotiated the acquisition of all or a
majority of shares of certain KSO partners. In 2001, TELKOM
acquired a 90.32% equity interest in PT Dayamitra
Telekomunikasi Indonesia (Dayamitra), the KSO
partner for KSO VI. On April 19, 2002, TELKOM entered
into a conditional sale and purchase agreement for the purchase
of all of the outstanding equity interests in PT Pramindo
Ikat Nusantara (Pramindo), the KSO partner for
KSO I, to be completed in three stages. As part of the
initial closing, it acquired legal ownership of 30% of the
shares of Pramindo in August 2002 and obtained control over
Pramindo, subject to certain conditions, including that TELKOM
continues to meet its payment obligations under the terms of the
promissory notes issued as consideration for the purchase price
and the protective rights retained by the selling stockholders.
Under the agreement, the legal ownership of TELKOM in Pramindo
increased by a further 15% (from 30% to 45%) on
September 30, 2003 and the legal ownership to the remaining
55% was transferred to TELKOM on March 15, 2004. On
July 31, 2003, TELKOM purchased all of the outstanding
equity interests in PT AriaWest International
(AriaWest), the KSO partner for KSO III. As a
result of these

15



---



##### Table of Contents



acquisitions, TELKOM resolved its disputes with
its former KSO partners for KSO I, KSO III and
KSO VI. TELKOM now has full operational and management
control over these KSO regions.


On January 20, 2004, TELKOM and
PT Mitra Global Telekomunikasi Indonesia (MGTI)
entered into an agreement to amend and restate the KSO Agreement
with respect to Regional Division IV. Under this amendment
agreement, for the remaining KSO period, TELKOM will be entitled
at its sole discretion and expense to construct new
telecommunications facilities in Regional Division IV and
MGTI will receive fixed monthly payments derived from revenues
generated by the Regional Division IV operations.

TELKOM continues to have a KSO partner for
KSO VII, PT Bukaka SingTel International (Bukaka
SingTel). As of the date of this Annual Report, there are
no disputes between TELKOM and Bukaka SingTel. However, because
Bukaka SingTel continues to be responsible for network
development in KSO VII and has operational responsibility,
should any issues or disputes arise that are not amicably
resolved network expansion may be limited and this would impede
TELKOMs access to subscribers and its ability to compete
effectively in KSO VII.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | TELKOMs controlling
    stockholders interests may differ from those of
    TELKOMs other stockholders.

The Government has an aggregate interest of
approximately 51.19% of the issued and outstanding shares of
TELKOM and has control of TELKOM and the ability to determine
the outcome of substantially all actions requiring the approval
of TELKOM shareholders. The Government is also the holder of the
Dwiwarna share of TELKOM, which has special voting rights and
veto rights over certain matters, including the election and
removal of the Directors and Commissioners of TELKOM. Through
the MoC, the Government also exercises regulatory power over the
Indonesian telecommunications industry. There might be
situations where the objectives of the Government, as
TELKOMs regulator and its controlling shareholder,
conflict with TELKOMs business goals. In addition, there
can be no assurance that the Government will not direct
opportunities to other telecommunications service providers in
which it holds an interest.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Certain systems failures could, if they
    occur, adversely affect TELKOMs results of
    operations.

TELKOMs telecommunications services are
currently carried through its fixed-line, cellular and data
networks. All types of networks use last mile access, regional
metro junction and long haul transmission networks as a common
network resource. For last mile access, TELKOM operates Copper
Access Network, Optical Access Network and Wireless Access
Network. The regional metro junction and long haul transmission
network operated by TELKOM consists of optical fiber cable,
microwave, submarine cable and satellite transmission links.

Any failure of this integrated network,
TELKOMs servers, or any link in the transmission chain
that results in an interruption in TELKOMs operations or
the provision of any service, whether from operational
disruption, natural disaster or otherwise, could damage
TELKOMs ability to attract and retain subscribers and
adversely affect its results of operations, financial condition
and 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 new
CDMA-based fixed wireless phone service, which is marketed under
the brand name TELKOMFlexi. As of December 31, 2003, this
service was offered in 38 cities, 25 of which are financed
entirely by TELKOM (in non-BOT areas) and the remaining 13 are
financed through the Build, Operate and Transfer (BOT) scheme
(in BOT areas). CDMA-based fixed wireless technology enables
rapid development of telephone networks and reduces the capital
expenditures per line by obviating the need for the installation
of underground cables. TELKOMFlexi offers customers the ability
to use a wireless handset with limited mobility (within a local
code area).

16



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##### Table of Contents



Customers have all features offered by cellular
services except roaming to other local area codes. Postpaid
TELKOMFlexi customers are charged PSTN tariff rates for this
service while prepaid customers are charged tariffs slightly
higher than PSTN tariff rates, and in each case the tariffs are
substantially lower than tariffs for cellular services.
Telecommunications regulators, cellular operators and cellular
trade associations have sought and may in the future seek to
impose limitations on TELKOMs ability to provide fixed
wireless services at PSTN rates. If any such limitations are
imposed, TELKOM could lose part or all of the benefit of its
investment in the network that supports the TELKOMFlexi service.
TELKOM may also be subject to disputes 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 additional
funds in order to support its growth, undertake acquisitions,
meet unexpected contingencies and develop new or enhanced
services and products. It may also need to respond to
competitive pressures, acquire complementary businesses or
technologies or take advantage of opportunities. TELKOM cannot
be certain that such additional funding, if needed, will be
available on acceptable terms. Furthermore, any debt financing,
if available, may involve restrictive covenants, which may limit
TELKOMs operating flexibility with respect to certain
business matters. If adequate funds are not available on
acceptable terms, TELKOM may be unable to develop or enhance its
services. It may also be unable to take advantage of future
opportunities or respond to competitive pressures, any of which
could 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 capital
intensive in nature. In order to satisfy customer demand and
provide service and technology that is comparable to and
compatible with, other telecommunications service providers,
TELKOM must continue to expand and modernize its network, which
involves substantial capital investment. TELKOM historically has
relied heavily on two-step loans obtained through the Government
and third-party financing, including vendor financing, to
support the development of its fixed line network. If TELKOM is
unable to obtain adequate vendor or other third-party financing
for its planned capital expenditures or otherwise fund such
expenditures through other financing arrangements, including
free cash flows, TELKOM may have to forego, delay or postpone
certain of its planned capital expenditures. This may prevent
TELKOM from being able to expand sufficiently and upgrade its
network.



| |                                                             
| | ------------------------------------------------------------
| | Employee unions may negatively affect
    TELKOMs business.

Laws permitting the formation of labor unions,
combined with weak economic conditions, have resulted and may
continue to result, in labor unrest and activism in Indonesia.
On February 25, 2003, the Indonesian Parliament passed a
new employment law, Law No. 13 of 2003 (the
Employment Law), which took effect on March 25,
2003. The Employment Law covered the increment of severance
amount, service and compensation payment payable to terminated
employees as well as to allow employees to unionize without
intervention from employers. The Employment Law and new
implementation regulations that may be issued thereunder may
substantially affect labor relations in Indonesia. In May 2000,
TELKOM employees formed a union named Serikat Karyawan
TELKOM or SEKAR. Membership with SEKAR is not
compulsory. TELKOM believes that its relations with SEKAR are
good. However, there can be no assurance that the activities of
employee unions will not materially and adversely affect
TELKOMs business, financial condition and prospects.

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| |                                                                                  
| | ---------------------------------------------------------------------------------
| | New technologies may adversely affect
    TELKOMs ability to remain competitive.

The telecommunications industry is characterized
by rapid and significant changes in technology. TELKOM may face
increasing competition from technologies currently being
developed or that may be developed in the future. New
technologies, services or standards could require significant
changes to its business model, the development of new products
or the provision of additional services. In addition, TELKOM may
need to substantially upgrade its network to implement
convergent technologies and update and expand its billing and
credit control systems to accommodate growth in its business and
the adoption of new technologies and services. New products and
services may be expensive to develop and may result in the
introduction of additional competitors into the marketplace.
TELKOM cannot accurately predict how emerging and future
technological changes will affect its operations or the
competitiveness of its services. Similarly, TELKOM cannot
provide any assurances that the technologies it adopts will not
soon thereafter become obsolete or subject to intense
competition 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 the
current regulatory environment for the Indonesian
telecommunications industry. In particular, the
Telecommunications Law No. 36 of 1999
(Telecommunications Law) provides key guidelines for
industry reforms, including industry liberalization,
facilitation of new entrants and changes to the industrys
competitive structure. The Telecommunications Law only outlines
the framework and substantive principles for the liberalization
of the telecommunications industry. TELKOM believes that there
is uncertainty in the Indonesian regulatory environment with
regard 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 was 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 MoC has issued a
    decree stating that cost-based interconnection will commence
    beginning January 1, 2005 and the MoC is in the process of
    appointing an independent consultant that will assist in
    determining the basis for the new cost-based tariffs. The MoC is
    also drafting detailed regulations that will implement this new
    policy. TELKOM expects that the current interconnection fees may
    be adjusted as a result of the new cost-based interconnection
    scheme but TELKOM can give no assurance regarding the impact, if
    any, of such adjustment on TELKOMs business, financial
    condition, results of operations and prospects.
|
| |  | 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 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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. For the year 2002 a tariff
    increase, with a weighted average 15% increase, was implemented.
    In January 2003, the Government postponed the second tariff
    increase due to numerous public protests. However, on
    March 30, 2004, the Government, through the ITRB, announced
    that it would allow operators to rebalance their tariffs, with
    the resulting weighted average of tariffs increasing by 9%.
    There is no assurance as to when or whether the remaining tariff
    increases will be implemented 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. On
    May 13, 2004, Indosat received its commercial license to
    provide domestic long-distance telephone services. As of the
    date of this Annual Report, TELKOM cannot provide any assurance
    as to when Indosat will commence offering domestic long-distance
    services to customers, thereby creating a duopoly
    system in Indonesias fixed line domestic
    telecommunications market. In June 2004, Indosat launched its
    own CDMA fixed wireless service, called StarOne. As
    of the date of this Annual Report, Indosat only offers this
    service in Surabaya but is expected to expand service coverage
    to other cities in Indonesia. This greater competition in the
    fixed line market, including fixed wireless, could lead to a
    decline in TELKOMs existing subscriber base as subscribers
    choose to receive services from other providers.
|
| |  | DLD and IDD Services:On March 11, 2004, the MoC issued
    Decree No. 28/2004, Decree No. 29/2004 and Decree
    No. 30/2004 regarding DLD and IDD services. These Decrees
    further implement the Governments policy of encouraging
    competition in the markets for DLD and IDD services. Among other
    matters, the Decrees state that consumers will be able to choose
    their DLD and IDD providers among various competitors, including
    TELKOM and Indosat, and require operators to create separate
    3-digit access codes for DLD and IDD services. TELKOM expects to
    incur costs in connection with these new DLD and IDD
    requirements (including establishing DLD and IDD access codes),
    such as expenditures required to create a new routing database,
    costs relating to customer education and other marketing costs.
    In addition, competition in the market for DLD services could
    lead to a decline in TELKOMs DLD revenues as subscribers
    choose to receive DLD services from other providers, such as
    Indosat. With regard to IDD services, on May 13, 2004
    TELKOM received its commercial license from the Government to
    provide IDD services and began offering such services to
    customers on June 7, 2004. Nevertheless, competition among
    IDD service providers may limit TELKOMs ability to
    generate significant IDD revenues.                                                           
|
| |  | 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 was
    terminated by the Government in August 2002 and TELKOMs
    exclusive right to provide domestic long-distance services was
    terminated on March 30, 2004. The Government has determined
    the scheme of compensation for the termination of TELKOMs
    exclusive rights, which will consist of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | (i) expedited issuance of an IDD license to
    TELKOM, which was issued on May 13, 2004;
    (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 net cash payment
    to TELKOM and its KSO partners of Rp.478 billion (after
    taxes). While the amount of the compensation payable to TELKOM
    and its KSO partners has been determined, payment is contingent
    on appropriations to the State Budget for the MoC, which
    requires approval by Parliament. As of the date of this Annual
    Report, TELKOM can provide no assurance with regard to when
    Parliament will approve the necessary appropriations or as to
    the effects the net cash payment will have on TELKOMs
    financial condition, results of operations and prospects.                                                                                                                                                                                                                       
|
| |  | 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. On March 30, 2004, the
    Government issued a new regulation which requires
    telecommunications operators in Indonesia to contribute 0.75% of
    gross revenues (with due consideration for bad debt and
    interconnection charges) for USO development. The Government is
    also in the process of drafting detailed regulations that will
    fully implement the USO program for telecommunications operators
    in Indonesia.

There can be no assurance that the amendment or
interpretation or implementation of current laws and
regulations, or the introduction of additional laws or
regulations, 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 telecommunications
services primarily through its subsidiary Telkomsel (GSM
900 Mhz and 1800 Mhz). Telkomsel has experienced rapid
growth in its subscriber-base in recent years and its revenue
has become an increasingly large component of TELKOMs
consolidated revenue. Telkomsels future growth depends
upon its ability to manage capacity and spectrum constraints.
Telkomsel has experienced such constraints in the past and may
face such constraints in the future, which may result in network
congestion, reduced service quality and an inability to increase
and retain its subscriber-base and as a result may impede future
growth. Telkomsel is seeking to substantially increase the
capacity of its cellular network over the next three years.
However, spectrum and capacity are subject to regulatory
approval and allocation.

The Indonesian cellular telecommunications market
is highly competitive. Currently, Telkomsel competes primarily
with Indosat and Excelcomindo in attracting and retaining
subscribers for its mobile cellular telecommunications services.
There are also several other new competitors, including new CDMA
cellular operators. Competition between Telkomsel and all of
these operators is based on various factors such as pricing,
network quality and coverage, range of services offered and
customer 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
satellites have a limited operational life. A number of factors
affect the operational lives of satellites, including the
quality of their construction, the durability of their component
parts, the amount of fuel on board, the launch vehicle used and
the manner in which the satellite is monitored and operated. The
satellites could fail before the end of their useful

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lives and repairing these satellites while in
orbit is not feasible. TELKOM currently maintains in-orbit
insurance covering the loss of the TELKOM-1 and Palapa B-4
satellites, providing for payments of US$57.2 million for
TELKOM-1 and US$2.3 million for Palapa B-4 in the
event of a total loss of the satellite. TELKOM plans to launch
its new TELKOM-2 satellite between November 30, 2004 and
December 30, 2004. TELKOM-2 will replace the existing
Palapa B-4 satellite (which is expected to be taken out of
service around the end of 2004). The loss of existing satellites
and the failure to launch the new satellite may have a material
adverse effect on our financial condition, results of operations
and ability to provide certain services.




| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 information
about Indonesian public companies, including TELKOM, than is
regularly disclosed by public companies in countries with more
mature securities markets. TELKOMs audited consolidated
financial statements have been prepared in accordance with
Indonesian GAAP, which differs in certain material respects from
U.S. GAAP. See Item 5. Operating and Financial
Review and Prospects  A. Operating
Results  Summary of Significant Differences between
Indonesian GAAP and U.S. GAAP and Note 58(1) to
TELKOMs consolidated financial statements.



| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 member
firm of Arthur Andersen, no longer exists as a legal entity in
Indonesia following its dissolution in 2002. Accordingly, you
will not be able to seek or recover damages from Prasetio,
Utomo & Co. or Arthur Andersen in connection with its
audit report for Telkomsel.



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 company
incorporated in Indonesia, operating within the framework of
Indonesian laws relating to public companies and all of
TELKOMs significant assets are physically located in
Indonesia. In addition, the majority of TELKOMs
Commissioners and Directors reside in Indonesia and a
substantial portion of the assets of such persons is located
outside the United States. As a result, it may not be possible
for investors to effect service of process, including judgments,
on TELKOM or such persons within the United States, or to
enforce against TELKOM or such persons in the United States
judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the United
States federal securities laws or the securities laws of any
state within the United States, or upon other bases.

TELKOM has been advised by its Indonesian legal
advisor that judgments of United States courts, including
judgments predicated upon the civil liability provisions of the
United States federal securities laws, are not enforceable in
Indonesian courts, although such judgments could be admissible
as non-conclusive evidence in a proceeding on the underlying
claim in an Indonesian court. There is doubt as to whether
Indonesian courts will enter judgments in original actions
brought in Indonesian courts predicated solely upon the civil
liability provisions of the United States federal securities
laws. As a result, holders of ADSs or Common Stock would be
required to pursue claims against TELKOM or its Commissioners
and Directors in an Indonesian court.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Forward-looking statements reflect current
    expectations and may not be correct.

This document contains various forward-looking
statements, including statements regarding our expectations and
projections for future operating performance and business
prospects. The words believe, expect,
anticipate, estimate,
project and similar words identify forward-looking

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statements. In addition, all statements other
than statements of historical facts included herein are
forward-looking statements. These statements reflect
TELKOMs current expectations. Although TELKOM believes
that the expectations reflected in the forward-looking
statements are reasonable, TELKOM can give no assurance that
such expectations will prove to be correct. They are subject to
a number of risks and uncertainties, including changes in the
economic, social and political environments in Indonesia. In
light of the many risks and uncertainties surrounding Indonesia,
investors in the ADSs or the common shares should bear in mind
that TELKOM cannot guarantee that the forward-looking statements
described herein will transpire. All subsequent written and oral
forward-looking statements attributable to TELKOM or persons
acting on our behalf are expressly qualified in their entirety
by reference to these risks.





ITEM 4.     INFORMATION
ON THE COMPANY

A.  History and development of the
Company

Perusahaan Perseroan (Persero)
P.T. Telekomunikasi Indonesia Tbk. (TELKOM or
the Company), a majority state-owned company, is the
principal provider of fixed-line services in Indonesia.
TELKOMs majority-owned subsidiary Telkomsel is also the
largest Indonesian mobile cellular operator, as measured by
subscribers and revenues. The Company also provides a wide range
of other telecommunications services including interconnection,
network, data and Internet services and other telecommunications
services. Pursuant to its Articles of Association, TELKOM was
established for an unlimited period of time. The Companys
purposes and objectives are to operate telecommunications
networks and provide telecommunications and information services.

In 1884, the Dutch colonial government
established a private company to provide postal services and
domestic telegraph services and, subsequently, international
telegraph services. Telephone services were first made available
in Indonesia in 1882 and, until 1906, were provided by
privately-owned companies pursuant to a 25-year government
license. In 1906, the Dutch colonial government formed a
government agency to assume control of all postal and
telecommunications services in Indonesia. In 1961, most of these
services were transferred to a newly-established state-owned
company to provide postal and telecommunications services in
Indonesia, apart from services in Sumatera, which were
transferred in the 1970s. The Government separated postal
and telecommunications services in 1965 into two state-owned
companies, PN Pos and Giro and PN Telekomunikasi. In 1974, PN
Telekomunikasi was further divided into two state-owned
companies, Perusahaan Umum Telekomunikasi (Perumtel)
to provide domestic and international telecommunications
services and PT INTI, to provide telecommunications
equipment manufacturing. In 1980, the international
telecommunications business was transferred to Indosat.

In 1991, Perumtel was transformed into a
Persero, or state-owned limited liability
corporation with commercial purposes and renamed Perusahaan
Perseroan (Persero) P.T. Telekomunikasi Indonesia, known as
TELKOM. Prior to 1995, TELKOMs business operations were
segregated into twelve regional operating units, known as
Witels, which were centrally controlled from
TELKOMs headquarters in Bandung, West Java. Each Witel had
a management structure responsible for all aspects of
TELKOMs business in their respective regions, from the
provision of telephone services to property management and
security. The Company has its place of domicile in Indonesia and
its registered office at No. 1, Jalan Japati, Bandung,
40133, Indonesia, Tel. No. (62) (22) 452-1510.

During 1995, TELKOM restructured its operations
by converting all twelve Witels into seven regional divisions
(Division I Sumatera; Division II Jakarta and the
surrounding areas; Division III West Java; Division IV
Central Java; Division V East Java; Division VI
Kalimantan; and Division VII Eastern part of Indonesia) and
one Network Division. The Company also entered into KSO
Agreements pursuant to which it transferred the right to operate
five of its seven regional divisions (regional divisions I,
III, IV, VI and VII) to private sector consortia, each of which
involved one or more prominent international telecommunications
operators. The KSO Agreements provided for the relevant KSO
partner to manage and operate the regional division for a fixed
term, undertake the construction of

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a specified number of fixed lines and, at the end
of the fixed term, transfer the existing and new
telecommunications facilities in the region to TELKOM for an
agreed amount of compensation. The KSO Agreements also provided
for TELKOM and the KSO partner to share revenues generated
during the term of the agreement.


On November 14, 1995, the Government sold
TELKOM shares through an initial public offering. TELKOM shares
are listed on the Jakarta Stock Exchange and the Surabaya Stock
Exchange and its shares, in the form of ADSs, are listed on the
New York Stock Exchange and the London Stock Exchange. Its
shares have also been publicly offered without listing on the
Tokyo Stock Exchange. TELKOM is currently one of the largest
companies by market capitalization in Indonesia, with a market
capitalization of approximately Rp.68,040 billion as of
December 31, 2003 and of approximately
Rp.72,576.0 billion as of June 24, 2004. The
Government currently has an aggregate interest of approximately
51.19% of the issued and outstanding shares of TELKOM. The
Government also holds the Dwiwarna share of TELKOM, which has
special voting and veto rights over certain matters.

Following the Indonesian economic crisis that
began in mid-1997, certain KSO partners experienced difficulties
in fulfilling their obligations to TELKOM leading to certain
disputes. As a result, TELKOM has in recent years acquired or
entered into agreements to acquire control of its KSO partners
in 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) and
purchased a call option and granted a put option with respect to
the remaining shares of Dayamitra. In 2002, TELKOM entered into
an agreement to acquire 100% of the shares of its KSO partner in
Regional Division I, PT Pramindo Ikat Nusantara
(Pramindo). Under the terms of its agreement with
Pramindo, TELKOM agreed to acquire the shares of Pramindo in
three tranches, beginning August 2002 (30%), with TELKOM also
obtaining management control of Pramindo in August 2002. TELKOM
acquired a further 15% in September 2003 and the remaining 55%
was acquired on March 15, 2004. As of the date of this
Annual Report, TELKOM legally owns 100% of Pramindo. In 2003,
TELKOM acquired 100% of the shares of its KSO partner for
Regional Division III, PT AriaWest International
(AriaWest) and settled its arbitration proceeding
with AriaWest. On January 20, 2004, TELKOM and
PT Mitra Global Telekomunikasi Indonesia (MGTI)
entered into an agreement to amend and restate the KSO Agreement
with respect to Regional Division IV. Under this amendment
agreement, for the remaining KSO period, TELKOM will be entitled
at its sole discretion and expense to construct new
telecommunications facilities in Regional Division IV and
MGTI will receive fixed monthly payments derived from revenues
generated by the Regional Division IV operations. For a
more complete description of the foregoing transactions and
TELKOMs KSO arrangements, see Item 10.
Additional Information  C. Material
Contracts and Item 4. Information on the
Company  B. Business Overview  Joint
Operation Scheme (KSO).

In 1999, the Government passed Telecommunications
Law No. 36 which became effective in September of 2000. The
Telecommunications Law provides key guidelines for industry
reforms, including industry liberalization, facilitation of new
entrants and enhanced competition. Under the prior
telecommunications law, TELKOM and PT Indonesian Satellite
Corporation (Indosat) maintained joint ownership in
most telecommunications companies in Indonesia. The Governments
reforms called for the progressive elimination of these joint
shareholdings 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 Satelindo and
37.7% interest in Lintasarta. In 2002, TELKOM sold 12.72% of
Telkomsel to Singapore Telecom Mobile Pte Ltd (SingTel
Mobile), resulting in TELKOMs ownership being
reduced to 65% of the shares of Telkomsel. For a more complete
description of the foregoing transactions, see Item 10.
Additional Information  C. Material
Contracts.

Pursuant to the Telecommunications Law, the
Government as of August 1, 2001 terminated the exclusive
rights of TELKOM to provide fixed-line services in Indonesia and
Indosat to provide international direct dial services.
TELKOMs exclusive right to provide domestic local service
was terminated in August 2002 and TELKOMs exclusive right
to provide domestic long-distance service

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was likewise terminated in August 2003. The full
implementation of the termination of these exclusive rights is
expected to result in TELKOM and Indosat providing new
telecommunications services in competition with each other. On
May 13, 2004, TELKOM received its commercial license to
provide IDD fixed-line services and began offering such services
on June 7, 2004. Indosat is expected to enter the domestic
long-distance market and on May 13, 2004, Indosat received
its commercial license to provide domestic long-distance
services.


For a description of the important events in the
development of the Companys business since the beginning
of the Companys last three financial years to the date of
this Annual Report, see Item 5. Operating and
Financial Review and Prospects  A. Operating
Results  Overview. A description of the
Companys principal capital expenditures and divestitures,
since the beginning of the Companys last three financial
years to the date of this Annual Report is set forth in
Item 5. Operating and Financial Review and
Prospects  B. Liquidity and Capital Resources.
Information concerning the principal capital expenditures and
divestitures currently in progress is also described in
Item 5. Operating and Financial Review and
Prospects  B. Liquidity and Capital Resources.

B.  Business Overview

General

TELKOM is the main provider of fixed-line
telecommunications services in Indonesia and is the majority
owner of Telkomsel, which is the largest Indonesian mobile
cellular operator, as measured by subscribers and revenue. The
Company also provides a wide range of other telecommunications
services including interconnection, network, data and 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 part
of the Fixed Line segment in the consolidated
financial statements with the exception of the cellular business
which is reported as a separate segment.

For 2003, no single customer, other than
interconnection customers, accounted for more than 1% of
TELKOMs total operating revenues and TELKOMs top
100 customers, other than interconnection customers,
together accounted for more than 5% of its total operating
revenues. For the purpose of calculating operating revenues,
TELKOM treats each state-owned enterprise owned by the
Government as a single customer.

TELKOMs business does not experience
significant seasonality.

Fixed-Line Services

Fixed-line services are comprised mainly of local
and domestic long-distance services. TELKOM is the principal
provider of fixed-line services in Indonesia. In 2003, TELKOM
provided fixed-line services in Divisions I, II, III, V and
VI. In 2003, revenues from fixed-line services in these
divisions contributed Rp.8,896.9 billion
(US$1,054.1 million), or 32.8% of total operating revenues.
Beginning July 31, 2003, when TELKOM acquired KSO investor,
PT AriaWest International (AriaWest), TELKOM
began

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providing fixed-line services in
Division III. Fixed-line services in Divisions IV and
VII continue to be provided through KSO joint venture
arrangements and revenue to TELKOM from these KSOs are reported
under Joint Operation Scheme. See  Joint
Operation Scheme below.


Fixed-line subscribers pay one-time installation
charges, ongoing monthly subscription charges and usage charges
for local and domestic long-distance services. Usage charges are
generally uniform nationwide and are based on call distance,
call duration and the time of day at which calls are made. In
addition, subscribers are provided with a number of value-added
features, such as voicemail and information services and billing
and directory assistance, which are billed on a monthly basis.

TELKOM has historically been the principal
provider of fixed-line services and Indosat has historically
been the principal provider of international direct dial
services in Indonesia. However, the Government as of
August 1, 2002 has terminated TELKOMs exclusive
rights to provide local fixed-line services and Indosats
exclusive rights to provide international direct dial services.
On May 13, 2004, the Government issued TELKOMs
commercial license to provide IDD fixed-line services and
Indosats commercial license to provide DLD fixed-line
services. As a result, TELKOM and Indosat are or are expected to
be engaged in competition with each other in the markets for
these two services.

CDMA
Fixed Wireless

In December 2002, TELKOM began offering a limited
mobility (within a local area code) CDMA-based fixed wireless
phone service under the brand name TELKOMFlexi for
both fixed and portable handsets. TELKOMs rollout of this
service began in the three cities of Surabaya, Denpasar and
Balikpapan and, as of December 31, 2003, was available in
38 cities. TELKOMs rollout of this limited mobility fixed
wireless service is occurring concurrently with its use of CDMA
fixed wireless technology for the development of its fixed-line
network. CDMA-based fixed wireless technology enables rapid
development of telephone networks and the reduction of capital
expenditures per line by reducing and often eliminating the need
for layout of cables. TELKOM intends to continue to rapidly
develop its CDMA-based fixed wireless network and expand its
TELKOMFlexi service to other cities and regions in Indonesia. As
of December 31, 2003, TELKOM had 396 BTSs and
815,647 line units deployed, of which 380 BTSs and
775,647 line units were financed by TELKOM and 16 BTSs
and 40,000 line units were established under the BOT scheme
(instead of the 53,900 that were originally planned). As of
December 31, 2003, TELKOM had achieved sales of 467,933
TELKOMFlexi Line Units (consisting of 459,725 Line Units in
non-BOT areas and 8,208 Line Units in BOT areas).

TELKOMFlexi revenues are reported under
fixed-line services. These revenues are being reported as
fixed-line revenues because this business is being conducted
pursuant to TELKOMs fixed-line license. See
 Regulation below.

TELKOMFlexi subscribers have the option of
postpaid and prepaid services. Postpaid subscribers pay one-time
activation charges, ongoing monthly subscription charges and
usage charges for local domestic-long distance and international
services, which charges are generally the same as those paid by
fixed-line subscribers. Prepaid subscribers purchase RUIM cards
and refill vouchers in amounts of Rp.50,000, Rp.100,000 and
Rp.150,000 and pay only usage charges, which are higher than
those paid by postpaid subscribers. For prepaid services, a
customer purchasing a Rp.80,000 RUIM card or a Rp.50,000 refill
voucher is counted as a subscriber for two months, a Rp.100,000
voucher or refill is counted as a subscriber for three months
and a Rp.150,000 voucher or refill is counted as a subscriber
for four months. Each time a customer purchases a refill the
aforementioned two, three and four month periods are
recalculated as of the date the refill is activated.

TELKOMFlexi subscribers are also provided with a
number of value-added features, such as SMS, voicemail and
information services, such as billing and directory assistance.
The revenues from these services are reported in the Data and
Internet category. See  Data and Internet
Services below.

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IDD
Services

TELKOM received its commercial license from the
Government to provide IDD services on May 13, 2004. TELKOM
began offering IDD fixed-line services, under the brand name
TIC 007, on June 7, 2004. IDD revenues will be
reported as international interconnection revenues because this
service relies on interconnection between TELKOM and network
operators in other countries. See
 Interconnection Services below. Through
its VoIP service TELKOM already provides international call
services, although revenues from the VoIP service are recorded
under Data and Internet Services, because this
service relies on data transmission over the Internet. See
 Data and Internet Services below.

Cellular
Services

TELKOM provides its mobile cellular services
mainly through its 65%-owned subsidiary Telkomsel. Cellular
revenues grew by 35.9% from Rp.6,226.8 billion
(US$695.7 million), or 29.9% of TELKOMs total
operating revenues, for the year ended December 31, 2002 to
Rp.8,458.8 billion (US$1,002.2 million), or 31.2% of
TELKOMs total operating revenues, for the year ended
December 31, 2003. Over the same period, the total number
of Telkomsels mobile cellular subscribers (pre-paid and
post-paid) increased by 60% from approximately 6.0 million
at the end of 2002 to approximately 9.6 million as of
December 31, 2003. Of the total subscribers as of
December 31, 2003, approximately 8.6 million were
pre-paid and approximately 1 million were post-paid. Based
on data developed by Telkomsel from various sources, Telkomsel
had an estimated 51% share of the GSM cellular market in
Indonesia as of December 31, 2003, compared to an estimated
52.8% market share as of December 31, 2002.

Telkomsel provided GSM cellular services in
Indonesia through its own network and internationally through
217 international roaming partners in 135 countries as
of the end of 2003. Telkomsel currently has the largest network
of any of the cellular operators in Indonesia, providing
coverage to over 85% of Indonesias population and more
than 600 cities.

Telkomsel provides its subscribers with the
option of a prepaid service under the brand name SimPATI
Nusantara, or a postpaid service under the brand name
KartuHALO. In May 2004, Telkomsel launched a new
prepaid brand Kartu As, which will target customers
who travel frequently within Indonesia by offering free domestic
roaming and lower tariffs on local and domestic long-distance
calls, with no difference between tariffs for calls during peak
and off-peak hours. Telkomsel also offers tailor-made postpaid
services for corporate customers and a postpaid family service
under the brand name HALOkeluarga.

Generally, postpaid subscribers pay one-time
activation charges, ongoing monthly subscription charges and
usage charges for roaming, SMS, local, domestic-long distance
and international services. Beginning April 2004, postpaid
subscribers can also choose among the following options:
(a) free national roaming; (b) 150 free SMS per month;
or (c) waiver of the monthly subscription charge.

Prepaid customers purchase a starter package, the
price of which starts at Rp.25,000 for Kartu As customers and
Rp.50,000 for SimPATI customers, depending on the value of the
pre-paid voucher included in the package. For Kartu As
customers, the Rp.25,000 starter package contains a SIM card and
a voucher worth Rp.25,000. For SimPATI customers, the Rp.50,000
starter package contains a SimPATI SIM card and a voucher worth
Rp.35,000. SimPATI subscribers can buy pre-paid vouchers ranging
in value from Rp.50,000 to Rp.1,000,000 to increase the value of
their SIM cards, while Kartu As subscribers can buy prepaid
vouchers of either Rp.20,000 or Rp.50,000. The customers
prepaid account can be topped up electronically or by
supplemental refill vouchers. When refill vouchers are
purchased, subscribers call an automated telephone number and
enter a 14-digit code printed on their voucher in order to
activate or supplement their account with the new prepaid
amount. The prepaid customer credits have a predetermined expiry
date and irrespective of usage will expire on such date. Kartu
As and SimPATI starter packages and refill vouchers may be
purchased at any of Telkomsels service

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centers and distribution outlets. Electronic
refills may also be purchased at selected automatic teller
machines, via telephone banking or over the Internet.


Provided that they meet certain credit-related
eligibility requirements, SimPATI customers may sign up for
Telkomsels post-paid KartuHALO services at any time
without having to change their telephone numbers. While Kartu As
and SimPATI customers do not pay an activation fee or monthly
subscription charges, they pay higher usage charges than
postpaid subscribers.

Telkomsel also offers cellular users value added
services such as SMS, international roaming, GPRS, MMS,
multi-party calling, call forwarding, call waiting, caller
number display and non-display, mobile banking, SMS to e-mail
services and other personal mobile data services, the revenues
from which are reported in the Data and Internet category. See
 Data and Internet Services below.

The following table sets forth selected
historical information on Telkomsels subscriber base for
the periods indicated:

|                              |                                |                             |  |           |   |      |  |           |   |  |  |           |  
|----------------------------- | ------------------------------ | --------------------------- |  | --------- | - | ---- |  | --------- | - |  |  | --------- | -
|                              |                                |                            
|                              |                                | As of or for the year ended
|                              |                                | December 31,               
|                              |                                |                            
|                              |                                | 2001                        |  | 2002      |   | 2003
|                              |                                |                             |  |           |   |     
|Cellular subscribers(1)       |                                |                             |  |           |   |      |  |           |   |  |  |          
|                              | KartuHALO (Postpaid)           |                             |  | 865,211   |   |      |  | 923,005   |   |  |  | 1,007,034 |  
|                              | SimPATI (Prepaid)              |                             |  | 2,386,821 |   |      |  | 5,087,767 |   |  |  | 8,581,773 |  
|Deactivations(2)              |                                |                             |  |           |   |      |  |           |   |  |  |          
|                              | KartuHALO (Postpaid)           |                             |  | 177,514   |   |      |  | 279,648   |   |  |  | 265,355   |  
|                              | SimPATI (Prepaid)              |                             |  | 120,403   |   |      |  | 470,298   |   |  |  | 2,823,025 |  
|Average monthly churn rate(3) |                                |                             |  |           |   |      |  |           |   |  |  |          
|                              | KartuHALO (Postpaid)           |                             |  | 2.0       | % |      |  | 2.5       | % |  |  | 2.3       | %
|                              | SimPATI (Prepaid)              |                             |  | 0.7       | % |      |  | 1.1       | % |  |  | 4.0       | %
|ARPU(4)                       |                                |                             |  |           |   |      |  |           |   |  |  |          
|                              | KartuHALO (Postpaid) (Rp.000) |                             |  | 287       |   |      |  | 298       |   |  |  | 314       |  
|                              | SimPATI (Prepaid) (Rp.000)    |                             |  | 111       |   |      |  | 103       |   |  |  | 95        |  



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 SimPATI prepaid packages:

|                             |  |                      
|---------------------------- |  | ---------------------
|                             |  | Period during which  
|                             |  | subscribers will have
|Value of Voucher or SIM Card |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(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, interconnection 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.

In February 2004, Telkomsel began technical
testing in Jakarta of a new service called EDGE, for
Enhanced Data rates for GSM Evolution, which offers enhanced
data transmission speed. As of the date of this Annual Report,
Telkomsel expects to commercially launch EDGE in a limited
number of cities sometime during the second half of 2004.

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| |                       
| | ----------------------
| | Joint Operation Scheme

TELKOM and its KSO partner, PT Mitra Global
Telekomunikasi Indonesia, provide fixed-line and other services
in Regional Division IV and TELKOM and its KSO partner,
PT Bukaka SingTel International, provide fixed-line and
other services in Regional Division VII. Until
July 31, 2003, when TELKOM acquired AriaWest, TELKOM and
AriaWest provided fixed-line and other services in Regional
Division III. In 2003, TELKOMs revenues from KSO
divisions in Regional Divisions III, IV and VII (including
amortization of unearned initial investor payments) contributed
Rp.1,486.3 billion (US$176.1 million), or 5.5%, of
total operating revenues.

TELKOMs portion of KSO revenues for the
last three years (2001  2003) are indicated in the
following table:

|                                       |       |                  |       |                  |  |                  |       |       |  |     |       |         |  |  |       |       |  |  |       |       |  |  |       |       | 
|-------------------------------------- | ----- | ---------------- | ----- | ---------------- |  | ---------------- | ----- | ----- |  | --- | ----- | ------- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                                       |       |                  |       |                  |  |                 
|                                       |       | 2001             |       | 2002             |  | 2003            
|                                       |       |                  |       |                  |  |                 
|KSO Division                           |       | MTR              |       | DTR              |  | MTR              |       | DTR   |  | MTR |       | DTR    
|                                       |       |                  |       |                  |  |                  |       |       |  |     |       |        
|                                       |       |                  |       |                  |  |                 
|                                       |       | (Rp. in billion) |       | (Rp. in billion) |  | (Rp. in billion)
|Division I (Sumatera)(1)               |       |                  | 497.9 |                  |  |                  | 259.8 |       |  |     | 296.3 |         |  |  | 197.3 |       |  |  |      |       |  |  |      |      
|Division III (West Java and Banten)(2) |       |                  | 366.3 |                  |  |                  | 117.8 |       |  |     | 390.1 |         |  |  | 157.8 |       |  |  | 242.4 |       |  |  | 90.0  |      
|Division IV (Central Java)             |       |                  | 371.3 |                  |  |                  | 133.6 |       |  |     | 387.5 |         |  |  | 183.2 |       |  |  | 404.3 |       |  |  | 184.6 |      
|Division VI (Kalimantan)(3)            |       |                  |      |                  |  |                  |      |       |  |     |      |         |  |  |      |       |  |  |      |       |  |  |      |      
|Division VII (Eastern Indonesia)       |       |                  | 238.7 |                  |  |                  | 221.8 |       |  |     | 245.8 |         |  |  | 262.7 |       |  |  | 253.2 |       |  |  | 308.4 |      
|                                       |       |                  |       |                  |  |                  |       |       |  |     |       |         |  |  |       |       |  |  |       |       |  |  |       |      
|                                       | Total |                  |       | 1,474.2          |  |                  |       | 733.0 |  |     |       | 1,319.7 |  |  |       | 801.0 |  |  |       | 899.9 |  |  |       | 583.0 | 
|                                       |       |                  |       |                  |  |                  |       |       |  |     |       |         |  |  |       |       |  |  |       |       |  |  |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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. For 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 and Rp.1,252.7 billion of operating
    revenues from Regional Division I (Sumatera) in 2002 and
    2003, respectively.
|(2) | For 2003, MTR and DTR are from January 1 to
    July 31, 2003. TELKOM consolidated Regional
    Division III (West Java and Banten) as of and for the year
    ended December 31, 2003 following the acquisition of a 100%
    equity interest in AriaWest on July 31, 2003. TELKOM
    consolidated Rp.482.3 billion of operating revenues from
    Regional Division III (West Java and Banten) from
    July 31, 2003 through December 31, 2003.                                                                                                       
|(3) | 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, Rp. 323.4 billion and
    Rp.449.2 billion of operating revenues from Regional
    Division VI (Kalimantan) in 2001, 2002 and 2003, respectively.                                                                                                                                                        

TELKOM entered into agreements to establish the
KSOs in 1995 and pursuant to such agreements transferred the
right to operate Regional Divisions  I, III, IV, VI and VII
to private sector consortia, each of which involved one or more
prominent international telecommunications operators. TELKOM
retained the right to operate divisions II and V, its two
largest divisions. The KSO Agreements provided for the relevant
KSO partner to manage and operate the Regional Division for a
fixed term, undertake the construction of a specified number of
fixed lines and, at the end of the fixed term, transfer the
existing and new telecommunications facilities in the region to
TELKOM for a pre-determined agreed amount of compensation. The
KSO Agreements also provided for TELKOM and the KSO partner to
share revenues generated during the term of the agreement.

Following the Indonesian economic crisis that
began in mid-1997, certain KSO partners experienced difficulties
in fulfilling their obligations to TELKOM. In order to assist
the KSO partners in meeting their obligations and to maintain
the continuity of the KSO Agreements, all of the KSO partners
entered into a Memorandum of Understanding with TELKOM on
June 5, 1998 which reduced the minimum line construction
obligations of the KSO partners, decreased TELKOMs share
of KSO revenues for 1998 and 1999 and cancelled TELKOMs
option to purchase the assets of the KSO before the end of the
KSO period. Beginning January 1, 2000, the parties reverted
to the terms of the original KSO agreements with respect to MTR
and DTR payments. Due to the severity of the crisis, these

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measures did not solve the significant
difficulties faced by the KSO partners and TELKOM has in recent
years acquired or entered into agreements to acquire control of
its KSO partners in regions I, III and VI.


On May 17, 2001, TELKOM acquired 90.32% of
the shares of its KSO partner for Regional Division VI,
PT Dayamitra Telekomunikasi (Dayamitra) and
purchased a call option and granted a put option with respect to
the remaining shares of Dayamitra, for an aggregate
consideration of approximately US$130.8 million (excluding
consultants fees of approximately US$3.3 million,
which was capitalized as part of the acquisition cost). An
initial payment of US$18.3 million was made on May 17,
2001, US$8.9 million was paid on August 10, 2001 as a
post-closing, working capital adjustment to the purchase price
and the balance of US$103.6 million was paid in eight
quarterly installments of approximately US$13.0 million
between August 17, 2001 and May 17, 2003.

On April 19, 2002, TELKOM entered into a
Conditional Sale and Purchase Agreement to acquire 100% of the
issued and paid up share capital of its KSO partner in Regional
Division I, PT Pramindo Ikat Nusantara
(Pramindo). Under the terms of the agreement, TELKOM
agreed to acquire the shares of Pramindo in three tranches: in
August 2002 (30%), September 2003 (15%) and December 2004 (55%).
TELKOM has provided US$384.4 million in its accounts as the
aggregate consideration for this transaction. Of the
US$384.4 million, TELKOM made an initial payment of
US$9.3 million (Rp.82 billion) in August 2002 and
issued promissory notes (series I and II) dated August
2002 for the remaining amount. The agreement grants the selling
shareholders a number of protective rights and is conditional
upon TELKOM meeting its payment obligations under the promissory
notes. The series I promissory notes had a face value of
approximately US$372.2 million, while the aggregate amount
of the series II promissory notes is estimated to be
approximately US$2.9 million. The promissory notes were
payable in ten unequal quarterly installments through December
2004 which were funded by monthly amounts transferred by TELKOM
to an escrow account. Under the agreement, TELKOM also provided
a loan of US$86 million (Rp.765 billion) to Pramindo
which was used to repay loans from the IFC, one of the selling
shareholders. TELKOM also made an additional payment of
Rp.250 billion in respect of a working capital
reimbursement to the selling shareholders. TELKOM obtained
control of Pramindo as of the closing in August 2002. On
January 28, 2004, TELKOM signed a short-term loan agreement
with ABN AMRO Bank N.V. Jakarta in the amount of approximately
US$130 million and on March 15, 2004 TELKOM used the
loan proceeds to repurchase the outstanding promissory notes
that were due on June 15, 2004, September 15, 2004 and
December 15, 2004. This allowed TELKOM to accelerate the
purchase of the remaining 55% of Pramindo that it did not yet
own. As of the date of this Annual Report, TELKOM owns 100% of
Pramindo.

On July 31, 2003, TELKOM acquired 100% of
the shares of its KSO partner for Regional Division III,
PT AriaWest International (AriaWest) for an
aggregate consideration of US$38.67 million in cash
(US$20 million of which was paid when the purchase
agreement was signed on May 8, 2002 and the remaining
US$18.67 million was paid on July 31, 2003) and
US$109.1 million in promissory notes. The promissory notes,
which are interest-free, are payable in 10 semi-annual
installments. At the same time, in consideration of the release
of AriaWests outstanding obligations to its lenders,
TELKOM also repaid approximately US$99 million of
AriaWests debt (including interest of
US$25.0 million) on behalf of AriaWest and entered into a
new loan agreement for approximately US$197 million with
AriaWests lenders. TELKOM and AriaWest also entered into a
settlement agreement pursuant to which TELKOM and AriaWest
irrevocably settled, discharged and released claims and
counterclaims in their ICC arbitration proceeding and TELKOM
agreed to pay a settlement amount of US$20 million. As a
result of the acquisition of AriaWest and the settlement of the
ICC arbitration in 2002, for the year ended December 31,
2002 TELKOM reversed the provision of Rp.511.9 billion
which was previously made with respect to certain receivables
from KSO Unit III and accrued the settlement amount of
Rp.179.0 billion in its consolidated financial statements
for the year ended December 31, 2002.

The ICC arbitration proceeding, which was settled
as of July 31, 2003, involved claims by AriaWest that
TELKOM was in material breach of provisions of the KSO Agreement
with AriaWest based on, among other things, (i) the alleged
loss of certain exclusive rights granted to AriaWest by the
Government with respect to the provision of certain
telecommunication services in West Java; (ii) the

29



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alleged failure of TELKOM to transfer control of
the KSO Units finances, employees and management to
AriaWest and TELKOMs alleged interference with
AriaWests efforts to exercise management control over the
KSO Unit; (iii) the alleged failure of TELKOM to pay
amounts identified in a forensic audit for AriaWest as being
unaccounted for, lost or otherwise unreasonably disbursed by the
KSO Unit during the period December 1, 1995 through
September 11, 2000; (iv) TELKOMs acts and
omissions which allegedly caused the Government to reduce
telecommunications tariffs in 1999 and to impose a zero tariff
increase in 2000; (v) the alleged wrongful termination by
TELKOM of the KSO Agreement with AriaWest and, subsequent to
termination, alleged wrongful imposition of interim management
measures; (vi) TELKOMs alleged failure to negotiate
the terms of certain construction projects proposed by AriaWest
and certain amendments to the KSO Agreement requested by
AriaWest; and (vii) TELKOMs alleged failure to cause
the KSO Unit to pay AriaWest certain disputed sums as
reimbursement for cash outlays by AriaWest or other funds
claimed by AriaWest. AriaWest sought at least
US$1.3 billion in damages in the arbitration, although it
did not specify the amount of damages associated with most of
its claims. TELKOM objected to the ICCs jurisdiction over
AriaWests claims relating to the alleged loss of
AriaWests exclusive rights and tariff adjustment and,
wholly apart from its jurisdictional objections, TELKOM denied
all of AriaWests claims. TELKOM also asserted claims
against AriaWest for material breaches of the KSO Agreement.
Although TELKOM had not completed estimating the amount of its
losses, damages and costs, TELKOM was seeking damages in
connection with two of its counterclaims of at least
Rp.412 billion in Minimum TELKOM Revenue and more than
Rp.98 billion in Distributable KSO Revenue due to TELKOM as
of July 9, 2001, the date TELKOM terminated the KSO
Agreement, exclusive of late payment fees and interest.


In 2001, TELKOM entered into an agreement with
Indosat pursuant to which Indosat agreed, subject to the
satisfaction of certain conditions precedent, to acquire
TELKOMs assets in Regional Division IV for
US$375 million. This agreement was part of the
cross-ownership transaction in 2001. In February of 2002, TELKOM
and Indosat announced the cancellation of the acquisition as
certain conditions precedent had not been satisfied. As a result
of the cancellation of the acquisition, TELKOM paid
US$198 million to Indosat.

On January 20, 2004, TELKOM and
PT Mitra Global Telekomunikasi Indonesia (MGTI)
entered into an agreement to amend and restate the KSO Agreement
with respect to Regional Division IV. Under the amended
agreement, for the remaining KSO period, TELKOM will be entitled
at its sole discretion and expense to construct new
telecommunications facilities in Regional Division IV and
MGTI will receive fixed monthly payments derived from revenues
generated by the Regional Division IV operations.

On June 11, 2002, TELKOM and its KSO partner
for Regional Division VII, PT Bukaka SingTel
International (Bukaka SingTel), entered into a
Memorandum of Understanding pursuant to which they agreed to
cooperate in providing infrastructure for fixed wireless access
using CDMA 2000 IX in KSO VII region. On
January 14, 2003, TELKOM and Bukaka SingTel entered into a
Co-Operation Agreement on Fixed Wireless CDMA Facilities
Construction in KSO Regional Division VII (the
Co-Operation Agreement) that implemented the terms
of the Memorandum of Understanding. Under the terms of the
Co-Operation Agreement, TELKOM, through its Fixed Wireless
Division, will invest US$30.2 million and Rp.
28.4 billion for the construction of fixed wireless CDMA
facilities for 146,700 line units in Denpasar, Makasar,
Manado, Kupang and Mataram, which facilities will be managed,
operated and maintained by Bukaka SingTel. The new facilities
are expected to be completed by 2006, with TELKOM and Bukaka
SingTel sharing the revenues generated by these new facilities.
See Item 10 Additional Information  C.
Material Contracts.

30



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The following table sets forth certain
information regarding the KSOs as of December 31, 2003,
which has been derived from the KSO Agreements, amendments to
the KSO Agreements and other related sources.

|                         |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | --------------------------------------------------
|                         |  | Division I(1)                                                                                                                                                                                                    |  | Division III                               |  | Division IV                                                                                                           |  | Division VI                               |  | Division VII(3)                                   
|                         |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|KSO Partner              |  | Pramindo Ikat Nusantara                                                                                                                                                                                          |  | AriaWest International                     |  | Mitra Global Telekomunikasi Indonesia                                                                                 |  | Dayamitra Telekomunikasi                  |  | Bukaka SingTel International                      
|                        
|Shareholders in the KSO: |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|Foreign                  |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|telecommunications       |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|operator                 |  | France Cables et Radio SA (22%)                                                                                                                                                                                  |  | N/A                                        |  | Telstra Global Ltd. (20.37%); Nippon Telegraph
    and Telephone Corporation (15.27%)                                 |  | TM Communications (H.K.) Ltd. (9.68%)     |  | Singapore Telecom International Pte. Ltd. (40.00%)
|Indonesian and Other     |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|Shareholders             |  | PT Telekomunikasi Indonesia, Tbk (45.00%);
    PT Astratel Nusantara (19.25%); Indosat (7.15%); Marubeni
    Corporation (4.40%); International Finance Corporation (1.65%);
    NMP Singapore Pte. Ltd. (0.55%) |  | PT Telekomunikasi Indonesia, Tbk (100.00%) |  | 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)(2) |  | 518.0                                                                                                                                                                                                            |  | 415.5                                      |  | 404.3                                                                                                                 |  | 143.4                                     |  | 253.2                                             
|Revenue Sharing          |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|(TELKOM: KSO             |  |                                                                                                                                                                                                                  |  |                                            |  |                                                                                                                       |  |                                           |  |                                                   
|Partners)                |  | 30 : 70                                                                                                                                                                                                          |  | 95 : 5                                     |  | 30 : 70                                                                                                               |  | 30 : 70                                   |  | 35 : 65                                           
|End of KSO Period        |  | 2010                                                                                                                                                                                                             |  | 2010                                       |  | 2010                                                                                                                  |  | 2010                                      |  | 2010                                              



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under Indonesian GAAP, TELKOM was required to
    consolidate Pramindo Ikat Nusantara from August 2002 due to
    TELKOMs control of the company, even though TELKOMs
    legal ownership in Pramindo was only 45% as of December 31,
    2003. On March 15, 2004, TELKOM purchased the remaining 55%
    of Pramindo that it did not own as of December 31, 2003.
    Following this transaction, TELKOM owned 100% of Pramindo.
    Subsequent to December 21, 2003, one share in Pramindo has
    been transferred to TELKOMs corporate secretary in order
    to comply with the legal requirement that Indonesian limited
    liability companies should have more than one shareholder and
    TELKOM currently owns 99.99% of Pramindo.
|(2) | The numbers included here are gross MTR revenues
    before elimination for consolidation purposes of MTR revenues
    from Pramindo (Regional Division I), AriaWest (Regional Division
    III) and Dayamitra (Regional Division VI).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | On January 27, 2004, Transpac Capital
    acquired an 8.5% ownership interest in Bukaka SingTel
    International. As of the date of this Annual Report, the
    ownership of Bukaka SingTel is as follows: Singapore Telecom
    International Pte Ltd., 40%; PT Bukaka Telekomindo
    International, 51.5%; and Transpac Capital, 8.5%.                                                                                                                                                                                                                                                                                                                                                                                                       

The KSO Agreements provide for the relevant KSO
partner to manage and operate the Division until the end of the
KSO period, undertake the construction of a specified number of
fixed lines and, at the end of the fixed term, transfer the new
telecommunications facilities in the Regional Division to TELKOM
for an agreed amount of compensation. The KSO Agreements also
provide for TELKOM to receive the following: (a) a one-time
initial payment from the KSO partners; (b) guaranteed
minimum monthly payments or Minimum TELKOM Revenues
(MTR); and (c) additional monthly revenue
sharing payments or Distributable TELKOM Revenues
(DTR) from the revenues of the KSO Unit after
payment of MTR and certain operating expenses. The KSO partners
were granted licenses to enter into KSO arrangements with TELKOM
to provide fixed-line services in the respective regions.



| |                         
| | ------------------------
| | Interconnection Services

TELKOM receives revenues from other
telecommunications operators providing fixed-line, cellular,
international long-distance and other services that interconnect
with TELKOMs network. In 2003,

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revenues from interconnection services
contributed Rp.4,162.1 billion (US$493.1 million), or
15.3% of total operating revenues.


TELKOM enters into interconnection agreements
with one- to three-year terms with other telecommunications
network operators, including Indosat and Satelindo,
Indonesias IDD service providers and cellular operators,
establishing the fees payable by the respective operators and
the procedures for routing calls through the networks of the
respective operators. Most of the short term (one-year)
interconnection agreements are entered into with
telecommunications network operators. Beginning in 2004,
following the merger of Indosat, Indosat Multi Media Mobile
(IM3) and Satelindo in 2003, Indosat assumed the
obligations of Satelindo and IM3 under their respective
interconnection agreements with TELKOM.

In 2004, as a result of new regulations regarding
DLD and IDD services, and the expected implementation of the
cost-based interconnection scheme on January 1, 2005,
TELKOM expects to enter into new interconnection agreements with
other network operators to adjust, among other provisions,
routing procedures, network configuration and interconnection
fees.

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TELKOMs interconnection traffic volumes are
set forth in the following table for the periods indicated:

|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |         | 
|-------------------------------------- | --------------------- | ----------------------- |  | ------- | ------- | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                       |                       |                        
|                                       |                       | Year ended December 31,
|                                       |                       |                        
|                                       |                       | 1999                    |  | 2000    |         | 2001 |  | 2002    |         | 2003
|                                       |                       |                         |  |         |         |      |  |         |         |     
|                                       |                       |                        
|                                       |                       | (millions of minutes)  
|Mobile Cellular
    Interconnection(1) |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|Digital                                |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 1,396.8 |         |      |  | 1,968.6 |         |      |  | 2,284.9 |         |  |  | 2,757.9 |         |  |  | 3,357.7 |        
|                                       | Outgoing paid minutes |                         |  | 873.2   |         |      |  | 1,687.1 |         |      |  | 2,645.8 |         |  |  | 3,807.5 |         |  |  | 4,848.7 |        
|Analog                                 |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 62.9    |         |      |  | 71.8    |         |      |  | 70.5    |         |  |  | 73.0    |         |  |  | 106.0   |        
|                                       | Outgoing paid minutes |                         |  | 24.7    |         |      |  | 34.0    |         |      |  | 43.5    |         |  |  | 47.0    |         |  |  | 23.4    |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       |                       | Subtotal                |  |         | 2,357.6 |      |  |         | 3,761.5 |      |  |         | 5,044.7 |  |  |         | 6,685.4 |  |  |         | 8,335.8 | 
|Fixed Wireless
    Interconnection(2)  |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 41.9    |         |      |  | 72.5    |         |      |  | 83.7    |         |  |  | 100.2   |         |  |  | 107.3   |        
|                                       | Outgoing paid minutes |                         |  | 33.1    |         |      |  | 39.3    |         |      |  | 30.5    |         |  |  | 36.3    |         |  |  | 29.6    |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       |                       | Subtotal                |  |         | 75.0    |      |  |         | 111.8   |      |  |         | 114.2   |  |  |         | 136.5   |  |  |         | 136.9   | 
|Fixed Wireline Interconnection         |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 26.1    |         |      |  | 30.1    |         |      |  | 31.9    |         |  |  | 28.2    |         |  |  | 22.8    |        
|                                       | Outgoing paid minutes |                         |  | 2.9     |         |      |  | 3.3     |         |      |  | 4.2     |         |  |  | 3.3     |         |  |  | 1.3     |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       |                       | Total paid minutes      |  |         | 29.0    |      |  |         | 33.4    |      |  |         | 36.1    |  |  |         | 31.5    |  |  |         | 24.1    | 
|Satellite Phone Interconnection        |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  |        |         |      |  |        |         |      |  | 2.4     |         |  |  | 12.6    |         |  |  | 16.1    |        
|                                       | Outgoing paid minutes |                         |  |        |         |      |  |        |         |      |  | 0.5     |         |  |  | 5.6     |         |  |  | 7.5     |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       |                       | Total paid minutes      |  |         |        |      |  |         |        |      |  |         | 2.9     |  |  |         | 18.2    |  |  |         | 23.6    | 
|International
    Interconnection(3)   |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 403.2   |         |      |  | 345.8   |         |      |  | 286.8   |         |  |  | 303.3   |         |  |  | 444.1   |        
|                                       | Outgoing paid minutes |                         |  | 251.1   |         |      |  | 250.6   |         |      |  | 241.9   |         |  |  | 200.3   |         |  |  | 149.7   |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       |                       | Total paid minutes      |  |         | 654.3   |      |  |         | 596.4   |      |  |         | 528.7   |  |  |         | 503.6   |  |  |         | 593.8   | 
|Total                                  |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Incoming paid minutes |                         |  | 1,930.9 |         |      |  | 2,488.8 |         |      |  | 2,760.2 |         |  |  | 3,275.2 |         |  |  | 4,054.0 |        
|                                       | Outgoing paid minutes |                         |  | 1,185.0 |         |      |  | 2,014.3 |         |      |  | 2,966.4 |         |  |  | 4,100.0 |         |  |  | 5,060.2 |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        
|                                       | Total paid minutes    |                         |  | 3,115.9 |         |      |  | 4,503.1 |         |      |  | 5,726.6 |         |  |  | 7,375.2 |         |  |  | 9,114.2 |        
|                                       |                       |                         |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |        



---



|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes interconnection with Telkomsel.
    TELKOMs paid minutes from Telkomsel for 1999-2003 are set
    forth in the following table.

|                      |  |                         |       |      |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 
|--------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- |  |  |  | ------- | 
|                      |  |                        
|                      |  | Year ended December 31,
|                      |  |                        
|                      |  | 1999                    |       | 2000 |  | 2001 |         | 2002 |  | 2003
|                      |  |                         |       |      |  |      |         |      |  |     
|                      |  |                        
|                      |  | (millions of minutes)  
|Incoming paid minutes |  |                         | 706.0 |      |  |      | 1,025.0 |      |  |      | 1,289.9 |  |  |  | 1,672.6 |  |  |  | 2,011.8 | 
|Outgoing paid minutes |  |                         | 430.0 |      |  |      | 771.0   |      |  |      | 1,266.0 |  |  |  | 2,001.6 |  |  |  | 2,610.3 | 



|    |                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Fixed wireless interconnection minutes are
    derived from interconnection with the network of PT Bakrie
    Telecom (formerly PT Radio Telepon Indonesia or Ratelindo).                                                                                                             
|(3) | 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.

33



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##### Table of Contents



On June 7, 2004, TELKOM began offering IDD
fixed-line services under the brand name
TIC 007. Revenues from IDD services will be
reported as international interconnection revenues.



| |                 
| | ----------------
| | Network Services

TELKOM provides satellite transponder leasing,
satellite broadcasting, VSAT, audio distribution,
satellite-based leased lines, terrestrial-based leased lines,
VPN Frame Relay Networks and VPN IPs as network services. In
2003, revenues from network services contributed
Rp.517.9 billion (US$61.4 million), or 2.0% of total
operating revenues. TELKOMs customers for network services
include businesses and other telecommunications operators.
Customers may enter into agreements that can be for services as
brief as a few minutes in the case of broadcasts or long-term
agreements for services over the course of one to five years.



| |                           
| | --------------------------
| | Data and Internet Services

TELKOM provides SMS for fixed line, fixed
wireless and cellular phones, multimedia dial-up Internet access
and other multimedia services, VoIP services for international
calls and ISDN lines. In 2003, revenues from data and Internet
services contributed Rp.3,108.6 billion
(US$368.3 million), or 11.5% of total operating revenues.
TELKOM is also developing a broadband access network utilizing
ADSL, hybrid fiber coaxial cables and satellites.

In 2003, an average of 366,130 telephone
subscribers accessed our TELKOMNet Instant dial-up Internet
service per month, representing an increase of 23% over the
prior year, with the number of subscribers accessing this
service reaching 408,026 during December 2003. Subscribers
utilized a total of 1.95 billion minutes of dial-up service
in 2003.

In September 2002, TELKOM began offering a
premium VoIP international calling service under the name
TELKOMGlobal-017 and a standard VoIP international
calling service under the name TELKOMSave and TELKOM
is currently providing both services in several cities in
Indonesia. Its VoIP services currently allow subscribers access
to 633 destination points in 235 countries through
agreements which TELKOM has entered into with six global
carriers and wholesalers that allow TELKOM to access their
international networks. VoIP is a low-cost phone service that is
accessed by dialing a special international long-distance
prefix. Currently, the access code for TELKOMs VoIP
service is 017. On March 11, 2004, the MoC
issued Decree No. 28/2004 and Decree No. 31/2004,
which stated that VoIP access codes must be changed from three
digits to five digits (010XY), although the MoC has
given operators, such as TELKOM, up to 2005 to comply with this
requirement.

The Company plans to increase the number of
access points in Indonesia and abroad from which its customers
are able to access its VoIP services. In 2003, an average of
214,600 telephone subscribers used either TELKOMSave or
TELKOMGlobal each month, representing an increase of 225% over
the prior year.

Certain information about TELKOM VoIP services is
set forth in the following table:

|                    |  |                        |  |                             
|------------------- |  | ---------------------- |  | ----------------------------
|Item                |  | TELKOMGlobal 017       |  | TELKOMSave                  
|                    |  |                        |  |                             
|Tariff              |  | 40% of normal IDD rate |  | Up to 60% of normal IDD rate
|Dial                |  | One stage              |  | Two stage                   
|Quality/ Technology |  | Premium VoIP           |  | Standard VoIP               



| |                                        
| | ---------------------------------------
| | Revenue Sharing Arrangements
    (PBHs)

In 2003, revenues from revenue sharing
arrangements amounted to Rp.258.5 billion
(US$30.6 million), or 1% of TELKOMs total operating
revenues. As of December 31, 2003, TELKOM had
27 revenue sharing arrangements. Under such arrangements,
investors finance the costs of developing and constructing
telecommunications facilities and TELKOM and the investors share
the revenues from such facilities for a fixed period of time.
Generally, during the revenue sharing period

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TELKOM manages and operates the facilities and
bears the cost of repairs and maintenance, though the investors
retain legal ownership to the property, plant and equipment
constructed during this period. At the end of each
revenue-sharing period, the investors transfer the ownership of
the facilities to TELKOM. The revenue-sharing arrangements
generally provide for investors to receive all revenues from
installation charges and for the investors and TELKOM to share
revenues from usage and subscription charges, with TELKOM
guaranteeing a specific internal rate of return
(IRR) for the investors. However, TELKOM has decided
not to enter into additional revenue sharing arrangements on the
terms outlined above because of their high cost. In October
2002, TELKOM began entering into new Build, Operate and Transfer
(BOT) schemes whereby TELKOM no longer guarantees an
IRR for the investors but sets forth the revenue percentage to
which they are entitled and the period during which such
investors are entitled to receive such percentage. TELKOM has
also started implementing its Penyediaan Pengembangan Layanan
Telekomunikasi (PPLT) program in
Divisions II, III and V. Pursuant to the PPLT program,
division heads are allowed to enter into agreements for the
development of telecommunications facilities with partners
within each division on terms that are more favorable to TELKOM,
with priority being given to the development of CDMA facilities.




| |                                              
| | ---------------------------------------------
| | Other Telecommunications-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 2003, revenues from other
telecommunications-related services amounted to
Rp.226.9 billion (US$26.9 million), or 0.8% of
TELKOMs total operating revenues.

Network Infrastructure



| |                                    
| | -----------------------------------
| | Fixed-line Network and
    Backbone

Fixed-Line Network.TELKOMs fixed-line network
comprises a hierarchy of exchanges ranging from local exchanges
through trunk exchanges. Each local exchange is connected to the
subscribers premises by equipment and facilities called
outside plant. Outside plant includes wireline (optical fiber
and copper) and wireless local transmission links and the
distribution facilities joining them. All of TELKOMs
switching facilities at the local and trunk exchanges are now
digital. TELKOM believes that this substantially increases
network efficiency, performance and call routing flexibility.

TELKOMs total number of fixed-lines in
service in all divisions, including for fixed wireless access,
and those lines in KSO divisions which are owned by the KSO
partners and will be transferred to TELKOM at the end of the KSO
period, has increased from approximately 7.75 million as of
December 31, 2002 to approximately 8.48 million as of
December 31, 2003, of which approximately 6.31 million
were for residential customers, approximately 1.74 million
were for business customers, approximately 14,559 were for
social customers (which include churches, hospitals, schools and
government offices), approximately 407,790 were for public
telephones, including kiosk phones, or public phones.

35



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##### Table of Contents



The following table sets forth statistics
relating to TELKOMs fixed-line network since 1999:

|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |           |      |      |            | 
|------------------------------------ | -------------------------- | ---------------------------------------- | -------- | --------- | ---- | ------- | --------- | --------- | ---- | ------- | --------- | --------- | ---- | ---- | --------- | --------- | ---- | ---- | --------- | --------- | ---- | ---- | ---------- | 
|                                     |                            |                                         
|                                     |                            | As of or for the Year Ended December 31,
|                                     |                            |                                         
|                                     |                            | 1999(1)                                  |          | 2000(1)   |      | 2001(2) |           | 2002(3)   |      | 2003(4)
|                                     |                            |                                          |          |           |      |         |           |           |      |        
|Operating Statistics                 |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|Exchange capacity                    |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 4,449,552 |      |         |           | 4,515,615 |      |         |           | 5,135,108 |      |      |           | 6,643,688 |      |      |           | 8,476,816 |     
|                                     | KSO Divisions(9)           |                                          |          | 3,909,179 |      |         |           | 3,946,407 |      |         |           | 3,669,336 |      |      |           | 2,459,950 |      |      |           | 1,670,005 |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 8,358,731 |           |      |         | 8,462,022 |           |      |      | 8,804,444 |           |      |      | 9,103,638 |           |      |      | 10,146,821 | 
|Installed lines                      |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 3,957,815 |      |         |           | 4,086,298 |      |         |           | 4,725,268 |      |      |           | 6,165,770 |      |      |           | 7,894,532 |     
|                                     | KSO Divisions(9)           |                                          |          | 3,471,447 |      |         |           | 3,581,779 |      |         |           | 3,316,406 |      |      |           | 2,234,892 |      |      |           | 1,664,220 |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 7,429,262 |           |      |         | 7,668,077 |           |      |      | 8,041,674 |           |      |      | 8,400,662 |           |      |      | 9,558,752  | 
|Lines in service(5)                  |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 3,256,992 |      |         |           | 3,610,363 |      |         |           | 4,270,243 |      |      |           | 5,710,427 |      |      |           | 7,030,049 |     
|                                     | KSO Divisions              |                                          |          | 2,823,201 |      |         |           | 3,052,242 |      |         |           | 2,948,695 |      |      |           | 2,039,608 |      |      |           | 1,449,066 |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 6,080,193 |           |      |         | 6,662,605 |           |      |      | 7,218,938 |           |      |      | 7,750,035 |           |      |      | 8,479,115  | 
|Lines in service per 100 inhabitants |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 5.3       |      |         |           | 5.7       |      |         |           | 5.6       |      |      |           | 4.64      |      |      |           | 4.36      |     
|                                     | KSO Divisions(9)           |                                          |          | 1.9       |      |         |           | 2.0       |      |         |           | 2.0       |      |      |           | 2.00      |      |      |           | 1.85      |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Combined  |      |         | 2.9       |           |      |         | 3.1       |           |      |      | 3.25      |           |      |      | 3.45      |           |      |      | 3.54       | 
|Subscriber lines                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 3,101,885 |      |         |           | 3,394,075 |      |         |           | 4,005,106 |      |      |           | 5,394,940 |      |      |           | 6,679,173 |     
|                                     | KSO Divisions(9)           |                                          |          | 2,709,066 |      |         |           | 2,923,223 |      |         |           | 2,831,168 |      |      |           | 1,952,226 |      |      |           | 1,392,152 |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 5,810,951 |           |      |         | 6,317,298 |           |      |      | 6,836,274 |           |      |      | 7,347,166 |           |      |      | 8,071,325  | 
|Public telephones                    |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions          |                                          |          | 155,107   |      |         |           | 216,288   |      |         |           | 265,137   |      |      |           | 315,487   |      |      |           | 350,876   |     
|                                     | KSO Divisions(9)           |                                          |          | 114,135   |      |         |           | 129,019   |      |         |           | 117,527   |      |      |           | 87,382    |      |      |           | 56,914    |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 269,242   |           |      |         | 345,307   |           |      |      | 382,664   |           |      |      | 402,869   |           |      |      | 407,790    | 
|Leased lines in service              |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Non-KSO Divisions(6)       |                                          |          | 2,446     |      |         |           | 3,300     |      |         |           | 4,973     |      |      |           | 8,193     |      |      |           | 8,213     |     
|                                     | KSO Divisions(9)           |                                          |          | 2,143     |      |         |           | 2,702     |      |         |           | 2,631     |      |      |           | 1,879     |      |      |           | 1,162     |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 4,589     |           |      |         | 6,002     |           |      |      | 7,604     |           |      |      | 10,072    |           |      |      | 9,375      | 
|Subscriber Pulse                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Production(7)(8)(millions) |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |           |     
|                                     | Non-KSO Divisions          |                                          |          | 25,077    |      |         |           | 28,231    |      |         |           | 34,342    |      |      |           | 44,340    |      |      |           | 51,062    |     
|                                     | KSO Divisions(9)           |                                          |          | 22,182    |      |         |           | 24,628    |      |         |           | 24,047    |      |      |           | 16,788    |      |      |           | 11,417    |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          |          | Total     |      |         | 47,259    |           |      |         | 52,859    |           |      |      | 58,389    |           |      |      | 61,128    |           |      |      | 62,479     | 
|Call completion rate (%)             |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     | Local                      |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |           |     
|                                     |                            | Non-KSO Divisions                        |          |           | 72.0 |         |           |           | 77.0 |         |           |           | 75.8 |      |           |           | 75.8 |      |           |           | 76.8 |     
|                                     |                            | KSO Divisions                            |          |           | 70.1 |         |           |           | 71.4 |         |           |           | 72.5 |      |           |           | 75.5 |      |           |           | 78.4 |     
|                                     |                            |                                          |          |           |      |         |           |           |      |         |           |           |      |      |           |           |      |      |           |          
|                                     |                            |                                          | Combined |           |      | 70.6    |           |           |      | 73.0    |           |           |      | 73.9 |           |           |      | 75.6 |           |           |      | 77.3 |           

36



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|                              |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |      |      | 
|----------------------------- | ----------------- | ---------------------------------------- |  | ------- | ---- | ------- |  | ------- | ---- | ------- |  | ---- | ---- |  |  | ---- | ---- |  |  | ---- | ---- | 
|                              |                   |                                         
|                              |                   | As of or for the Year Ended December 31,
|                              |                   |                                         
|                              |                   | 1999(1)                                  |  | 2000(1) |      | 2001(2) |  | 2002(3) |      | 2003(4)
|                              |                   |                                          |  |         |      |         |  |         |      |        
|Domestic long-distance        |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              | Non-KSO Divisions |                                          |  | 64.0    |      |         |  | 69.3    |      |         |  | 65.4 |      |  |  | 65.5 |      |  |  | 67.5 |     
|                              | KSO Divisions     |                                          |  | 62.4    |      |         |  | 64.5    |      |         |  | 85.6 |      |  |  | 68.1 |      |  |  | 74.7 |     
|                              |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              |                   | Combined                                 |  |         | 63.0 |         |  |         | 65.8 |         |  |      | 65.7 |  |  |      | 66.6 |  |  |      | 69.5 | 
|Fault rate(8)                 |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              | Non-KSO Divisions |                                          |  | 0.39    |      |         |  | 0.42    |      |         |  | 0.8  |      |  |  | 4.6  |      |  |  | 4.4  |     
|                              | KSO Divisions     |                                          |  | 2.02    |      |         |  | 1.69    |      |         |  | 3.1  |      |  |  | 8.9  |      |  |  | 3.5  |     
|                              |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              |                   | Combined                                 |  |         | 4.25 |         |  |         | 4.08 |         |  |      | 3.94 |  |  |      | 5.19 |  |  |      | 4.11 | 
|Lines in service per employee |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              | Non-KSO Divisions |                                          |  | 171     |      |         |  | 191     |      |         |  | 209  |      |  |  | 233  |      |  |  | 290  |     
|                              | KSO Divisions(9)  |                                          |  | 149     |      |         |  | 163     |      |         |  | 174  |      |  |  | 201  |      |  |  | 220  |     
|                              |                   |                                          |  |         |      |         |  |         |      |         |  |      |      |  |  |      |      |  |  |     
|                              |                   | Combined                                 |  |         | 160  |         |  |         | 177  |         |  |      | 193  |  |  |      | 223  |  |  |      | 275  | 



---



|    |                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For 1999 and 2000, Non-KSO Divisions refer to
    Divisions II and V, while KSO Divisions refer to
    Divisions I, III, IV, VI and VII.                                                                                                                                                                                              
|(2) | For 2001, Non-KSO Divisions refer to
    Divisions II, V and VI, while KSO Divisions refer to
    Divisions I, III, IV and VII.                                                                                                                                                                                                       
|(3) | For 2002, Non-KSO Divisions refer to
    Divisions I, II, V and VI, while KSO Divisions refer
    to Divisions III, IV and VII.                                                                                                                                                                                                       
|(4) | For 2003, Non-KSO Divisions refer to
    Divisions I, II, III, V and VI, while KSO Divisions
    refer to IV and VII.                                                                                                                                                                                                                 
|(5) | Lines in service comprise subscriber lines
    (including fixed wireless) 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, 1999: 405,643, 2000: 409,818, 2001: 430,477,
    2002: 443,316 and 2003: 519,316.
|(6) | Excludes leased lines for TELKOMs network
    and multimedia businesses.                                                                                                                                                                                                                                                             
|(7) | Consists of pulses generated from local and
    domestic long-distance calls, excluding calls made from pay
    phones and cellular phones.                                                                                                                                                                                           
|(8) | 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.                                                                                                 
|(9) | 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. Total for
    2003 excludes 40,000 CDMA fixed wireless line units established
    under BOT scheme.                                                                

The following table sets forth certain
information relating to the Companys (including KSOs)
fixed-line network in each of its operating divisions as of
December 31, 2003:

|                         |  |            |           |             |  |              |           |             |  |            |         |              |  |              |         |       |  |  |           |  |  |  |         |  |  |  |         |  |  |  |            | 
|------------------------ |  | ---------- | --------- | ----------- |  | ------------ | --------- | ----------- |  | ---------- | ------- | ------------ |  | ------------ | ------- | ----- |  |  | --------- |  |  |  | ------- |  |  |  | ------- |  |  |  | ---------- | 
|                         |  | 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  |  |            | 1,467,674 |             |  |              | 3,697,273 |             |  |            | 976,854 |              |  |              | 770,289 |       |  |  | 1,875,112 |  |  |  | 459,903 |  |  |  | 899,716 |  |  |  | 10,146,821 | 
|Total Lines in Service   |  |            | 1,239,409 |             |  |              | 3,036,372 |             |  |            | 733,462 |              |  |              | 668,261 |       |  |  | 1,594,827 |  |  |  | 425,979 |  |  |  | 780,805 |  |  |  | 8,479,115  | 
|Capacity Utilization (%) |  |            | 84.45     |             |  |              | 82.12     |             |  |            | 75.08   |              |  |              | 86.75   |       |  |  | 85.05     |  |  |  | 92.62   |  |  |  | 86.78   |  |  |  | 83.56      | 
|Installed Lines(1)       |  |            | 1,428,831 |             |  |              | 3,429,529 |             |  |            | 867,912 |              |  |              | 792,527 | (5)   |  |  | 1,714,351 |  |  |  | 453,909 |  |  |  | 871,693 |  |  |  | 9,558,752  | 
|Utilization Rate         |  |            | 86.74     |             |  |              | 88.54     |             |  |            | 84.51   |              |  |              | 84.32   |       |  |  | 93.16     |  |  |  | 97.50   |  |  |  | 89.70   |  |  |  | 88.90      | 
|Employees(2)             |  |            | 4,689     |             |  |              | 7,527     |             |  |            | 2,308   |              |  |              | 2,802   |       |  |  | 3,470     |  |  |  | 1,218   |  |  |  | 3,812   |  |  |  | 25,826     | 
|Population (millions)(3) |  |            | 53.53     |             |  |              | 29.83     |             |  |            | 26.15   |              |  |              | 45.53   |       |  |  | 37.75     |  |  |  | 14.11   |  |  |  | 32.74   |  |  |  | 239.66     | 
|Line Penetration(%)(4)   |  |            | 2.32      |             |  |              | 10.18     |             |  |            | 2.80    |              |  |              | 1.47    |       |  |  | 4.22      |  |  |  | 3.02    |  |  |  | 2.38    |  |  |  | 3.54       | 



---



|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Total for 2003 excludes 40,000 CDMA fixed
    wireless line units established under BOT scheme.                                                                                                                  
|(2) | Includes employees seconded to KSOs in
    Divisions IV and VII. Does not include employees for
    support divisions, such as TELKOMs long distance, fixed
    wireless, multimedia and construction divisions.
|(3) | Source:Indonesian
    Central Bureau of Statistics (estimated figures).                                                                                                                                          
|(4) | Based on the estimated population figures.                                                                                                                                                                       
|(5) | Includes installed lines that utilize exchange
    capacity from Division V.                                                                                                                                     

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##### Table of Contents



Backbone.TELKOMs telecommunications
network consists 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. The following table sets forth certain information
on the transmission capacity of TELKOMs backbone
transmission facilities as of December 31, 2003.

|                    |       |            |         |            |  |  |      |       | 
|------------------- | ----- | ---------- | ------- | ---------- |  |  | ---- | ----- | 
|                    |       | Capacity   |         | Percentage
|                    |       | (number of |         | of total  
|Transmission medium |       | circuits)  |         | capacity  
|                    |       |            |         |           
|Optical fiber cable |       |            | 253,050 |            |  |  | 50.5 |      
|Microwave           |       |            | 194,100 |            |  |  | 38.8 |      
|Submarine cable     |       |            | 24,180  |            |  |  | 4.8  |      
|Satellite           |       |            | 29,590  |            |  |  | 5.9  |      
|                    |       |            |         |            |  |  |      |      
|                    | Total |            |         | 500,920    |  |  |      | 100.0 | 
|                    |       |            |         |            |  |  |      |      

For more information on TELKOMs satellites,
see Other Network Infrastructure below.



| |                 
| | ----------------
| | Wireless Network

Telkomsel.Since its
incorporation in 1995, Telkomsel has been providing GSM cellular
services throughout Indonesia through its own network. Telkomsel
has the largest network coverage of any of the cellular
operators in Indonesia, providing coverage to more than 85% of
Indonesias population and more than 600 cities.
Telkomsel currently operates a nationwide GSM/DCS cellular
network using a total of 30 MHz of radio frequency
bandwidth. This consists of 7.5 MHz in the 900 MHz
band and 22.5 MHz in the 1800 MHz band, including the
additional 15 MHz that was transferred from TELKOM to
Telkomsel. Both networks operate as a single integrated dual
band network. Telkomsel has rolled out GPRS services in several
major cities in Sumatera, Java, Bali, Kalimantan and Sulawesi
since October 2002. In February 2004, Telkomsel commenced
technical testing in Jakarta of its enhanced data transmission
service called EDGE, for Enhanced Data rates for GSM
Evolution, and Telkomsel expects to commercially launch EDGE in
a limited number of cities sometime during the second half
of 2004.

The Telkomsel network is an integrated network of
(i) base transceiver stations containing transmitters,
receivers and other equipment that communicate by radio signals
with cellular telephone handsets within the range of the base
transceiver station, (ii) digital switch centers that route
calls to the proper destinations and (iii) transmission
facilities that link the digital switch centers to other cell
sites. The various components of the network are connected
primarily by microwave transmission, trunk lines owned by
Telkomsel and other fixed lines. In addition, through agreements
with TELKOM, Telkomsel leases certain of TELKOMs
facilities, including leased lines, integrated management system
and information system facilities, land, sites and towers.

In 2003, Telkomsel expanded its network capacity
by adding, among other equipment, 1,337 BTSs and
10,563 transmitting and receiving exchanges. As of
December 31, 2003, Telkomsels digital network had
4,820 BTSs, 51 cellular switching centers (with the
capacity to handle 14.5 million subscribers), 166 base
station controllers and 38,624 transmitting and receiving
exchanges.

For each of the years ended December 31,
2001, 2002 and 2003 Telkomsel made capital expenditures for the
development and expansion of its cellular network of
approximately US$351.2 million, US$536.8 million and US$633.7
million, respectively, based on the middle market spot rate for
the Rupiah against the U.S. Dollar on December 31,
2003 of Rp.8,440= US$1.00. During 2003, Telkomsel budgeted
capital expenditures for the development and expansion of its
cellular network totaling approximately Rp.6,338.0 billion
(US$704.2 million), against actual capital expenditures of
approximately US$633.7 million.

38



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##### Table of Contents



Prior to 2002, TELKOM (through its business
division, TELKOM Mobile) and Telkomsel, had been independently
working on the construction of separate DCS 1800 networks.
TELKOM had been granted 15 MHz of radio frequency bandwidth in
the 1800 MHz band. In January 2002, Telkomsel entered into
a co-operation agreement with TELKOM (the Telkomsel
Co-operation Agreement), the purpose of which was to set
the framework for the transfer of TELKOMs mobile
telecommunications business and its DCS 1800 license to
Telkomsel and for Telkomsel to assume certain obligations and
assets of TELKOM connected with the DCS 1800 network,
including the assumption of TELKOMs rights and obligations
under a supply contract with Siemens. On April 3, 2002,
pursuant to the Telkomsel Co-operation Agreement, Telkomsel
purchased TELKOMs assets relating to TELKOM Mobile and
TELKOM transferred its TELKOM Mobile employees to Telkomsel.
Telkomsel also assumed all of TELKOMs rights and
obligations under various contracts connected with its TELKOM
Mobile business.

Under the terms of the Telkomsel Co-operation
Agreement, TELKOM procured to have its DCS 1800 license
cancelled and re-issued to Telkomsel so that Telkomsel would
have 15 MHz of radio frequency in addition to its own
7.5 MHz of radio frequency in the 1800 MHz band. The
MoC re-issued the license to Telkomsel on July 12, 2002.

CDMA Fixed Wireless.TELKOM began offering a limited
mobility CDMA-based fixed wireless phone service under the brand
name TELKOMFlexi in December 2002. As of
December 31, 2003, TELKOMFlexi service was available in
38 cities. TELKOMs rollout of this limited mobility
fixed wireless service is occurring concurrent with its use of
CDMA fixed wireless technology for the development of its
fixed-line network. CDMA-based fixed wireless technology enables
rapid development of telephone networks and the reduction of
capital expenditures per line by reducing and often eliminating
the need for layout of cables. TELKOM intends to continue to
rapidly develop its CDMA-based fixed wireless network.

As of December 31, 2003, TELKOM had
396 BTSs and 815,647 line units deployed, of which
380 BTSs and 775,647 line units were financed by
TELKOM and 16 BTSs and 40,000 line units were
established under the BOT scheme (instead of the 53,900 that
were originally planned). As of December 31, 2003, TELKOM
had achieved sales of 467,933 TELKOMFlexi Line Units (consisting
of 459,725 Line Units in non-BOT areas and 8,208 Line
Units in BOT areas).

Data
Networks

TELKOM began operating data network services in
1997 and has since continued to develop and expand its network
progressively. As of December 31, 2003, TELKOMs
IP-based network covered most of the metropolitan areas of
Indonesia, with points of presence (POP) in 132 locations.
The IP-based network serves as the backbone network for high
quality VPNs and for Internet service providers. TELKOM has
installed remote access servers in 88 locations in Indonesia and
offers dial-up Internet services under the name of
TELKOMNet Instant. For corporate customers requiring
high performance and secured virtual private network, TELKOM
provides a premium service known as VPN Gold.

Other Network
Infrastructure

The Company also operates the TELKOM-1 and the
Palapa B-4 satellites and 173 earth stations,
including one satellite control system. TELKOM-1 has
36 transponders including 12 extended C-band
transponders and 24 standard C-band transponders, while
Palapa B-4 has 24 standard C-band transponders. TELKOM
uses its satellites for the following purposes:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Network backbone transmission;                                                
|
| |  | Rural telecommunications services;                                            
|
| |  | Back-up transmission capacity for the national
    telecommunications network;
|
| |  | Satellite broadcasting, VSAT and multimedia
    services;                     

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| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | Satellite transponder capacity leasing;                                                                
|
| |  | Satellite-based lease line; and                                                                        
|
| |  | Teleport (earth station satellite uplinking and
    downlinking services to and from other satellites).

Network Development.

Fixed-line
Network Development

TELKOM continues to develop and expand its
network infrastructure. In December 2002, TELKOM signed
agreements with a consortium led by Samsung Electronics and a
consortium led by Ericsson and in March 2003, TELKOM signed an
agreement with Motorola, Inc. for the development of a total of
1.6 million lines based on CDMA fixed wireless technology.
These projects are expected to be completed by the middle of
2006. See Item 10. Additional Information 
C. Material Contracts.

TELKOM also has several network developments
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 backbone infrastructure in Kalimantan
    (Borneo) and Sulawesi; and                                                                                                                                                      
|
| |  | fiber optic regional junction in greater Jakarta,
    Surabaya (East Java) and Bandung  Cirebon (West Java).                                                                                                                         

To further develop its communications services,
TELKOM also plans to:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Implement soft switch technologies to move
    towards a next generation network;                                                   
|
| |  | Expand its broadband access network utilizing
    ADSL, which currently 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.                                                                           

Data Network
Development

In 2003, TELKOM continued to improve the quality
of its data network by adding capacity and coverage, increasing
the capacity and coverage area of its Network Management System,
as well as improving its billing system and access to its data
network. TELKOM also expanded the coverage of its high
performance IP backbone and Remote Access Server with a
view to expanding the coverage of its IP VPN dial-up
services. On August 20, 2003 TELKOM introduced wireless
hotspot technology in business districts in Jakarta and Batam,
giving customers a high-speed Internet access option in addition
to TELKOMs ADSL and Optical Fiber Access Network.

IDD Network
Development

TELKOM received its commercial license from the
Government to provide IDD services on May 13, 2004. TELKOM
began offering IDD fixed-line services under the brand name
TIC 007 on June 7, 2004. TELKOM has also
upgraded switches in Batam, Jakarta and Surabaya to have
international gateway capabilities. Since 2002, TELKOM has
operated microwave links to connect Batam Island (Indonesia),
Sentosa Island (Singapore) and Johor (Malaysia). Due to the high
demand for international bandwidth in the ASEAN region, TELKOM,
Singapore Telecom (SingTel) and CAT Telecom agreed
to build a submarine fiber optic cable to connect Indonesia
(Batam), Singapore (Changi) and Thailand (Songkhla), which is
known as TIS Cable System and the cable was ready for

40



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service in November 2003. TELKOM has also signed
an agreement with Telekom Malaysia Berhad (Telekom
Malaysia) for the deployment and maintenance of a new
submarine optical cable to connect Dumai (Indonesia) to Melaka
(Malaysia), which is expected to be completed by the end of
2004. TELKOM also extended its international cable by purchasing
bandwidth capacity to connect with Hong Kong and utilizes this
capacity to connect to other countries from Hong Kong, such as
the United States. TELKOM is developing the ground segment to
connect the Intelsat Satellite. These steps will provide more
flexibility for TELKOM to interconnect with foreign operators.
In order to allow interconnection with foreign operators, TELKOM
has entered into international telecommunications service
agreements with dominant operators in several countries, such as
SingTel, Telekom Malaysia, MCI and SK Telink.


TELKOM-2
Satellite

TELKOM has signed a US$73.14 million contract
with Orbital Sciences Corporation to build the TELKOM-2
satellite based on Orbitals STAR-2 platform, to replace
TELKOMs existing Palapa B-4 satellite, whose
operational lifespan expires in late 2004. The TELKOM-2
satellite is to have a capacity of 24 standard C-band
transponders, with transponder specifications similar to those
of the TELKOM-1 satellite. TELKOM-2 is to be designed for a
15 years in-orbit life and is expected to provide increased
coverage of the Asian region and the Indian subcontinent
compared to Palapa B-4. TELKOM believes that the satellite
will support TELKOMs network for voice, video and data
communications.

The Company plans to launch TELKOM-2 between
November 30, 2004 and December 30, 2004. On
November 8, 2002, TELKOM signed a US$62.9 million agreement
with Arianespace S.A., which covers the cost of launching
TELKOM-2.



| |                     
| | --------------------
| | Capital Expenditures

For more information on TELKOMs principal
capital expenditures, see Item 5. Operating and
Financial Review and Prospects  B. Liquidity and
Capital Resources  Capital Expenditures.

Business Strategy

The Companys vision is to become a leading
InfoCom player in the region, with a mission to provide one-stop
services with excellent quality and competitive price to
customers and to manage its business using best practices,
utilizing competitive advantages and maximizing synergies.

TELKOM believes that Indonesias
telecommunications market remains underdeveloped with a
penetration rate of approximately 3.54 lines per
100 inhabitants for fixed-lines and approximately
9 lines per 100 inhabitants for cellular as of
December 31, 2003 based on projected population figures
from the Central Bureau of Statistics. TELKOM believes that the
strong demand for telecommunications services has largely been
responsible for the growth of its fixed-line and wireless
business in recent years and will continue to offer favorable
growth opportunities in the future. TELKOM expects that
fixed-line and wireless services will continue to provide the
substantial majority of its operating revenues in the near term,
although it plans to increase the proportion of its revenues
derived from its other communications services. It has developed
broad strategies to retain its existing customers, to acquire
new and lost customers and to further penetrate the market,
through customer relationship management, product leadership and
diversification, pricing and one-gate distribution channels.

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The key elements of TELKOMs strategy are:



| |                                          
| | -----------------------------------------
| | Strengthening the Fixed-line
    Business

Indonesia has one of the lowest fixed-line
penetrations in Southeast Asia. The following table sets forth
the penetration rate for each Division as of December 31,
2003:

|                      |  |            |           |             |  |              |           |             |  |            |         |             |  |              |         |       |  |  |           |  |  |  |         |  |  |  |         |  |  |  |           | 
|--------------------- |  | ---------- | --------- | ----------- |  | ------------ | --------- | ----------- |  | ---------- | ------- | ----------- |  | ------------ | ------- | ----- |  |  | --------- |  |  |  | ------- |  |  |  | ------- |  |  |  | --------- | 
|                      |  | Division I |           | Division II |  | Division III |           | Division IV |  | Division V |         | Division VI |  | Division VII |         | Total
|                      |  |            |           |             |  |              |           |             |  |            |         |             |  |              |         |      
|LIS                   |  |            | 1,239,409 |             |  |              | 3,036,372 |             |  |            | 733,462 |             |  |              | 668,261 |       |  |  | 1,594,827 |  |  |  | 425,979 |  |  |  | 780,805 |  |  |  | 8,479,115 | 
|Population (millions) |  |            | 53.53     |             |  |              | 29.83     |             |  |            | 26.15   |             |  |              | 45.53   |       |  |  | 37.75     |  |  |  | 14.11   |  |  |  | 32.74   |  |  |  | 239.66    | 
|Penetration (per 100) |  |            | 2.32      |             |  |              | 10.18     |             |  |            | 2.80    |             |  |              | 1.47    |       |  |  | 4.22      |  |  |  | 3.02    |  |  |  | 2.38    |  |  |  | 3.54      | 

As of December 31, 2003, approximately 51%
of total lines in service were in the major metropolitan areas
of Jakarta, Surabaya, Semarang, Bandung, Medan and Denpasar.

TELKOM aims to strengthen its fixed-line business
by:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing its fixed-line penetration rate more
    quickly and with lower capital expenditure per line through the
    rapid roll-out of fixed wireless technology, revenue sharing
    arrangements, new partnership agreements and pay as you grow
    schemes;                                               
|
| |  | increasing ARPU through the use of TELKOMFlexi
    and value added services;                                                                                                                                                                                                                                     
|
| |  | concentrating on its top 20 products in the top
    40 cities and targeting the top 20% of its customers with
    ARPUs of more than Rp.150,000 by providing multiservice
    bundling, broadband access, a customer care service center for
    business customers, price packaging and other benefits;         
|
| |  | strengthening its interconnection business by
    establishing a service center dedicated to telecommunications
    operators and other interconnection customers, opening more
    gateways to other telecommunications operators, offering more
    attractive pricing and providing enhanced billing services;
|
| |  | strengthening PlasaTELKOM as a point of sale for
    TELKOMs services; and                                                                                                                                                                                                                                      
|
| |  | developing and expanding its IDD fixed-line
    business, which TELKOM began offering to customers on
    June 7, 2004.                                                                                                                                                                                          



| |                                       
| | --------------------------------------
| | Strengthening its Backbone
    Network

In order to provide a better quality of service
to its customers, TELKOM intends to continue to increase the
capacity, reach and quality of its network by, among other
things, using an optical network for high speed backbone
transmission infrastructure such as HPBT Sumatera (2002-2003),
Trans Borneo and Trans Sulawesi (2004-2005) and by launching the
new TELKOM-2 satellite to replace the existing Palapa B-4
satellite (which ends its operational life around the end of
2004). In addition, TELKOM aims to manage synergies among
utility providers in order to enhance backbone capacity and
access network penetration, expanding its optical network,
upgrading to a next generation network with the installation of
advanced switching systems, constructing international microwave
and submarine links and upgrading its systems to provide
integrated billing for new services.



| |                                                              
| | -------------------------------------------------------------
| | Maintaining Telkomsels Dominant
    Position in the Industry

The Company regards the cellular business as
having the greatest opportunity for revenue growth. The Company
provides its cellular services primarily through Telkomsel, a
market leader in the cellular business in Indonesia. Based on
industry statistics, Telkomsel had an estimated market share as
of December 31, 2003 of approximately 51%, maintaining its
position as the largest nationwide licensed GSM mobile cellular
operator in Indonesia despite a slight decline from its
estimated market share of 52.8% as of December 31, 2002.
TELKOM intends to promote the further development of
Telkomsels business by, among other things, offering
bundling of and one-stop shopping for, TELKOMs and

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Telkomsels products and services and
approving Telkomsels capital expenditure program which
will provide for expansion of network capacity and enable
Telkomsel to meet the needs of its growing customer base through
2005. In order to focus on Telkomsel and GSM technology, TELKOM
has sold its interests in cellular operators Telesera, Metrosel
and Komselindo which utilize analog and other first generation
non-GSM technologies. In February 2004, Telkomsel began
technical testing in Jakarta of a new enhanced data transmission
service called EDGE, for Enhanced Data rates for GSM
Evolution. Telkomsel expects to commercially launch EDGE
sometime during the second half of 2004.


Singapore Telecom Mobile Pte Ltd (SingTel
Mobile) has a 35% interest in Telkomsel. TELKOM believes
that SingTel Mobiles equity interest in Telkomsel
increases Telkomsels ability to access SingTel
Mobiles technological and commercial expertise in the
cellular business and increases opportunities for cooperation
between Telkomsel and SingTel Mobile in the development of new
products, thereby strengthening and better positioning Telkomsel
to face competition from other mobile cellular operators.

The key elements of Telkomsels strategy for
its business include:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | taking advantage of commercial, operational and
    network synergies with TELKOM and sharing best-practices and
    know-how with SingTel Mobile;                                                                                                                                                                                                               
|
| |  | ensuring that Telkomsel has the necessary network
    capacity at predefined quality levels to handle subscriber
    growth;                                                                                                                                                                                                                                     
|
| |  | maintaining or improving market share, ARPU and
    churn rates by continuously aligning the characteristics and
    features of Telkomsels service offerings to the evolving
    needs of its customer, enhancing its products and services
    portfolio (including its EDGE and GPRS services), expanding
    network capacity and improving service quality;
|
| |  | ensuring that Telkomsel has the IT infrastructure
    in place to fulfill its vision and mission, with special focus
    on areas such as billing, service delivery and customer service;
    and                                                                                                                                                                
|
| |  | achieving service levels at par with world class
    mobile service providers through its call center footprint and
    aggressive pursuit of service oriented goals.                                                                                                                                                                                            



| |                                           
| | ------------------------------------------
| | Developing its Fixed Wireless
    Business

TELKOM began offering a limited mobility
CDMA-based fixed wireless phone service under the brand name
TELKOMFlexi in December 2002. TELKOMs rollout
of this service began in the three cities of Surabaya, Denpasar
and Balikpapan and, as of December 31, 2003, was available
in 38 cities throughout Indonesia, including Jakarta,
Malang, Batam, Makasar, Banjarmasin, Medan and Palangkaraya.
TELKOM plans to continue to expand its CDMA-based fixed wireless
networks in all of its regional divisions by constructing
CDMA-based fixed wireless networks. Compared to fixed wireline
networks, CDMA-based networks are generally faster and easier to
construct and provide customers with greater flexibility and
mobility. TELKOM believes the deployment of a CDMA-based fixed
wireless network and its TELKOMFlexi business will provide
TELKOM with a competitive advantage in the face of
liberalization and increased competition in the fixed-line
market.



| |                                              
| | ---------------------------------------------
| | Developing its Data and Internet
    Business

TELKOM intends to grow its data and Internet
business by, among other things:



| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased investment in TELKOMs broadband
    infrastructure (such as ADSL, Hybrid Fiber/ Coax and satellite);                                                                                                                                                                                
|
| |  | focusing on retaining and acquiring customers
    with high demand for data services by offering competitive
    pricing for high-speed data and Internet services (including
    value-added services) and full VPN IPs, and by expanding
    TELKOMs backbone and network access technology;

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| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | giving customers greater Internet access options,
    such as through wireless hotspot technology and the bundling of
    Internet access services with TELKOMFlexi and Telkomsel products;           
|
| |  | developing and offering new value-added services
    and products, such as e-payment services for banks and other
    financial institutions and wireless data content for GPRS and
    MMS users; and
|
| |  | expanding the international coverage of
    TELKOMs data and Internet services by entering into
    agreements with additional global carriers and wholesalers.                                      



| |                         
| | ------------------------
| | Reducing Cost of Capital

TELKOM recognizes that the increasingly
competitive Indonesian telecommunications market requires TELKOM
to develop additional network capacity, improve operational
efficiency and diversify its sources of financing. TELKOMs
internally generated cash flows and direct borrowing from banks
and other lenders may not be sufficient to fund aggressive plans
to grow its business. As a result, TELKOM has sought to
implement innovative financing techniques for its additional
network capacity in order to:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | reduce capital expenditures per subscriber, its
    cost of capital and the demands placed on its cash flows;
|
| |  | share investment risks with its suppliers;                                                                   
|
| |  | reduce its asset base and outsource non-core
    businesses; and                                             
|
| |  | mitigate financing, commercial, operational,
    technical and capacity risks.                               

TELKOM calls such financing techniques pay
as you grow. As currently formulated, pay as you
grow involves arrangements in which TELKOM and its
equipment suppliers agree that a percentage of the contract cost
will be paid up front (for example, 25%) and the balance will be
paid once lines are put into service. TELKOM and its suppliers
also agree to work together to plan and design networks, assess
capacity requirements and determine timetables for procurement.
TELKOM expects that only a relatively small number of equipment
vendors will be invited to participate in pay as you
grow programs and supply a substantial portion of
TELKOMs infrastructure and other equipment needs.

Customer Service



| |       
| | ------
| | TELKOM

TELKOM provides the following means of accessing
customer services:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Walk-in customer services points.Customer service points provide
    convenient and comprehensive access to TELKOMs customer
    services and handle product and service information requests and
    complaints, activation of services, customer billing, payments,
    account suspensions, service features and marketing promotions.
    TELKOM has more than 100 customer service points in total,
    including eight large centers in Jakarta, two in Surabaya and
    customer service points operated by its KSO Units.                                                                                                                                                                                                       
|
| |  | Call centers and Internet.TELKOM operates call centers in many
    cities in Indonesia, including in the KSO regions. Customers are
    provided a toll free number to speak directly to customer
    service operators who are trained to handle customer requests
    and complaints and to provide up-to-date information on matters
    such as customer bills, promotions and service features. Billing
    information may also be obtained through the Internet for
    customers in Jakarta. Customers are also provided access to
    directory services for which a charge is levied. TELKOM intends
    to promote the use of call centers and the Internet over walk-in
    customer service points for its retail customers.
|
| |  | Enterprise center and account management
    teams.TELKOM regards the top 20% of
    its corporate customers, particularly corporations with national
    operations, as its most important customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | To focus on these customers, TELKOM has set up an
    enterprise center in Jakarta, which seeks to develop its
    business in this segment of the market. TELKOM provides these
    customers with account management teams, each comprising an
    account manager supported by personnel from the relevant
    operational departments, to provide a single point of contact
    for all of the customers communications needs. To cater to
    such customers, the enterprise center works on integrating
    various product and service offerings to provide total
    communications solutions, including Internet access and
    customized data communications-related products and services.
    TELKOM has also set up similar account management teams at the
    regional level to focus on corporations with regional operations
    within Indonesia. TELKOM currently has over
    74 national-level account management teams and over
    101 regional-level account management teams that cover
    Divisions II and V. It plans to further increase the
    number of such teams.
|
| |  | TELKOM has had a service level guarantee program
    for its fixed-line customers in Divisions II and V
    since May 2001 and has been implementing a service level
    guarantee program on a national basis since June 2002. The
    service level guarantee program provides guarantees of certain
    minimum levels of service relating to new line installations,
    restoration of disconnected lines and billing complaints, and
    provides for non-cash compensation, such as free subscription
    for a certain period, to be awarded to customers where such
    minimum service levels are not met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



| |          
| | ---------
| | Telkomsel

Telkomsel provides the following means of
accessing customer services:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GraPARI Customer Services Centers:Telkomsels GraPARI customer
    service centers (GraPARI centers) provide convenient
    and comprehensive access to Telkomsels customer services.
    GraPARI centers handle product and service information requests
    and complaints and typically focus on activation of services,
    customer billing, payments, account suspensions, service
    features, network coverage, IDD, roaming information and
    marketing promotions. See  Sales, Marketing and
    Distribution.
|
| |  | Caroline:Caroline, or Customer Care
    On-Line, is a 24 hour toll-free telephone service.
    Telkomsels customers may speak directly to customer
    service operators who are trained to handle customer requests
    and complaints and to provide up-to-date information on matters
    such as customer bills, payments, promotions and service
    features.                                                                                                                                                           
|
| |  | Anita:Anita, or Aneka Informasi
    dan Tagihan, is an SMS service available only to
    Telkomsels KartuHALO subscribers. Subscribers may use
    dedicated Anita telephone lines to obtain billing information as
    well as usage information through SMS.                                                                                                                                                                                                                                                                

Sales, Marketing and Distribution



| |       
| | ------
| | TELKOM

TELKOM distributes and sells its principal
products and services, including fixed wireless services but
excluding mobile cellular services, through six primary
distribution channels:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Walk-in customer service points.Customers have access to certain
    products and services in these walk-in customer service points.
    See  Customer Service above.                                                                                                                                                                                                                                                                                                                  
|
| |  | Account management teams.Account management teams promote
    TELKOMs products and services in an integrated manner to
    TELKOMs larger business customers. See
     Customer Service above.                                                                                                                                                                                                                                                                                       
|
| |  | Public telecommunications kiosks.Small businesses in cooperation with
    TELKOM have established public telecommunications kiosks
    throughout Indonesia. Customers can access basic
    telecommunications services, including local, domestic
    long-distance and international telephony, send facsimiles,
    telex and telegrams, access the Internet and purchase
    phone-cards. TELKOM generally provides discounts to such kiosks
    ranging from 20% to 30% compared with

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| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | subscriber telephone rates. Kiosks operate on a
    non-exclusive basis and may provide products and services of
    other operators.                                                                                                                                                                                                                     
|
| |  | Authorized dealers and retail outlets.These are located throughout Indonesia
    and primarily sell phone-cards and TELKOMFLexi subscriptions.
    Independent dealers and retail outlets pay a discount to face
    value for all products they receive, operate on a non-exclusive
    basis and may also sell products and services of other operators.
|
| |  | Website.Through its
    website, customers can obtain information on TELKOMs major
    products and services and gain access to certain of its
    multimedia products.                                                                                                                                                                                  
|
| |  | Public telephones.Customers can make local, domestic
    long-distance and international telephone calls through public
    telephones.                                                                                                                                                                                                                   

TELKOMs marketing communications program
includes the use of print and television advertising, customer
service and distribution personnel, infrastructure and special
promotional campaigns to strengthen its brand name, increase its
profile and educate the general public about itself and its
products and services. TELKOM is developing its marketing
communications program to promote all of its core businesses as
it seeks to evolve into a full service telecommunications
provider.



| |          
| | ---------
| | Telkomsel

Telkomsel sells its cellular services through
three primary distribution channels: (i) its 61 GraPARI
centers, (ii) a network of authorized dealers (operating
over 6,000 retail outlets throughout Indonesia) selling
primarily SimPATI SIM cards and pre-paid vouchers and
(iii) other outlets such as banks and photo shops.
Independent dealers and other outlets pay a discount to face
value for all products they receive, such as starter packs and
pre-paid vouchers. Independent dealers sell Telkomsels
cellular services on a non-exclusive basis and may also sell
products and services of other cellular operators.

Telkomsel markets its KartuHALO product and
services to specific target groups, focusing on corporate
end-users, HALOkeluarga, and professionals who tend to generate
higher usage and, therefore, higher revenues. Telkomsel has
established dedicated corporate account teams to market its
services to large corporate customers and to manage on-going
client relationships. Its SimPATI products and services are
targeted at a much broader customer base.

Telkomsel advertises through a variety of media
for strategic branding and promotions. In addition, Telkomsel
employs marketing methods such as bill inserts and point-of-sale
displays in order to target programs, events and promotions at
particular segments of the market. Telkomsels marketing
strategy also includes conducting on-going market analysis to
better understand its targeted subscribers and to gather
feedback on customer preferences with a view to improving and
introducing new services to cater to the requirements of
existing customers and to attract new subscribers.

Billing, Payment and Collection

TELKOMs customers are billed on a monthly
basis. Customers are billed according to the regional division
in which they are located, although they may request bills from
several regions to be combined. The billing process is
computerized within each region. Payment can be made within the
respective regions, through designated automated teller
machines, at post offices and banks that act as collecting
agents and in certain areas by direct deposit via telephone
transfer or by automatic debit through banks and Internet
banking. However, for overdue payments, customers are required
to make such payments only at TELKOMs customer service
points. TELKOM issues bills on the fifth day of each month and
payment of the bill is due by the 20th day of that same month.
If payment is not received by the due date of the bill,
customers are provided with reminders by way of automated
telephone calls and reminder letters, nominal late fees are
levied and increasing levels of call barring are implemented.
Services will be terminated if no payment is received after
three months from the due date, although TELKOM does not cut off
service to its Government subscribers. After an account is

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terminated, the customer may only re-subscribe
for services after making the overdue payment, including payment
of late fees, and by completing a new application.


The following is a summary of TELKOMs
overdue payment policy:

|      |  |                   |  |                                                                                        |  |                                                                            
|----- |  | ----------------- |  | -------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------
|Stage |  | Overdue Payment   |  | Charge                                                                                 |  | Penalty                                                                    
|      |  |                   |  |                                                                                        |  |                                                                            
|I     |  | 1-10 days         |  | 5% of the total outstanding receivables, subject
    to the minimum charge of Rp.5,000 |  | Not isolated                                                               
|II    |  | 11-40 days        |  | 10% of overdue bill subject to minimum charge of
    Rp.10,000                         |  | Out-going isolation (i.e., restricted to
    receiving incoming calls only)
|III   |  | 41-70 days        |  | 15% of overdue bill subject to minimum charge of
    Rp.15,000                         |  | Out-going isolation (i.e., restricted to
    receiving incoming calls only)
|IV    |  | More than 70 days |  | Customer must fulfill overdue payment, 100% of
    installation fee                    |  | Terminated                                                                 

TELKOM currently provides billing services for
Indosat in connection with their IDD services, for which it
charges a flat fee for each bill, although it may start billing
directly after Indosat enters the domestic market and when
TELKOM enters the IDD market.



| |                                       
| | --------------------------------------
| | Management of Customer
    Receivables

TELKOM does not screen its customers for
creditworthiness and does not collect deposits from subscribers,
although its call barring procedures for non-payment of bills
have contributed towards the reduction of bad debt.

In the case of private retail customers, TELKOM
generally provides for 100% of the outstanding debt where the
amount has been outstanding for more than three months. In the
case of Government and military customers, TELKOM generally
provides for 25% of the outstanding debt where the amount has
been outstanding between 7 and 12 months, 50% where the
amount has been outstanding between 13 and 24 months and
100% where the amount has been outstanding for more than
24 months.



| |          
| | ---------
| | Telkomsel

Telkomsel bills its KartuHALO post-paid
subscribers on a monthly basis, in arrears based on (i) the
minutes of use for cellular services; (ii) any additional,
chargeable value-added services utilized during the period; and
(iii) subscription charges for basic and other services
included in their subscription plan. Beginning March 2004,
postpaid subscribers can choose among three options:
(a) free national roaming; (b) 150 free SMS per month;
or (c) waiver of the monthly subscription charge.

Telkomsel offers its KartuHALO post-paid
subscribers a variety of payment options, including payment by
cash, cheque, credit card, direct deposit via telephone transfer
or automatic debit through banks and participating credit card
companies. Payments may be made at any of Telkomsels
GraPARI centers, designated automatic-teller machines or through
over-the-counter facilities (mostly at post offices and banks
with whom Telkomsel has an arrangement).

Telkomsel issues bills on the fifth day of each
month and payment of the bill is due by the 20th day of that
same month. If payment is not received by the due date of the
bill, subscribers are provided with reminders by way of
automated telephone calls or SMS, and the customer will be
barred from making any outgoing calls or receiving any incoming
roaming calls. If there is no payment of the overdue sum within
one month from the due date of the relevant bill, the customer
will be further

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barred from receiving all incoming calls. If no
payment is received within two months of the due date of
payment, the customers account will then be terminated,
although Telkomsel will continue to seek payment and may seek
the assistance of a debt collection agency. After an account is
terminated, the customer may only re-subscribe for services
after making the overdue payment and by completing a new
application. Telkomsel does not charge any late fees or interest
on its overdue accounts.


Insurance

As of December 31, 2003, TELKOMs
property, plant and equipment, including optical fibers but
excluding multi-pair cables, were insured against the risk of
fire, theft and other specified risks for an aggregate coverage
value of Rp.19.6 trillion (US$2.3 billion). Additional
insurance coverage of US$2.3 million and
US$57.2 million exists, respectively, for the Palapa B-4
and TELKOM-1 satellites. TELKOM also maintains general insurance
coverage for motor vehicles of Rp.121 billion
(US$14.3 million). TELKOM does not maintain business
interruption insurance.

TELKOMs subsidiaries separately insure
their property in such amounts and in accordance with the
policies determined and implemented by the subsidiaries
themselves.



| |          
| | ---------
| | Telkomsel

Telkomsel has an electronic equipment and
industrial all-risk insurance policy underwritten by
PT Asuransi Ramayana Tbk. The policy provides cover for
Telkomsels network equipment, facilities, infrastructure
and buildings although it excludes losses suffered as a result
of war, civil war, rebellion, revolution, terrorism,
insurrection or military or usurped power, amongst other
exclusions. Telkomsel also has general insurance for motor
vehicle liabilities and comprehensive general liabilities.
Telkomsel does not maintain business interruption insurance.

Indonesian Telecommunications
Industry



| |         
| | --------
| | Overview

Since 1961, telecommunications services in
Indonesia have been provided by a succession of state-owned
companies. As in other developing economies, the expansion and
modernization of telecommunications infrastructure play an
important role in Indonesias general economic development.
Moreover, the nations large population and rapid economic
growth have led to significant unmet demand for
telecommunications services.

The Government has extensive regulatory authority
and supervisory control over the telecommunications sector,
primarily through the MoC. The Government has historically
maintained a monopoly over telecommunications services within
Indonesia. Recent reforms have attempted to create a regulatory
framework to promote competition and accelerate the development
of telecommunications facilities and infrastructure. The
regulatory reforms embodied in new regulations, which came into
effect on September 8, 2000, are intended to increase
competition by removing monopolistic controls, increase the
transparency and predictability of the regulatory framework,
create opportunities for strategic alliances with foreign
partners and facilitate the entrance of new participants to the
industry. The deregulation of the telecommunications sector is
closely linked to the national economic recovery program
supported by the IMF.

Fixed-line and cellular penetration are low in
Indonesia by international standards. As of December 31,
2003, Indonesia had an estimated fixed-line penetration of 3.54%
and an estimated cellular penetration of 9%, based on estimated
population figures for 2003.

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TELKOM believes that there are a number of trends
in the telecommunications industry in Indonesia which include:



| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued growth.TELKOM believes the telecommunications
    industry will continue to grow, as continued development of
    Indonesias economy is expected to increase demand for
    telecommunications services.                                                 
|
| |  | Migration to wireless networks.TELKOM anticipates that wireless
    services will become increasingly popular as a result of wider
    coverage areas and improving wireless network quality, declining
    handset costs and the proliferation of prepaid services.
|
| |  | Increasing competition.TELKOM anticipates an increasingly
    competitive Indonesian telecommunications market as a result of
    the Governments regulatory reforms.                                                                                              

Regulations



| |         
| | --------
| | Overview

The Government exercises both regulatory
authority and supervisory control over the telecommunications
industry in Indonesia. The legal framework for the
telecommunications industry is based on specific laws,
government regulations and ministerial decrees enacted and
issued from time to time. The Government currently regulates the
telecommunications sector through the MoC. The MoC is
responsible for the overall supervision and regulation of the
industry. Within the MoC, various directorates and bureaus carry
out specific regulatory duties. The MoC has authority to issue
implementing decrees, which are typically broad in scope,
thereby giving the MoC considerable latitude. Pursuant to such
decrees, the MoC defines the scope of exclusivity, formulates
and approves tariffs, determines USOs and controls many factors
affecting TELKOMs competitive position, operations and
financial condition. The MoC, as regulator, has the authority to
grant new licenses for the establishment of new joint ventures
and other arrangements, particularly in the telecommunications
sector.

Prior to March 1998, the Ministry of Tourism,
Post and Telecommunications (the MTPT) was
responsible for the regulation of telecommunications in
Indonesia, but, with reorganization of the Government following
the 1999 General Elections, the MoC was given the regulatory
responsibilities. Through the DGPT, a directorate under the MoC,
the Government regulates the radio frequency spectrum allocation
for all operators, including TELKOM, which are required to
obtain a license from the MoC for each of their services
utilizing radio frequency spectrum. All telecommunications
operators are also required to pay for radio frequency spectrum
usage. The Government also requires all telecommunications
operators to pay a concession license fee of 1% of its collected
operating revenues.

The overall program of telecommunications sector
deregulation is closely linked to the national economic recovery
program supported by the IMF. The national plan is documented in
the Memorandum of Economic and Financial Policies (the
MEFP), as further clarified in the Letters of Intent
to the IMF in January and May 2000. The main focus of the MEFP
is to stabilize the economy and regain trust through a
comprehensive plan based on:



| |   |                                         
| | - | ----------------------------------------
| |  | Deregulation;                           
|
| |  | Promoting competition;                  
|
| |  | Liberalization;                         
|
| |  | Restructuring;                          
|
| |  | Improving market access; and            
|
| |  | Introducing market-oriented regulations.

The Governments telecommunications reform
policy is formulated in its Blueprint of the Indonesian
Governments Policy on Telecommunications, as
contained in the MoCs Decree

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No. KM 72 of 1999 dated July 20,
1999 (the Blueprint). The policies stated in the
Blueprint are intended to:




| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Increase the sectors performance in the era
    of globalization;                                                           
|
| |  | Liberalize the sector with a competitive
    structure by removing monopolistic controls;                                    
|
| |  | Increase transparency and predictability of the
    regulatory framework;                                                    
|
| |  | Create opportunities for national
    telecommunications operators to form strategic alliances with
    foreign partners; and
|
| |  | Create business opportunities for small and
    medium enterprises; and                                                      
|
| |  | Facilitate new job opportunities.                                                                                            

The recent regulatory reforms of the Indonesian
telecommunications sector have their foundation in
Telecommunications Law No. 36 of 1999, which came into
effect on September 8, 2000 (the Telecommunications
Law).

On September 15, 2003 the Government issued
the Economic Policy Package pursuant to Presidential Instruction
No. 15 dated September 15, 2003. The Government
intends to improve efficiency, capacity and equity in
telecommunications by putting in place the infrastructure for an
additional 3 million fixed lines and 43,000 fixed lines in
remote areas. Further, on March 30, 2004, the MoC issued
Announcement No.PM.2 2004 regarding the Implementation of the
Telecommunication Sector Restructuring, which stated, among
other matters, that the Government will require operators to
install a minimum of 1.4 million lines in 2004 and
10.7 million lines by 2008.



| |                       
| | ----------------------
| | Telecommunications Law

The Telecommunications Law provides key
guidelines for industry reforms, including industry
liberalization, facilitation of new entrants and enhanced
transparency and competition. Under the Indonesian regulatory
framework, the Telecommunication Law only outlines the
substantive principles of the subject matter. Detailed
provisions implementing the Telecommunications Law will be
provided in the implementation regulations consisting of
Government regulations, ministerial decrees and decrees of the
Director General of Post and Telecommunication.

The new Telecommunications Law eliminates the
concept of organizing entities, thus ending
TELKOMs and Indosats status as organizing entities
with responsibility for coordinating domestic and international
telecommunications services, respectively, for the industry. To
enhance competition, the Telecommunications Law specifically
prohibits monopolistic practices and unfair competition among
telecommunications operators.

The role of the Government is to become that of
an impartial policy maker and supervisor of the
telecommunications sector. As stipulated in the
Telecommunications Law and in order to ensure transparency in
the regulatory process, an independent regulatory body was
established on July 11, 2003 to regulate, monitor and
control the telecommunication industry. The Indonesian
Telecommunications Regulatory Body (ITRB) is
comprised of officials from the DGPT and the Committee of
Telecommunication Regulations and is headed by the Director
General of Port and Telecommunication Services. Members of the
Committee of Telecommunication Regulations were appointed on
December 19, 2003.



| |                       
| | ----------------------
| | New Service Categories

The Telecommunications Law classifies
telecommunications providers into three categories:
(i) telecommunications network providers;
(ii) telecommunications services providers; and
(iii) special telecommunications providers. Under these
categories, telecommunications network operations and/or
provision of telecommunications services may be carried out by
any legal entity established for that purpose.

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Under the Telecommunications Law, licenses are
required for each category of telecommunications service. A
telecommunications network provider is licensed to own and/or
operate a telecommunications network. A telecommunications
service provider is licensed to provide services by leasing
network capacity from other network providers. Special
telecommunications licenses are required for providers of
private telecommunications services for purposes relating to
broadcasting and national security interests. MoC Decree
No. KM 20/2001 (as amended by Decree No. KM 29/2004)
and MoC Decree No. KM 21/2001 (as amended by Decree
No. KM 30/2004) implement the provisions of the
Telecommunications Law regarding these new categories of
telecommunications network and services operations.



| |               
| | --------------
| | Modern License

Under the Telecommunications Law the existing
licenses for telecommunication services will be replaced with
the so-called Modern License. In addition to
granting the license holder the right to provide
telecommunication services, the Modern License also imposes
certain mandatory obligations on the license holder. These
obligations include, among others, construction obligations,
service obligations and Universal Service Obligations
(USO). The license holder is required to fulfill the
mandatory obligations set forth in its Modern License and the
failure to comply with such obligations may result in the
revocation of its Modern License. The draft implementation
regulations relating to the Modern License have been proposed
but not yet enacted. Once the regulations have been enacted,
TELKOMs separate licenses to provide fixed-line services,
DLD services and IDD services will be combined into a single
license.



| |            
| | -----------
| | Exclusivity

Under the previous regulatory regime that
precedes the Telecommunications Law, TELKOM was granted a
monopoly to provide domestic local fixed-line telecommunications
services until December 31, 2010 and domestic long-distance
telecommunications services until December 31, 2005.
Indosat and Satelindo were granted a duopoly for exclusive
provision of basic international telecommunications services
until 2004.

The Telecommunications Law did not expressly
terminate the existing exclusivity rights of TELKOM, Indosat and
Satelindo. In an effort to support the undertakings of TELKOM
and Indosat during their respective initial public offerings and
to maintain the Governments credibility among foreign
investors, the Government announced that termination of the
exclusivity rights will be subject to agreement between the
relevant incumbents and the Government, whereby incumbents will
be eligible for compensation in exchange for early termination
of these exclusivity rights.

On August 1, 2001, the Government through
the DGPT, announced the early termination of TELKOMs and
Indosats exclusivity rights for local and domestic-long
distance telecommunications services (in the case of TELKOM) and
IDD (in the case of Indosat), through MoC Decree
No. 21/2001 (Operation of Telecommunications
Services). The announcement stated that it is the
Governments intention that Indosat would receive a license
to provide local telephone services and a license to provide
domestic long-distance and that TELKOM would receive a license
to provide IDD services at the end of 2003. The Government
appointed an appraiser to resolve differences of opinion
regarding the amount of compensation to be provided to TELKOM
and Indosat for early termination of their exclusivity rights.
On March 30, 2004, the MoC announced that the Government
shall pay to TELKOM (including its KSO Partners)
Rp.478 billion (net of taxes) as compensation, which amount
shall be paid gradually from funds allocated in the State Budget
for the MoC subject to approval by Parliament.

As affirmed by the Government, TELKOM would
receive a commercial license to provide IDD services, which was
issued on May 13, 2004. Indosat would receive a license to
provide local telephone service commercial license, which was
issued in August 2002, and a commercial license to provide
domestic long-distance services by the end of 2003, which was
issued on May 13, 2004.

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| |            
| | -----------
| | Competition

Despite the termination of exclusivity rights,
the Government does not prohibit or discourage operators from
attaining a dominant position with regard to telecommunications
services. The Government, however, does prohibit operators from
abusing a dominant position. On March 11, 2004, the MoC
issued Decree No. 33/2004, which sets forth measures to
prohibit the abuse of their dominant position by network and
service providers. Dominant providers are determined by the MoC
based on factors such as their scope of business, coverage area
of services and whether they control a particular market.
Specifically, the Decree prohibits a dominant provider from
engaging in practices such as dumping, cross-subsidies,
compelling consumers to use such providers services (to
the exclusion of competitors) and hampering mandatory
interconnection (including discriminating against specific
providers).



| |                
| | ---------------
| | Interconnection

Pursuant to the express prohibitions on
activities that may create monopolistic practices and unfair
business competition, the Telecommunications Law provides for
fair interconnection of networks to allow any to any
connectivity. Interconnection fees are to be agreed by
each network provider and calculated in a transparent manner.
The Telecommunications Law provides guidance with respect to the
interconnection scheme between telecommunication network
providers. Currently, interconnection costs paid for
interconnection with TELKOMs fixed-line network vary,
depending on the type of interconnection operator (e.g., IDD,
cellular, fixed wireline, fixed wireless or satellite), and are
determined in accordance with MoC Decree No. 37/1999 (IDD),
MoC Decree No. 46/1998 (Cellular), MoC Decree
No. KU506/1997 (Fixed Wireline and Fixed Wireless) and MoC
Decree No. 30/2000. For IDD and satellite operators,
interconnection costs are based on termination and origination
charges. Interconnection costs for fixed wireline and fixed
wireless operators are based on revenue sharing fixed under
Decree No. KU506/1997. Interconnection costs paid by mobile
cellular operators are based principally on negotiations between
the network providers and in the event no agreement is reached
by the providers, the interconnection costs are to be determined
in accordance with MoC Decree No. 46/1998.

On March 11, 2004, the MoC issued Decree
No. 32/2004, which stated that cost-based interconnection
fees shall be applicable beginning January 1, 2005. The MoC
is in the process of preparing regulations for the adjustment of
interconnection arrangements with the assistance of independent
consultants. These preparations include: determining the amount
of interconnection fees, cost accounting standards, reference
interconnection offer (RIO) and the procedure for resolving
interconnection disputes.



| |                     
| | --------------------
| | DLD and IDD Services

Historically, DLD and IDD services could only be
offered by TELKOM and Indosat, respectively (See 
Exclusivity). After the Government terminated the
exclusivity rights of TELKOM and Indosat, it stated its
intention to allow TELKOM to offer IDD services and Indosat to
offer DLD services, as well as allowing greater competition in
the market for DLD and IDD services. On March 11, 2004, the
MoC issued Decree No. KM 28/2004, Decree No. KM
29/2004 and Decree No. KM 30/2004, which implement the new
policy regarding IDD and DLD services. Under these Decrees:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DLD and IDD network operators may offer DLD and
    IDD service as part of basic telephony service;                                                        
|
| |  | Each DLD and IDD operator must use a distinct
    3-digit access code for its DLD and IDD service;                                                         
|
| |  | Customers may freely select their DLD and IDD
    providers;                                                                                               
|
| |  | DLD and IDD fixed telecommunication network
    operators (currently only TELKOM and Indosat) may now provide
    DLD and IDD basic telephony services; and

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| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | DLD and IDD service providers are entitled to
    determine retail rates for customers and provide such services
    to their customers.

TELKOM has been granted authority to use
007 as its IDD access code and is in the process of
determining the 3-digit access code for its DLD services.



| |                                                  
| | -------------------------------------------------
| | Indonesian Telecommunications Regulatory
    Body

On July 11, 2003, the Indonesian
Telecommunications Regulatory Body (ITRB) was
established as the implementing agency of the Telecommunications
Law. Under MoC Decree No. KM 31/2003, the ITRB is
authorized to regulate, monitor and control the operations of
the telecommunications sector. The ITRB is composed of officials
from the Directorate General Postal and Telecommunication and
the Committee of Telecommunication Regulations. Combined with
further privatization of TELKOM and Indosat, the establishment
of such an independent regulatory body is intended to reduce the
Governments role in the telecommunications industry from
that of being the telecommunications industrys financier,
operator, regulator and licenser to becoming primarily the
industrys licenser and regulator.

In 2003 the MoC also announced the establishment
of the Telecommunication Traffic Clearing System
(SKTT), which will assist the ITRB in the
performance of its functions and which will be responsible for
all interconnection matters. It is expected that through the
SKTT, the ITRB will obtain accurate data about the profile of
interconnection traffic among operators and calculate
interconnection traffic so as to ensure transparency in the
charging of interconnection fees. The actual operation of the
SKTT will be undertaken by PT Pratama Jaringan Nusantara, a
private entity selected by the MoC on February 18, 2004,
which will act under the supervision and control of the ITRB.
The terms and conditions regarding the operations and activities
of the SKTT are currently being negotiated among the MoC, the
ITRB and the operators.



| |                    
| | -------------------
| | Consumer Protection

Under the Telecommunications Law, each operator
must provide guarantees for consumer protection in relation to
quality of services, usage or service fees, compensation and
other matters. The law also allows customers injured or damaged
by negligent operations to file claims against negligent
providers.



| |                              
| | -----------------------------
| | Universal Service Obligations

Under the Telecommunications Law, all
telecommunications network operators and service providers are
bound by a Universal Service Obligation (USO), which
requires such network operators and telecommunication service
providers to make contribution towards providing universal
telecommunication facilities and infrastructure or other forms
of compensation. On March 11, 2004, the MoC issued Decree
No. 34/2004, which sets forth the basic policies underlying
the USO program. The decree stated that USO facilities must meet
the following minimum requirements: (a) the facilities
should meet the standards of basic telephony services, including
facsimile and dial-up Internet services; (b) the facilities
should provide basic public telephony services, with domestic
long distance, international and mobile access; (c) the
facilities should provide telecommunication services that are
capable to transmit and receive data; (d) the facilities
should be accessible for emergency services; and (e) the
facilities should utilize equipment that has been certified by
the Director General of Post and Telecommunication. Tariffs for
services provided under the USO program must be the same as
those for similar services provided outside of the USO program.
Further, telecommunications operators in Indonesia are now
required to contribute 0.75% of gross revenues (with due
consideration for bad debt and interconnection charges) for USO
development. The MoC is in the process of drafting detailed
regulations to further implement the USO program.

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| |                         
| | ------------------------
| | Implementing Regulations

To date, the Government has issued several
implementing regulations relating to the Telecommunications Law,
including Government Regulation No. 52/2000
(Operation of Telecommunications) and Government
Regulation No. 53/2000 (Utilization of Radio
Frequency Spectrum and Satellite Orbit), as well as
ministerial decrees, including No. KM 20/2001
(Operation of Telecommunications Networks),
No. KM 21/2001 (Operation of Telecommunications
Services), No. KM 12/2002 (Completing MPPT
Decree No. KM. 79/PR-301/MPPT-95 on Procedures for the
Tariff Adjustment of Domestic Basic Telecommunications
Services), No. KM 40/2002 (Guidance for
Tariff Implementation of State Revenue on Tax from Cost of
Utilization Right of Radio Frequency Spectrum),
No. KM 23/2002 (Internet Telephony Service for
Public), No. KM 31/2003 (Indonesian
Telecommunication Regulatory Body),
No. KM 29/2004 (Amendments to the Decree of the
Minister of Communication No. 20 of 2001 on the Provision
of Telecommunication Network), No. KM 30/2004
(Amendments to the Decree of the Minister of Communication
No. 21 of 2001 on the provision of Telecommunication
Services), No. KM 31/2004 (Amendment to
the Decree of the Minister of Communication No. 23/2002 on
the Provisions of Internet Telephony Services for Public
Needs), No. KM 32/2004 (Interconnection
Charges for Telecommunication), No. KM 33/2004
(Supervision of Fair Competition in the Provision of Fixed
Network and Basic Telephony Services),
No. KM 34/2004 (Universal Service
Obligation) and No. KM 35/2004 (Provision
of Wireless Local Fixed Network with Limited Mobility).
The MoC and DGPT are in the process of finalizing a number of
additional ministerial decrees that are intended to implement
other aspects of the Telecommunications Law, including decrees
relating to special telecommunications operations and
implementation of the cost-based interconnection system.



| |                     
| | --------------------
| | Satellite regulation

The international satellite industry is highly
regulated. In addition to being subject to domestic licensing
and regulation in Indonesia, the placement and operation of
TELKOMs satellites are also subject to registration with
the Radio Communications Bureau of the International
Telecommunications Union and the Intelsat consultation process.



| |                                     
| | ------------------------------------
| | Fixed Wireless Access
    regulation

On March 11, 2004, the MoC issued Decree
No. 35/2004, which provides that only fixed network
operators holding licenses issued by the MoC and using radio
frequency access networks may offer fixed wireless access
service. In addition, the decree states that each fixed wireless
access provider must provide basic telephony services. However,
a fixed wireless access provider can only provide fixed wireless
access service within its designated area code. Further, fixed
wireless access service may not incorporate roaming and auto
mutation features. Accordingly, customers cannot use their fixed
wireless access phones to make or receive calls when they are
located outside their respective area codes. Fixed wireless
access providers are also required to charge rates that are the
same as the rates for fixed line operators.

Competition



| |           
| | ----------
| | Fixed-line

TELKOM is the main provider of fixed-line
services in Indonesia. Generally, all customers must obtain
fixed-line services from TELKOM and telecommunications operators
must interconnect with TELKOMs fixed-line network in order
to provide access to fixed-line and cellular subscribers. With
the enactment of the Telecommunications Law and the announced
intention of the Government to terminate TELKOMs exclusive
right to provide fixed-line services, it is expected that the
market will be open to full competition.

On August 1, 2001, the Government through
the MoC, announced the early termination of TELKOMs
exclusivity rights for local and domestic-long distance
telecommunications services. The

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announcement stated that the Governments
intention was for Indosat to receive a license to provide local
telephone services from August 2002 and a license to provide
domestic long-distance services from August 2003. As of the date
of this Annual Report, Indosat has already been granted both an
in-principle and a commercial license for the development of
local fixed-line telecommunications.


In June 2004, Indosat launched its own CDMA fixed
wireless service, under the brand name StarOne. As
of the date of this Annual Report, Indosat was only offering
this new service in Surabaya but was expected to expand service
coverage to other Indonesian cities.

The end of TELKOMs exclusive right to
provide fixed-line services is expected to result in direct
competition between TELKOM and Indosat for fixed-line customers
and over time reduce the need for other telecommunications
operators to interconnect with TELKOMs fixed-line network.

TELKOM also faces direct and indirect competition
from mobile cellular services, fixed cellular services, SMS,
VoIP services and e-mail. TELKOM expects that the increasing
uses of these services may adversely affect future demand for
its fixed-line services.



| |         
| | --------
| | Cellular

The cellular market in Indonesia is currently
dominated by Telkomsel, Indosat and Excelcomindo. As of
December 31, 2003, these nationwide GSM operators
collectively had over 98% of the Indonesian cellular market. The
number of cellular subscribers in Indonesia totaled
approximately 11.4 million at the end of 2002 and
18.8 million at the end of 2003, representing an annual
growth rate of 65% during that period. Despite this rapid
growth, the cellular penetration rate in Indonesia, at
approximately 9% at the end of 2003, has remained relatively low
compared to many other countries. During the last two years,
competition among cellular operators has intensified.

As part of the elimination of TELKOMs and
Indosats cross-shareholdings in several telecommunications
companies in 2001, TELKOM sold its 22.5% interest in Satelindo
to Indosat and Indosat sold its 35% interest in Telkomsel to
TELKOM. This has resulted in the cellular market becoming more
competitive as contemplated by the Blueprint and the
Telecommunications Law.

GSM mobile cellular operators compete principally
on the basis of pricing, brand, network coverage, distribution,
technology, value-added services and service quality. TELKOM
believes that Telkomsel is able to compete effectively in the
Indonesian cellular market due to the quality and coverage of
its mobile cellular network and the strength of its brand name.

TELKOMs new CDMA-based fixed wireless phone
service, TELKOMFlexi, which offers limited mobility and charges
customers at PSTN tariff rates that are substantially lower than
tariffs for cellular services, may over time offer a competitive
alternative to GSM services and attract Telkomsel customers that
prefer lower tariff rates in exchange for limited mobility.

As of December 31, 2003, Telkomsel remained
the largest national licensed provider of GSM services in
Indonesia, with approximately 9.6 million cellular
subscribers and a market share of approximately 51.0%, which was
slightly less than its approximately 52.8% market share as of
December 31, 2002. Indosat, as a result of its merger with
Satelindo, was the second largest provider with approximately
5.99 million cellular subscribers and a market share of
approximately 31.9% as of December 31, 2003. Excelcomindo
had approximately 2.95 million subscribers and a market
share of approximately 15.7% as of December 31, 2003. In
addition to the nationwide GSM operators, a number of smaller
regional GSM, analog and CDMA cellular providers operate in
Indonesia.

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The following table sets forth summary
information as of December 31, 2003 on each of the three
dominant nationwide licensed GSM mobile cellular operators:

Nationwide Licensed GSM Mobile Cellular
Operators In Indonesia

|                                                  |  |           |              |         |  |                                                                                                                                      |  |                                                                               
|------------------------------------------------- |  | --------- | ------------ | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------
|                                                  |  |          
|                                                  |  | Operator 
|                                                  |  |          
|                                                  |  | Telkomsel |              | Indosat |  | Excelcomindo                                                                                                                        
|                                                  |  |           |              |         |  |                                                                                                                                     
|Launch date                                       |  |           | May 1995     |         |  | November 1994(2)                                                                                                                     |  | October 1996                                                                  
|Licensed frequency bandwidth
    (GSM 900 & 1800) |  |           | 30 MHz       |         |  | 15 MHz                                                                                                                               |  | 15 MHz                                                                        
|Licensed coverage                                 |  |           | Nationwide   |         |  | Nationwide                                                                                                                           |  | Nationwide                                                                    
|Network coverage                                  |  |           | Nationwide   |         |  | Major cities in Significantly populated areas of
    Java and Bali, as well as major cities in Sumatera, Sulawesi and
    Kalimantan |  | Jakarta and primary business cities in Java,
    Bali, Lombok, Medan and Batam
|Market share (as of December 31,
    2003)(1)     |  |           | 51.0%        |         |  | 31.9%                                                                                                                                |  | 15.7%                                                                         
|Subscribers (as of December 31,
    2003)(1)      |  |           | 9.6  million |         |  | 5.99 million                                                                                                                         |  | 2.95 million                                                                  



---



|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(1) | Based on statistics compiled by TELKOM.                                                                        
|(2) | In November 2003, Indosat and Satelindo merged,
    and Indosat has taken over Satelindos cellular operations.



| |    
| | ---
| | IDD

On August 1, 2001, the Government through
the DGPT, announced the early termination of Indosats
exclusivity rights for IDD. The announcement stated the
Governments intention that TELKOM would receive a
commercial license to provide IDD services by the end of 2003.
Although TELKOM only received its commercial license on
May 13, 2004, it had already made necessary preparations to
provide IDD services even prior to the receipt of such license
and on June 7, 2004 TELKOM began offering IDD fixed-line
services to customers. TELKOM has upgraded some switching to
have International Gateway capabilities in Batam, Jakarta and
Surabaya. These gateways have received certificates of operation
(sertifikat ULO) from the DGPT. In order to connect with
overseas operators, TELKOM has built two microwave links to
connect Batam-Singapore and Batam-Pangerang (Malaysia). In
addition, TELKOM, SingTel and CAT developed the TIS submarine
cable system in 2003 connecting Batam, Singapore and Thailand.
TELKOM has also signed an agreement with Telekom Malaysia Berhad
for the deployment and maintenance of a new submarine optical
cable to connect Dumai (Indonesia) to Melaka (Malaysia), which
is expected to be completed by the end of 2004. TELKOM also
extended its international cable by purchasing bandwidth
capacity to connect with Hong Kong and TELKOM utilizes this
capacity to connect to other countries, such as the United
States. TELKOM is developing the ground segment to connect to
the Intelsat Satellite. As a new player in IDD, TELKOM
cooperates with some global operators to get direct or indirect
connection to reach all offshore destinations. All these
preparations have allowed TELKOM to begin offering customers IDD
fixed-line services on June 7, 2004.



| |     
| | ----
| | VoIP

TELKOM formally launched its VoIP services in
September 2002. VoIP uses data communications to transfer voice
traffic over the Internet, which usually provides substantial
cost savings to subscribers. In addition to TELKOM,
Excelcomindo, Indosat, Atlasat, Gaharu and PT Swaguna Widya
Pratama provide VoIP services in Indonesia. Other unlicensed
operators also provide VoIP services that may be accessed
through the Internet as well as from software that allows
PC-to-PC voice communications

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through the Internet. VoIP operators offering
international services also compete with IDD operators, such as
Indosat and, beginning on June 7, 2004, TELKOM.


VoIP operators compete primarily on the basis of
pricing and service quality. Certain VoIP operators have started
offering services such as budget calls and prepaid calling
cards, which is expected to result in greater competition among
VoIP operators.



| |          
| | ---------
| | Satellite

In recent years, competition in the Asia-Pacific
satellite business has been intense. Companies in this business
compete primarily on coverage power, product offerings and
price. The Indonesian satellite industry is loosely regulated
and in practice operates in accordance with an
open-sky policy. This means that Indonesian
satellite operators must compete with foreign satellite
operators.



| |      
| | -----
| | Other

During the last three years, competition with
respect to multimedia, Internet and data communications-related
services has intensified principally due to the issuance of new
licenses as a result of the deregulation of the Indonesian
telecommunications industry. TELKOM expects competition to
continue to intensify. Multimedia, Internet and data
communications-related service providers in Indonesia compete
principally on the basis of price, range of services provided,
network quality, network coverage and customer service quality.

Licenses

The Telecommunications Law requires
telecommunication network operators and telecommunication
service operators, including TELKOM, to obtain licenses to
operate telecommunications networks and provide
telecommunications services.

Fixed-line.Currently, TELKOM provides local and
domestic long-distance fixed-line services based on Government
Regulation No. 25/1991 and Government
Regulation No. 8/1993, which permits TELKOM to provide
basic and non-basic fixed-line telecommunications. Based on MoC
Decree No. KM 39/1993 concerning basic
telecommunication operation, TELKOM was permitted to enter into
joint operation schemes (KSO) with its existing KSO partners for
the provision of fixed-line services in their respective
regions. The Government has amended certain of TELKOMs
fixed-line licenses to comply with the new Telecommunication Law
and TELKOM has also received its Modern License. TELKOM also
provides its fixed wireless services pursuant to its
authorization to provide fixed-line services and applies PSTN
tariffs for this service, which are substantially lower than
those for cellular services. TELKOMs ability to provide
fixed wireless services at PSTN tariff rates may be challenged
by regulators, other cellular operators and cellular trade
associations. See Item 3. Key Information 
D. Risk Factors  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.

Cellular.Telkomsel
currently holds licenses to operate a nationwide GSM mobile
cellular telephone network, to use 7.5 MHz of radio
frequency bandwidth in the 900 MHz band and to use
22.5 MHz of radio frequency bandwidth in the 1800 MHz
band. Telkomsel also holds licenses from the Indonesian
Investment Coordinating Board that permit Telkomsel to develop
cellular services with national coverage, including the
expansion of its network capacity. In addition, Telkomsel holds
permits and licenses from and registrations with certain
regional governments and/or governmental agencies, primarily in
connection with its operations in such regions, the properties
it owns and/or the construction and use of its base transceiver
stations.

IDD.TELKOM received
its commercial license to provide IDD services on May 13,
2004 pursuant to the terms of MoC Decree No. KP 162/2004.

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VoIP.TELKOM also
holds a comprehensive license to provide VoIP services, which it
received in May 2002.

Tariffs and Interconnection Charges

The Government divides tariffs into two
categories:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | Tariffs for the provision of telecommunications
    services; and
|
| |  | Tariffs for provision of telecommunications
    networks.        



| |                                                             
| | ------------------------------------------------------------
| | Tariffs for the Provision of
    Telecommunications Services

Generally, the MoC sets the maximum tariffs that
can be charged for telecommunications services in Indonesia.
Telecommunications operators may charge customers at rates below
the maximum tariff, although most operators tend to charge at
the maximum rate. In this regard, TELKOMs operating
divisions have authority to make adjustments to prices based on
specific guidelines fixed by the MoC.



| |                   
| | ------------------
| | Fixed-line Tariffs

Fixed-line tariffs consist of installation,
monthly subscription and usage charges. Notwithstanding the
Governments intention to increase fixed-line tariffs in
recent years, public opposition has led to TELKOM maintaining
its fixed-line tariffs at the levels established on
February 1, 2002. Fixed-line tariffs were also not changed
in 2000 and 2001 but were reduced from the announced tariff
increase of 24% to 15% in 1999 due to public opposition. See
Item 3. Key Information  D. Risk
Factors  TELKOM operates in a legal and regulatory
environment that is undergoing significant reforms and such
reforms may adversely affect TELKOMs business.

The Government establishes fixed-line tariffs by
reference to a price cap formula that calculates the maximum
average percentage increase in fixed-line tariffs for a
particular year. The maximum increase equals the Indonesian
Consumer Price Index (CPI) for the preceding year, as published
by the Indonesian Central Bureau of Statistics, minus an
efficiency factor (the X-factor), which the
Government determines by taking into consideration certain
factors including improvements in the cost efficiency of the
services resulting from technological improvements, management
efficiency, changes in the Rupiah-U.S. Dollar exchange
rate, the interests of affected telecommunications operators and
the purchasing power of customers.

In calculating the maximum total percentage
increase in tariffs for a particular year, the tariff components
for installation, monthly charges and usage charges are weighted
in proportion to the contribution made to total revenue of those
services (basket revenues) in the prior year. The weighted
average increase in prices charged for the services for any year
must be equal to or less than the price cap percentage. In
addition to tariff increases, the tariff components can also be
rebalanced from time to time such that the tariffs
for monthly and usage charges increase at different rates or
certain tariffs decrease while others increase.

On January 29, 2002, the MoC announced that
fixed-line tariffs would be increased by an average of 45.49%
over three years. Effective February 1, 2002, the MoC
increased fixed-line tariffs by a weighted average of 15%.
Although fixed-line tariffs were expected to be increased again
effective January 1, 2003, public opposition following the
announcement by TELKOM of tariff increases led to the suspension
on January 16, 2003 of the implementation of such increases.

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The actual tariffs chargeable by TELKOM from
February 1, 2002 to March 31, 2004, were:

Tariff Rate Structure (February 1, 2002
to March 31, 2004):

Installation and Monthly Charges:

|                     |  |          |                   |             |  |        |                  |  |  |  |                  | 
|-------------------- |  | -------- | ----------------- | ----------- |  | ------ | ---------------- |  |  |  | ---------------- | 
|Access charges       |  | Business |                   | Residential |  | Social
|                     |  |          |                   |             |  |       
|                     |  | (Rp.)    |                   | (Rp.)       |  | (Rp.) 
|Installation         |  |          | 175,000  450,000 |             |  |        | 75,000  295,000 |  |  |  | 50,000  205,000 | 
|Monthly Subscription |  |          | 30,700  46,100   |             |  |        | 16,500  26,100  |  |  |  | 11,100  16,500  | 

Usage charges:

|            |  |                            |     |                |  |  |                    | 
|----------- |  | -------------------------- | --- | -------------- |  |  | ------------------ | 
|            |  |                           
|            |  | Beginning February 1, 2002
|            |  |                           
|            |  | Price per Pulse            |     | Pulse Duration
|            |  |                            |     |               
|            |  | (Rp.)                      |     |               
|Local       |  |                            |     |                |  |  |                    | 
|Up to 20 km |  |                            | 195 |                |  |  | 3 min (off peak)   | 
|            |  |                            |     |                |  |  | and 2 min (peak)   | 
|Over 20 km  |  |                            | 195 |                |  |  | 2 min (off peak)   | 
|            |  |                            |     |                |  |  | and 1.5 min (peak) | 

|                       |  |                  |             |                |  |  |       | 
|---------------------- |  | ---------------- | ----------- | -------------- |  |  | ----- | 
|                       |  |                  |             | Rounding Time 
|                       |  | Price Per Minute |             | Block Duration
|                       |  |                  |             |               
|                       |  | (Rp.)            |             |               
|Domestic Long-distance |  |                  |             |                |  |  |       | 
|0-20 km                |  |                  | 69  102    |                |  |  | 1 min | 
|20-30 km               |  |                  | 102  136   |                |  |  | 1 min | 
|30-200 km              |  |                  | 327  1,627 |                |  |  | 6 sec | 
|200-500 km             |  |                  | 463  2,271 |                |  |  | 6 sec | 
|Over 500 km            |  |                  | 570  2,842 |                |  |  | 6 sec | 

On March 30, 2004, the Government, through
the ITRB, announced that it would allow operators to rebalance
their tariffs, with the resulting weighted average of tariffs
increasing by 9%. As a result, TELKOM has adjusted its
fixed-line and fixed wireless tariffs, with local charges
increasing by 28.2%, DLD tariffs decreasing by an average of 10%
and monthly subscription charges increasing from 12% to 25%.

The current tariffs chargeable by TELKOM, which
became effective on April 1, 2004, are as follows:

Tariff Rate Structure (effective April 1,
2004):

Installation and Monthly Charges:

|                     |  |          |                   |             |  |        |                  |  |  |  |                  | 
|-------------------- |  | -------- | ----------------- | ----------- |  | ------ | ---------------- |  |  |  | ---------------- | 
|Access charges       |  | Business |                   | Residential |  | Social
|                     |  |          |                   |             |  |       
|                     |  | (Rp.)    |                   | (Rp.)       |  | (Rp.) 
|Installation         |  |          | 175,000  450,000 |             |  |        | 75,000  295,000 |  |  |  | 50,000  205,000 | 
|Monthly Subscription |  |          | 38,400  57,600   |             |  |        | 20,600  32,600  |  |  |  | 12,500  18,500  | 

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Usage charges:

|            |  |                         |     |                |  |  |                    | 
|----------- |  | ----------------------- | --- | -------------- |  |  | ------------------ | 
|            |  |                        
|            |  | Beginning April 1, 2004
|            |  |                        
|            |  | Price per Pulse         |     | Pulse Duration
|            |  |                         |     |               
|            |  | (Rp.)                   |     |               
|Local       |  |                         |     |                |  |  |                    | 
|Up to 20 km |  |                         | 250 |                |  |  | 3 min (off peak)   | 
|            |  |                         |     |                |  |  | and 2 min (peak)   | 
|Over 20 km  |  |                         | 250 |                |  |  | 2 min (off peak)   | 
|            |  |                         |     |                |  |  | and 1.5 min (peak) | 

|                       |  |                  |             |                |  |  |          | 
|---------------------- |  | ---------------- | ----------- | -------------- |  |  | -------- | 
|                       |  |                  |             | Rounding Time 
|                       |  | Price Per Minute |             | Block Duration
|                       |  |                  |             |               
|                       |  | (Rp.)            |             |               
|Domestic Long-distance |  |                  |             |                |  |  |          | 
|0-20 km                |  |                  | 83  122    |                |  |  | 1 minute | 
|20-30 km               |  |                  | 122  163   |                |  |  | 1 minute | 
|30-200 km              |  |                  | 325  1,290 |                |  |  | 6 sec    | 
|200-500 km             |  |                  | 460  1,815 |                |  |  | 6 sec    | 
|Over 500 km            |  |                  | 570  2,270 |                |  |  | 6 sec    | 

There has been no indication by the MoC whether
fixed-line tariffs will be increased after 2004 or whether the
Government intends to carry out its plan to increase fixed-line
tariffs by 45.49% within three years of January 2002.



| |                            
| | ---------------------------
| | CDMA Fixed Wireless Tariffs

Tariffs charged to CDMA fixed wireless
subscribers are reported as fixed-line revenues. TELKOM offers
both postpaid and prepaid fixed wireless services.

Postpaid.Postpaid
subscribers pay a one-time activation charge of Rp.25,000 and a
monthly charge of Rp.30,000. Usage charges for postpaid
subscribers beginning April 1, 2004 are as follows:

Usage charges:

|      |  |                 |     |                |  |                                    |  | 
|----- |  | --------------- | --- | -------------- |  | ---------------------------------- |  | 
|      |  | Price Per Pulse |     | Pulse Duration
|      |  |                 |     |               
|      |  | (Rp.)           |     |               
|Local |  |                 | 250 |                |  | 2 min (off peak)and 1.5 min (peak)

|                       |  |                  |             |                |  |  |       | 
|---------------------- |  | ---------------- | ----------- | -------------- |  |  | ----- | 
|                       |  |                  |             | Rounding Time 
|                       |  | Price Per Minute |             | Block Duration
|                       |  |                  |             |               
|                       |  | (Rp.)            |             |               
|Domestic Long Distance |  |                  |             |                |  |  |       | 
|0-200 km               |  |                  | 325  1,290 |                |  |  | 6 sec | 
|200-500 km             |  |                  | 460  1,815 |                |  |  | 6 sec | 
|Over 500 km            |  |                  | 570  2,270 |                |  |  | 6 sec | 

For SMS, postpaid subscribers are charged Rp.250
per message. Postpaid subscribers who use TELKOM Internet access
are charged Rp.165 per minute.

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Prepaid.Effective
February 10, 2004, prepaid subscribers are charged as
follows:

Usage charges:

|                               |  |                  |               |                |  |  |        | 
|------------------------------ |  | ---------------- | ------------- | -------------- |  |  | ------ | 
|                               |  |                  |               | Rounding Time 
|                               |  | Price Per Minute |               | Block Duration
|                               |  |                  |               |               
|                               |  | (Rp.)            |               |               
|Flexi to Flexi/Fixed Wireline: |  |                  |               |                |  |  |        | 
|Local                          |  |                  | 260           |                |  |  | 30 sec | 
|Domestic Long-distance         |  |                  |               |                |  |  |        | 
|0-200 km                       |  |                  | 700  1,100   |                |  |  | 30 sec | 
|Over 200 km                    |  |                  | 1,600  2,500 |                |  |  | 30 sec | 
|Flexi to mobile cellular:      |  |                  |               |                |  |  |        | 
|Local                          |  |                  | 650  810     |                |  |  | 30 sec | 
|Domestic Long-distance         |  |                  |               |                |  |  |        | 
|0-200 km                       |  |                  | 1,100  1,540 |                |  |  | 30 sec | 
|Over 200 km                    |  |                  | 2,250  3,150 |                |  |  | 30 sec | 

For SMS, prepaid subscribers are charged Rp.350
per message. Prepaid subscribers who use TELKOM Internet access
are charged Rp.350 per minute.



| |            
| | -----------
| | IDD Tariffs

TELKOM commenced offering IDD fixed line services
on June 7, 2004. Tariffs for IDD calls are set by service
providers, subject to specified maximum limits established by
the Government. As of the date of this Annual Report,
TELKOMs IDD tariffs are as follows:

|                       |  |                  |               |                |  |  |       | 
|---------------------- |  | ---------------- | ------------- | -------------- |  |  | ----- | 
|                       |  |                  |               | Rounding Time 
|Region                 |  | Price Per Minute |               | Block Duration
|                       |  |                  |               |               
|                       |  | (Rp.)            |               |               
|Africa                 |  |                  | 5,090  6,440 |                |  |  | 6 sec | 
|Americas and Caribbean |  |                  | 5,090  7,470 |                |  |  | 6 sec | 
|Asia and Oceania       |  |                  | 4,410  9,630 |                |  |  | 6 sec | 
|Europe                 |  |                  | 5,090  9,630 |                |  |  | 6 sec | 
|Middle East            |  |                  | 5,090  8,460 |                |  |  | 6 sec | 



| |                 
| | ----------------
| | Cellular Tariffs

The Indonesian cellular telecommunications market
generally operates on a calling party pays system,
which requires that the originators of telephone calls pay for
calls. Cellular operators in Indonesia set their own tariffs,
subject to specified maximum limits established by the
Government. The Government has announced that it intends to move
towards a formula-based tariff structure for cellular services,
however, it has not announced a proposed framework for such a
formula.

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Postpaid Tariffs.The cellular tariffs for postpaid
subscription services consist of activation, monthly
subscription and usage charges. The following table sets forth
the maximum cellular tariffs for postpaid services, effective
February 25, 1998:

Mobile Cellular Tariff (maximum postpaid
tariff):

|                                            |                             |                 |                                           
|------------------------------------------- | --------------------------- | --------------- | ------------------------------------------
|Activation                                  |                             | Rp.200,000     
|Monthly Charge (including frequency charge) |                             | Rp.65,000/month
|Usage Charge:                               |                             |                
|                                            | Air Time                    |                 | Rp.325/minute                             
|                                            | Roaming                     |                 | Rp.1,000/call plus incoming charge/ minute
|                                            | Local Cellular Conversation |                 | PSTN local tariff                         
|                                            | DLD Cellular Conversation   |                 | PSTN DLD tariff                           

Prior to the amendments in 1998 to implement the
current cellular tariff structure, the Government amended the
cellular tariff structure in 1997 and 1994.

Telkomsel charges new postpaid subscribers a
maximum one-time connection fee of Rp.150,000 for service
activation, although discounts may be granted. After initial
connection, Telkomsel charges a monthly subscription fee ranging
from Rp.0 (provided minimum monthly usage reaches Rp.25,000) to
Rp.65,000 per month (depending on the chosen tariff plan). Usage
charges are as follows:

|                                    |  |                  |                 |                |  |  |       | 
|----------------------------------- |  | ---------------- | --------------- | -------------- |  |  | ----- | 
|                                    |  |                  |                 | Rounding Time 
|                                    |  | Price Per Minute |                 | Block Duration
|                                    |  |                  |                 |               
|                                    |  | (Rp.)            |                 |               
|Mobile cellular to mobile cellular: |  |                  |                 |                |  |  |       | 
|Local                               |  |                  | 650  938       |                |  |  | 1 min | 
|Domestic Long-distance              |  |                  |                 |                |  |  |       | 
|30-200 km                           |  |                  | 1,110  2,628   |                |  |  | 1 min | 
|Over 200 km                         |  |                  | 1,220  3,083   |                |  |  | 1 min | 
|Mobile cellular to fixed line:      |  |                  |                 |                |  |  |       | 
|Local                               |  |                  | 450  531       |                |  |  | 1 min | 
|Domestic Long-distance              |  |                  |                 |                |  |  |       | 
|30-200 km                           |  |                  | 650  1,696     |                |  |  | 1 min | 
|200-500 km                          |  |                  | 785  2,221     |                |  |  | 1 min | 
|Over 500 km                         |  |                  | 895  2,676     |                |  |  | 1 min | 
|International Long-distance:        |  |                  |                 |                |  |  |       | 
|Group I                             |  |                  | 7,500  8,000   |                |  |  | 1 min | 
|Group II                            |  |                  | 11,000  12,000 |                |  |  | 1 min | 

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Prepaid Tariffs.For
prepaid cellular services, activation charges may be freely
determined by cellular operators while usage charges are limited
to a maximum of 140% above the peak usage charge for postpaid
services. Telkomsel charges its prepaid customers (both SimPATI
and KARTU As) usage charges as follows:

|                             |  |                  |                 |                |  |  |       | 
|---------------------------- |  | ---------------- | --------------- | -------------- |  |  | ----- | 
|                             |  |                  |                 | Rounding Time 
|                             |  | Price Per Minute |                 | Block Duration
|                             |  |                  |                 |               
|                             |  | (Rp.)            |                 |               
|Calls to mobile cellular:    |  |                  |                 |                |  |  |       | 
|Local                        |  |                  | 1,000  1,900   |                |  |  | 1 min | 
|Domestic Long-distance       |  |                  |                 |                |  |  |       | 
|30-200 km                    |  |                  | 1,000  4,000   |                |  |  | 1 min | 
|Over 200 km                  |  |                  | 1,000  4,500   |                |  |  | 1 min | 
|Calls to fixed line:         |  |                  |                 |                |  |  |       | 
|Local                        |  |                  | 700  990       |                |  |  | 1 min | 
|Domestic Long-distance       |  |                  |                 |                |  |  |       | 
|30-200 km                    |  |                  | 2,000  2,300   |                |  |  | 1 min | 
|200-500 km                   |  |                  | 3,200  3,720   |                |  |  | 1 min | 
|Over 500 km                  |  |                  | 3,200  4,150   |                |  |  | 1 min | 
|International Long-distance: |  |                  |                 |                |  |  |       | 
|Group I                      |  |                  | 7,500  8,000   |                |  |  | 1 min | 
|Group II                     |  |                  | 11,000  12,000 |                |  |  | 1 min | 



| |                    
| | -------------------
| | Leased Line Tariffs

The Government determines the maximum tariffs for
leased lines. The Government reduced leased line tariffs
substantially in 1997 and 1998. On January 1, 1997, the
Government decreased tariffs for leased lines by an average of
52%. Leased line tariffs for other telecommunications operators
and Government bodies were further reduced by up to 30%
effective January 1, 1998. The Government has announced
that it intends to move towards a formula-based tariff structure
for leased line services, however, it has not announced a
proposed framework for such a formula.

The following table sets forth the maximum leased
line tariffs, effective January 1, 1998 and still valid as
of the date hereof

|                            |                       |                          |                      |                              
|--------------------------- | --------------------- | ------------------------ | -------------------- | -----------------------------
|                            |                       | Maximum tariff          
|                            |                       |                         
|                            |                       | (Rp.)                   
|Installation charge         |                       |                         
|                            | Customer access       |                          | 600,000  700,000(1)
|                            | Other operator access |                          | 900,000             
|Monthly subscription charge |                       |                         
|                            | Analog line           |                          |                     
|                            |                       | Local (or up to 25 km)   |                      | 60,000  250,000(2)          
|                            |                       | Inter-local (over 25 km) |                      | 779,400  3,557,750(3)       
|                            | Digital line          |                          |                     
|                            |                       | Local (or up to 25 km)   |                      | 380,000  172,268,000(4)     
|                            |                       | Inter-local (over 25 km) |                      | 1,009,850  2,308,628,250 (5)



---



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Price differs by equipment provided by TELKOM.                                                               
|(2) | Price differs by user (private, other licensed
    operator, or government) and equipment provided by TELKOM.
|(3) | Price differs by user (private, other licensed
    operator, or government) and distance.                    
|(4) | Price differs by user (private, other licensed
    operator, or government) and speed.                       
|(5) | Price differs by user (private, other licensed
    operator, or government), speed and distance.             

63



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| |             
| | ------------
| | VoIP Tariffs

Charges for VoIP services may be freely
determined by VoIP operators. TELKOM has launched its VoIP
services, which currently consists of TELKOM Global-017 and its
cheaper alternative, TELKOMSave. TELKOM believes that the tariff
for TELKOM Global-017 service and the TELKOMSave service are
approximately 40% and 60%, respectively, of the tariff charged
by IDD operators in Indonesia.



| |                    
| | -------------------
| | Kiosk phone Tariffs

Charges for kiosk phones may be freely determined
by operators. Kiosk phones are public phones that are operated
by third-parties. TELKOM gains 70% of basic tariff charged by
operators to its customers on calls placed from kiosk phones.

On August 7, 2002, the Government enacted a
new regulation, MoC Decree No. 46/2002, relating to the
kiosk-phone business. The Decree provides that (i) local
and long distance domestic phone calls shall generate at a
minimum 30% of the kiosk phones revenue;
(ii) international phone calls shall generate at a minimum
8% of the kiosk phones revenue; and (iii) airtime
from the cellular operators shall generate at a minimum 10% of
the kiosk phones revenue.



| |                  
| | -----------------
| | Satellite Tariffs

TELKOM generally charges an annual tariff of
US$1.25 million to US$1.5 million per transponder,
although in some instances TELKOM may offer a discounted tariff.



| |                 
| | ----------------
| | Broadband Access

The following table sets for the tariffs for
TELKOMs broadband access services:

|                   |  |                |         |             |  |            |           |  |  |  |           | 
|------------------ |  | -------------- | ------- | ----------- |  | ---------- | --------- |  |  |  | --------- | 
|TELKOMLink ADSL(1) |  | Activation Fee |         | Monthly Fee |  | Free Usage
|                   |  |                |         |             |  |           
|                   |  | (Rp.)          |         | (Rp.)       |  |           
|Limited 384 kbps   |  |                | 250,000 |             |  |            | 250,000   |  |  |  | 500 MB    | 
|Limited 512 kbps   |  |                | 250,000 |             |  |            | 300,000   |  |  |  | 1.0 GB    | 
|Unlimited 512 kbps |  |                | 500,000 |             |  |            | 1,200,000 |  |  |  | Unlimited | 

|                 |  |                |           |             |  |            |            |  |  |  |           | 
|---------------- |  | -------------- | --------- | ----------- |  | ---------- | ---------- |  |  |  | --------- | 
|AstiNet MMA(2)   |  | Activation Fee |           | Monthly Fee |  | Free Usage
|                 |  |                |           |             |  |           
|                 |  | (Rp.)          |           | (Rp.)       |  |           
|Limited 384 kbps |  |                | 500,000   |             |  |            | 350,000    |  |  |  | 500 MB    | 
|Limited 512 kbps |  |                | 600,000   |             |  |            | 1,100,000  |  |  |  | 1.0 GB    | 
|Unlimited Silver |  |                | 2,500,000 |             |  |            | 3,800,000  |  |  |  | Unlimited | 
|Unlimited Gold   |  |                | 4,000,000 |             |  |            | 11,500,000 |  |  |  | Unlimited | 



---



|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include Internet access. The subscriber
    is responsible for obtaining Internet access with an Internet
    service provider.
|(2) | Includes Internet access.                                                                                                               



| |                           
| | --------------------------
| | Tariffs for Other Services

The amount of the tariffs for telephony and other
multimedia services are determined by the service provider by
taking into account the expenditures and market price. The
Government only determines the tariff formula for basic
telephony services, while there is no stipulation for the tariff
of other services.



| |                                           
| | ------------------------------------------
| | Tariffs for Interconnection and
    Access

The Government currently establishes the
percentage of tariffs to be received by each operator in respect
of calls that transit multiple networks. The Telecommunications
Law and Government Regulation No. 52 of 2000 provides
for the implementation of a new policy to replace the current
revenue sharing policy. Under the new policy, which has not yet
been implemented, the operator of

64



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##### Table of Contents



the network on which calls terminate would
determine the interconnection charge to be received by it based
on a formula to be mandated by the Government, which would be
intended to have the effect of requiring that operators charge
for calls based on the costs of carrying such calls. On
March 11, 2004, the MoC issued Decree No. 32/2004,
which stated that cost-based interconnection fees shall be
applicable beginning January 1, 2005. The MoC is in the
process of preparing regulations for the adjustment of
interconnection arrangements, which preparations include:
determining the amount of interconnection fees, cost accounting
standards, reference interconnection offer (RIO) and
interconnection dispute resolutions.




| |                                            
| | -------------------------------------------
| | Interconnection with Fixed-line
    Network

Currently, the Governments National
Fundamental Technical Plan set forth in Decree 4 of 2000 sets
out the technical requirements and routing plans for
interconnection of the networks of various telecommunications
operators among themselves and with TELKOMs fixed-line
network. Under the National Fundamental Technical Plan, all
operators are permitted to interconnect with TELKOMs
fixed-line network for access thereto and to other networks,
such as international gateways and the networks of other
cellular operators. In addition, cellular operators may
interconnect directly with other networks without connecting to
TELKOMs fixed-line network. The fees for interconnection
within TELKOMs fixed-line network are currently set forth
in Decree No. 506/ 1997, Decree No. 46/ 1998, Decree
No. 37/1999 and Decree No. 30/2000, although
cost-based interconnection fees are to be charged beginning
January 1, 2005 and TELKOM expects that the current fees
may be adjusted.



| |                         
| | ------------------------
| | Cellular Interconnection

In respect of local interconnection calls between
a cellular network and TELKOMs fixed-line network, TELKOM
receives a share of the local interconnection call tariff equal
to the local fixed-line usage tariff (50% of the prevailing
tariff for local pulse per minute).

The current Interconnection Decree, effective
April 1, 1998, assumes that it is possible for
long-distance calls to be carried by more than one network.
Pursuant to the Interconnection Decree, for domestic
long-distance (DLD) calls which originate on
TELKOMs fixed-line network, TELKOM is entitled to retain a
portion of the prevailing DLD tariff, which ranges from 40% of
the tariff in cases where the entire DLD portion is carried by a
cellular operator up to 85% of the tariff in cases where the
entire DLD portion is carried by TELKOMs fixed-line
network. For DLD calls that originate from a cellular
subscriber, TELKOM is entitled to retain a portion of the
prevailing DLD tariff, which ranges from 25% of the tariff in
cases where the call originates from a cellular subscriber,
transits TELKOMs fixed-line network and terminates with
another cellular subscriber with the entire DLD portion carried
by a cellular operator, up to 85% of the tariff in cases where
the entire DLD portion is carried by TELKOMs fixed-line
network and terminates on TELKOMs fixed-line network. As
discussed above, however, cost-based interconnection fees will
be charged beginning on January 1, 2005 and TELKOM expects
that the current fees may be adjusted. At present, the manner in
which such cost-based charges will be computed is being
determined by the MoC.



| |                               
| | ------------------------------
| | Fixed Wireless Interconnection

Fixed wireless networks may interconnect to
TELKOMs fixed-line network at TELKOMs gateway.
Currently, PT Bakrie Telecom (formerly Ratelindo) is the
only other fixed wireless operators in Indonesia. Local calls
between TELKOMs fixed-line network and Ratelindos
network are operated on a sender keeps all basis.
For DLD calls that originate on Ratelindos network and
transit TELKOMs fixed-line network, TELKOM receives 35% of
the prevailing DLD tariff from such calls. For DLD calls that
originate on TELKOMs fixed-line network, TELKOM retains
65% of the revenue from such calls. However, cost-based
interconnection fees will be charged beginning on
January 1, 2005 and TELKOM expects that the current fees
may be adjusted.

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##### Table of Contents





| |                               
| | ------------------------------
| | Fixed Wireline Interconnection

Since September 1, 1998, TELKOM has been
receiving a share in Batam Bintan Telekomunikasi
(BBT), which is a local operator with a special
coverage area on Batam Island, for each successful call that
transits or terminates on TELKOMs fixed-line network.
Under the interconnection agreement, TELKOM receives 75% of the
prevailing DLD tariff for DLD calls that originate and terminate
on TELKOMs fixed-line network. For local interconnection
calls, revenues are shared on a sender keeps all
basis. For calls originating from BBT and terminating at a
cellular network and vice versa which transit through
TELKOMs fixed-line network, TELKOM receives 50% of the
local interconnection call tariff which amounts to 50% of the
prevailing tariff for local pulse per minute for local calls and
60% of the prevailing DLD tariff for DLD calls. For DLD calls
that originate from BBT terminating at a fixed cellular network
which transit through TELKOMs fixed-line network, TELKOM
receives 50% of the prevailing DLD tariff. In addition, BBT is
to receive 50% of TELKOMs interconnection revenue (access
and usage), for all incoming and outgoing international calls
from and to BBT that transit through TELKOMs fixed-line
network. As discussed above, however, cost-based interconnection
fees will be charged beginning on January 1, 2005 and
TELKOM expects that the current fees may be adjusted.



| |                              
| | -----------------------------
| | International Interconnection

Interconnection for international calls consists
of access charges, usage charges and charges for Universal
Service Obligations. The following table sets forth the current
international interconnection tariff, effective as of
December 1, 1998, for calls which originate, transit or
terminate on TELKOMs fixed-line network pursuant to
Ministerial Decree No. 37 of 1999:

|              |  |        |                               | 
|------------- |  | ------ | ----------------------------- | 
|Description   |  | Tariff
|              |  |       
|Access Charge |  |        | Rp.850/successful call        | 
|Usage Charge  |  |        | Rp.550/successful paid minute | 
|USO           |  |        | Rp.750/successful call        | 

Pursuant to MoC Decree No. 32/2004,
beginning on January 1, 2005 cost-based interconnection
charges will go into effect and TELKOM expects that the current
fees may be adjusted. At present, TELKOM is awaiting the
detailed regulations from the MoC regarding the manner in which
the new cost-based charges will be computed.



| |                                                  
| | -------------------------------------------------
| | Local Fixed-line Interconnection with
    Indosat

In September 2002, TELKOM and INDOSAT signed an
agreement for local fixed-line interconnection. Pursuant to the
Agreement, for interconnection local calls, the operator of the
network on which the calls terminate receives Rp.57 per minute.
In addition, with respect to interconnection long distance calls
from or to Indosat, pending the implementation of the duopoly
system for long distance calls, the retail revenue is kept by
TELKOM and Indosat will receive for the local originating or
local terminating calls, Rp.240 per minute.



| |                                
| | -------------------------------
| | Satellite Phone Interconnection

Since the fourth quarter of 2001, TELKOM has been
receiving a share of revenues arising from interconnection
transactions with PSN, a national satellite operator. Under the
agreement, in respect of the interconnection of calls between
TELKOM and PSN, TELKOM receives Rp.800 per minute for network
charges and an additional Rp.300 per minute origination fee if
the call originates from TELKOMs fixed-line network.
However, cost-based interconnection charges will be imposed
beginning on January 1, 2005 and TELKOM expects that the
current fees may be adjusted.



| |                     
| | --------------------
| | VoIP Interconnection

Previously, MoC Decree No. 23 of 2002
provided that access charges and network lease charges for the
provision of VoIP services were to be agreed between network
operators and VoIP operators. On

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March 11, 2004, the MoC issued Decree
No. 31/2004, which stated that interconnection charges for
VoIP are to be fixed by the MoC. As of the date of this Annual
Report, the MoC has not yet determined what the new VoIP
interconnection charges will be. Until such time as the new
charges are fixed, TELKOM will continue to receive connection
fees for calls that originate or terminate on TELKOMs
fixed-line network as follows:




| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | For calls originating on TELKOMs network:
    Rp.240 per minute;                                                                         
|
| |  | For calls terminating on TELKOMs network:
    Rp.240 per minute; and                                                                     
|
| |  | For calls transiting on TELKOMs network:
    Rp.525 per minute (zone 1), Rp.870 per minute
    (zone 2) and Rp.1,170 per minute (zone 3).

Trademarks, Copyrights and Patents

TELKOM has a number of registered intellectual
property rights consisting of trademarks and copyrights. TELKOM
has registered with the Ministry of Justice of Indonesia
(i) trademarks for its corporate name, logo and certain
services including the names of TELKOMs products and
(ii) copyrights of books and artworks. TELKOM is also in
the process of registering a number of patents for technologies
relating to, among others, cellular phones and network, PSTN,
switching systems and related administration systems. These
intellectual property rights are important to TELKOMs
business.

C.     Business and
Organizational Structure

Information on Subsidiaries and Associated
Companies



| |             
| | ------------
| | Subsidiaries

As of December 31, 2003, TELKOM had
ownership interests in 16 companies, ten of which are
consolidated subsidiaries and the remaining 6 are unconsolidated
associated companies. The business activities of the ten
consolidated subsidiaries (as further described below) are
described as part of TELKOMs business in this
Form 20-F. For a description of the activities of
TELKOMs unconsolidated associated companies, please see
Unconsolidated Associated Companies below.

67



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##### Table of Contents



The following table sets forth TELKOMs
direct ownership interest in companies as of December 31,
2003. TELKOMs ownership interests in associated companies
may be increased or diluted as a result of TELKOMs planned
restructuring of its legal ownership interests in these
companies to focus on phone, mobile and multimedia businesses.

|                                                                   |  |                     |        |       |  |                     |     |  |  |                                                                                                                     
|------------------------------------------------------------------ |  | ------------------- | ------ | ----- |  | ------------------- | --- |  |  | --------------------------------------------------------------------------------------------------------------------
|                                                                   |  | Legal Ownership (%) |        |       |  |                    
|                                                                   |  | As of               |        |       |  |                    
|Company                                                            |  | December 31, 2003   |        | Notes |  | Business Operations
|                                                                   |  |                     |        |       |  |                    
|Where TELKOM owns more than 50% or fully
    controls the company:
|PT AriaWest International
    (AriaWest)                         |  |                     | 100.00 |       |  |                     | (1) |  |  | Fixed-phone (KSO-III W. Java & Banten)                                                                              
|PT Multimedia Nusantara (Metra)                                  |  |                     | 100.00 |       |  |                     | (2) |  |  | Multimedia, special pay TV                                                                                          
|PT Graha Sarana Duta (GSD)                                       |  |                     | 99.99  |       |  |                     |     |  |  | Real estate, construction and services                                                                              
|PT Indonusa Telemedia (Indonusa)                                 |  |                     | 90.39  |       |  |                     | (3) |  |  | Interactive multimedia, special pay TV                                                                              
|PT Dayamitra Telekomunikasi
    (Dayamitra)                      |  |                     | 90.32  |       |  |                     |     |  |  | Fixed-phone (KSO-VI Kalimantan)                                                                                     
|PT Telekomunikasi Selular
    (Telkomsel)                        |  |                     | 65.00  |       |  |                     |     |  |  | GSM cellular phone services                                                                                         
|PT Napsindo Primatel Internasional
    (Napsindo)                |  |                     | 60.00  |       |  |                     | (4) |  |  | Network Access Point                                                                                                
|PT Infomedia Nusantara
    (Infomedia)                           |  |                     | 51.00  |       |  |                     |     |  |  | Telephone directory and other information
    services (electronic based business, call center and data
    segment)
|PT Pro Infokom Indonesia (PII)                                   |  |                     | 51.00  |       |  |                     | (5) |  |  | Telecommunication & information services,
    especially e-Government, e-Indonesia programs and B2B                 
|PT Pramindo Ikat Nusantara
    (Pramindo)                        |  |                     | 45.00  |       |  |                     | (6) |  |  | Fixed-phone (KSO-I Sumatera)                                                                                        
|Where TELKOM owns between 20% to
    50%:                         
|PT Patra Telekomunikasi Indonesia
    (Patrakom)                 |  |                     | 30.00  |       |  |                     |     |  |  | VSAT services                                                                                                       
|PT Citra Sari Makmur (CSM)                                       |  |                     | 25.00  |       |  |                     |     |  |  | VSAT and other telecommunications services                                                                          
|PT Pasifik Satelit Nusantara
    (PSN)                           |  |                     | 22.57  |       |  |                     | (7) |  |  | Satellite transponder & communications                                                                              
|Where TELKOM owns less than 20%:                                  
|PT Mobile Selular Indonesia
    (Mobisel)                        |  |                     | 7.44   |       |  |                     | (8) |  |  | NMT-450 cellular and CDMA services                                                                                  
|PT Batam Bintan Telekomunikasi
    (Babintel)                    |  |                     | 5.00   |       |  |                     |     |  |  | Fixed-phone (in Batam & Bintan islands)                                                                             
|PT Pembangunan Telekomunikasi Ind.
    (Bangtelindo)             |  |                     | 3.18   |       |  |                     |     |  |  | Construction and consulting                                                                                         

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##### Table of Contents



|                                                   |  |                     |      |       |  |                     |      |  |  |                                       
|-------------------------------------------------- |  | ------------------- | ---- | ----- |  | ------------------- | ---- |  |  | --------------------------------------
|                                                   |  | Legal Ownership (%) |      |       |  |                    
|                                                   |  | As of               |      |       |  |                    
|Company                                            |  | December 31, 2003   |      | Notes |  | Business Operations
|                                                   |  |                     |      |       |  |                    
|PT Telekomindo Selular Raya
    (Telesera)       |  |                     | 0.00 |       |  |                     | (9)  |  |  | AMPS cellular phone services          
|PT Komunikasi Selular Indonesia
    (Komselindo) |  |                     | 0.00 |       |  |                     | (10) |  |  | AMPS cellular services                
|PT Menara Jakarta (MJ)                           |  |                     | 0.00 |       |  |                     | (11) |  |  | Infrastructure for multimedia services
|PT Metro Selular Nusantara
    (Metrosel)        |  |                     | 0.00 |       |  |                     | (12) |  |  | AMPS cellular services                



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | On July 31, 2003, TELKOM and the
    shareholders of PT AriaWest International
    (AriaWest) consummated the sale and purchase of
    AriaWest, pursuant to which TELKOM acquired 100% of AriaWest
    from PT Aria Infotek (52.50%), MediaOne International I
    B.V. (35%) and The Asian Infrastructure Fund (12.50%). One share
    in AriaWest was transferred to Mr. Woeryanto Soeradji in
    order to comply with the legal requirement that Indonesian
    limited liability companies should have more than one
    shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (2) | On April 8, 2003, TELKOM increased its
    ownership in PT Multimedia Nusantara (Metra) to
    100% by acquiring 69% (1,725,000) of the shares of Metra from
    PT Indocitra Grahabawana under a share swap transaction.
    TELKOM intends to use Metra to operate multimedia services in
    line with TELKOMs strategy to focus on phone, mobile and
    multimedia services. One share in Metra was transferred to
    Mr. Woeryanto Soeradji in order to comply with the legal
    requirement that Indonesian limited liability companies should
    have more than one shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (3) | On August 8, 2003, TELKOM and
    PT Centralindo Pancasakti Cellular (CPSC)
    signed a share swap agreement pursuant to which TELKOM received
    an additional 30.58% (1,712,370) of the shares of
    PT Indonusa Telemedia (Indonusa) from CPSC.
    Following this transaction, TELKOMs ownership in Indonusa
    increased to 88.08%. Pursuant to an EGM of the shareholders of
    Indonusa on October 29, 2003, all of the shareholders
    agreed to convert an additional Rp.13,500 million of debt
    owed by Indonusa to TELKOM into newly issued shares of Indonusa.
    Following such conversion, TELKOMs ownership in Indonusa
    increased from 88.08% to 90.39%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (4) | TELKOM increased its ownership in
    PT Napsindo Primatel Internasional (Napsindo)
    from 32% to 60% by acquiring 28% of the shares of Napsindo from
    PT Info Asia Sukses Makmur Mandiri (InfoAsia).
    The agreement between TELKOM and InfoAsia was signed on
    December 30, 2002. The purchase price was paid on
    28 January 2003, on which date TELKOM acquired control of
    Napsindo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (5) | In January 2003, TELKOM, PT Indonesia
    Comnets Plus (ICON+), a subsidiary of Perusahaan
    Perseroan (Persero) Listrik Negara (PLN) and
    PT Prima Infokom Indonesia established PT Pro Infokom
    Indonesia (PII) to provide B2B, e-Government and
    e-Indonesia services. TELKOM currently holds 51%, while ICON+
    holds 25% and Prima Infokom Indonesia holds 24%. Pursuant to an
    Executive General Meeting of the shareholders of PII on
    October 9, 2003, ICON+ and PT Prima Infokom Indonesia
    stated their intention to dispose of their shareholding in PII
    to TELKOM. Following that date, TELKOM has been negotiating with
    the other two shareholders for a fair price of the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (6) | On April 19, 2002, TELKOM and the
    shareholders of PT Pramindo Ikat Nusantara
    (Pramindo) signed a Conditional Sale and Purchase
    Agreement for the sale of the Pramindo shares. TELKOM received
    30% of the shares of Pramindo in August 2002 and in September
    2003 received an additional 15%, while the remaining 55% was to
    be transferred to TELKOM on December 15, 2004, subject to
    certain conditions, including that TELKOM continues to meet its
    payment obligations under the terms of the promissory notes
    issued as consideration for the purchase price and protective
    rights granted to the selling shareholders. TELKOM obtained
    control of Pramindo at the closing on August 15, 2002 and
    consequently has consolidated 100% of Pramindo from that date
    even though its ownership in Pramindo was only 30% as of
    December 31, 2002. On January 29, 2004, TELKOM signed
    a short-term loan agreement with ABN AMRO Bank N.V. Jakarta in
    the amount of approximately US$130 million and on
    March 15, 2004, TELKOM used the loan proceeds to repurchase
    the promissory notes that were due on June 15, 2004,
    September 15, 2004 and December 15, 2004, and so
    accelerated the acquisition of the remaining 55%. Following this
    transaction, TELKOM owned 100% of Pramindo. One share in
    Pramindo has been transferred to TELKOMs corporate
    secretary in order to comply with the legal requirement that
    Indonesian limited liability companies should have more than one
    shareholder.
| | (7) | As part of the agreement signed on August 8,
    2003 between TELKOM and PT Centralindo Pancasakti Cellular
    (CPSC), TELKOM was entitled to receive CPSCs
    21.12% (16,641,637 shares) interest in PT Pasifik
    Satelit Nusantara (PSN) within a period of one year
    from the date the agreement was signed. During this period, all
    of CPSCs rights in relation to the shares are granted to
    TELKOM. When TELKOM receives the shares of CPSC in PSN, its
    legal ownership interest in PSN will increase to 43.69%. PSN and
    its creditors; PT Bank Mandiri, PT Bank Merincorp,
    PT Danareksa, PT Bank Rakyat Indonesia and Credit
    Suisse First Boston International (CSFBI), have agreed to a
    debt-to-equity conversion, pursuant to which PSN is required to
    issue approximately 20 million new shares to the creditors.
    The conversion will in effect dilute the shareholding percentage
    of the existing shareholders of PSN, including TELKOM. As of the
    date of this Annual Report, the debt-to-equity conversion has
    not been effected. Once the conversion is effected,
    TELKOMs ownership interest in PSN will be reduced to 18%.                                                                                                                                                                                                                                                                                                                                                                                          

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Pursuant to an Extraordinary General Meeting held
    on July 28, 2003, the shareholders of Mobisel agreed to
    restructure Mobisel. The restructuring program includes:
    (i) a debt to equity conversion involving accrued
    interconnection expenses owed by Mobisel to TELKOM; (ii) a
    new class of Series B shares being issued to the new
    shareholders while shares held by the existing shareholders are
    reclassified as Series A shares; and (iii) an equity
    investment of approximately US$2 million by PT Multi
    Investama. Following the completion of this restructuring
    program, TELKOMs ownership in Mobisel was diluted from 25%
    to 7.44%. In January 2004, Mobisels shareholders enacted
    resolutions approving the conversion of Mobisels debt to
    PT Property Java, Boston Investment Limited and Inquam
    (Indonesia) Limited Company to Series B shares. As a
    result, TELKOMs ownership in Mobisel has been diluted to
    6.40%. Effective on December 22, 2003, PT Mobile
    Selular Indonesia changed its corporate name to PT Mandara
    Selular Indonesia (MSI).
| | (9) | TELKOM delivered 100% (25,000) of its shares in
    PT Telekomindo Selular Raya to CPSC pursuant to an
    agreement signed on August 8, 2003 between TELKOM and CPSC.
    TELKOM no longer owns any shares in this company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|     |                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Pursuant to the agreement signed on
    August 8, 2003 between TELKOM and CPSC, TELKOM sold and
    delivered 14.20% (29,069,250 shares) of PT Komunikasi
    Selular Indonesia (Komselindo) to CPSC. TELKOM no
    longer owns any shares in this company.
|(11) | On April 8, 2003, TELKOM sold its 21.34%
    interest in PT Menara Jakarta (10,000 shares) to
    PT Indocitra Grahabawana as part of the share swap
    transaction with PT Indocitra Grahabawana. TELKOM no longer
    owns any shares in this company.    
|(12) | As part of the agreement signed on August 8,
    2003 between TELKOM and CPSC, TELKOM sold and delivered 20.17%
    (2,612,015 shares) of PT Metro Selular Nusantara
    (Metrosel) to CPSC. TELKOM no longer owns any shares
    in this company.         



| |                                        
| | ---------------------------------------
| | Unconsolidated Associated
    Companies



| |                                                   
| | --------------------------------------------------
| | PT Patra Telekomunikasi Indonesia
    (Patrakom)

Patrakom was established in September 1995 and is
currently owned by TELKOM (30%), Indosat (10%), Elnusa (40%) and
Tanjung Mustika (20%). Patrakom provides satellite communication
and related services and facilities to companies in various
industries. As part of a continuous process of evaluation and
restructuring by TELKOM of the status of its affiliates, as well
as the Governments policy to eliminate cross-ownership
between TELKOM and Indosat, TELKOM is in the process of
negotiation with other shareholders regarding a possible
decrease or increase of ownership in Patrakom.



| |                                 
| | --------------------------------
| | PT Citra Sari Makmur
    (CSM)

CSM was established in February 1996 and is
currently owned by TELKOM (25%), PT Tigatra (38.29%) and
Media Trio (L) Inc. Malaysia (36.71%). CSM is incorporated
in Indonesia and provides telecommunications services relating
to VSAT applications and other telecommunications technology and
related facilities.



| |                                         
| | ----------------------------------------
| | PT Pasifik Satelit Nusantara
    (PSN)

PSN was established in July 1991 and as of
December 31, 2003, PSN was legally owned by TELKOM
(22.57%), Centralindo Pancasakti Cellular (CPSC)
(21.12%), Skaisnetindo Teknotama (10.92%), Primaupaya
Lintasswara (7.71%), Hughes Space and Communications
International (7.23%), Telesat Canada (7.23%) and others
(23.20%) (including holders of American Depositary Shares of PSN
who own 19.68% of PSN). PSN provides satellite leasing and
satellite-based communication services to countries within the
Asia Pacific region. PSN conducted an initial public offering of
its common stock and listing on NASDAQ in June 1996, but was
delisted on November 6, 2001 due to its failure to meet
certain NASDAQ National Market Listing requirements.

As part of the agreement signed on August 8,
2003 between TELKOM and PT Centralindo Pancasakti Cellular
(CPSC), TELKOM was entitled to receive CPSCs
21.12% (16,641,637 shares) interest in PT Pasifik
Satelit Nusantara (PSN) within a period of one year
from the date the agreement was signed. During this period, all
of CPSCs rights in relation to the shares are granted to
TELKOM. When TELKOM receives the shares of CPSC in PSN, its
legal ownership interest in PSN will increase to 43.69%.

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Currently TELKOM is evaluating the benefits
associated with an increase of its ownership in PSN to develop a
retail satellite based service such as cellular via satellite
and to support the government program for providing
telecommunications lines to remote areas.



| |                                            
| | -------------------------------------------
| | PT Mobile Selular Indonesia
    (Mobisel)

Mobisel was established on November 30, 1995
by TELKOM, TELKOMs Pension Fund and PT Rajasa Hazanah
Perkasa (Rajasa).

Mobisel currently provides NMT-450 services
formerly provided by TELKOM and Rajasa pursuant to a PBH in
Java, Bali, Lombok, Sumatera and Lampung. Mobisel also launched
a CDMA-based network in Lampung in mid-February 2004. As of
December 31, 2003, Mobisel had approximately
4,587 subscribers.

Pursuant to an Extraordinary General Meeting held
on July 28, 2003, the shareholders of Mobisel agreed to
restructure Mobisel. The restructuring program includes
(i) a debt to equity conversion involving accrued
interconnection expenses owed by Mobisel to TELKOM; (ii) a
share split with a new class of Series B shares being
issued to the new shareholders while shares held by the existing
shareholders are reclassified as Series A shares; and
(iii) the equity investment of approximately
US$2 million by PT Multi Investama. Following the
completion of this restructuring program, TELKOMs
ownership in Mobisel was diluted from 25% to 7.44%.

In January 2004, Mobisels shareholders
enacted resolutions approving the conversion of Mobisels
debt to PT Property Java, Boston Investment Limited and
Inquam (Indonesia) Limited Company into equity. As a result,
TELKOMs ownership in Mobisel has been diluted to 6.40%.
TELKOM has decided to divest its ownership in Mobisel and is in
the process of identifying purchasers for its existing stake.

Effective December 22, 2003, Mobisels
corporate name was changed to PT Mandara Selular Indonesia
(MSI).



| |                                                
| | -----------------------------------------------
| | PT Batam Bintan Telekomunikasi
    (Babintel)

Babintel was established in June 1996 and is
currently owned by TELKOM (5%) and Batamindo Investment (95%).
BBT provides telephony fixed line telecommunications services at
Batamindo Industrial Park in Muka Kuning, Batam Island and at
Bintan Beach International Resort and Bintan Industrial Estate
in Bintan Island which are special economic and tourist
development zones on those islands. As at December 31,
2003, Babintel had approximately 2,575 subscribers.



| |                                                            
| | -----------------------------------------------------------
| | PT Pembangunan Telekomunikasi Indonesia
    (Bangtelindo)

Bangtelindo was established in December 1993 in
Indonesia. The shareholders of Bangtelindo are TELKOM (3.18%),
TELKOMs Pension Fund (82%) and others (14.82%).
Bangtelindos primary business is providing consultancy
services on the installation and maintenance of
telecommunications facilities.



| |                                                   
| | --------------------------------------------------
| | PT Komunikasi Selular Indonesia
    (Komselindo)

Komselindo was established on January 25,
1995 by TELKOM (35%) and PT Elektrindo Nusantara
(Elektrindo) (65%) to operate an AMPS mobile
cellular network which was previously operated pursuant to a
revenue sharing arrangement between TELKOM and Elektrindo.

On June 14, 2002, Komselindo proposed a
settlement plan to its creditors for debt restructuring through
a debt to equity conversion. The debt to equity conversion
included Komselindo liabilities to TELKOM amounting to
Rp19.4 billion. Pursuant to an Extraordinary General
Meeting held on August 30, 2002, the shareholders of
Komselindo agreed to a rights issue. TELKOM did not exercise its
right to subscribe for additional shares pursuant to the rights
issue and as such, its ownership in Komselindo has been reduced
to 14.20%.

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Following a share swap agreement signed on
August 8, 2003 between TELKOM and PT Centralindo
Pancasakti Cellular (CPSC), TELKOM transferred its
14.20% shareholding in Komselindo to CPSC. As a result of such
transfer, TELKOM no longer owns any shares in Komselindo.



| |                                            
| | -------------------------------------------
| | PT Metro Selular Nusantara
    (Metrosel)

Metrosel was established in November 1995. As of
December 31, 2002, Metrosel was owned by TELKOM (20.17%),
CPSC (37.03%), Asia Link BV (35.00%), TELKOMs Pension Fund
(3.00%) and PT Dwimarga Dwi Utama (4.80%). Metrosel
provides the AMPS services previously provided by TELKOM and
CPSC pursuant to a revenue sharing arrangement in Central and
East Java.

TELKOM transferred its switching operations to
Metrosel in 1996 as payment for the purchase price of its equity
interest in the company. Prior to 1996, TELKOM and Metrosel had
a revenue sharing arrangement. Following the transfer in 1996,
the revenue sharing arrangement was terminated. Under an
agreement dated August 8, 2003 between TELKOM and CPSC,
TELKOM transferred its 20.17% stake in Metrosel to CPSC. As a
result of such transaction, TELKOM no longer owns any shares in
Metrosel.



| |                             
| | ----------------------------
| | PT Menara Jakarta
    (MJ)

MJ was established on November 29, 1996. As
of December 31, 2002, MJ was owned by TELKOM (21.34%),
PT Indocitra Grahabawana (Indocitra) (54.44%),
PT Indosat Mega Media (21.34%) and Yayasan Televisi
Republik Indonesia (2.88%). MJ planned to construct and operate
building towers and related telecommunications facilities. Since
1999, MJ has terminated its construction projects, pending
improvement in the economic and social situation in Indonesia.

TELKOM sold its 21.34% ownership in MJ to
Indocitra through a share-swap transaction in exchange for
Indocitras 69.0% equity interest in Metra. The process was
completed on April 8, 2003. As a result, TELKOM no longer
owns any shares in MJ.



| |                                             
| | --------------------------------------------
| | PT Telekomindo Selular Raya
    (Telesera)

TELKOM increased its ownership interest in
Telesera to 100% by acquiring 30.23% of Telesera shares from
TELKOM Pension Fund on September 29, 2002. On
August 8, 2003, TELKOM and CPSC signed a share-swap
agreement pursuant to which TELKOM delivered 100% (25,000) of
its shares in Telesera to CPSC. As a result of this share swap,
TELKOM no longer owns any shares in Telesera.

D.     Property,
Plant and Equipment

Except for ownership rights granted to
individuals in Indonesia, the title to land rests with the
Indonesian State under the Basic Agrarian Law No. 5/1960.
Land use is accomplished through landrights, notably rights to
build (Hak Guna Bangunan) and rights to use (Hak
Pakai), whereby the holder of the landright enjoys the full
use of the land for a stated period of time, subject to renewal
and extensions. In most instances, the landrights are freely
tradeable and may be pledged as security under loan agreements.

TELKOM, excluding its subsidiaries, currently
owns approximately 2,000 properties. TELKOM holds registered
rights to build for the majority of its real property. Pursuant
to Government Regulation No. 40 of 1996, the maximum
initial periods for rights to build are 30 years and may be
extended for an additional 20 years. Most of TELKOMs
real property is used to host equipment for the provision of
telecommunications operations including exchanges, transmission
stations and microwave radio equipment. None of TELKOMs
properties are mortgaged. TELKOM is not aware of any
environmental issues which may affect the utilization of its
properties.






|        |                                                 
|------- | ------------------------------------------------
|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
    PROSPECTS

The following discussion and analysis should
be read in conjunction with the consolidated financial
statements of TELKOM for the three years ended December 31,
2001, 2002 and 2003 included elsewhere in

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this Annual Report. These consolidated
financial statements were prepared in accordance with Indonesian
GAAP, which differs in certain significant respects from
U.S. GAAP. See Note 58 to the consolidated financial
statements for our reconciliation to U.S. GAAP.


A.     Operating
Results

Overview

TELKOM is the principal provider of local and
domestic telecommunications services in Indonesia, as well as
the leading provider of mobile cellular services through its
majority owned subsidiary Telkomsel. TELKOMs objective is
to become a leading full service and network provider in
Indonesia through the provision of a wide range of
communications services. On December 31, 2003, TELKOM had
approximately 8.5 million fixed lines in service and
Telkomsel had approximately 9.6 million mobile cellular
subscribers. TELKOM also provides a wide range of other
communication services, including telephone network
interconnection services, multimedia, data and Internet
communication-related services, satellite transponder leasing,
leased line, intelligent network and related services, cable
television and VoIP services.

TELKOM believes that the Indonesian economic and
industry factors that have materially affected TELKOM, as well
as the environment in which it operates, during the two-year
period from 2001 through 2002, are (i) the general economic
situation in Indonesia, (ii) the limited increases in
tariffs, (iii) the growth in the Indonesian mobile cellular
market and the corresponding increase in Telkomsels
revenues, (iv) the sale of a 12.72% equity interest in
Telkomsel to SingTel and (v) the implementation of an early
retirement program. TELKOM believes that its operating results
in 2003 were significantly affected by (i) limited
increases in tariffs, (ii) the increase in TELKOMs
interconnection revenues, (iii) the continued growth of the
Indonesian mobile cellular market and the corresponding increase
in Telkomsels revenues, (iv) the increase in
TELKOMs revenues from data and Internet services and
(v) increased depreciation expense and operations and
maintenance expenses associated with Telkomsels expansion
of its network capacity.

TELKOMs operating results, discussed below
under Results of Operations, for the three-year
period from 2001 through 2003 reflected significant growth in
revenues, particularly in the fixed line business and cellular
business. The growth in revenues in the fixed line business
reflects both increased fixed lines in service in the non-KSO
and KSO regions and, to some extent, the acquisition and
subsequent consolidation of AriaWest in 2003, Pramindo in 2002
and Dayamitra in 2001. The growth of revenues in the cellular
business primarily reflects growth in the number of cellular
subscribers. The growth of revenues in data and Internet
services primarily reflects the increase in SMS traffic from
Telkomsel subscribers and increased usage of TELKOMs
international VOIP service. Interconnection revenues have also
increased as a result of greater interconnection charges
received from mobile cellular operators. The growth in operating
expense was primarily driven by increases in personnel expense
in 2002 and by an increase in depreciation expense, general and
administrative expenses and operations, maintenance and
telecommunications services expense in 2003. The increase in
personnel expense in 2002 was driven principally by the
implementation of an early retirement program in 2001. In 2002,
TELKOM also recorded a gain on long-term investment of
Rp.3,196.4 billion arising from the sale of a 12.72%
shareholding in Telkomsel to SingTel Mobile. The increase in
depreciation expense and operations, maintenance and
telecommunications services expense in 2003 was principally due
to expenses arising from Telkomsels expansion of its
network capacity. General and administrative expenses grew in
2003 primarily due to amortization of intangible assets from the
acquisition of AriaWest and the increase in TELKOMs
provisions for doubtful accounts in 2003.



| |                                    
| | -----------------------------------
| | Economic Situation in
    Indonesia

TELKOM has been significantly affected by a
severe economic crisis that Indonesia has experienced since the
second half of 1997. As a result of the crisis, the Rupiah has
depreciated significantly and has experienced periods of
significant volatility. From August 1997 to mid 1998, the
month-end

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value of the Rupiah relative to the US Dollar
declined from approximately Rp.2,600 per US Dollar to a low of
Rp.15,000 per US Dollar. As of December 31, 2003 and
June 24, 2004, Bank Indonesias middle exchange rate
was Rp.8,465 and Rp.9,430, respectively, per US$1.00. Indonesia
has also experienced higher rates of inflation and interest
rates in recent years. For the years ended December 31,
2001, 2002 and 2003 the annual inflation rate was 12.55%, 10.03%
and 5.1%, respectively, while the interest rate on a one-month
Bank Indonesia Certificate (SBI) at December 31, 2001, 2002
and 2003 was 17.6%, 12.9% and 8.3%, respectively. See
Item 3. Key Information  D. Risk
Factors  Risks relating to Indonesia 
Declines or volatility in Indonesias currency exchange
rates can have a material adverse impact on business activity in
Indonesia and Item 3. Key
Information  A. Selected Financial Data 
Exchange Rate Information.




| |                             
| | ----------------------------
| | Limited Increases in Tariffs

Since 1995, Indonesian law has provided for
domestic fixed line tariff adjustments to be determined by a
price cap formula that calculates the maximum total percentage
increase in tariffs for a particular year. The maximum increase
equals the Indonesian Consumer Price Index (CPI) for
the preceding year, as published by the Indonesian Central
Bureau of Statistics, minus an efficiency factor (the
X-factor), which the Government determines by taking
into consideration certain factors including improvements in the
cost efficiency of the services resulting from technological
improvements, the interests of affected telecommunications
operators and the purchasing power of customers. Although the
regulations provide for an annual tariff review and adjustment,
economic conditions in Indonesia led to tariffs being frozen in
2000 and 2001. See Item 3D. Risk Factors 
Risk Relating to TELKOM and its subsidiaries  TELKOM
operates in a legal and regulatory environment that is
undergoing significant reforms and such reform may adversely
affect TELKOMs business.

On January 29, 2002, the MoC announced that
fixed-line tariffs would be increased by an average of 45.49%
over three years. Effective February 1, 2002, the MoC
increased fixed-line tariffs by an average of 15%. Although
fixed-line tariffs were expected to be increased again effective
January 1, 2003, public opposition following the
announcement by TELKOM of tariff increases led to the suspension
on January 16, 2003 of the implementation of such
increases. On March 30, 2004, the Government, through the
ITRB, announced that it would allow operators to rebalance their
tariffs, with the resulting weighted average of tariffs
increasing by 9%. As a result, TELKOM has adjusted its
fixed-line and fixed wireless tariffs, with local charges
increasing by 28.2%, DLD tariffs decreasing by an average of 10%
and monthly subscription charges increasing by varying amounts
from 12% to 25%, depending on the type of subscription. There
has been no indication by the MoC whether fixed-line tariffs
will be further increased in 2004 or whether the Government
intends to carry out its plan to increase fixed-line tariffs by
45.49% by January 2005.



| |                                                  
| | -------------------------------------------------
| | Increase in TELKOMs interconnection
    revenues

TELKOMs interconnection revenues accounted
for approximately 15.3% of TELKOMs consolidated operating
revenues for the year ended December 31, 2003, compared to
13.6% for the year ended December 31, 2002. The increase in
interconnection revenues was primarily due to a 64.0% increase
in interconnection charges paid to TELKOM by mobile cellular
operators to Rp.3,908.3 billion. This more than offset a
46.6% decline in interconnection revenue from international
calls to Rp.184.1 billion.



| |                                     
| | ------------------------------------
| | Increase in Telkomsels
    revenues

Telkomsel, a subsidiary of TELKOM engaged in the
cellular telephone business, experienced a 60% growth in its
total number of cellular subscribers from 2002 to 2003, due to
the increased usage of mobile cellular phones in Indonesia and a
corresponding increase in revenues from air time charges.
Telkomsels revenues accounted for approximately 31.2% of
TELKOMs consolidated total operating revenues for the year
ended December 31, 2003, compared to 29.9% for the year
ended December 31, 2002.

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| |                                                    
| | ---------------------------------------------------
| | Increase in TELKOMs data and Internet
    revenues

TELKOMs revenues from its data and Internet
services for the year ended December 31, 2003 were
Rp.3,108.6 billion, an increase of approximately 100.3%
over data and Internet services revenues for the year ended
December 31, 2002. This was primarily due to a 121.1%
increase in revenues generated from SMS services and a 115.7%
increase in revenues from TELKOMs international VoIP
services. Data and Internet revenues accounted for approximately
11.5% of TELKOMs consolidated operating revenues for the
year ended December 31, 2003, compared to 7.5% for the year
ended December 31, 2002.



| |                                                           
| | ----------------------------------------------------------
| | Sale of 12.72% equity interest in Telkomsel
    to SingTel

On July 30, 2002, TELKOM completed the sale
of a 12.72% shareholding in Telkomsel to Singapore Telecom
Mobile Pte Ltd (SingTel Mobile). Following the sale,
TELKOMs ownership in Telkomsel reduced from 77.72% to 65%,
while SingTel Mobiles ownership interest increased from
22.28% to 35%. TELKOM received US$429 million in cash for
the sale. As a result, TELKOM booked an accounting gain of
Rp.3,196.4 billion related to the transaction, representing
the difference between transaction value over the book value of
the shares in Telkomsel. The taxable gain from this transaction
was much lower than the accounting gain as the shares sold to
SingTel Mobile had a tax basis equal to their market value at
the time such shares were acquired from Indosat in 2001 as part
of the cross-ownership transaction.



| |                         
| | ------------------------
| | Early Retirement Program

In 2001, TELKOM implemented a voluntary early
retirement program for certain eligible employees. TELKOM
continued its voluntary early retirement program for 2002 and
2003. TELKOM expects that an aggregate of approximately 7,000
employees will take early retirement over the three-year period
from 2002 to 2004, depending on the availability of excess cash
to pay early retirement. In 2002, TELKOM accrued
Rp.717.3 billion for costs associated with its early
retirement program. In 2003 TELKOM accrued Rp.355.7 billion
(US$42.1 million) for such costs.

Restatement of Information Previously
Reported

Subsequent to the filing of our consolidated
financial statements in our Annual Report on Form 20-F for
the year ended December 31, 2002 and Amendment No. 1
to the Annual Report that was filed with the SEC on
June 11, 2003, we made certain adjustments to the
Indonesian GAAP and the related reconciliation with
U.S. GAAP amounts previously disclosed for 2001 and 2002
and prior years which were required to be made pursuant to
Indonesian GAAP and U.S. GAAP. These adjustments were set
forth in Amendment No. 2 to the Annual Report that was
filed with the SEC on February 9, 2004 under the heading
Item 5. Restatement of Information Previously
Reported.



| |                                                               
| | --------------------------------------------------------------
| | Changes in Indonesian GAAP Information
    Previously Reported

The adjustments to our Indonesian GAAP
consolidated financial statements for the years ended
December 31, 2001 and 2002 set forth in Amendment
No. 2 to our 2002 Annual Report on Form 20-F primarily
related to the accounting for long service awards, deferred
income taxes, and business acquisitions, as well as the
assumptions underlying TELKOMs post-retirement healthcare
plan. As a result of the adjustments to our Indonesian GAAP
financial statements, as set forth in Amendment No. 2 to
our 2002 Annual Report on Form 20-F, our consolidated net
income for the year ended December 31, 2001 was adjusted
downward from Rp.4,250.1 billion to
Rp.4,068.4 billion, while consolidated net income for the
year ended December 31, 2002 was adjusted downwards from
Rp.8,345.3 billion to Rp.8,039.7 billion. We also
restated the amount of our stockholders equity as of
December 31, 2001 from Rp.9,323.6 billion to
Rp.9,081.0 billion, and as of December 31, 2002 from
Rp.15,899.2 billion to Rp.14,613.6 billion.

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| |                                                          
| | ---------------------------------------------------------
| | Changes in U.S. GAAP Information
    Previously Disclosed

In addition to the restatements to TELKOMs
Indonesian GAAP financial statements described above, certain
additional adjustments were required for U.S. GAAP purposes
primarily relating to our accounting for revenue recognition,
deferred income taxes, revenue sharing arrangements and business
acquisitions, these adjustments are set forth in Amendment
No. 2 to our 2002 Annual Report on Form 20-F. As a
result of such adjustments, our consolidated net income under
U.S. GAAP for the year ended December 31, 2001 was
adjusted from Rp.4,036.6 billion to
Rp.4,298.2 billion, while consolidated net income for the
year ended December 31, 2002 was adjusted from
Rp.9,274.2 billion to Rp.8,587.3 billion. Our
stockholders equity under U.S. GAAP as of
December 31, 2001 was adjusted from Rp.8,240.6 billion
to Rp.7,765.5 billion, and as of December 31, 2002
from Rp.15,745.2 billion to Rp.13,910.9 billion.

Reclassifications

We also described in Amendment No. 2 to our
2002 Annual Report on Form 20-F the reclassification of
certain accounts to conform with Indonesian GAAP and
U.S. GAAP presentation requirements, but these
reclassifications did not affect our consolidated net income for
the years ended 2001 and 2002. Please refer to Amendment
No. 2 to our 2002 Annual Report on Form 20-F for
further information.

Basis of Presentation



| |                                                   
| | --------------------------------------------------
| | Consolidation of TELKOMs Financial
    Statements

TELKOM consolidates its financial statements and
those of subsidiaries in which TELKOM has direct ownership
interest of more than 50% or where TELKOM controls the
subsidiaries.

TELKOM consolidated Pramindos financial
statements into its 2002 financial statements from August 2002
when it acquired a controlling interest in Pramindo. TELKOM
initially acquired 30% of Pramindo in 2002 and held 45% as of
December 31, 2003. TELKOM obtained the legal title to the
remaining balance of the shares in Pramindo on March 15,
2004. TELKOM consolidated 100% of Pramindo from the time it
acquired 30% of Pramindo in 2002 because it had full control
over the management and operations of Pramindo (including the
right to vote 100% of Pramindos shares and the right to
nominate all of Pramindos board members) and the right to
obtain all of the future economic benefits of ownership of
Pramindo as though it owned 100% of the shares, in each case
pursuant to the Conditional Sale and Purchase Agreement with the
selling shareholders of Pramindo.



| |                              
| | -----------------------------
| | Foreign Exchange Translations

The functional currency of TELKOM and its
subsidiaries is the Indonesian Rupiah and the books of accounts
of TELKOM and its subsidiaries are maintained in Indonesian
Rupiah. Transactions in foreign currencies are translated into
Indonesian Rupiah at the rates of exchange rate prevailing at
the transaction date. At the balance sheet date, the exchange
rates used for translation of monetary assets and liabilities
denominated in foreign currencies are the buying and selling
rates quoted by Reuters. The Reuters buy and sell rates, applied
respectively to monetary assets and liabilities, were Rp.8,940
and Rp.8,960 to U.S.$1.00 as of December 31, 2002 and
Rp.8,430 and Rp.8,450 to U.S.$1.00 as of December 31, 2003.
These rates differ from the rates used for convenience
translations in this Annual Report, including in the tables
appearing in the discussion and analysis below. See
Note 2(e) to the consolidated financial statements.

The consolidated financial statements are stated
in Rupiah. The translations of Rupiah amounts for 2003 into
United States Dollars are included solely for the convenience of
the readers and have been made using the average of the market
buy and sell rates of Rp.8,440 to US$1.00 published by Reuters
on December 31, 2003. The convenience translations should
not be construed as representations that the Rupiah amounts have
been, could have been, or can in the future be, converted into
United States Dollars at this or any other rate of exchange. See
Note 3 to the consolidated financial statements.

76



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TELKOMs Operating Revenues

The following table sets out TELKOMs
operating revenues, itemized according to TELKOMs main
products and services, for the three years 2001 through 2003,
with each item also expressed as a percentage of total operating
revenues:

|                                          |                          |                         |         |          |  |               |      |       |  |               |         |          |  |               |      |       |  |  |         |          |  |  |      |       |  |  |       |         | 
|----------------------------------------- | ------------------------ | ----------------------- | ------- | -------- |  | ------------- | ---- | ----- |  | ------------- | ------- | -------- |  | ------------- | ---- | ----- |  |  | ------- | -------- |  |  | ---- | ----- |  |  | ----- | ------- | 
|                                          |                          |                        
|                                          |                          | Year ended December 31,
|                                          |                          |                        
|                                          |                          |                         |         |          |  |               |      |      
|                                          |                          | 2001                    |         | 2002     |  | 2003          |      | 2003 
|                                          |                          |                         |         |          |  |               |      |      
|                                          |                          | Rp. (billion)           |         | %        |  | Rp. (billion) |      | %     |  | Rp. (billion) |         | %        |  | US$ (million)
|Operating Revenues                        |                          |                         |         |          |  |               |      |       |  |               |         |          |  |               |      |       |  |  |         |          |  |  |      |       |  |  |       |        
|Telephone                                 |                          |                         |         |          |  |               |      |       |  |               |         |          |  |               |      |       |  |  |         |          |  |  |      |       |  |  |       |        
|                                          | Fixed lines              |                         |         | 6,415.1  |  |               |      | 39.4  |  |               |         | 7,264.1  |  |               |      | 34.9  |  |  |         | 8,896.9  |  |  |      | 32.8  |  |  |       | 1,054.1 | 
|                                          | Cellular                 |                         |         | 4,708.0  |  |               |      | 28.9  |  |               |         | 6,226.8  |  |               |      | 29.9  |  |  |         | 8,458.8  |  |  |      | 31.2  |  |  |       | 1,002.2 | 
|Revenue under Joint Operation Schemes     |                          |                         | 2,219.5 |          |  |               | 13.6 |       |  |               | 2,128.1 |          |  |               | 10.2 |       |  |  | 1,486.3 |          |  |  | 5.5  |       |  |  | 176.1 |        
|Interconnection revenues                  |                          |                         | 1,423.7 |          |  |               | 8.7  |       |  |               | 2,831.3 |          |  |               | 13.6 |       |  |  | 4,162.1 |          |  |  | 15.3 |       |  |  | 493.1 |        
|Data and Internet                         |                          |                         | 673.2   |          |  |               | 4.1  |       |  |               | 1,551.6 |          |  |               | 7.5  |       |  |  | 3,108.6 |          |  |  | 11.5 |       |  |  | 368.3 |        
|Network                                   |                          |                         | 415.0   |          |  |               | 2.6  |       |  |               | 316.1   |          |  |               | 1.5  |       |  |  | 517.9   |          |  |  | 1.9  |       |  |  | 61.4  |        
|Revenue sharing arrangement               |                          |                         | 264.3   |          |  |               | 1.6  |       |  |               | 263.8   |          |  |               | 1.3  |       |  |  | 258.5   |          |  |  | 1.0  |       |  |  | 30.6  |        
|Other telecommunications-related services |                          |                         | 165.0   |          |  |               | 1.1  |       |  |               | 221.0   |          |  |               | 1.1  |       |  |  | 226.9   |          |  |  | 0.8  |       |  |  | 26.9  |        
|                                          |                          |                         |         |          |  |               |      |       |  |               |         |          |  |               |      |       |  |  |         |          |  |  |      |       |  |  |       |        
|                                          | Total Operating Revenues |                         |         | 16,283.8 |  |               |      | 100.0 |  |               |         | 20,802.8 |  |               |      | 100.0 |  |  |         | 27,116.0 |  |  |      | 100.0 |  |  |       | 3,212.7 | 
|                                          |                          |                         |         |          |  |               |      |       |  |               |         |          |  |               |      |       |  |  |         |          |  |  |      |       |  |  |       |        

Subsequent to an announcement by the DGPT in
August 2001 that the Government intended to terminate
TELKOMs exclusive right to provide local and domestic
long-distance services, TELKOMs exclusive right to provide
domestic local service was finally terminated in August 2002 and
TELKOMs exclusive right to provide domestic long-distance
service was likewise terminated in August 2003. TELKOM, however,
received its commercial license to provide IDD fixed-line
services on May 13, 2004. As a result of the termination of
TELKOMs exclusive right to provide domestic long-distance
service, Indosat, a competitor of TELKOM, will be entering the
domestic long-distance market and on May 13, 2004 Indosat
received its commercial license to provide domestic
long-distance services. TELKOM expects that revenues from
providing interconnection services to new entrants in the
domestic local and domestic long-distance markets will increase
and its market share of fixed line services will decrease
slightly in the future because of the liberalization of these
market. With regard to IDD fixed-line services, TELKOM began
offering these services to its customers on June 7, 2004
under the TIC 007 brand. Although TELKOM expects its
IDD fixed-line service to be competitive, as of the date of this
Annual Report TELKOM can give no assurance as to how these
services or the liberalization of the local call and domestic
long-distance markets will affect TELKOMs financial
condition and result of operations.



| |                              
| | -----------------------------
| | Fixed Line Telephone Revenues

The components of fixed line revenues are local
and domestic long-distance usage charges, monthly subscription
charges, installation charges, phone cards and others. Local and
domestic long-distance usage charges, monthly subscription
charges and installation charges relate to both fixed wireline
and fixed wireless telephones.

Local and domestic long-distance usage and
monthly subscription charges are determined by
telecommunications operators based on a formula set by the
Government that determines maximum tariff levels. The maximum
tariff levels apply uniformly throughout Indonesia.
TELKOMs monthly subscription charges are based on a
uniform schedule of charges that vary according to the type of
user and the type of services provided. Local and domestic
long-distance usage charges vary depending on the distance
called, duration and time band, while installation charges,
phone cards and other services

77



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##### Table of Contents



charges are set by individual operators. See
Item 5. Operating Results  A. Overview 
Limited Increases in Tariffs.


Most fixed line revenues are recognized as
services as provided, except the installation charges are
recognized as revenue when a fixed line (referred to as an
installation in the consolidated financial
statements) is placed in service. Revenues from phone cards are
recognized as deferred income when the phone card sales occur
and transferred to revenue upon usage of the units stored on the
card or when the card expires, whichever is the earlier.

Fixed line telephone revenues for the three years
2001 through 2003 are set out below, with each item also
expressed as a percentage of operating revenues:

|                                       |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |         | 
|-------------------------------------- | ----- | ----------------------- | ------- | ------- |  | --------- | ---- | ---- |  | --------- | ------- | ------- |  | ------------- | ---- | ---- |  |  | ------- | ------- |  |  | ---- | ---- |  |  | ----- | ------- | 
|                                       |       |                        
|                                       |       | Year ended December 31,
|                                       |       |                        
|                                       |       |                         |         |         |  |           |      |     
|                                       |       | 2001                    |         | 2002    |  | 2003      |      | 2003
|                                       |       |                         |         |         |  |           |      |     
|                                       |       |                         |         |         |  |           |      |      |  |           |         |        
|                                       |       | Rp.                     |         | %       |  | Rp.       |      | %    |  | Rp.       |         | %       |  | US$ (million)
|                                       |       | (billion)               |         |         |  | (billion) |      |      |  | (billion) |         |         |  |              
|Fixed Line Telephone Revenues          |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        
|Local and domestic long-distance usage |       |                         | 5,225.7 |         |  |           | 32.1 |      |  |           | 5,447.9 |         |  |               | 26.2 |      |  |  | 6,561.8 |         |  |  | 24.2 |      |  |  | 777.5 |        
|Monthly subscription charges           |       |                         | 997.7   |         |  |           | 6.2  |      |  |           | 1,474.8 |         |  |               | 7.1  |      |  |  | 1,948.8 |         |  |  | 7.2  |      |  |  | 230.9 |        
|Installation charges                   |       |                         | 98.0    |         |  |           | 0.6  |      |  |           | 130.2   |         |  |               | 0.6  |      |  |  | 223.1   |         |  |  | 0.8  |      |  |  | 26.4  |        
|Phone cards                            |       |                         | 25.4    |         |  |           | 0.1  |      |  |           | 29.3    |         |  |               | 0.1  |      |  |  | 34.4    |         |  |  | 0.1  |      |  |  | 4.1   |        
|Others                                 |       |                         | 68.3    |         |  |           | 0.4  |      |  |           | 181.9   |         |  |               | 0.9  |      |  |  | 128.8   |         |  |  | 0.5  |      |  |  | 15.2  |        
|                                       |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        
|                                       | Total |                         |         | 6,415.1 |  |           |      | 39.4 |  |           |         | 7,264.1 |  |               |      | 34.9 |  |  |         | 8,896.9 |  |  |      | 32.8 |  |  |       | 1,054.1 | 
|                                       |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        



| |                            
| | ---------------------------
| | Cellular Telephone Revenues

The main components of cellular telephone
revenues are air time charges and monthly subscription charges,
which totaled Rp.7,677.9 billion (US$909.7 million)
and Rp. 580.6 billion (US$68.8 million), respectively,
in 2003. Cellular telephone revenues also include features and
connection fee charges.

Air time charges and monthly subscription charges
are determined by telecommunications operators based on maximum
tariff levels fixed by the Government. The maximum tariff levels
apply uniformly throughout Indonesia. See Item 5.
Operating Results  A. Overview  Limited
Increases in Tariffs. Connection fee charges are
determined by individual operators. Only postpaid subscribers
pay connection and monthly subscription fees, while prepaid
customers generally pay higher air time usage charges. In
TELKOMs consolidated statements of income, a portion of
revenues from sales of prepaid starter packs is also recorded as
connection fees.

In the case of postpaid subscribers, monthly
subscription charges are recognized when earned (i.e., in
the month to which they apply), while connection fee revenue is
recognized as income when connections take place. In the case of
prepaid subscribers, revenues from starter packs are
recognized upon delivery to distributors, dealers or directly to
customers, while revenues from pulse refill vouchers are
recognized initially as unearned income and thereafter
recognized proportionately as revenue based on successful calls
made using the stored value of the voucher or when the unused
stored value has expired. Revenues recognized are net of dealer
discounts.

78



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Cellular telephone revenues for the three years
2001 through 2003 are set out below, with each item also
expressed as a percentage of operating revenues:

|                             |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |         | 
|---------------------------- | ----- | ----------------------- | ------- | ------- |  | --------- | ---- | ---- |  | --------- | ------- | ------- |  | ------------- | ---- | ---- |  |  | ------- | ------- |  |  | ---- | ---- |  |  | ----- | ------- | 
|                             |       |                        
|                             |       | Year ended December 31,
|                             |       |                        
|                             |       |                         |         |         |  |           |      |     
|                             |       | 2001                    |         | 2002    |  | 2003      |      | 2003
|                             |       |                         |         |         |  |           |      |     
|                             |       |                         |         |         |  |           |      |      |  |           |         |        
|                             |       | Rp.                     |         | %       |  | Rp.       |      | %    |  | Rp.       |         | %       |  | US$ (million)
|                             |       | (billion)               |         |         |  | (billion) |      |      |  | (billion) |         |         |  |              
|Cellular Telephone Revenues  |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        
|Air time charges             |       |                         | 3,987.8 |         |  |           | 24.4 |      |  |           | 5,453.6 |         |  |               | 26.1 |      |  |  | 7,677.9 |         |  |  | 28.3 |      |  |  | 909.7 |        
|Monthly subscription charges |       |                         | 581.6   |         |  |           | 3.6  |      |  |           | 593.3   |         |  |               | 2.9  |      |  |  | 580.5   |         |  |  | 2.2  |      |  |  | 68.8  |        
|Connection fee charges       |       |                         | 128.5   |         |  |           | 0.8  |      |  |           | 172.3   |         |  |               | 0.8  |      |  |  | 194.1   |         |  |  | 0.7  |      |  |  | 23.0  |        
|Features                     |       |                         | 10.1    |         |  |           | 0.1  |      |  |           | 7.6     |         |  |               | 0.1  |      |  |  | 6.3     |         |  |  | 0.0  |      |  |  | 0.7   |        
|                             |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        
|                             | Total |                         |         | 4,708.0 |  |           |      | 28.9 |  |           |         | 6,226.8 |  |               |      | 29.9 |  |  |         | 8,458.8 |  |  |      | 31.2 |  |  |       | 1,002.2 | 
|                             |       |                         |         |         |  |           |      |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |        



| |                                            
| | -------------------------------------------
| | Joint Operation Scheme (KSO)
    Revenues

KSO revenues consist of:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Initial payment made by the KSO partners, which
    is amortized over the life of the KSO Agreement;                                                                           
|
| |  | Minimum TELKOM Revenues (MTR), being
    a specified minimum payment, which is payable monthly; and                                                                          
|
| |  | Distributable TELKOM Revenues (DTR),
    being a specified percentage of KSO revenues after deduction of
    operating expenses and MTR obligation, which is payable monthly.

KSO Revenues for the three years 2001 through
2003 are set out below, with each item also expressed as a
percentage of operating revenues:

|                                                                                     |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |     |      |  |  |       |         |  |  |     |     |  |  |       |       | 
|------------------------------------------------------------------------------------ | ----- | ----------------------- | ------- | ------- |  | --------- | --- | ---- |  | --------- | ------- | ------- |  | ------------- | --- | ---- |  |  | ----- | ------- |  |  | --- | --- |  |  | ----- | ----- | 
|                                                                                     |       |                        
|                                                                                     |       | Year ended December 31,
|                                                                                     |       |                        
|                                                                                     |       |                         |         |         |  |           |     |     
|                                                                                     |       | 2001                    |         | 2002    |  | 2003      |     | 2003
|                                                                                     |       |                         |         |         |  |           |     |     
|                                                                                     |       |                         |         |         |  |           |     |      |  |           |         |        
|                                                                                     |       | Rp.                     |         | %       |  | Rp.       |     | %    |  | Rp.       |         | %       |  | US$ (million)
|                                                                                     |       | (billion)               |         |         |  | (billion) |     |      |  | (billion) |         |         |  |              
|KSO Revenues                                                                         |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |     |      |  |  |       |         |  |  |     |     |  |  |       |      
|Minimum TELKOM Revenues                                                              |       |                         | 1,474.2 |         |  |           | 9.0 |      |  |           | 1,319.7 |         |  |               | 6.3 |      |  |  | 899.9 |         |  |  | 3.3 |     |  |  | 106.6 |      
|Share in distributable KSO Revenues                                                  |       |                         | 732.9   |         |  |           | 4.5 |      |  |           | 801.0   |         |  |               | 3.9 |      |  |  | 583.0 |         |  |  | 2.2 |     |  |  | 69.1  |      
|Amortization of unearned initial investor
    payments under Joint Operation Schemes |       |                         | 12.4    |         |  |           | 0.1 |      |  |           | 7.4     |         |  |               | 0.0 |      |  |  | 3.4   |         |  |  | 0.0 |     |  |  | 0.4   |      
|                                                                                     |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |     |      |  |  |       |         |  |  |     |     |  |  |       |      
|                                                                                     | Total |                         |         | 2,219.5 |  |           |     | 13.6 |  |           |         | 2,128.1 |  |               |     | 10.2 |  |  |       | 1,486.3 |  |  |     | 5.5 |  |  |       | 176.1 | 
|                                                                                     |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |     |      |  |  |       |         |  |  |     |     |  |  |       |      



| |                         
| | ------------------------
| | Interconnection Revenues

Interconnection revenues consist primarily of
fees charged to other domestic and international carriers when
calls originating in their networks interconnect with
TELKOMs fixed line network and Telkomsels mobile
cellular network. Interconnection revenues also include
international roaming by overseas operators to Telkomsels
mobile cellular network.

Fees charged for interconnection are determined
contractually between operators, subject to maximum fee levels
established by Government regulation. Revenues from
interconnection with other domestic and international
telecommunications carriers are recognized as incurred and are
presented net of interconnection expenses. Interconnection
revenues are typically accrued initially and settled among
operators quarterly and can fluctuate significantly as a result
of adjustments among operators to accrued amounts at the time of
settlement. Beginning January 1, 2005, however,
interconnection fees will be cost-based, in accordance with MoC
regulations, and TELKOM expects that the current interconnection
fees will be adjusted.

79



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Interconnection revenues for the three years 2001
through 2003 are set out below, with each item also expressed as
a percentage of operating revenues:

|                         |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |       | 
|------------------------ | ----- | ----------------------- | ------- | ------- |  | --------- | --- | ---- |  | --------- | ------- | ------- |  | ------------- | ---- | ---- |  |  | ------- | ------- |  |  | ---- | ---- |  |  | ----- | ----- | 
|                         |       |                        
|                         |       | Year ended December 31,
|                         |       |                        
|                         |       |                         |         |         |  |           |     |     
|                         |       | 2001                    |         | 2002    |  | 2003      |     | 2003
|                         |       |                         |         |         |  |           |     |     
|                         |       |                         |         |         |  |           |     |      |  |           |         |        
|                         |       | Rp.                     |         | %       |  | Rp.       |     | %    |  | Rp.       |         | %       |  | US$ (million)
|                         |       | (billion)               |         |         |  | (billion) |     |      |  | (billion) |         |         |  |              
|Interconnection Revenues |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |      
|TELKOM(1)                |       |                         | 1,212.3 |         |  |           | 7.4 |      |  |           | 2,740.7 |         |  |               | 13.3 |      |  |  | 4,069.1 |         |  |  | 15.0 |      |  |  | 482.1 |      
|Telkomsel(2)             |       |                         | 211.4   |         |  |           | 1.3 |      |  |           | 90.6    |         |  |               | 0.3  |      |  |  | 93.0    |         |  |  | 0.3  |      |  |  | 11.0  |      
|                         |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |      
|                         | Total |                         |         | 1,423.7 |  |           |     | 8.7  |  |           |         | 2,831.3 |  |               |      | 13.6 |  |  |         | 4,162.1 |  |  |      | 15.3 |  |  |       | 493.1 | 
|                         |       |                         |         |         |  |           |     |      |  |           |         |         |  |               |      |      |  |  |         |         |  |  |      |      |  |  |       |      



---



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|(1) | After elimination of unconsolidated net
    interconnection revenues with Telkomsel.       
|(2) | After elimination of unconsolidated net
    interconnection revenues (expense) with TELKOM.



| |                           
| | --------------------------
| | Data and Internet Revenues

Data and Internet revenue for the three years
2001 through 2003 are set out below, with each item also
expressed as a percentage of operating revenues:

|                          |       |                         |       |       |  |           |     |      |  |           |       |         |  |               |     |     |  |  |         |         |  |  |     |      |  |  |       |       | 
|------------------------- | ----- | ----------------------- | ----- | ----- |  | --------- | --- | ---- |  | --------- | ----- | ------- |  | ------------- | --- | --- |  |  | ------- | ------- |  |  | --- | ---- |  |  | ----- | ----- | 
|                          |       |                        
|                          |       | Year ended December 31,
|                          |       |                        
|                          |       |                         |       |       |  |           |     |     
|                          |       | 2001                    |       | 2002  |  | 2003      |     | 2003
|                          |       |                         |       |       |  |           |     |     
|                          |       |                         |       |       |  |           |     |      |  |           |       |        
|                          |       | Rp.                     |       | %     |  | Rp.       |     | %    |  | Rp.       |       | %       |  | US$ (million)
|                          |       | (billion)               |       |       |  | (billion) |     |      |  | (billion) |       |         |  |              
|Data and Internet Revenue |       |                         |       |       |  |           |     |      |  |           |       |         |  |               |     |     |  |  |         |         |  |  |     |      |  |  |       |      
|SMS                       |       |                         | 344.6 |       |  |           | 2.1 |      |  |           | 997.2 |         |  |               | 4.9 |     |  |  | 2,205.1 |         |  |  | 8.2 |      |  |  | 261.3 |      
|Multimedia                |       |                         | 218.3 |       |  |           | 1.3 |      |  |           | 337.8 |         |  |               | 1.6 |     |  |  | 494.7   |         |  |  | 1.8 |      |  |  | 58.6  |      
|VoIP                      |       |                         | 25.6  |       |  |           | 0.2 |      |  |           | 152.2 |         |  |               | 0.7 |     |  |  | 328.3   |         |  |  | 1.2 |      |  |  | 38.9  |      
|ISDN                      |       |                         | 84.7  |       |  |           | 0.5 |      |  |           | 64.4  |         |  |               | 0.3 |     |  |  | 80.5    |         |  |  | 0.3 |      |  |  | 9.5   |      
|                          |       |                         |       |       |  |           |     |      |  |           |       |         |  |               |     |     |  |  |         |         |  |  |     |      |  |  |       |      
|                          | Total |                         |       | 673.2 |  |           |     | 4.1  |  |           |       | 1,551.6 |  |               |     | 7.5 |  |  |         | 3,108.6 |  |  |     | 11.5 |  |  |       | 368.3 | 
|                          |       |                         |       |       |  |           |     |      |  |           |       |         |  |               |     |     |  |  |         |         |  |  |     |      |  |  |       |      



| |                 
| | ----------------
| | Network Revenues

Network revenue for the three years 2001 through
2003 are set out below, with each item also expressed as a
percentage of operating revenues:

|                            |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |      | 
|--------------------------- | ----- | ----------------------- | ----- | ----- |  | --------- | --- | ---- |  | --------- | ----- | ----- |  | ------------- | --- | --- |  |  | ----- | ----- |  |  | --- | --- |  |  | ---- | ---- | 
|                            |       |                        
|                            |       | Year ended December 31,
|                            |       |                        
|                            |       |                         |       |       |  |           |     |     
|                            |       | 2001                    |       | 2002  |  | 2003      |     | 2003
|                            |       |                         |       |       |  |           |     |     
|                            |       |                         |       |       |  |           |     |      |  |           |       |      
|                            |       | Rp.                     |       | %     |  | Rp.       |     | %    |  | Rp.       |       | %     |  | US$ (million)
|                            |       | (billion)               |       |       |  | (billion) |     |      |  | (billion) |       |       |  |              
|Network Revenue             |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     
|Satellite transponder lease |       |                         | 203.6 |       |  |           | 1.3 |      |  |           | 190.2 |       |  |               | 0.9 |     |  |  | 270.9 |       |  |  | 1.0 |     |  |  | 32.1 |     
|Leased line                 |       |                         | 211.4 |       |  |           | 1.3 |      |  |           | 125.9 |       |  |               | 0.6 |     |  |  | 247.0 |       |  |  | 0.9 |     |  |  | 29.3 |     
|                            |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     
|                            | Total |                         |       | 415.0 |  |           |     | 2.6  |  |           |       | 316.1 |  |               |     | 1.5 |  |  |       | 517.9 |  |  |     | 1.9 |  |  |      | 61.4 | 
|                            |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     

80



---



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| |                                                
| | -----------------------------------------------
| | Revenues under Revenue Sharing
    Arrangements

Revenue under Revenue Sharing Arrangements for
the three years 2001 through 2003 are set out below, with each
item also expressed as a percentage of operating revenues:

|                                                                      |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |      | 
|--------------------------------------------------------------------- | ----- | ----------------------- | ----- | ----- |  | --------- | --- | ---- |  | --------- | ----- | ----- |  | ------------- | --- | --- |  |  | ----- | ----- |  |  | --- | --- |  |  | ---- | ---- | 
|                                                                      |       |                        
|                                                                      |       | Year ended December 31,
|                                                                      |       |                        
|                                                                      |       |                         |       |       |  |           |     |     
|                                                                      |       | 2001                    |       | 2002  |  | 2003      |     | 2003
|                                                                      |       |                         |       |       |  |           |     |     
|                                                                      |       |                         |       |       |  |           |     |      |  |           |       |      
|                                                                      |       | Rp.                     |       | %     |  | Rp.       |     | %    |  | Rp.       |       | %     |  | US$ (million)
|                                                                      |       | (billion)               |       |       |  | (billion) |     |      |  | (billion) |       |       |  |              
|Revenues Under Revenue Sharing
    Arrangements                       |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     
|Net share in revenue earned under Revenue Sharing
    Arrangement     |       |                         | 191.5 |       |  |           | 1.2 |      |  |           | 211.5 |       |  |               | 1.0 |     |  |  | 200.1 |       |  |  | 0.8 |     |  |  | 23.7 |     
|Amortization of unearned income under Revenue
    Sharing Arrangement |       |                         | 72.8  |       |  |           | 0.4 |      |  |           | 52.3  |       |  |               | 0.3 |     |  |  | 58.4  |       |  |  | 0.2 |     |  |  | 6.9  |     
|                                                                      |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     
|                                                                      | Total |                         |       | 264.3 |  |           |     | 1.6  |  |           |       | 263.8 |  |               |     | 1.3 |  |  |       | 258.5 |  |  |     | 1.0 |  |  |      | 30.6 | 
|                                                                      |       |                         |       |       |  |           |     |      |  |           |       |       |  |               |     |     |  |  |       |       |  |  |     |     |  |  |      |     



| |                                                       
| | ------------------------------------------------------
| | Other Telecommunications-related Services
    Revenues

Other telecommunications-related services
revenues represent telex and telegram revenues, revenues from
the telephone directory business and revenues from cable
television service. TELKOMs revenues from cable television
services and telephone directory services have been increasing.
However, due to the rapid growth of technology development,
telex and telegram revenues are in decline.

TELKOMs Operating Expenses

The following table sets out TELKOMs
operating expenses for the three years 2001 through 2003, with
each item also expressed as a percentage of operating revenues:

|                                                            |                          |                         |         |         |  |           |      |      |  |           |         |          |  |               |      |      |  |  |         |          |  |  |      |      |  |  |       |         | 
|----------------------------------------------------------- | ------------------------ | ----------------------- | ------- | ------- |  | --------- | ---- | ---- |  | --------- | ------- | -------- |  | ------------- | ---- | ---- |  |  | ------- | -------- |  |  | ---- | ---- |  |  | ----- | ------- | 
|                                                            |                          |                        
|                                                            |                          | Year ended December 31,
|                                                            |                          |                        
|                                                            |                          |                         |         |         |  |           |      |     
|                                                            |                          | 2001                    |         | 2002    |  | 2003      |      | 2003
|                                                            |                          |                         |         |         |  |           |      |     
|                                                            |                          |                         |         |         |  |           |      |      |  |           |         |         
|                                                            |                          | Rp.                     |         | %       |  | Rp.       |      | %    |  | Rp.       |         | %        |  | US$ (million)
|                                                            |                          | (billion)               |         |         |  | (billion) |      |      |  | (billion) |         |          |  |              
|Operating Expenses                                          |                          |                         |         |         |  |           |      |      |  |           |         |          |  |               |      |      |  |  |         |          |  |  |      |      |  |  |       |        
|Depreciation                                                |                          |                         | 2,869.8 |         |  |           | 17.6 |      |  |           | 3,473.4 |          |  |               | 16.7 |      |  |  | 4,779.5 |          |  |  | 17.6 |      |  |  | 566.3 |        
|Operations, maintenance and telecommunications
    services |                          |                         | 2,149.9 |         |  |           | 13.2 |      |  |           | 2,290.2 |          |  |               | 11.0 |      |  |  | 3,338.7 |          |  |  | 12.3 |      |  |  | 395.6 |        
|Personnel                                                   |                          |                         | 2,281.2 |         |  |           | 14.0 |      |  |           | 4,387.6 |          |  |               | 21.1 |      |  |  | 4,440.1 |          |  |  | 16.4 |      |  |  | 526.1 |        
|General and administrative                                  |                          |                         | 1,343.5 |         |  |           | 8.3  |      |  |           | 1,146.3 |          |  |               | 5.5  |      |  |  | 2,078.8 |          |  |  | 7.7  |      |  |  | 246.3 |        
|Marketing                                                   |                          |                         | 220.0   |         |  |           | 1.3  |      |  |           | 375.1   |          |  |               | 1.8  |      |  |  | 502.9   |          |  |  | 1.9  |      |  |  | 59.6  |        
|                                                            |                          |                         |         |         |  |           |      |      |  |           |         |          |  |               |      |      |  |  |         |          |  |  |      |      |  |  |       |        
|                                                            | Total Operating Expenses |                         |         | 8,864.4 |  |           |      | 54.4 |  |           |         | 11,672.6 |  |               |      | 56.1 |  |  |         | 15,140.0 |  |  |      | 55.8 |  |  |       | 1,793.9 | 
|                                                            |                          |                         |         |         |  |           |      |      |  |           |         |          |  |               |      |      |  |  |         |          |  |  |      |      |  |  |       |        



| |                     
| | --------------------
| | Depreciation Expense

Depreciation expense relates to TELKOMs
property, plant and equipment. TELKOM depreciates its property,
plant and equipment, except land, using the straight-line
method, based on the useful lives of the assets, commencing in
the month such assets were placed into service. See
notes 2k, 2l, 2m, 13 and 15 to the consolidated
financial statements.

In accordance with Indonesian GAAP, TELKOM
capitalizes interest costs and foreign exchange gains or losses
for assets under construction and depreciates these amounts over
the useful lives of the assets to which they relate. In 2001,
2002 and 2003, TELKOM capitalized interest costs for assets
under construction of Rp.8.1 billion, Rp.20.1 billion
and Rp.22.9 billion (US$2.7 million), respectively. TELKOM
capitalized foreign exchange losses (gain) for assets under
construction of Rp.1.7 billion, (Rp.27.6 billion) and
nil in 2001, 2002 and 2003, respectively.

81



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##### Table of Contents





| |                                                                    
| | -------------------------------------------------------------------
| | Operations, Maintenance and
    Telecommunications Services Expense

Operations, maintenance and telecommunications
services expense for the three years 2001 through 2003 are set
out below, with each item also expressed as a percentage of
operating revenues:

|                                                                    |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |       | 
|------------------------------------------------------------------- | ----- | ----------------------- | ----- | ------- |  | --------- | --- | ---- |  | --------- | ------- | ------- |  | --------- | --- | ---- |  |  | ------- | ------- |  |  | --- | ---- |  |  | ----- | ----- | 
|                                                                    |       |                        
|                                                                    |       | Year ended December 31,
|                                                                    |       |                        
|                                                                    |       |                         |       |         |  |           |     |     
|                                                                    |       | 2001                    |       | 2002    |  | 2003      |     | 2003
|                                                                    |       |                         |       |         |  |           |     |     
|                                                                    |       |                         |       |         |  |           |     |      |  |           |         |        
|                                                                    |       | Rp.                     |       | %       |  | Rp.       |     | %    |  | Rp.       |         | %       |  | US$      
|                                                                    |       | (billion)               |       |         |  | (billion) |     |      |  | (billion) |         |         |  | (million)
|Operations, Maintenance and Telecommunications
    Services Expense |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      
|Operations and maintenance                                          |       |                         | 891.4 |         |  |           | 5.5 |      |  |           | 1,042.6 |         |  |           | 5.0 |      |  |  | 1,744.8 |         |  |  | 6.4 |      |  |  | 206.7 |      
|Radio frequency usage charges                                       |       |                         | 101.3 |         |  |           | 0.6 |      |  |           | 292.7   |         |  |           | 1.4 |      |  |  | 371.7   |         |  |  | 1.4 |      |  |  | 44.1  |      
|Electricity, gas and water                                          |       |                         | 157.1 |         |  |           | 1.0 |      |  |           | 219.9   |         |  |           | 1.1 |      |  |  | 300.4   |         |  |  | 1.1 |      |  |  | 35.6  |      
|Cost of phone cards                                                 |       |                         | 173.4 |         |  |           | 1.1 |      |  |           | 197.7   |         |  |           | 1.0 |      |  |  | 181.3   |         |  |  | 0.7 |      |  |  | 21.5  |      
|Concession fees                                                     |       |                         | 63.6  |         |  |           | 0.4 |      |  |           | 163.9   |         |  |           | 0.8 |      |  |  | 239.0   |         |  |  | 0.9 |      |  |  | 28.3  |      
|Insurance                                                           |       |                         | 67.8  |         |  |           | 0.4 |      |  |           | 142.9   |         |  |           | 0.7 |      |  |  | 157.1   |         |  |  | 0.6 |      |  |  | 18.6  |      
|Leased line                                                         |       |                         | 82.9  |         |  |           | 0.5 |      |  |           | 103.6   |         |  |           | 0.5 |      |  |  | 127.0   |         |  |  | 0.5 |      |  |  | 15.1  |      
|Motor vehicles                                                      |       |                         | 38.2  |         |  |           | 0.2 |      |  |           | 80.0    |         |  |           | 0.3 |      |  |  | 115.7   |         |  |  | 0.4 |      |  |  | 13.7  |      
|Travel                                                              |       |                         | 15.7  |         |  |           | 0.1 |      |  |           | 16.5    |         |  |           | 0.1 |      |  |  | 29.8    |         |  |  | 0.1 |      |  |  | 3.5   |      
|Telephone kiosks commissions                                       |       |                         | 520.9 |         |  |           | 3.2 |      |  |           |        |         |  |           |    |      |  |  |        |         |  |  |    |      |  |  |      |      
|Others                                                              |       |                         | 37.6  |         |  |           | 0.2 |      |  |           | 30.4    |         |  |           | 0.1 |      |  |  | 71.9    |         |  |  | 0.2 |      |  |  | 8.5   |      
|                                                                    |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      
|                                                                    | Total |                         |       | 2,149.9 |  |           |     | 13.2 |  |           |         | 2,290.2 |  |           |     | 11.0 |  |  |         | 3,338.7 |  |  |     | 12.3 |  |  |       | 395.6 | 
|                                                                    |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      



| |                  
| | -----------------
| | Personnel Expense

The main components of personnel expenses in 2003
were salaries and related allowances, which were
Rp.1,574.2 billion (US$186.5 million) and vacation
pay, incentives and other allowances, which were
Rp.816.1 billion (US$96.7 million).

Personnel expense for the three years 2001
through 2003 are set out below, with each item also expressed as
a percentage of operating revenues:

|                                              |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |       | 
|--------------------------------------------- | ----- | ----------------------- | ----- | ------- |  | --------- | --- | ---- |  | --------- | ------- | ------- |  | --------- | --- | ---- |  |  | ------- | ------- |  |  | --- | ---- |  |  | ----- | ----- | 
|                                              |       |                        
|                                              |       | Year ended December 31,
|                                              |       |                        
|                                              |       |                         |       |         |  |           |     |     
|                                              |       | 2001                    |       | 2002    |  | 2003      |     | 2003
|                                              |       |                         |       |         |  |           |     |     
|                                              |       |                         |       |         |  |           |     |      |  |           |         |        
|                                              |       | Rp.                     |       | %       |  | Rp.       |     | %    |  | Rp.       |         | %       |  | US$      
|                                              |       | (billion)               |       |         |  | (billion) |     |      |  | (billion) |         |         |  | (million)
|Personnel Expense                             |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      
|Salaries and related allowances               |       |                         | 883.4 |         |  |           | 5.4 |      |  |           | 1,410.7 |         |  |           | 6.8 |      |  |  | 1,574.2 |         |  |  | 5.8 |      |  |  | 186.5 |      
|Vacation pay, incentives and other allowances |       |                         | 364.7 |         |  |           | 2.2 |      |  |           | 655.5   |         |  |           | 3.2 |      |  |  | 816.1   |         |  |  | 3.0 |      |  |  | 96.7  |      
|Severance for early retirement plan           |       |                         | 140.0 |         |  |           | 0.9 |      |  |           | 717.3   |         |  |           | 3.4 |      |  |  | 355.7   |         |  |  | 1.3 |      |  |  | 42.1  |      
|Long service awards                           |       |                         | 94.5  |         |  |           | 0.6 |      |  |           | 289.9   |         |  |           | 1.4 |      |  |  | 207.1   |         |  |  | 0.8 |      |  |  | 24.5  |      
|Net periodic pension cost                     |       |                         | 86.2  |         |  |           | 0.5 |      |  |           | 362.3   |         |  |           | 1.7 |      |  |  | 190.9   |         |  |  | 0.7 |      |  |  | 22.6  |      
|Employee income tax                           |       |                         | 132.9 |         |  |           | 0.8 |      |  |           | 201.5   |         |  |           | 1.0 |      |  |  | 468.8   |         |  |  | 1.7 |      |  |  | 55.5  |      
|Net periodic post-retirement benefit cost     |       |                         | 374.5 |         |  |           | 2.3 |      |  |           | 616.5   |         |  |           | 3.0 |      |  |  | 641.4   |         |  |  | 2.4 |      |  |  | 76.0  |      
|Housing                                       |       |                         | 93.3  |         |  |           | 0.6 |      |  |           | 89.5    |         |  |           | 0.4 |      |  |  | 116.9   |         |  |  | 0.4 |      |  |  | 13.9  |      
|Medical                                       |       |                         | 81.7  |         |  |           | 0.5 |      |  |           | 28.2    |         |  |           | 0.1 |      |  |  | 9.7     |         |  |  | 0.0 |      |  |  | 1.2   |      
|Others                                        |       |                         | 30.0  |         |  |           | 0.2 |      |  |           | 16.2    |         |  |           | 0.1 |      |  |  | 59.3    |         |  |  | 0.2 |      |  |  | 7.0   |      
|                                              |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      
|                                              | Total |                         |       | 2,281.2 |  |           |     | 14.0 |  |           |         | 4,387.6 |  |           |     | 21.1 |  |  |         | 4,440.1 |  |  |     | 16.3 |  |  |       | 526.1 | 
|                                              |       |                         |       |         |  |           |     |      |  |           |         |         |  |           |     |      |  |  |         |         |  |  |     |      |  |  |       |      

82



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##### Table of Contents





| |                                       
| | --------------------------------------
| | General and Administrative
    Expense

The main components of general and administrative
expenses in 2003 were amortization of intangible assets, which
totaled Rp.730.7 billion (US$86.6 million), arising
from the acquisitions of Dayamitra, Pramindo and AriaWest, and
provisions for doubtful accounts and inventory obsolescence,
which totaled Rp.326.4 billion (US$38.7 million).

General and administrative expense for the three
years 2001 through 2003 are set out below, with each item also
expressed as a percentage of operating revenues:

|                                                               |       |                         |       |         |  |           |     |      |  |           |       |         |  |           |     |     |  |  |       |         |  |  |     |     |  |  |      |       | 
|-------------------------------------------------------------- | ----- | ----------------------- | ----- | ------- |  | --------- | --- | ---- |  | --------- | ----- | ------- |  | --------- | --- | --- |  |  | ----- | ------- |  |  | --- | --- |  |  | ---- | ----- | 
|                                                               |       |                        
|                                                               |       | Year ended December 31,
|                                                               |       |                        
|                                                               |       |                         |       |         |  |           |     |     
|                                                               |       | 2001                    |       | 2002    |  | 2003      |     | 2003
|                                                               |       |                         |       |         |  |           |     |     
|                                                               |       |                         |       |         |  |           |     |      |  |           |       |        
|                                                               |       | Rp.                     |       | %       |  | Rp.       |     | %    |  | Rp.       |       | %       |  | US$      
|                                                               |       | (billion)               |       |         |  | (billion) |     |      |  | (billion) |       |         |  | (million)
|General and Administrative Expense                             |       |                         |       |         |  |           |     |      |  |           |       |         |  |           |     |     |  |  |       |         |  |  |     |     |  |  |      |      
|Provision for doubtful accounts and inventory
    obsolescence |       |                         | 342.9 |         |  |           | 2.1 |      |  |           | 31.1  |         |  |           | 0.1 |     |  |  | 326.4 |         |  |  | 1.2 |     |  |  | 38.7 |      
|Professional fees                                              |       |                         | 325.3 |         |  |           | 2.0 |      |  |           | 219.0 |         |  |           | 1.0 |     |  |  | 115.6 |         |  |  | 0.4 |     |  |  | 13.7 |      
|Collection expenses                                            |       |                         | 181.9 |         |  |           | 1.1 |      |  |           | 224.8 |         |  |           | 1.1 |     |  |  | 273.8 |         |  |  | 1.0 |     |  |  | 32.4 |      
|Training, education and recruitment                            |       |                         | 147.3 |         |  |           | 0.9 |      |  |           | 122.1 |         |  |           | 0.6 |     |  |  | 126.9 |         |  |  | 0.5 |     |  |  | 15.0 |      
|Travel                                                         |       |                         | 92.8  |         |  |           | 0.6 |      |  |           | 111.4 |         |  |           | 0.5 |     |  |  | 144.7 |         |  |  | 0.5 |     |  |  | 17.1 |      
|Amortization of intangible assets                              |       |                         | 55.7  |         |  |           | 0.4 |      |  |           | 188.0 |         |  |           | 0.9 |     |  |  | 730.7 |         |  |  | 2.7 |     |  |  | 86.5 |      
|Security and screening                                         |       |                         | 48.8  |         |  |           | 0.3 |      |  |           | 77.1  |         |  |           | 0.4 |     |  |  | 110.3 |         |  |  | 0.4 |     |  |  | 13.1 |      
|Printing and stationery                                        |       |                         | 37.6  |         |  |           | 0.2 |      |  |           | 43.5  |         |  |           | 0.2 |     |  |  | 50.5  |         |  |  | 0.2 |     |  |  | 6.0  |      
|Meetings                                                       |       |                         | 26.5  |         |  |           | 0.2 |      |  |           | 31.7  |         |  |           | 0.2 |     |  |  | 42.8  |         |  |  | 0.2 |     |  |  | 5.1  |      
|Research and development                                       |       |                         | 39.5  |         |  |           | 0.2 |      |  |           | 10.5  |         |  |           | 0.1 |     |  |  | 9.1   |         |  |  | 0.0 |     |  |  | 1.1  |      
|General and social contribution                                |       |                         | 36.8  |         |  |           | 0.2 |      |  |           | 69.4  |         |  |           | 0.3 |     |  |  | 113.8 |         |  |  | 0.4 |     |  |  | 13.5 |      
|Others                                                         |       |                         | 8.4   |         |  |           | 0.3 |      |  |           | 17.7  |         |  |           | 0.1 |     |  |  | 34.2  |         |  |  | 0.1 |     |  |  | 4.1  |      
|                                                               |       |                         |       |         |  |           |     |      |  |           |       |         |  |           |     |     |  |  |       |         |  |  |     |     |  |  |      |      
|                                                               | Total |                         |       | 1,343.5 |  |           |     | 8.3  |  |           |       | 1,146.3 |  |           |     | 5.5 |  |  |       | 2,078.8 |  |  |     | 7.6 |  |  |      | 246.3 | 
|                                                               |       |                         |       |         |  |           |     |      |  |           |       |         |  |           |     |     |  |  |       |         |  |  |     |     |  |  |      |      



| |                  
| | -----------------
| | Marketing Expense

Marketing expense consists of advertising,
customer education, promotions and customer research expenses.

|                   |  |                         |       |      |  |           |     |      |  |           |       |   |  |           |     |  |  |  |       |  |  |  |     |  |  |  |      | 
|------------------ |  | ----------------------- | ----- | ---- |  | --------- | --- | ---- |  | --------- | ----- | - |  | --------- | --- |  |  |  | ----- |  |  |  | --- |  |  |  | ---- | 
|                   |  |                        
|                   |  | Year ended December 31,
|                   |  |                        
|                   |  |                         |       |      |  |           |     |     
|                   |  | 2001                    |       | 2002 |  | 2003      |     | 2003
|                   |  |                         |       |      |  |           |     |     
|                   |  |                         |       |      |  |           |     |      |  |           |       |  
|                   |  | Rp.                     |       | %    |  | Rp.       |     | %    |  | Rp.       |       | % |  | US$      
|                   |  | (billion)               |       |      |  | (billion) |     |      |  | (billion) |       |   |  | (million)
|Marketing Expense  |  |                         |       |      |  |           |     |      |  |           |       |   |  |           |     |  |  |  |       |  |  |  |     |  |  |  |      | 
|Advertising        |  |                         | 169.8 |      |  |           | 1.0 |      |  |           | 310.3 |   |  |           | 1.5 |  |  |  | 381.7 |  |  |  | 1.4 |  |  |  | 45.2 | 
|Customer education |  |                         | 40.6  |      |  |           | 0.2 |      |  |           | 52.3  |   |  |           | 0.2 |  |  |  | 102.2 |  |  |  | 0.4 |  |  |  | 12.1 | 
|Others             |  |                         | 9.6   |      |  |           | 0.1 |      |  |           | 12.5  |   |  |           | 0.1 |  |  |  | 19.0  |  |  |  | 0.1 |  |  |  | 2.3  | 
|                   |  |                         |       |      |  |           |     |      |  |           |       |   |  |           |     |  |  |  |       |  |  |  |     |  |  |  |      | 
|Total              |  |                         | 220.0 |      |  |           | 1.3 |      |  |           | 375.1 |   |  |           | 1.8 |  |  |  | 502.9 |  |  |  | 1.9 |  |  |  | 59.6 | 
|                   |  |                         |       |      |  |           |     |      |  |           |       |   |  |           |     |  |  |  |       |  |  |  |     |  |  |  |      | 

Results of Operations



| |                                                                          
| | -------------------------------------------------------------------------
| | Year ended December 31, 2003 compared
    to year ended December 31, 2002



| |                    
| | -------------------
| | Operating Revenues.

Total operating revenues grew by
Rp.6,313.2 billion, or 30.3%, from Rp.20,802.8 billion
in 2002 to Rp.27,116.0 billion (US$3,212.7 million) in
2003. Operating revenues increased for fixed line, cellular,
interconnection, data and Internet and network.

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The decline in KSO revenue was primarily due to
the elimination of MTR and DTR revenue recognized by TELKOM for
KSO III Unit as a result of TELKOMs acquisition and
subsequent consolidation of AriaWest in July 2003.

Fixed Line Telephone Revenues.

Fixed line revenues grew by
Rp.1,632.8 billion, or an increase of 22.5%, from
Rp.7,264.1 billion in 2002 to Rp.8,896.9 billion
(US$1,054.1 million) in 2003. Local and domestic long
distance revenue for 2003 increased by Rp.1,113.9 billion,
or an increase of 20.4%, from Rp.5,447.9 billion in 2002 to
Rp.6,561.8 billion (US$777.5 million) in 2003. Monthly
subscription charges increased by Rp.474.0 billion, or an
increase of 32.1%, from Rp.1,474.8 billion in 2002 to
Rp.1,948.8 billion (US$230.9 million) in 2003.
Installation charges increased by Rp.92.9 billion, or an
increase of 71.3%, from Rp.130.2 billion in 2002 to
Rp.223.1 billion (US$26.4 million) in 2003.

The increases were primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increases of 18.0% and 13.0% in usage for DLD and
    local call services, respectively, which generate revenue based
    on number of pulses.                                                                                                                                                                                                                                                 
|
| |  | 9.4% growth in the number of fixed lines in
    service in the non-KSO and KSO regions, including kiosk phones,
    from 7,750,035 lines as of December 31, 2002 to 8,479,115
    lines as of December 31, 2003, particularly 23.1% growth in
    the number of fixed lines in service in the non-KSO regions,
    which led to a 71.3% increase in installation fees, to
    Rp.223.1 billion.
|
| |  | the consolidation of KSO III Unit revenues, as a
    result of TELKOMs acquisition of AriaWest on July 31,
    2003, which contributed Rp.482.3 billion
    (US$47.3 million) to the increase in operating revenues.                                                                                                                                                                          

Revenues from phone cards for 2003 increased by
Rp.5.1 billion to Rp.34.4 billion
(US$4.1 million), an increase of 17.4% compared to 2002,
due to increased usage.

Revenue from others decreased by
Rp.53.1 billion to Rp.128.8 billion
(US$15.3 million), a decline of 29.2% compared to 2002,
primarily due to a decline in revenues from coin-operated public
telephones.

Cellular Telephone Revenues.

Cellular telephone revenues grew by
Rp.2,232.0 billion, or an increase of 35.8%, from
Rp.6,226.8 billion in 2002 to Rp.8,458.8 billion
(US$1,002.2 million) in 2003. Air time charges for 2003
increased by Rp.2,224.3 billion to Rp.7,677.9 billion
(US$909.7 million), an increase of 40.8% compared to 2002.
Monthly subscription charges decreased by Rp.12.8 billion
to Rp.580.6 billion (US$68.8 million), a decline of
2.2%. Connection fee charges increased by Rp.21.8 billion
to Rp.194.1 billion (US$23.0 million), an increase
of 12.6%.

The increase was primarily attributable to 60%
growth in Telkomsels total cellular subscribers, from
6,010,772 subscribers as of December 31, 2002 to 9,588,807
subscribers as of December 31, 2003. This increase was
caused by a 38.7% growth in net-additional subscribers from
2,578,740 subscribers as of December 31, 2002 to 3,578,035
subscribers as of December 31, 2003. Postpaid subscribers
grew by 9.1% to 1,007,034 subscribers and prepaid subscribers
grew by 68.7% to 8,581,773 subscribers, in each case as of
December 31, 2003.

As a result of the higher rate of growth in the
number of prepaid subscribers, the proportion of prepaid
subscribers to total subscribers increased from 84.6% as of
December 31, 2002 to 89.5% as of December 31, 2003. As
a result of the change in the subscriber mix, with the increased
number of prepaid subscribers as a percentage of total
subscribers, and despite an increase in postpaid monthly ARPU,
blended monthly ARPU decreased from approximately Rp.145,000 in
2002 to approximately Rp.123,000 (US$14.6) in 2003.
Increased SMS traffic also contributed to the decline in ARPU.

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Interconnection Revenues.

Net interconnection revenues grew by
Rp.1,330.8 billion, or an increase of 47.0%, from
Rp.2,831.3 billion in 2002 to Rp.4,162.1 billion
(US$493.1 million) in 2003. Net interconnection revenues
comprises net interconnection revenues from TELKOMs fixed
line network (after eliminating net interconnection revenues for
interconnections with Telkomsels mobile cellular network)
and net interconnection revenues from Telkomsels mobile
cellular network (after eliminating net interconnection expense
from interconnections with TELKOMs fixed line network).

Net interconnection revenues from TELKOMs
fixed line network increased by Rp.1,328.7 billion to
Rp.4,069.1 billion (US$482.1 million) in 2003, an
increase of 48.5% compared to 2002. This increase primarily
resulted from an increase in cellular phone traffic. Net
interconnection revenue from Telkomsels mobile cellular
network increased slightly by Rp.2.4 billion to
Rp.93.0 billion (US$11.0 million) in 2003, an increase
of 2.7%.

Interconnection revenues involving international
direct dialing IDD calls decreased by 46.6%, from
Rp.344.5 billion in 2002 to Rp.184.1 billion
(US$21.8 million) in 2003, primarily due to a decrease in
incoming IDD traffic. IDD traffic has decreased significantly
primarily due to competition from VoIP providers.

KSO Revenues.

KSO revenues declined by Rp.641.8 billion,
or 30.2%, from Rp.2,128.1 billion in 2002 to
Rp.1,486.3 billion (US$176.1 million) in 2003. MTR
decreased by Rp.419.8 billion, or 31.8%, from
Rp.1,319.7 billion in 2002 to Rp.899.9 billion
(US$106.6 million) in 2003. DTR decreased by
Rp.218.0 billion, or 27.2%, from Rp.801.0 billion in
2002 to Rp.583.0 billion (US$69.1 million) in 2003.
Amortization of unearned initial payments decreased by
Rp.4.0 billion to Rp.3.4 billion (US$0.4 million)
in 2003, a decrease of 53.7%.

The decrease in KSO revenues was attributable to
the acquisition of AriaWest (KSO Unit III) in 2003 and
primarily reflected a portion of KSO revenues from AriaWest that
were consolidated to TELKOM under fixed line revenues rather
than under KSO revenues.

Fixed lines in service in the KSO regions
decreased 28.5%, from 2,039,608 lines as of December 31,
2002 to 1,449,066 lines as of December 31, 2003 due to the
exclusion of AriaWest following its acquisition by TELKOM.

Data and Internet Revenues.

Data and Internet revenues grew by
Rp.1,557.0 billion, or 100.3%, from Rp.1,551.6 billion
in 2002 to Rp.3,108.6 billion (US$368.3 million) in
2003, mainly attributed to the significant growth in SMS traffic
from Telkomsel subscribers, increased usage of TELKOMNet Instant
and the increased usage of TELKOMs VoIP service. SMS
revenues for 2003 increased by Rp.1,207.9 billion to
Rp.2,205.1 billion (US$261.3 million), an increase of
121.1%. Multimedia revenues for 2003 increased by
Rp.156.9 billion to Rp.494.7 billion
(US$58.6 million), an increase of 46.5% compared to 2002.
VoIP revenues for 2003 increased by Rp.176.1 billion to
Rp.328.3 billion (US$38.9 million), an increase of
115.7% compared to 2002. ISDN revenues for 2003 increased by
Rp.16.1 billion to Rp.80.5 billion
(US$9.5 million), an increase of 25.0% compared to 2002.

Network Revenues.

Network revenues increased by
Rp.201.8 billion, or 63.8%, from Rp.316.1 billion in
2002 to Rp.517.9 billion (US$61.4 million) in 2003.
Satellite transponder revenues for 2003 increased by
Rp.80.7 billion to Rp.270.9 billion
(US$32.1 million), an increase of 42.4% compared to 2002,
primarily due to an increase in the number of transponder
leases. Leased line revenues for 2003 increased by
Rp.121.1 billion to Rp.247.0 billion
(US$29.3 million), an increase of 96.2% compared to 2002,
as a result

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of an increase in the number of customers who
took advantage of the absence of any increase in TELKOMs
leased line tariffs.


Revenues under Revenue Sharing Arrangements
(PBHs).

Revenues under Revenue Sharing Arrangements
decreased by Rp.5.3 billion, or 2.0%, from
Rp.263.8 billion in 2002 to Rp.258.5 billion
(US$30.6 million) in 2003, mainly due to the termination of
certain revenue sharing arrangements. Net share for revenue
earned under revenue sharing arrangements for 2003 decreased by
Rp.11.4 billion to Rp.200.1 billion
(US$23.7 million). Amortization of unearned income under
revenue sharing arrangements for 2003 increased by
Rp.6.1 billion to Rp.58.4 billion
(US$6.9 million), an increase of 11.7% compared to 2002.

Other Telecommunications-related Services
Revenues.

Other telecommunications-related service revenues
increased by Rp.5.9 billion, or 2.7%, from
Rp.221.0 billion in 2002 to Rp.226.9 billion
(US$26.9 million) in 2003 mainly due to the consolidation
of Metra in 2003 and an increase in revenue from cable
television services, as well as an increase in revenue from
telephone directory services, offset in part by the continued
decline in telex and telegram usage.

Operating Expenses.

Total operating expenses grew by
Rp.3,467.4 billion, or 29.7%, from Rp.11,672.6 billion
in 2002 to Rp.15,140.0 billion (US$1,793.9 million) in
2003. The increase was mainly attributable to substantial
increases in depreciation and operation, maintenance and
telecommunications services expense, as well in general and
administrative expense.

Personnel Expenses.

Personnel expenses grew by Rp.52.5 billion,
or 1.2%, from Rp.4,387.6 billion in 2002 to
Rp.4,440.1 billion (US$526.1 million) in 2003. The
main contributor to the increase was the acquisition of
AriaWest, as well as the consolidation of subsidiaries, such as
Metra, Napsindo and PII. This led to an increase in recurring
employee expenses, as follows:



| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | salaries and related benefits increased by
    Rp.163.5 billion to Rp.1,574.2 billion
    (US$186.5 million), an increase of 11.6%;                                                                                                             
|
| |  | vacation pay, incentives and other allowances
    increased by Rp.160.6 billion to Rp.816.1 billion
    (US$96.7 million), an increase of 24.5%; and                                                                                            
|
| |  | employee income tax increased by
    Rp.267.3 billion to Rp.468.8 billion
    (US$55.5 million), an increase of 132.7%, primarily due to
    the payment of significant withholding tax on payments under
    TELKOMs early retirement program.

These increases offset significant declines in
early retirement costs, net periodic pension costs and medical
expenses. Early retirement costs decreased by
Rp.361.6 billion to Rp.355.7 billion
(US$42.1 million), a decline of 50.4% compared to 2002, due
to a decline in the number of employees retiring under
TELKOMs early retirement program. Net periodic pension
costs declined by Rp.171.4 billion to Rp.190.9 billion
(US$22.6 million), a decline of 47.3%, reflecting a decline
in the number of employees eligible for TELKOMs pension
plan.

Other components of personnel expenses did not
contribute significantly to operating expenses in 2003.

Depreciation Expense.

Depreciation expense grew by
Rp.1,306.1 billion, or 37.6%, from Rp.3,473.4 billion
in 2002 to Rp.4,779.5 billion (US$566.3 million) in
2003, primarily as a result of TELKOMs and Telkomsels

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depreciation expense increasing significantly,
reflecting continued capital expenditures in TELKOMs
transmission network and backbone, as well as its access
network, and Telkomsels BTSs and transmitting and
receiving exchanges.


Operations, Maintenance and Telecommunications
Services Expense.

Operations, maintenance and telecommunications
services expenses grew by Rp.1,048.5 billion, or 45.8%,
from Rp.2,290.2 billion in 2002 to Rp.3,338.7 billion
(US$395.6 million) in 2003. The increase was mainly
attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in operations and maintenance
    expenses by Rp.702.2 billion to Rp.1,744.8
    (US$206.7 million), an increase of 67.4%, due to an
    increase in Telkomsels operations and maintenance expenses
    arising from the growth in the number of Telkomsels BTSs,
    which grew by 38.4% to 4,820 in 2003, and the increase in the
    number of Telkomsels transmitting and receiving exchanges;           
|
| |  | total radio frequency usage charges increased by
    Rp.79.0 billion to Rp.371.7 billion
    (US$44.0 million) in 2003, an increase of 27.0%, primarily
    due to a 26.1% increase in usage charges by Telkomsel of
    Rp.73.2 billion from Rp.280.4 billion in 2002 to
    Rp.353.6 billion (US$41.9 million) in 2003, in line
    with the 38.4% increase in the number of BTSs from 3,483 in 2002
    to 4,820 in 2003;
|
| |  | total concession fees increased by
    Rp.75.1 billion to Rp.239.0 billion
    (US$28.4 million) in 2003, an increase of 45.8% due to an
    increase in the revenues of TELKOM and Telkomsel; and                                                                                                                                                                                                                          
|
| |  | gas, electricity and water charges increased by
    36.6%, from Rp.219.9 billion in 2002 to
    Rp.300.4 billion (US$35.6 million) in 2003, reflecting
    primarily the consolidation of the gas electricity and water
    charges of AriaWest and other subsidiaries, as well as an
    increase in electricity and gas rates in 2003 compared to 2002.                                                                   

Other components of operations, maintenance and
telecommunications service expense did not contribute
significantly to operating expenses in 2003.

General and Administrative Expense.

General and administrative expense increased by
Rp.932.5 billion, or 81.3%, from Rp.1,146.3 billion in
2002 to Rp.2,078.8 billion (US$246.3 million) in 2003.
In particular, in 2003:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | amortization of intangible assets increased by
    Rp.542.7 billion to Rp.730.7 billion
    (US$86.6 million), or 288.7%, mainly due to additional
    amortization of intangible assets arising from the acquisitions
    of AriaWest;                                                                                                                                                                                                                                           
|
| |  | provision for doubtful accounts and inventory
    obsolescence increased by Rp.295.3 billion to
    Rp.326.4 billion (US$38.7 million) in 2003, primarily
    due to an increase in TELKOM and Telkomsel customer defaults
    and, in addition, the amount for 2003 represented TELKOMs
    provisions for doubtful accounts following the reversal in 2002
    of certain provisions for doubtful accounts as a result of the
    settlement of TELKOMs dispute with AriaWest.
|
| |  | collection costs increased by
    Rp.49.0 billion to Rp.273.8 billion
    (US$32.4 million), an increase of 21.8%, generally in line
    with the growth in TELKOMs fixed line subscriber base and
    Telkomsels mobile cellular subscriber base, but also
    reflecting higher fees charged by third party collection agents
    used in some regional divisions;                                                                                                            
|
| |  | general and social contribution increased by
    Rp.44.4 billion to Rp.113.8 billion
    (US$13.5 million), an increase of 63.9%, reflecting
    TELKOMs various charitable donations and community
    services;                                                                                                                                                                                                                                                                
|
| |  | security and screening increased by
    Rp.33.2 billion to Rp.110.3 billion
    (US$13.1 million), an increase of 43.1%, primarily due to
    the consolidation of the KSO III Unit; and                                                                                                                                                                                                                                                                                          

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| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | professional fees decreased by
    Rp.103.4 billion, or 47.2%, to Rp.115.6 billion
    (US$13.7 million) in 2003, principally due to a decline in
    financial advisory and legal fees in 2003.

Other components of general and administrative
expenses did not contribute significantly to operating expenses
in 2003.

Marketing Expense.

Marketing expense grew by Rp.127.8 billion,
or 34.1%, from Rp.375.1 billion in 2002 to
Rp.502.9 billion (US$59.6 million) in 2003. The
increase was primarily due to TELKOMs marketing campaign
for its new services, primarily for TELKOMFLexi, as well as an
increase in Telkomsels marketing expense, primarily for
sales support and customer loyalty programs.



| |                                          
| | -----------------------------------------
| | Operating Income and Operating
    Margin

As a result of the foregoing, operating income
grew by Rp.2,845.7 billion, or 31.2%, from
Rp.9,130.2 billion in 2002 to Rp.11,975.9 billion
(US$1,419.0 million) in 2003. TELKOMs operating
margin increased from 43.9% in 2002 to 44.2% in 2003 due to the
higher growth of operating revenues (30.4%) compared to the
growth of operating expense (29.7%).



| |                       
| | ----------------------
| | Other Income (Expense)

Other income (net) declined by
Rp.3,142.8 billion from a net income of
Rp.2,618.7 billion in 2002 to a net expense of
Rp.524.1 billion (US$62.1 million) in 2003, primarily
due to absence of the one-time gain of Rp.3,196.4 billion
on sale of 12.72% of Telkomsel to SingTel. TELKOMs
interest income decreased by 23.7% to Rp.366.0 billion
(US$43.4 million). Gain on foreign exchange-net also
declined from Rp.556.6 billion in 2002 to
Rp.126.1 billion (US$14.9 million) in 2003.

These decreases offset a 12.6% decline in
TELKOMs interest expense from Rp.1,582.7 billion in
2002 to Rp.1,383.4 billion (US$163.9 million) in 2003,
as well as an increase in Others-net to Rp.364.3 billion
(US$43.2 million).

Interest Income.

Interest income declined by
Rp.113.8 billion, or 23.7%, from Rp.479.8 billion in
2002 to Rp.366.0 billion (US$43.4 million) in 2003,
primarily due to the decline in floating interest rates for both
Rupiah- and U.S. Dollar-denominated deposits in 2003, as
well as a 64.2% decline in TELKOMs short-term investments
in 2003.

Interest Expense.

Interest expenses declined by
Rp.199.3 billion, or 12.6%, from Rp.1,582.7 billion in
2002 to Rp.1,383.4 billion (US$163.9 million) in 2003,
reflecting primarily the decline in floating interest rates for
TELKOMs Rupiah-and U.S. Dollar-denominated debt in
2003.

Gain (Loss) on Foreign Exchange-net.

Gain (loss) on foreign exchange-net decreased by
Rp.430.5 billion from a net gain of Rp.556.6 billion
in 2002 to a net gain of Rp.126.1 billion
(US$14.9 million) in 2003, primarily due to the decline in
the aggregate amount of TELKOMs assets that were
denominated in foreign currencies, as well as to the greater
stability of the Rupiah against such foreign currencies in 2003.

Equity in Net Income (Loss) of Associated
Companies.

TELKOMs equity in net income (loss) of
associated companies decreased by Rp.1.8 billion from a net
gain of Rp.4.6 billion in 2002 to a net gain of
Rp.2.8 billion (US$0.3 million) in 2003, primarily due

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to the decrease in equity in the net income of
CSM and the decline in TELKOMs ownership interest in
Telesera and Metrosel.


Others (Net).

Others (net) increased by Rp.400.3 billion,
from other expense (net) of Rp.36.0 billion in 2002 to
other income (net) of Rp.364.3 billion
(US$43.2 million) in 2003. In 2003, Others (net) included
the following significant income and expense items:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Rp.248.6 billion (US$29.5 million) in
    income from fines from late-paying subscribers;                                            
|
| |  | gain on sale of fixed assets (net), primarily
    property, plant and equipment, amounting to
    Rp.182.9 billion (US$21.7 million).

Other components of Others (Net) did not
contribute significantly to Other Income (Charges) in 2003.



| |                                     
| | ------------------------------------
| | Income Before Tax and Pre-Tax Margin

As a result of the foregoing, income before tax
declined by Rp.297.1 billion, or 2.5%, from
Rp.11,748.9 billion in 2002 to Rp.11,451.8 billion
(US$1,356.9 million) in 2003. Pre-tax margin decreased from
56.5% in 2002 to 42.2% in 2003.



| |                   
| | ------------------
| | Income Tax Expense

Income tax expense grew by Rp.962.1 billion,
or 33.2%, from Rp.2,899.0 billion in 2002 to
Rp.3,861.1 billion (US$457.5 million) in 2003. The
effective tax rate increased from 24.7% of income before tax in
2002 to 33.7% of income before tax in 2003. The increase in the
effective tax rate was mainly attributable to the absence in
2003 of the one-time adjustment to TELKOMs taxable income
arising from the sale by TELKOM to SingTel in 2002 of a 12.72%
interest in Telkomsel. Without the adjustment, TELKOMs
effective tax rate for 2002 would have been 32.9%.



| |                                                    
| | ---------------------------------------------------
| | Minority Interest in Net Income of
    Subsidiaries

Minority interest in the net income of
subsidiaries increased by Rp.693.3 billion, or 85.6%, from
Rp.810.2 billion in 2002 to Rp.1,503.5 billion
(US$178.1 million) in 2003. The increase was primarily due
to the significant increase in the net income of Telkomsel for
2003.



| |           
| | ----------
| | Net Income

As a result of the foregoing, net income declined
by Rp.1,952.5 billion, or 24.3%, from
Rp.8,039.7 billion in 2002 to Rp.6,087.2 billion
(US$721.2 million) in 2003. TELKOMs margin decreased
from 38.7% in 2002 to 22.5% in 2003. The lower net income
resulted in a decrease in basic earnings per share from Rp.797.6
in 2002 to Rp.603.9 in 2003.



| |       
| | ------
| | Equity

Total shareholders equity increased by
Rp.2,699.3 billion, or 18.5%, from Rp.14,613.6 billion
in 2002 to Rp.17,312.9 billion (US$2,051.3 million) in
2003. The increase in total shareholders equity was
attributable primarily to the increase in retained earnings due
to net income for the year 2003 of Rp.6,087.2 billion
(US$721.2 million). In May 2003, TELKOM declared a cash
dividend of Rp.3,338.1 billion (US$395.5 million).

Retained Earnings.

Appropriated and unappropriated retained earnings
grew by Rp. 2,749.1 billion, or 18.2%, from
Rp.15,128.9 billion in 2002 to Rp.17,878.0 billion
(US$2,118.2 million) in 2003.

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| |                                                                          
| | -------------------------------------------------------------------------
| | Year ended December 31, 2002 compared
    to year ended December 31, 2001



| |                    
| | -------------------
| | Operating Revenues.

Total operating revenues grew by
Rp.4,519.0 billion, or 27.8%, from Rp.16,283.8 billion
in 2001 to Rp.20,802.8 billion in 2002. Operating revenues
increased for fixed line, cellular, interconnection and data and
Internet. The decline in KSO revenue was primarily due to the
elimination of MTR and DTR revenue recognized by TELKOM for the
KSO I Unit as a result of TELKOMs acquisition and
consequent consolidation of Pramindo in 2002.

Fixed Line Telephone Revenues.

Fixed line revenues grew by
Rp.848.9 billion, or an increase of 13.2%, from
Rp.6,415.1 billion in 2001 to Rp.7,264.1 billion in
2002. Local and domestic long distance revenue for 2002
increased by Rp.222.2 billion, or an increase of 4.3%, from
Rp.5,225.7 billion in 2001 to Rp.5,447.9 billion in
2002. Monthly subscription charges increased by
Rp.477.2 billion, or an increase of 47.8%, from
Rp.997.7 billion in 2001 to Rp.1,474.8 billion in
2002. Installation charges increased by Rp.32.2 billion, or
an increase of 32.9%, from Rp.98.0 billion in 2001 to
Rp.130.2 billion in 2002.

The increases were primarily attributable to:



| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 7.4% growth in the number of fixed lines in
    service in the non-KSO and KSO regions, including kiosk phones,
    from 7,218,938 lines at December 31, 2001 to 7,750,035
    lines at December 31, 2002, particularly 33.7% growth in
    the non-KSO regions; and
|
| |  | the consolidation of KSO I Unit revenues, as
    a result of TELKOMs acquisition of Pramindo on
    August 15, 2002, which contributed Rp.364.4 billion to
    the increase in operating revenues.                                                                 

Revenues from phone cards for 2002 increased by
Rp.3.8 billion to Rp.29.3 billion, an increase of
15.0% compared to 2001. The increase in phone card revenues was
primarily due to a one-time expense incurred by TELKOM in 2001
for the termination of a revenue sharing arrangement with a
vendor that previously issued phone cards on behalf of TELKOM,
as well as the consolidation of the revenues of Regional
Division I in 2002. Revenue from others increased by
Rp.113.5 billion to Rp.181.9 billion, an increase of
166.1% compared to 2001. Revenue from others increased
significantly due to an increase in revenue from premium-paid
calls.

Cellular Telephone Revenues.

Cellular telephone revenues grew by
Rp.1,518.8 billion, or an increase of 32.3%, from
Rp.4,708.0 billion in 2001 to Rp.6,226.8 billion in
2002. Air time charges for 2002 increased by
Rp.1,465.8 billion to Rp.5,453.6 billion, an increase
of 36.8% compared to 2001. Monthly subscription charges
increased by Rp.11.8 billion to Rp.593.3 billion, an
increase of 2.0%. Connection fee charges increased by
Rp.43.8 billion to Rp.172.3 billion, an increase of
34.0%.

The increases were primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 84.8% growth in Telkomsels total cellular
    subscribers, from 3,252,032 subscribers in 2001 to 6,010,772
    subscribers in 2002, which was caused by 76.3% growth in
    net-additional subscribers from 1,564,693 subscribers in 2001 to
    2,758,740 subscribers in 2002. In addition, 6.7% growth in
    postpaid subscribers to 923,005 subscribers and 113.2% growth in
    prepaid subscribers to 5,087,767 at December 31, 2002; and
|
| |  | 3.8% growth in postpaid monthly ARPU to
    Rp.298,000, offset by a 7.2% decline in prepaid monthly ARPU to
    Rp.103,000 in 2002 due in part to Telkomsels attraction of
    additional low-usage customers and the upgrading of the
    high-usage prepaid customers to postpaid.                                                                                                                                                           

As a result of the higher rate of growth in the
number of prepaid subscribers, the proportion of prepaid
subscribers increased from 73.4% in 2001 to 84.6% in 2002. As a
result of the change in the

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subscriber mix and despite an increase in
postpaid monthly ARPU, blended monthly ARPU decreased from
approximately Rp.171,000 in 2001 to approximately Rp.145,000 in
2002.


Interconnection Revenues.

Net interconnection revenues grew by
Rp.1,407.6 billion, or an increase of 98.9%, from
Rp.1,423.7 billion in 2001 to Rp.2,831.3 billion in
2002. Net interconnection revenues comprises net interconnection
revenues from TELKOMs fixed line network (after
eliminating net interconnection revenues for interconnections
with Telkomsels mobile cellular network) and net
interconnection revenues from Telkomsels mobile cellular
network (after eliminating net interconnection expense from
interconnections with TELKOMs fixed line network).

Net interconnection revenues from TELKOMs
fixed line network increased by Rp.1,528.4 billion to
Rp.2,740.7 billion, an increase of 126.1% compared to 2001.
This increase primarily resulted from an increase in cellular
phone traffic and the consolidation of Pramindo. Net
interconnection revenue from Telkomsels mobile cellular
network decreased by Rp.120.8 billion to
Rp.90.6 billion, a decrease of 57.1%, due to the additional
elimination of revenues related to consolidation of KSO I.

In 2002 as compared to 2001, interconnection
revenues involving international direct dialing IDD calls
increased by 195.0%, from Rp.116.8 billion to
Rp.344.5 billion primarily due to an increase in incoming
IDD traffic.

KSO Revenues.

KSO revenues declined by Rp.91.5 billion, or
4.1%, from Rp.2,219.5 billion in 2001 to
Rp.2,128.1 billion in 2002. MTR decreased by
Rp.154.5 billion, or 10.5%, from Rp.1,474.2 billion in
2001 to Rp.1,319.7 billion in 2002. DTR increased by
Rp.68.0 billion, or 9.3%, from Rp.732.9 billion in
2001 to Rp.801.0 billion in 2002. Amortization of unearned
initial payments decreased by Rp.5.0 billion to
Rp.7.4 billion, a decrease of 40.3%.

The decrease in KSO revenues was attributable to
the acquisition of Pramindo (KSO Unit I) in 2002 as
well as the acquisition of Dayamitra (KSO Unit VI) in
May 2001 and primarily reflected consolidated KSO revenues from
these KSO units that were consolidated to TELKOM under fixed
line revenues rather than under KSO revenues.

Fixed lines in service in the KSO regions
increased 7.0%, from 3,269,033 lines at December 31, 2001
to 3,497,819 lines at December 31, 2002, if KSO I Unit
and KSO VI Unit are included, or 5.1%, from 1,941,227 lines
to 2,039,608 lines, if KSO I Unit and KSO VI are
excluded.

Data and Internet Revenues.

Data and Internet revenues grew by
Rp.878.4 billion, or 130.5%, from Rp.673.2 billion in
2001 to Rp.1,551.6 billion in 2002, mainly attributed from
the significant growth in SMS and VoIP services. SMS revenues
for 2002 increased by Rp.652.6 billion to
Rp.997.2 billion, an increase of 189.4%. Multimedia
revenues for 2002 increased by Rp.119.5 billion to
Rp.337.8 billion, an increase of 54.7% compared to 2001
that was driven by additional subscribers. VoIP revenues for
2002 increased by Rp.126.6 billion to
Rp.152.2 billion, an increase of 494.8% compared to 2001 as
TELKOM only introduced its VoIP services at the end of 2001.

Network Revenues.

Network revenues declined by
Rp.98.8 billion, or 23.8%, from Rp.415.0 billion in
2001 to Rp.316.1 billion in 2002. Satellite transponder
revenues for 2002 declined by Rp.13.3 billion to
Rp.190.2 billion, a decline of 6.6% compared to 2001,
primarily due to a reduction in the number of subscribers
resulting from an over-supply of satellite transponders, as well
as the impact of Rupiah appreciation against the
U.S. Dollar in the U.S. Dollar-denominated tariff.
Leased line revenues for 2002 declined by Rp.85.5 billion
to Rp.125.9 billion, a decline of 40.5% compared to 2001,
as a result of further

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elimination due to the consolidation of Pramindo
and, to a lesser degree, from a decrease in demand from some
major customers who chose to develop their own network in
certain high traffic areas.


Revenues under Revenue Sharing Arrangements
(PBH).

Revenues under Revenue Sharing Arrangements
decreased by Rp.0.5 billion, or 0.2%, from
Rp.264.3 billion in 2001 to Rp.263.8 billion in 2002,
mainly due to the termination of certain revenue sharing
arrangements. Net share for revenue earned under revenue sharing
arrangement for 2002 increased by Rp.20.0 billion to
Rp.211.5 billion, an increase of 10.5% compared to 2001 due
to an increase in the number of lines in service and the
applicable tariffs during 2002. Amortization of unearned income
under revenue sharing arrangements for 2002 decreased by
Rp.20.5 billion to Rp.52.3 billion, a decline of 28.2%
compared to 2001, due to the termination of certain revenue
sharing arrangements.

Other Telecommunications-related Services
Revenues.

Other telecommunications-related service revenues
increased by Rp.56.0 billion, or 33.9%, from
Rp.165.0 billion in 2001 to Rp.221.0 billion in 2002
mainly due to an increase in revenue from call centers, as well
as an increase in revenue from telephone directory services. In
addition, there was also a decrease in telex and telegram usage
due to the increase usage of facsimile.

Operating
Expenses.

Total operating expenses grew by
Rp.2,808.2 billion, or 31.7%, from Rp.8,864.4 billion
in 2001 to Rp.11,672.6 billion in 2002. The increase was
mainly attributable to a substantial increase in personnel
expense, as well as increases in marketing, depreciation and
operation, maintenance and telecommunications services expense,
slightly offset by a decline in general and administrative
expense.

Personnel Expenses.

Personnel expenses grew by
Rp.2,106.3 billion, or 92.3%, from Rp.2,281.2 billion
in 2001 to Rp.4,387.6 billion in 2002. The main contributor
to the increase are:

(i) The increase of non-recurring employee
expenses:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | severance for early retirement plan increased by
    Rp.577.3 billion to Rp.717.3 billion, an increase of
    412.4% compared to 2001, primarily reflecting early retirement
    that was accrued in 2002; and
|
| |  | net periodic pension cost increased by
    Rp.276.1 billion to Rp.362.3 billion, an increase of
    320.1%, reflecting the increase of pension benefit.                                                       

(ii) The increase of recurring employee
expenses:



| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | vacation pay (mainly long-leave allowances),
    incentives and other allowances increased by
    Rp.290.8 billion to Rp.655.5 billion, an increase of
    79.7%, reflecting primarily new bonus scheme introduced in 2002
    which amounted to Rp.171.0 billion and the consolidation of
    KSO I Unit and Pramindo vacation pay, incentives and other
    allowances;
|
| |  | long service awards increased by
    Rp.195.4 billion to Rp.289.9 billion, an increase of
    206.7%, due to the introduction of long leave allowance payable
    by TELKOM to eligible employees; and                                                                                                                                                                   
|
| |  | net periodic post-retirement benefit cost
    increased by Rp.242.0 billion to Rp.616.5 billion, an
    increase of 64.6%, primarily due to an increased number of
    pensioners from the early-retirement program.                                                                                                                                                     

Meanwhile, employee income tax increased by
Rp.68.6 billion to Rp.201.5 billion, an increase of
51.7%, reflecting primarily increase in salary and the benefits
paid under the early-retirement program.

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Other components of personnel expenses did not
contribute significantly to operating expenses in 2002.

Depreciation Expense.

Depreciation expenses grew by
Rp.603.6 billion, or 21.0%, from Rp.2,869.8 billion in
2001 to Rp.3,473.4 billion in 2002, primarily as a result
of the consolidation of Pramindos depreciation expense
amounting to Rp.93.2 billion, as well as the increase of
Telkomsels depreciation expense amounting to
Rp.467.9 billion reflecting continued capital expenditures.

Operations, Maintenance and Telecommunications
Services Expense.

Operation, maintenance and telecommunications
services expenses grew by Rp.140.3 billion, or 6.5%, from
Rp.2,149.9 billion in 2001 to Rp.2,290.2 billion in
2002. The increase was mainly attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the consolidation of relevant Pramindo expenses
    in the various components of operation, maintenance and
    telecommunications services expenses in 2002, which amounted to
    Rp.57.4 billion;                                                                                                                                          
|
| |  | total radio frequency usage charges increased by
    Rp.191.4 billion, mainly contributed from the increase in
    usage charges from Telkomsel by Rp.191.8 billion from
    Rp.88.6 billion in 2001 to Rp.280.4 billion in 2002,
    or 216.5%, in line with the 74.6% increase in the number of BTS
    from 1,995 in 2001 to 3,483 in 2002;
|
| |  | total concession fees increased by
    Rp.100.3 billion or 157.8% compared to 2001 due to an
    increase in the applicable tariff payable by Telkomsel to the
    Government and an increase in the number of Telkomsels
    BTSs;                                                                                                          
|
| |  | gas, electricity and water charges increased by
    40.0% reflecting primarily higher electricity and gas charges as
    a result of higher rates charged by the Government for these
    services in 2002;                                                                                                                                   
|
| |  | total insurance expense increased by
    Rp.75.1 billion, or 110.9% reflecting higher insurance
    coverage due to the consolidation of Pramindo and an increase in
    the number of insurable fixed assets; and                                                                                                                            
|
| |  | cost of phone cards increased by
    Rp.24.3 billion to Rp.197.7 billion, an increase of
    14.0%, reflecting higher procurement of phone cards to supply
    increased sales of SIM cards and refill vouchers for
    Telkomsels prepaid mobile cellular services.                                                                         

Distributors and telephone kiosk
commissions decreased by Rp.520.9 billion due to the change
in the Companys policy for sales through distributors and
telephone kiosks. Previously, the Company compensated through
the payment of commissions which were proportional to the
revenues earned through the kiosk phones. In 2002, the Company
changed its policy and implemented the MoC Decree No. KM
46/2002 that provides a maximum of 70% of the phone kiosk basic
tariff for domestic calls and up to 92% for international calls.

Other components of operation, maintenance and
telecommunications service expense did not contribute
significantly to operating expenses in 2002.

General and Administrative Expense.

General and administrative expense declined by
Rp.197.2 billion, or 14.7%, from Rp.1,343.5 billion in
2001 to Rp.1,146.3 billion in 2002. In particular, the
following events took place in 2002:



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | allowance for doubtful accounts and inventory
    obsolescence decreased by Rp.311.8 billion to
    Rp.31.1 billion, a decrease of 90.9%, as TELKOM reversed a
    provision applicable to doubtful accounts in the name of KSO III
    following the execution of a closing agreement with AriaWest on
    July 31, 2003;

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| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | amortization of intangible assets from investment
    in Pramindo, Dayamitra and GSD amounted to Rp.188.0 billion
    in 2002;                                                                                                                                                                                                                                   
|
| |  | professional fees declined by
    Rp.106.3 billion, or 32.7%, from Rp.325.3 billion in
    2001 to Rp.219.0 billion in 2002, principally due to higher
    professional consultant fees in 2001 in relation to the
    cross-ownership transaction involving the sale of our interest
    in Satelindo and the acquisition of additional equity in
    Telkomsel;
|
| |  | collection costs increased by
    Rp.42.9 billion to Rp.224.8 billion, an increase of
    23.6%, generally in line with the growth in TELKOMs fixed
    line subscriber base and Telkomsels mobile cellular
    subscriber base, but also reflecting higher fees charged by
    third party collection agents used in some regional divisions;                 
|
| |  | general and social contribution increased by
    Rp.32.7 billion to Rp.69.4 billion, an increase of
    88.8%, reflecting TELKOMs implementation of the good
    corporate citizenship program in 2002; and                                                                                                                                                     
|
| |  | security and screening increased by
    Rp.28.3 billion to Rp.77.1 billion, an increase of
    58.0%, reflecting the consolidation of KSO I Unit in 2002.                                                                                                                                                                                                        

Other components of general and administrative
expenses did not contribute significantly to operating expenses
in 2002.

Marketing Expense.

Marketing expense grew by Rp.155.1 billion,
or 70.5%, from Rp.220.0 billion in 2001 to
Rp.375.1 billion in 2002. The main contributors to the
increase were the TELKOM Group marketing campaign which also
included Telkomsel and Infomedia, the consolidation of Pramindo
marketing expense that amounted to Rp.6.1 billion and the
increase of marketing expense in several subsidiaries such as
Telkomsel, which increased by Rp.59.1 billion, or 70.0% and
in Infomedia from zero in 2001 to Rp.87.4 billion in 2002.



| |                                          
| | -----------------------------------------
| | Operating Income and Operating
    Margin

As a result of the foregoing, operating income
grew by Rp.1,710.8 billion, or 23.1%, from
Rp.7,419.4 billion in 2001 to Rp.9,130.2 billion in
2002. TELKOMs operating margin decreased from 45.6% in
2001 to 43.9% in 2002 due to the higher growth of operating
expense (31.7%) compared to the growth of operating revenue
(27.8%).



| |                       
| | ----------------------
| | Other Income (Expense)

Other income (net) grew by
Rp.3,488.2 billion from a net charge of
Rp.869.5 billion in 2001 to a net income of
Rp.2,618.7 billion in 2002. The main components of other
income and charges are gain on sale of long-term investment in
Telkomsel and interest expense. TELKOMs interest expense
increased in 2002 from Rp.1,329.6 billion to
Rp.1,582.7 billion, an increase of Rp.253.1 billion,
or 19.0%, but this increase was offset by a gain on sales of
long-term investment in Telkomsel of Rp.3,196.4 billion in
2002 compared to nil in 2001 and a gain on foreign exchange-net
of Rp.556.6 billion in 2002 compared to a loss on foreign
exchange-net of Rp.378.7 billion in 2001 primarily due to
the impact of Rupiah appreciation to TELKOMs net liability
position in foreign currency. There is no assurance that future
interest expense will be similarly offset by these gains.

Gain on Sale of Long Term Investment in Telkomsel.

Gain on sale of long term investment represents
the gain by TELKOM on the sale of a 12.72% shareholding in
Telkomsel, which amounted to Rp.3,196.4 billion, for which
there was no comparable amount in 2001.

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Interest Income.

Interest income declined by Rp.91.8 billion,
or 16.1%, from Rp.571.6 billion in 2001 to
Rp.479.8 billion in 2002, reflecting primarily lower
average interest rates offered in 2002 compared to 2001.

Interest Expense.

Interest expenses grew by Rp.253.1 billion,
or 19.0%, from Rp.1,329.6 billion in 2001 to
Rp.1,582.7 billion in 2002, reflecting primarily:
(i) additional interest payable on promissory notes issued
to the selling stockholders of Pramindo; (ii) additional
interest expense from issuance of IDR bonds, guaranteed notes
and other credit facilities obtained, in each case by TELKOM and
Telkomsel in 2002; and (iii) interest expense related to
the outstanding purchase price owed to Indosat in connection
with the cross-ownership transaction.

Gain (Loss) on Foreign Exchange-net.

Gain (loss) on foreign exchange-net increased by
Rp.935.3 billion from a net loss of Rp.378.7 billion
in 2001 to a net gain of Rp.556.6 billion in 2002,
reflecting primarily Rupiah appreciation during 2002 compared to
2001.

Equity in Net Income (Loss) of Associated
Companies.

TELKOMs equity in net income (loss) of
associated companies increased by Rp.90.3 billion from a
net loss of Rp.85.7 billion in 2001 to a net gain of
Rp.4.6 billion in 2002. In 2001, TELKOM recognized a loss
reflecting the reduction in the value of TELKOMs
investment in Komselindo.

Other components of equity in net income (loss)
of associated companies did not contribute significantly to
Other Income and Charges in 2002.

Others (Net).

Others (net) decreased by Rp.388.9 billion,
or 110.2%, from other income (net) of Rp.352.9 billion in
2001 to other expense (net) of Rp.36.0 billion in 2002. In
2002, Others (net) included the following significant income and
expense items:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | Rp.171.2 billion in income from fines from
    subscribers;          
|
| |  | gain on sale of fixed assets net amounting to
    Rp.130.4 billion;  
|
| |  | Rp.101.5 billion impairment loss from
    investment in Telesera; and
|
| |  | Rp.179 billion provision for settlement of
    AriaWest.             

Other components of Others (Net) did not
contribute significantly to Other Income (Charges) in 2002.



| |                                     
| | ------------------------------------
| | Income Before Tax and Pre-Tax Margin

As a result of the foregoing, income before tax
grew by Rp.5,199.0 billion, or 79.4%, from
Rp.6,549.9 billion in 2001 to Rp.11,748.9 billion in
2002. Pre-tax margin increased from 40.2% in 2001 to 56.5% in
2002.



| |                   
| | ------------------
| | Income Tax Expense

Income tax expense grew by Rp.892.1 billion,
or 44.5%, from Rp.2,006.9 billion in 2001 to
Rp.2,899.0 billion in 2002. The effective tax rate declined
from 30.6% of income before tax in 2001 to 24.7% of income
before tax in 2002. The decrease in effective tax rate was
mainly attributable to a low

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pre-tax gain on the sale of a 12.72% sharing in
Telkomsel compared to a substantially higher accounting gain.




| |                                                    
| | ---------------------------------------------------
| | Minority Interest in Net Income of
    Subsidiaries

Minority interest in the net income of
subsidiaries increased by Rp.335.6 billion, or 70.7%, from
Rp.474.6 billion in 2001 to Rp.810.2 billion in 2002.
The increase was primarily due to the decrease in ownership of
Telkomsel as a result of the sale by TELKOM of a 12.72%
shareholding in Telkomsel, increasing the minority interest in
Telkomsel.

Net Income.

As a result of the foregoing, net income grew by
Rp.3,971.3 billion, or 97.6%, from Rp.4,068.4 billion
in 2001 to Rp.8,039.7 billion in 2002 principally due to
the gain of Rp.3,196.4 billion through the sale of a 12.72%
shareholding in Telkomsel. TELKOMs margin increased from
25.0% in 2001 to 38.7% in 2002. The higher net income resulted
in an increase in basic earnings per share from Rp.403.6 in 2001
to Rp.797.6 in 2002.

Equity.

Total shareholders equity increased by
Rp.5,532.6 billion, or 60.9%, from Rp.9,081.0 billion
in 2001 to Rp.14,613.6 billion in 2002. The increase in
total shareholders equity was attributable primarily to
net income for the year 2002 of Rp.8,039.7 billion and a
decrease in the difference in value of restructuring
transactions between entities under common control of
Rp.296.0 billion related to the agreement by TELKOM to
acquire 100% of Pramindo. In June 2002, TELKOM declared a cash
dividend of Rp.2,125.1 billion.

Retained Earnings.

Appropriated and unappropriated retained earnings
grew by Rp.5,944.6 billion, or 64.5%, from
Rp.9,214.2 billion in 2001 to Rp.15,128.9 billion in
2002.

Reconciliation to U.S. GAAP

TELKOM prepares its financial statements in
accordance with Indonesian GAAP and prepares a reconciliation of
net income and equity in accordance with U.S. GAAP pursuant
to the requirements of the U.S. Securities and Exchange
Commission. The following table sets out net income for the
years ended and consolidated stockholders equity as of,
December 31, 2001, 2002 and 2003 in accordance with
Indonesian GAAP and U.S. GAAP:

|                              |  |                         |         |               |  |               |         |               |  |  |         |  |  |  |       | 
|----------------------------- |  | ----------------------- | ------- | ------------- |  | ------------- | ------- | ------------- |  |  | ------- |  |  |  | ----- | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2001                    |         | 2002          |  | 2003          |         | 2003         
|                              |  |                         |         |               |  |               |         |              
|                              |  | Rp. (billion)           |         | Rp. (billion) |  | Rp. (billion) |         | US$ (million)
|Net income in accordance with |  |                         |         |               |  |               |         |               |  |  |         |  |  |  |       | 
|Indonesian GAAP               |  |                         | 4,068.4 |               |  |               | 8,039.7 |               |  |  | 6,087.2 |  |  |  | 721.2 | 
|U.S. GAAP                     |  |                         | 4,298.2 |               |  |               | 8,587.3 |               |  |  | 5,790.6 |  |  |  | 686.1 | 

|                          |  |                         |         |               |  |               |          |               |  |  |          |  |  |  |         | 
|------------------------- |  | ----------------------- | ------- | ------------- |  | ------------- | -------- | ------------- |  |  | -------- |  |  |  | ------- | 
|                          |  |                        
|                          |  | Year Ended December 31,
|                          |  |                        
|                          |  | 2001                    |         | 2002          |  | 2003          |          | 2003         
|                          |  |                         |         |               |  |               |          |              
|                          |  | Rp. (billion)           |         | Rp. (billion) |  | Rp. (billion) |          | US$ (million)
|Equity in accordance with |  |                         |         |               |  |               |          |               |  |  |          |  |  |  |         | 
|Indonesian GAAP           |  |                         | 9,081.0 |               |  |               | 14,613.6 |               |  |  | 17,312.9 |  |  |  | 2,051.3 | 
|U.S. GAAP                 |  |                         | 7,765.5 |               |  |               | 13,910.9 |               |  |  | 16,284.7 |  |  |  | 1,929.5 | 

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Summary of Significant Differences Between
Indonesian GAAP and U.S. GAAP

The Companys consolidated financial
statements have been prepared in accordance with Indonesian GAAP
which differs in certain significant respects from
U.S. GAAP. The significant differences are summarized below
and are described in Note 58(1) to the Companys
consolidated financial statements.



| |                     
| | --------------------
| | Termination Benefits

Under Indonesian GAAP, termination benefits are
recognized as liabilities when certain criteria are met (e.g.
the enterprise is demonstratively committed to provide
termination benefits as a result of an offer made in order to
encourage early retirement).

Under U.S. GAAP, termination benefits are
recognized as liabilities when the employees accept the offer
and the amount can be reasonably estimated.

As a result, on a U.S. GAAP basis, the
Companys consolidated income before tax would have been
Rp.140.0 billion higher in 2001, Rp.531.0 billion
higher in 2002 and Rp.671.0 billion lower in 2003.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Foreign Exchange Differences Capitalized to
    Property under Construction

Under Indonesian GAAP, the foreign exchange
differences resulting from borrowings used to finance property
under construction are capitalized. Capitalization of foreign
exchange differences cease when the construction of the
qualifying assets is substantially completed and the constructed
property is ready for its intended use.

Under U.S. GAAP, foreign exchange
differences are charged to current operations.

Consequently, on a U.S. GAAP basis, the
Companys consolidated income before tax would have been
Rp.75.0 billion higher in 2001, Rp.107.4 billion
higher in 2002 and Rp.76.8 billion higher in 2003.



| |                                                        
| | -------------------------------------------------------
| | Interest Capitalized on Property under
    Construction

Under Indonesian GAAP, interest cost can be
capitalized for qualifying assets. Qualifying assets are those
that take a substantial period of time to construct for their
intended use or sale (i.e., minimum of 12 months).
To the extent that funds are borrowed specifically for the
purpose of obtaining a qualifying asset, the amount of interest
cost eligible for capitalization on that asset must be
determined based on the actual interest cost incurred on that
borrowing during the period of construction less any investment
income on the temporary investment of those borrowings.

Under U.S. GAAP, there is no limit on the
length of construction period in which the interest cost can be
capitalized to an asset. The interest income arising from any
unused borrowings is recognized directly to current operations.

As a result, on a U.S. GAAP basis, the
Companys consolidated income before tax would have been
Rp.19.7 billion higher in 2001, Rp.43.0 billion higher
in 2002 and Rp.39.1 billion higher in 2003.



| |                             
| | ----------------------------
| | Revenue-Sharing Arrangements

Under Indonesian GAAP, property, plant and
equipment built by an investor under revenue-sharing
arrangements are recognized as property, plant and equipment
under revenue-sharing arrangements in the books of the party to
whom ownership in such properties will be transferred at the end
of the revenue-sharing period, with a corresponding initial
credit to unearned income. The property, plant and equipment are
depreciated over their useful lives, while the unearned income
is amortized over the revenue-sharing period. The Company
records its share of the revenues earned net of amounts due to
the investors.

Under U.S. GAAP, the assets under
revenue-sharing arrangements are recorded and, correspondingly,
an obligation under revenue-sharing arrangements is recorded. A
portion of the investors share

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in revenue is recorded as interest expense based
on the implicit rate of return and the balance is treated as a
reduction of the obligation. Revenues are recorded on a gross
basis.


In connection with the different treatment of
revenue sharing arrangements under U.S. GAAP and Indonesian
GAAP, the Companys consolidated income before tax under
U.S. GAAP would have been Rp.44.0 billion higher in
2001, Rp.68.0 billion higher in 2002 and
Rp.23.2 billion higher in 2003, respectively.



| |                                                 
| | ------------------------------------------------
| | Revaluation of Property, Plant and
    Equipment

While Indonesian GAAP does not generally allow
companies to recognize increases in the value of property, plant
and equipment that occur subsequent to acquisition, an exception
is provided for revaluations made in accordance with Government
regulations. The Company revalued its property, plant and
equipment that were used in operations as of January 1,
1979 and January 1, 1987.

Under U.S. GAAP, asset revaluations are not
permitted. The effects of the previous revaluations have been
fully depreciated in 2002, such that there is no difference in
equity as of December 31, 2002.

In connection with the different treatment of
revaluation of property, plant and equipment under
U.S. GAAP and Indonesian GAAP, the Companys
consolidated income before tax under U.S. GAAP would have
been Rp.4.1 billion higher in 2001, Rp.3.9 billion
higher in 2002 and no change in 2003.



| |        
| | -------
| | Pension

In 1994 and 1998, the Company provided increases
in pension benefits for pensioners. Under Indonesian GAAP, the
prior service costs attributable to the increases in pension
benefits for pensioners were directly charged to expense in
those years. Under U.S. GAAP, because the majority of plan
participants are still active, such prior service costs are
deferred and amortized systematically over the estimated
remaining service period for active employees.

Under Indonesian GAAP, the Company amortizes the
cumulative unrecognized actuarial gain or loss over four years.
Under U.S. GAAP, any cumulative unrecognized actuarial gain
or loss exceeding 10% of the greater of the projected benefit
obligation or the fair value of plan assets is recognized in the
income statement on a straight-line basis over the expected
average remaining service period.

Under U.S. GAAP, the Company would be
required to recognize an additional minimum liability when the
accumulated benefit obligation exceeds the fair value of the
plan assets, and an equal amount would be recognized as an
intangible asset, provided that the asset recognized does not
exceed the amount of unrecognized prior service cost.

The Companys consolidated income before tax
would have been Rp.19.6 billion lower in 2001,
Rp.111.4 billion higher in 2002 and Rp.109.3 billion
lower in 2003 under U.S. GAAP reporting.



| |                                                        
| | -------------------------------------------------------
| | Equity in Net Income (Loss) of Associated
    Companies

The Company records its equity in net income or
loss of associated companies based on the associates
financial statements that have been prepared under Indonesian
GAAP.

For U.S. GAAP reporting purposes, the
Company recognized the effect of the differences of
U.S. GAAP and Indonesian GAAP in the investment accounts
and its share of the net income or loss of those associates.

As a result, on a U.S. GAAP basis, the
Companys consolidated income before tax would have been
Rp.3.8 billion lower in 2001, Rp.0.2 billion lower in
2002 and Rp.0.2 billion lower in 2003.



| |            
| | -----------
| | Land rights

In Indonesia, the title of land rests with the
State under the Basic Agrarian Law No. 5 of 1960. Land use
is accomplished through land rights whereby the holder of the
right enjoys the full use of the land

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for a stated period of time, subject to
extensions. The land rights generally are freely tradable and
may be pledged as security under borrowing agreements. Under
Indonesian GAAP, land ownership is not depreciated unless it can
be foreseen that the possibility for the holder to obtain an
extension or renewal of the rights is remote.


Under U.S. GAAP, the cost of acquired land
rights is amortized over the period the holder is expected to
retain the land rights.

The Companys consolidated income before tax
would have been Rp.6.4 billion lower in 2001,
Rp.11.8 billion lower in 2002 and Rp.10.2 billion
lower in 2003 under U.S. GAAP reporting.



| |                          
| | -------------------------
| | Equipment to be Installed

Under Indonesian GAAP, temporarily idle equipment
or equipment that is awaiting installation is not depreciated.

Under U.S. GAAP, temporarily idle equipment
should continue to be depreciated. In 2002, prior year equipment
to be installed was fully installed and their carrying values
have been reclassified to property, plant and equipment.

Consequently the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.9.7 billion higher in 2002, with no change in both 2001
and 2003.



| |                    
| | -------------------
| | Revenue Recognition

Under Indonesian GAAP, revenue from cellular and
fixed wireless services connection fees are recognized as income
when the connection takes place (for postpaid service) or at the
time of delivery of starter packs to distributors, dealers or
customers (for prepaid service). Installation fees for wire line
services are recognized at the time of installation. The revenue
from calling cards (Kartu Telepon) is also
recognized when the Company sells the card.

Under U.S. GAAP, revenue from front-end fees
are deferred and recognized over the expected term of the
customer relationship. Direct incremental cost was not
significant. Revenues from calling cards are recognized upon
usage or expiration.

Consequently, the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.81.4 billion higher in 2001, Rp.89.3 billion lower
in 2002 and Rp.53.2 billion lower in 2003.



| |         
| | --------
| | Goodwill

Under Indonesian GAAP, goodwill is amortized over
a period, not exceeding 20 years, that it is expected to
benefit the Company.

Under U.S. GAAP, effective January 1,
2002, goodwill is no longer amortized but rather subjected to a
test for impairment.

Consequently, the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.21.3 billion higher in 2002 and Rp.21.3 billion
higher in 2003, with no change in 2001.



| |               
| | --------------
| | Capital Leases

Under Indonesian GAAP, a leased asset is
capitalized only if all of the following criteria are met:
(a) the lessee has an option to purchase the leased asset
at the end of the lease period at a price agreed upon at the
inception of the lease agreement, and (b) the sum of
periodic lease payments, plus the residual value, will cover the
acquisition price of the leased asset and related interest, and
(c) there is a minimum lease period of 2 years.

Under U.S. GAAP, a leased asset is
capitalized if one of the following criteria is met:
(a) there is an automatic transfer of ownership at the end
of the lease term; or (b) the lease contains a bargain

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purchase option; or (c) the lease term is
for 75% or more of the economic life of the asset; or
(d) the lease payments are at least 90% of the fair value
of the asset. Certain leased assets that are accounted for as
operating leases under Indonesian GAAP are accounted for as
capital leases under U.S. GAAP.


Consequently the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.14.2 billion higher in 2002 and Rp.6.9 billion
higher in 2003.



| |                         
| | ------------------------
| | Acquisition of Dayamitra

The Company acquired a 90.32% interest in
Dayamitra and contemporaneously acquired a call option to buy
the other 9.68% at a fixed price at a stated future date and
provided to the minority interest holder a put option to sell
the other 9.68% to the Company under those same terms; meaning
that the fixed price of the call is equal to the fixed price of
the put option.

Under U.S. GAAP, the Company should account
for the option contracts on a combined basis with the minority
interest and account for it as a financing of the purchase of
the remaining 9.68% minority interest. As such, under
U.S. GAAP, the Company has consolidated 100% of Dayamitra
and attributed the stated yield earned under the combined
derivative and minority interest position to interest expense.

Under Indonesian GAAP, the Company accounts for
the remaining 9.68% of Dayamitra as a minority interest. In
addition, the option price that has been paid by the Company is
presented as Advance payments for investments in shares of
stock.

Consequently the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.4.2 billion lower in 2001, Rp.9.3 billion lower in
2002 and Rp.24.5 billion lower in 2003.



| |                                                                           
| | --------------------------------------------------------------------------
| | Reversal of Difference Due to Change of
    Equity in Associated Companies

Under Indonesian GAAP, differences previously
charged directly to equity as a result of equity transactions in
associated companies are released to the statement of income
upon the sale of an interest in the associate in proportion with
the percentage of the interest sold.

Under U.S. GAAP, it is the Companys
policy to include differences resulting from equity transactions
in associated companies in equity. Such amounts cannot be
released to the statement of income and consequently remain in
equity indefinitely.

Consequently, TELKOMs consolidated income
before tax under U.S. GAAP would have been
Rp.65.2 billion lower in 2002 and Rp.38.4 billion
lower in 2003.



| |                             
| | ----------------------------
| | Asset Retirement Obligations

Under Indonesian GAAP, legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the
normal operation of long-lived assets are charged to current
operations as incurred.

Under U.S. GAAP, the obligations are
capitalized to the related long-lived assets and depreciated
over the useful life of the assets.

Consequently, the Companys consolidated
income before tax under U.S. GAAP would have been
Rp.0.9 billion lower in 2003.



| |                      
| | ---------------------
| | Deferred Income Taxes

Under Indonesian GAAP, the Company does not
recognize deferred taxes on differences between the financial
statement carrying amounts and tax bases of equity method
investments when it is not probable that these differences will
be reversed in the foreseeable future.

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Under U.S. GAAP, deferred taxes are
recognized in full on differences between the financial
statement carrying amounts and tax bases of equity method
investments.

Consequently, the Companys consolidated
income before tax would have been Rp.119.5 billion higher
in 2003.



| |                     
| | --------------------
| | Impairment of Assets

Under Indonesian GAAP, an impairment loss is
recognized whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. The
recoverable amount of fixed assets is the greater of its net
selling price or value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. An impairment loss can be reversed if there has been
a change in the estimates used to determine the recoverable
amount. An impairment loss is only reversed to the extent that
the assets carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation, if
no impairment loss had been recognized.

Under U.S. GAAP, an impairment loss is
recognized whenever the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the
carrying amount of the asset. An impaired asset is written down
to its estimated fair value based on quoted market prices in
active markets or discounting estimated future cash flows.
Reversal of previously recognized impairment losses is
prohibited.

There were no impairment charges recognized by
the Company and therefore, there are no differences between
Indonesian GAAP and U.S. GAAP for impairment of assets.



| |                                                         
| | --------------------------------------------------------
| | Gain (Loss) on Sale of Property, Plant and
    Equipment

Under Indonesian GAAP, the Company classifies
gain (loss) on sale of property, plant and equipment as a
component of other income (expenses) that is excluded from the
determination of operating income.

Under U.S. GAAP, gain (loss) on sale of
property, plant and equipment is classified as a component of
operating expenses and is therefore included in the
determination of operating income.

Consequently, the Companys operating income
would have been Rp.10.9 billion higher in 2001,
Rp.130.5 billion higher in 2002 and Rp.182.9 billion
higher in 2003 and other income (expenses) would have been lower
by the same amounts in each of 2001, 2002 and 2003, respectively.

The amounts included in the reconciliation below
show the income tax effects of the differences between
Indonesian GAAP and U.S. GAAP as described above.

A summary of the significant adjustments to
consolidated net income for the years ended December 31,
2001, 2002 and 2003 and to consolidated stockholders
equity as of December 31, 2002 and 2003 which would be
required if U.S. GAAP had been applied, instead of
Indonesian GAAP, in the consolidated financial statements are
set forth below:

|                                                                                                                                                             |  |             |           |             |  |             |           |  |  |  |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | --------- | ----------- |  | ----------- | --------- |  |  |  | --------- | -
|                                                                                                                                                             |  | 2001        |           | 2002        |  | 2003       
|                                                                                                                                                             |  |             |           |             |  |            
|                                                                                                                                                             |  | Rp. million |           | Rp. million |  | Rp. million
|Net income according to the consolidated
    statements of income prepared under Indonesian GAAP                                                             |  |             | 4,068,391 |             |  |             | 8,039,709 |  |  |  | 6,087,227 |  
|                                                                                                                                                             |  |             |           |             |  |             |           |  |  |  |           |  
|U.S. GAAP adjustments  increase
    (decrease) due to:                                                                                                      |  |             |           |             |  |             |           |  |  |  |           |  
|Termination benefits                                                                                                                                         |  |             | 140,000   |             |  |             | 530,981   |  |  |  | (670,981  | )
|Capitalization of foreign exchange differences,
    net of related depreciation of (76,732) million, (79,797)
    million and (76,756) million, respectively |  |             | 74,987    |             |  |             | 107,365   |  |  |  | 76,756    |  

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|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------- | --------- | ----------- | - | ----------- | --------- | -------- | - |  | --------- | ------- | 
|                                                                                                                                                     |                                                         | 2001        |           | 2002        |   | 2003       
|                                                                                                                                                     |                                                         |             |           |             |   |            
|                                                                                                                                                     |                                                         | Rp. million |           | Rp. million |   | Rp. million
|Interest capitalized on property under
    construction, net of related depreciation of (nil), (3,061)
    million and (8,787) million, respectively |                                                         |             | 19,690    |             |   |             | 43,045    |          |   |  | 39,077    |        
|Revenue-sharing arrangements                                                                                                                         |                                                         |             | 43,999    |             |   |             | 67,959    |          |   |  | 23,159    |        
|Revaluation of property, plant and equipment                                                                                                         |                                                         |             | 4,095     |             |   |             | 3,929     |          |   |  |          |        
|Pension                                                                                                                                              |                                                         |             | (19,640   | )           |   |             | 111,415   |          |   |  | (109,334  | )      
|Equity in net income/(loss) of associated
    companies                                                                                              |                                                         |             | (3,786    | )           |   |             | (182      | )        |   |  | (170      | )      
|Amortization of landrights                                                                                                                           |                                                         |             | (6,409    | )           |   |             | (11,781   | )        |   |  | (10,212   | )      
|Depreciation of equipment to be installed                                                                                                            |                                                         |             |          |             |   |             | 9,706     |          |   |  |          |        
|Revenue recognition                                                                                                                                  |                                                         |             | 81,429    |             |   |             | (89,274   | )        |   |  | (53,226   | )      
|Goodwill                                                                                                                                             |                                                         |             |          |             |   |             | 21,269    |          |   |  | 21,270    |        
|Capital leases                                                                                                                                       |                                                         |             |          |             |   |             | 14,241    |          |   |  | 6,882     |        
|Adjustment for Dayamitra accounted at 100%                                                                                                           |                                                         |             | (4,191    | )           |   |             | (9,270    | )        |   |  | (24,476   | )      
|Reversal of difference due to change of equity in
    associated companies                                                                           |                                                         |             |          |             |   |             | (65,158   | )        |   |  | (38,425   | )      
|Asset retirement obligations                                                                                                                         |                                                         |             |          |             |   |             |          |          |   |  | (848      | )      
|Deferred income tax:                                                                                                                                 |                                                         |             |           |             |   |             |           |          |   |  |           |        
|                                                                                                                                                     | Deferred income tax on equity method investments        |             |           |            |   |             |           |         |   |  |           | 119,456 | 
|                                                                                                                                                     | Deferred income tax effect on U.S. GAAP
    adjustments |             |           | (100,942    | ) |             |           | (220,724 | ) |  |           | 323,089 | 
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        
|                                                                                                                                                     |                                                         |             | 229,232   |             |   |             | 513,521   |          |   |  | (297,983  | )      
|Minority interest                                                                                                                                    |                                                         |             | 577       |             |   |             | 34,029    |          |   |  | 1,396     |        
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        
|Net adjustments                                                                                                                                      |                                                         |             | 229,809   |             |   |             | 547,550   |          |   |  | (296,587  | )      
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        
|Net income in accordance with U.S. GAAP                                                                                                              |                                                         |             | 4,298,200 |             |   |             | 8,587,259 |          |   |  | 5,790,640 |        
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        
|Net income per share  in full Rupiah
    amount                                                                                                     |                                                         |             | 426.41    |             |   |             | 851.91    |          |   |  | 574.47    |        
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        
|Net income per ADS (20 Series B shares per
    ADS)  in full Rupiah amount                                                                          |                                                         |             | 8,528.17  |             |   |             | 17,038.21 |          |   |  | 11,489.40 |        
|                                                                                                                                                     |                                                         |             |           |             |   |             |           |          |   |  |           |        

The changes in consolidated stockholders
equity in accordance with U.S. GAAP for the years ended
December 31, 2002 and 2003 are shown below:

|                                                                                       |                          |             |            |             |   |  |            |          |  
|-------------------------------------------------------------------------------------- | ------------------------ | ----------- | ---------- | ----------- | - |  | ---------- | -------- | -
|                                                                                       |                          | 2002        |            | 2003       
|                                                                                       |                          |             |            |            
|                                                                                       |                          | Rp. million |            | Rp. million
|Equity according to the consolidated balance
    sheets prepared under Indonesian GAAP |                          |             | 14,613,617 |             |   |  | 17,312,877 |         
|                                                                                       |                          |             |            |             |   |  |            |         
|U.S. GAAP adjustments  increase
    (decrease) due to:                                |                          |             |            |             |   |  |            |         
|Early retirement benefits                                                              |                          |             | 670,981    |             |   |  |           |         
|Capitalization of foreign exchange
    differences  net of related depreciation       |                          |             | (627,229   | )           |   |  | (550,473   | )       
|Interest capitalized on property under
    construction  net of related depreciation  |                          |             | 62,735     |             |   |  | 101,812    |         
|Revenue-sharing arrangements                                                           |                          |             | (470,855   | )           |   |  | (447,696   | )       
|Revaluation of property, plant and equipment:                                          |                          |             |            |             |   |  |            |         
|                                                                                       | Increment                |             |            | (664,974    | ) |  |            | (664,974 | )
|                                                                                       | Accumulated depreciation |             |            | 664,974     |   |  |            | 664,974  |  
|Pension                                                                                |                          |             | 231,490    |             |   |  | 122,156    |         
|Equity in net loss of associated companies                                             |                          |             | (18,082    | )           |   |  | (18,252    | )       

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|                                           |                                                         |             |            |             |  |  |            |         | 
|------------------------------------------ | ------------------------------------------------------- | ----------- | ---------- | ----------- |  |  | ---------- | ------- | 
|                                           |                                                         | 2002        |            | 2003       
|                                           |                                                         |             |            |            
|                                           |                                                         | Rp. million |            | Rp. million
|Amortization of land rights                |                                                         |             | (54,999    | )           |  |  | (65,211    | )      
|Revenue recognition                        |                                                         |             | (715,322   | )           |  |  | (768,548   | )      
|Goodwill                                   |                                                         |             | 21,269     |             |  |  | 42,539     |        
|Capital leases                             |                                                         |             | 14,241     |             |  |  | 21,123     |        
|Adjustment for Dayamitra accounted at 100% |                                                         |             | (14,242    | )           |  |  | (38,718    | )      
|Asset retirement obligations               |                                                         |             |           |             |  |  | (848       | )      
|Deferred income tax:                       |                                                         |             |            |             |  |  |            |        
|                                           | Deferred income tax on equity method investments        |             |            |            |  |  |            | 52,186  | 
|                                           | Deferred income tax effect on U.S. GAAP
    adjustments |             |            | 132,736     |  |  |            | 455,825 | 
|                                           |                                                         |             |            |             |  |  |            |        
|                                           |                                                         |             | (767,277   | )           |  |  | (1,094,105 | )      
|Minority interest                          |                                                         |             | 64,524     |             |  |  | 65,920     |        
|                                           |                                                         |             |            |             |  |  |            |        
|Net adjustments                            |                                                         |             | (702,753   | )           |  |  | (1,028,185 | )      
|                                           |                                                         |             |            |             |  |  |            |        
|Equity in accordance with U.S. GAAP        |                                                         |             | 13,910,864 |             |  |  | 16,284,692 |        
|                                           |                                                         |             |            |             |  |  |            |        

B. Liquidity and Capital
Resources

TELKOM expects to have substantial liquidity and
capital resources requirements in 2004 and 2005 as it continues
to develop and expand its existing businesses, including
entering into new businesses. TELKOM expects that these
expenditures will be important factors in preparing to face
tight competition as the Indonesian telecommunications market
has been deregulated and maintaining its current position as the
leading Indonesian telecommunications and full-service network
provider.

In 2004 and 2005, TELKOM expects its principal
liquidity and capital resources requirements, aside from its
requirements for working capital and to make payments of
dividends and taxes, will at least consist of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital expenditures for existing and new network
    and backbone infrastructure, including the expansion of
    TELKOMs CDMA network, a satellite, fiber optic
    transmission network from Kalimantan and Sulawesi, fiber optic
    transmission networks in Jakarta, Surabaya and Bandung-Cirebon,
    a submarine optical cable to connect Dumai (Indonesia) to Melaka
    (Malaysia), installation and upgrading of fixed lines and
    increased capacity in its mobile cellular service conducted
    through Telkomsel (see  Capital Expenditures);
|
| |  | debt service requirements relating to existing
    indebtedness, including two-step loans and indebtedness of
    subsidiaries;                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | installment payments of the purchase price for
    shares of AriaWest in 2003;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | payments under the Short-Term Loan Agreement with
    ABN AMRO Bank N.V. Jakarta which financed the payment of the
    outstanding installments of the purchase price for shares in
    Pramindo;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | payment of post-retirement benefits and
    long-service awards in 2004; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | fixed monthly payments to MGTI pursuant to the
    amended and restated agreement for KSO IV, commencing March 2004
    and terminating in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                 

While still uncertain, liquidity and capital
resources may be required in 2004 and 2005 to finance the
acquisition of all or some of the equity interests held by
shareholders of KSO Investors other than those that TELKOM has
previously purchased or is in the process of purchasing (see
Business Overview  Joint Operation Schemes
(KSO)). Further, liquidity and capital resources may also
be required in the event TELKOM is mandated to change its
current DLD access code resulting from the

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end of TELKOMs exclusive right to provide
DLD services, with possible expenditures for the creation of a
new routing database and costs for customer education and
marketing. As of the date of this Annual Report, it is still
uncertain whether or when the Government will require TELKOM to
implement this change in its DLD access code.


Primary sources of financing available to TELKOM
consist of: (i) cash flow from operating activities;
(ii) financing from the bond issuance; (iii) financing
from banks or export credit agencies (including financing
procured by vendors); and (iv) deferred vendor payment
terms.

TELKOM believes that these sources of financing
will be sufficient to fund planned capital expenditures,
anticipated working capital needs and likely contractual
obligations and commitments in 2004 and 2005. Nonetheless, if
global or Indonesian economic conditions worsen or do not
improve, competition or product substitution accelerates beyond
current expectations or the value of the Rupiah depreciates
significantly against the U.S. Dollar, TELKOMs net
cash flow from operating activities may decrease and negatively
impact its liquidity.

TELKOM manages the liquidity for all of its
businesses, including KSOs controlled by TELKOM, on a total
group basis. TELKOM is also responsible for managing the
liquidity and capital resources of the KSO units, other than the
KSO VII. See Business Overview  Joint
Operation Scheme (KSO). However, Telkomsel manages its own
liquidity and accesses capital resources independently of TELKOM.

With regard to Telkomsel, in 2004 and 2005 its
management expects to continue focusing on enhancing and
expanding Telkomsels network capacity and infrastructure.
It is expected that these expenditures will allow Telkomsel to
maintain its position as the leading provider of mobile cellular
services in Indonesia in an increasingly competitive market for
such services. In recent years, Telkomsels primary source
of financing has been cash flow from operating activities and
Telkomsels management believes that Telkomsel will
continue to generate sufficient cash flow from operating
activities to fund planned capital expenditures in 2004 and 2005.



| |                                                               
| | --------------------------------------------------------------
| | Defaults and Waivers of Defaults under our
    Debt Facilities

As a result of our failure to file a fully
compliant Annual Report on Form 20-F for 2002 with the SEC
by the June 30, 2003 filing deadline and our May 2003 press
release relating thereto, we may have been in breach of certain
covenants in our Citibank and Bank Central Asia (BCA) debt
facilities that require us, among other things, to comply with
all laws and regulations applicable to us and deliver financial
statements to the lenders. We have obtained written waivers from
both Citibank, acting as agent for the lenders under the
relevant facility agreements, and BCA with respect to such
breaches.

As discussed in Item 3.D.  Risk
Factors, our failure to file a fully compliant Annual
Report on Form 20-F for 2002 with the SEC by the
June 30, 2003 filing deadline, could give rise to an SEC
enforcement action or other legal liability and other adverse
consequences such as a related de-listing of TELKOMs ADSs
from the New York Stock Exchange. Any of the foregoing could
give rise to defaults under one or more of our debt facilities
and cross defaults under other debt facilities with respect to
such defaults. If we were unable to obtain waivers of any such
defaults, indebtedness outstanding under such debt facilities
could become immediately due and payable, which could have a
material adverse effect on our financial condition and results
of operations.

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Net Cash Flows

The following table sets forth information
concerning TELKOMs consolidated cash flows, as set out in
(and prepared on the same basis as) the consolidated financial
statements, except for foreign exchange convenience translations
(see  Basis of Presentation  Foreign
Exchange Translations):

|                                               |                           |                         |         |           |   |           |         |           |   |  |         |          |   |  |       |         |  
|---------------------------------------------- | ------------------------- | ----------------------- | ------- | --------- | - | --------- | ------- | --------- | - |  | ------- | -------- | - |  | ----- | ------- | -
|                                               |                           |                        
|                                               |                           | Year Ended December 31,
|                                               |                           |                        
|                                               |                           | 2001                    |         | 2002      |   | 2003      |         | 2003     
|                                               |                           |                         |         |           |   |           |         |          
|                                               |                           | Rp.                     |         | Rp.       |   | Rp.       |         | US$      
|                                               |                           | (billion)               |         | (billion) |   | (billion) |         | (million)
|Net cash flows:                                |                           |                         |         |           |   |           |         |           |   |  |         |          |   |  |       |        
|                                               | from operating activities |                         |         | 7,012.6   |   |           |         | 10,864.5  |   |  |         | 12,852.5 |   |  |       | 1,522.8 |  
|                                               | from investing activities |                         |         | (6,115.8  | ) |           |         | (6,050.0  | ) |  |         | (7,305.9 | ) |  |       | (865.6  | )
|                                               | from financing activities |                         |         | (1,662.8  | ) |           |         | (2,670.2  | ) |  |         | (6,177.4 | ) |  |       | (731.9  | )
|                                               |                           |                         |         |           |   |           |         |           |   |  |         |          |   |  |       |        
|Change in cash and cash equivalents            |                           |                         | (766.0  | )         |   |           | 2,144.3 |           |   |  | (630.8  | )        |   |  | (74.7 | )      
|Effect of foreign exchange changes             |                           |                         | 76.6    |           |   |           | (89.5   | )         |   |  | 26.2    |          |   |  | 3.1   |        
|Cash and cash equivalents, beginning of period |                           |                         | 4,333.7 |           |   |           | 3,644.3 |           |   |  | 5,699.1 |          |   |  | 675.2 |        
|Cash and cash equivalents, end of Period       |                           |                         | 3,644.3 |           |   |           | 5,699.1 |           |   |  | 5,094.5 |          |   |  | 603.6 |        



| |                                             
| | --------------------------------------------
| | Net Cash Flows from Operating
    Activities

TELKOMs primary source of liquidity in
recent years was cash flows from operating activities and from
financing activities. Net cash flows from operating activities
totaled Rp.7,012.6 billion in 2001,
Rp.10,864.5 billion in 2002 and Rp.12,852.5 billion
(US$1,522.8 million) in 2003. The growth in operating cash
flows principally resulted from higher cash receipts from
operating revenues as a result of the expansion of TELKOMs
fixed wireline business, growth in its mobile cellular business
conducted through Telkomsel, higher interconnection revenues
from mobile cellular operators and greater data and Internet
revenues due to increased SMS usage, as well as the acquisitions
of Dayamitra in 2001, Pramindo in 2002 and AriaWest in 2003.
These higher cash receipts were partially offset by rising cash
payments for operating expenses.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year ended December 31, 2003 compared to
    year ended December 31, 2002.

In 2003 compared to 2002, net cash flows from
operating activities increased by Rp.1,988.0 billion, or
18.3%, primarily due to:



| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of Rp.2,798.5 billion, or 19.5%,
    in cash receipts from telephone services, primarily from the
    increase in the number of subscribers for cellular and fixed
    wireless services, as well as from the acquisition of AriaWest;     
|
| |  | an increase of Rp.2,506.7 billion, or
    147.7%, in cash receipts from interconnection, primarily due to
    an increase in interconnection fees collected from mobile
    cellular operators;                                                        
|
| |  | an increase of Rp.2,800.0 billion, or
    247.3%, in cash receipts from other services, primarily due to
    an increase in cash receipts from data and Internet services,
    particularly from greater SMS usage among Telkomsel subscribers;
    and
|
| |  | an increase of Rp.3,061.3 billion, or 52.8%,
    in cash payments for operating expenses, which had the effect of
    increasing cash outflows from operating activities.                                                                              



| |                                                                           
| | --------------------------------------------------------------------------
| | Year ended December 31, 2002 compared to
    year ended December 31, 2001.

In 2002 compared to 2001, net cash flows from
operating activities increased by Rp.3,929.1 billion, or
56.0%, primarily due to:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of Rp.2,781.8 billion, or 24.1%,
    in cash receipts from telephone services primarily cellular
    services resulting from an increased number of subscribers as
    well as an increase in cash

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| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | receipts from fixed line due to the consolidation
    of Pramindo in 2002, which enhanced cash inflows from operating
    activities;                                                                                                                        
|
| |  | an increase of Rp.569.5 billion or 50.5% in
    cash receipts from interconnection primarily resulting from the
    acquisition of Pramindo;                                                                                                                 
|
| |  | a decrease of Rp.139.2 billion or 8.1%, in
    cash receipts from Joint Operation Schemes, primarily due to a
    reclassification of cash receipts from KSO I from Joint
    Operation Schemes to Fixed Lines following the acquisition of
    Pramindo; and
|
| |  | an increase of Rp.478.6 billion, or 9.0%, in
    cash payments for operating expenses, which had the effect of
    increasing cash outflows from operating activities.                                                                                       

On balance, the foregoing movements in cash flows
were partially attributable to the consolidation of
Dayamitras cash flows into TELKOMs consolidated
financial statements in 2001 and Pramindos in 2002. Cash
inflows in 2002 were also partly offset by a reduction in
interest received of Rp.110.7 billion, or 18.7%.



| |                                             
| | --------------------------------------------
| | Net Cash Flows from Investing
    Activities

Net cash flows used in investing activities
totaled Rp.6,115.8 billion, Rp.6,050.0 billion and
Rp.7,305.9 billion (US$865.6 million) in 2001, 2002
and 2003, respectively. In 2001, sizeable net cash flows were
used for capital expenditures and acquisition of subsidiaries
for cross-ownership transaction with Indosat, which were partly
financed by reduced investments in marketable securities and
time deposits. In 2002, the increase reflected cash flow for
capital expenditure and amounts due on the cross-ownership
transactions closed in 2001 netted against sizeable cash
receipts from the sale of a 12.72% shareholding in Telkomsel. In
2003, the net cash flows were primarily used for capital
expenditures.

Apart from cash on hand and cash in banks, TELKOM
invests substantially all of its excess cash from time to time
in time deposits. At December 31, 2003, only
Rp.4.0 billion of time deposits had a maturity greater than
three months and these were denominated in Rupiah.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year ended December 31, 2003 compared to
    year ended December 31, 2002.

In the year ended December 31, 2003 compared
to the year ended December 31, 2002, net cash flows used in
investment activities increased by Rp.1,255.9 billion, or
20.8%, primarily due to:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of Rp.2,381.9, or 36.0%, in cash used
    for capital expenditures;                                                            
|
| |  | an increase of Rp.397.3 billion, or 26.5%,
    in the cash proceeds from investments and the maturity of time
    deposits; and            
|
| |  | a decrease of Rp.1,542.7 billion, or 69.4%,
    in cash used for the purchase of marketable securities and
    placements in time deposits.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year ended December 31, 2002 compared to
    year ended December 31, 2001.

In the year ended December 31, 2002 compared
to the year ended December 31, 2001, net cash flows used in
investment activities slightly decreased by
Rp.65.8 billion, or 1.1%, primarily due to:



| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of Rp.3,033.8 billion of cash
    out for capital expenditure;                                                                                                                                                     
|
| |  | a cash receipt of Rp.3,948.9 billion from
    the sale of a 12.72% shareholding in Telkomsel;                                                                                                                                  
|
| |  | an increase in net cash out of
    Rp.4,246.4 billion from a net cash in of
    Rp.3,522.1 billion in 2001 to a net cash out of
    Rp.724.3 billion in 2002 for the investment in time
    deposits and medium term notes; and
|
| |  | a decrease in cash out for cross-ownership
    transactions of Rp.3,561.1 billion as the liability for
    cross-ownership transactions have been fully paid in 2002.                                                          

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In 2002, payment of advance for investment in
shares of stock of Rp.230.2 billion reflects the payment
for option of Tomens share in Dayamitra
(Rp.33.7 billion) and payment to AriaWests
shareholders related to the CSPA (Rp.196.5 billion) for the
acquisition of AriaWest.



| |                                             
| | --------------------------------------------
| | Net Cash Flows from Financing
    Activities

Net cash flows used in financing activities
totaled Rp.1,662.8 billion, Rp.2,670.2 billion and
Rp.6,177.4 billion (US$731.9 million) in 2001, 2002
and 2003, respectively. In all three years, net cash flows from
financing activities were driven primarily by repayment of
current indebtedness and by cash dividends. In 2003, cash flow
used in financing activities increased by
Rp.3,507.2 billion, or 131.4%, primarily resulting from a
96.2% increase in the payment for promissory notes to
Rp.1,513.1 billion and a 60.6% increase in payment of cash
dividends to Rp.3,738.6 billion. These increases offset a
Rp.956.8 billion decrease in payment for long-term
indebtedness to Rp.1,536.9 billion.



| |                                   
| | ----------------------------------
| | Repayment of Current Indebtedness.

At December 31, 2001, 2002 and 2003,
approximately 63.2%, 68.5% and 89.2%, respectively, of
TELKOMs current indebtedness for borrowed money
(consisting of current maturities of long-term liabilities and
short-term bank loans) were denominated in foreign currencies,
principally the US Dollar, such that the Rupiah amount of
TELKOMs cash flows used for the repayment of long-term
liabilities was significantly affected by the appreciation of
the Rupiah in 2002 compared to 2001 and in 2003 compared to 2002.

In 2001, 2002 and 2003, TELKOM made net
repayments of current indebtedness for borrowed money of
Rp.1,233.0 billion, Rp.3,342.0 billion and
Rp.3,210.5 billion (US$380.4 million), respectively.
Cash outflows in 2003 reflected payments for: (a) two-step
loans of Rp.813.9 billion; (b) liability for the
acquisition of AriaWest, Pramindo and Dayamitra of
Rp.1,513.1 billion; (c) Rp.843.3 billion for
payment of bank loans; (d) Rp. 160.5 billion for
payments of guaranteed notes and bonds; and
(e) Rp.152.6 billion for payment of Dayamitras
suppliers credit loans.



| |                                                   
| | --------------------------------------------------
| | Payment of Cash Dividends and General
    Reserve.

TELKOM paid cash dividends and set up general
reserve, as determined by the companys annual shareholder
meeting, as follows:

|              |  |          |      |               |  |           |           |               |  |  |        |  |  |  |       | 
|------------- |  | -------- | ---- | ------------- |  | --------- | --------- | ------------- |  |  | ------ |  |  |  | ----- | 
|              |  | Dividend |      | Total Cash    |  | Dividend  |           | General      
|Date of AGM   |  | Year     |      | Dividend      |  | per Share |           | Reserve      
|              |  |          |      |               |  |           |           |              
|              |  |          |      | (Rp. Billion) |  | (Rp.)     |           | (Rp. Billion)
|May 10, 2001  |  |          | 2000 |               |  |           | 888.654   |               |  |  | 88.16  |  |  |  | 127.0 | 
|June 21, 2002 |  |          | 2001 |               |  |           | 2,125.055 |               |  |  | 210.81 |  |  |  | 425.0 | 
|May 9, 2003   |  |          | 2002 |               |  |           | 3,338.109 |               |  |  | 331.16 |  |  |  | 813.7 | 

In 2001, 2002 and 2003, the amount of cash
dividends paid was effectively determined by the Government,
which holds a majority of TELKOMs issued and outstanding
common shares. TELKOM believes that the Government considers
various factors, including the views of TELKOMs board of
directors and the Governments own funding needs, in
determining the portion of each years net income to be
paid out as cash dividends.



| |                
| | ---------------
| | Escrow Account.

In 2003, TELKOM recorded a net increase in escrow
account of Rp.224.2 billion (US$26.6 billion), which
represented the funding of a contractually-required escrow
accounts established on May 17, 2001 and August 14,
2002 for the repayment of indebtedness related to the
acquisition of Dayamitra and Pramindo, respectively.

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Working Capital

Net working capital, calculated as the difference
between current assets and current liabilities, was positive
Rp.838.9 billion at December 31, 2002 and negative
Rp.1,969.8 billion (US$233.4 million) at
December 31, 2003. The decrease in net working capital was
principally due to the use of proceeds received from a prior
issuance of bonds and the sale of a 12.72% interest in
Telkomsel, for payment of cash dividends to TELKOM shareholders,
capital expenditures and payments arising from TELKOMs
early retirement program. In addition, TELKOM also had higher
current liabilities related to capital expenditures and current
maturities of long-term liabilities.



| |               
| | --------------
| | Current Assets

Current assets were Rp.10,547.0 billion at
December 31, 2002 and Rp.9,230.8 billion
(US$1,093.7 million) at December 31, 2003, reflecting
a decrease of Rp.1,316.2 billion, or 12.5%. The decrease in
current assets was primarily due to:



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease in cash and cash equivalents of
    Rp.604.6 billion, or 10.6%, from Rp.5,699.1 billion at
    December 31, 2002 to Rp.5,094.5 billion
    (US$603.6 million) at December 31, 2003;                                                 
|
| |  | a decrease in trade receivables from related
    parties of Rp.475.9 billion, or 53.7%, from
    Rp.886.8 billion at December 31, 2002 to
    Rp.410.9 billion (US$48.7 million) at
    December 31, 2003;                                     
|
| |  | a decrease in temporary investments of
    Rp.569.0 billion, or 99.3%, from Rp.573.0 billion at
    December 31, 2002 to Rp.4.0 billion
    (US$0.5 million) at December 31, 2003; and                                                         
|
| |  | a decrease in other current assets, which
    primarily consisted of restricted time deposits, of Rp.
    646.7 billion, or 93.5% from Rp.691.8 billion at
    December 31, 2002 to Rp. 45.1 billion
    (US$5.3 million) at December 31, 2003.

The decrease in cash and cash equivalents,
temporary investments and other current assets primarily
reflected use of the proceeds from the sale by TELKOM of a
12.72% shareholding in Telkomsel and the issuance by TELKOM of
IDR bonds for the payment of a cash dividend to TELKOM
shareholders, capital expenditures and disbursements related to
TELKOMs early retirement program.

At December 31, 2001, 2002 and 2003,
approximately 13.3%, 34.0% and 18.8%, respectively, of
TELKOMs current assets were denominated in foreign
currencies, principally the U.S. Dollar, such that the
movements of Rupiah exchange rate against U.S. dollar
across these years would affect TELKOMs current assets.



| |                           
| | --------------------------
| | Trade Accounts Receivable.

Trade accounts receivable from related parties
(net of allowance for doubtful accounts) decreased by
Rp.475.9 billion, or 53.7%, from Rp.886.8 billion at
December 31, 2002 to Rp.410.9 billion
(US$48.7 million) at December 31, 2003. Trade accounts
receivable from third parties (net of allowance for doubtful
accounts) increased by Rp.502.1 billion, or 26.2% from
Rp.1,919.9 billion at December 31, 2002 to
Rp.2,422.0 billion (US$287.0 million) at
December 31, 2003, primarily due to an increase in customer
defaults. In the case of trade accounts receivable from related
parties, the decrease was primarily due to the consolidation of
KSO Unit III and the consequent decline in DTR and MTR
receivable in 2003, as well as the sale by TELKOM of its
ownership interest in associated companies, such as Komselindo
and Metrosel.

The allowance for doubtful accounts for trade
accounts receivable from related parties increased
Rp.15.2 billion, or 15.9%, at December 31, 2002
compared to December 31, 2003, from Rp.95.7 billion at
to Rp.110.9 billion (US$13.1 million), primarily due
to an increase in the number of delinquent accounts of related
parties.

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At December 31, 2003 compared to
December 31, 2002, the allowance for doubtful accounts for
trade receivables from third parties decreased
Rp.74.3 billion, or 18.2%, from Rp.407.3 billion to
Rp.333.0 billion (US$39.5 million), primarily due to
the effect of a significant write-off in 2003 of receivables
from defaulted customers.



| |                                              
| | ---------------------------------------------
| | Other Current Assets and Escrow
    Accounts.

At December 31, 2003, Rp.45.1 billion
(US$5.3 million) of TELKOMs deposits were restricted
for security interests in favor of other parties, of which
US$4.6 million was used to secure Napsindos
borrowings, an associated company and recorded as other current
assets. TELKOM also had a balance of Rp.239.7 billion
(US$28.4 million) in escrow account to be funded from time
to time for payments of the purchase price for the 90.32% equity
interest in Dayamitra acquired in 2001 and for the repayment of
indebtedness owed by Dayamitra to former shareholders and a
balance of Rp.276.4 billion (US$32.8 million) for
payments of the purchase price for a 100% equity interest in
Pramindo acquired in 2002. See
 Indebtedness  Acquisition
Indebtedness and Option Purchase Price 
Dayamitra.



| |                    
| | -------------------
| | Current Liabilities

Current liabilities were Rp.9,708.2 billion
at December 31, 2002 and Rp.11,200.7 billion
(US$1,327.1 billion) at December 31, 2003, reflecting
an increase of Rp.1,492.5 billion, or 15.4%. The increase
in current liabilities primarily arose from increase in the
following: (a) amounts payable to suppliers primarily due
to capital expenditures; and (b) current maturities of long
term liabilities.

At December 31, 2001, 2002 and 2003,
approximately 19.5%, 17.2% and 42.5%, respectively, of
TELKOMs current liabilities were denominated in foreign
currencies, principally the U.S. Dollar, such that the
movement of Rupiah exchange rate against U.S. dollar across
these years significantly affected TELKOMs current
liabilities.



| |                                                 
| | ------------------------------------------------
| | Current Maturities of Long-term
    Liabilities.

Current maturities of long-term liabilities
increased by Rp.853.3 billion, or 32.9%, from
Rp.2,590.2 billion at December 31, 2002 to
Rp.3,443.5 billion (US$408.0 million) at
December 31, 2003. This increase was primarily due to
current maturity of bank loans and amounts due on the
acquisition of Pramindo and AriaWest.



| |                  
| | -----------------
| | Accrued Expenses.

Accrued expenses decreased by
Rp.734.0 billion, or 37.6%, from Rp.1,949.9 billion at
December 31, 2002 to Rp.1,215.9 billion
(US$144.1 million) at December 31, 2003. The decline
was primarily due to realization of early retirement benefits of
Rp.671.0 billion and the absence of an accrued expense
relating to the litigation settlement fee for the dispute with
AriaWest, which totaled Rp.179.0 billion in 2002 and which
was paid in 2003.

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Indebtedness

Consolidated total indebtedness (consisting of
long-term liabilities, current maturities of long-term
liabilities and liability for cross-ownership transactions and
short-term bank loan) at December 31, 2001, 2002 and 2003,
was as follows:

|                   |       |                  |         |                  |  |         |         |          |  |  |         |          |  |  |         |         | 
|------------------ | ----- | ---------------- | ------- | ---------------- |  | ------- | ------- | -------- |  |  | ------- | -------- |  |  | ------- | ------- | 
|                   |       |                 
|                   |       | At December 31, 
|                   |       |                 
|                   |       | 2001(1)          |         | 2002(1)          |  | 2003(1) |         | 2003(1) 
|                   |       |                  |         |                  |  |         |         |         
|                   |       |                  |         |                 
|                   |       | (Rp. in billion) |         | (US$ in million)
|Indonesian Rupiah  |       |                  | 6,805.7 |                  |  |         | 4,294.1 |          |  |  | 4,485.1 |          |  |  | 531.4   |        
|U.S. Dollar(2),(3) |       |                  | 5,660.7 |                  |  |         | 8,766.4 |          |  |  | 8,764.7 |          |  |  | 1,038.5 |        
|Japanese Yen(4)    |       |                  | 1,452.1 |                  |  |         | 1,358.9 |          |  |  | 1,377.7 |          |  |  | 163.2   |        
|French Franc(5)    |       |                  | 190.9   |                  |  |         |        |          |  |  |        |          |  |  |        |        
|NLG(6)             |       |                  | 70.3    |                  |  |         |        |          |  |  |        |          |  |  |        |        
|EURO(7)            |       |                  |        |                  |  |         | 215.7   |          |  |  | 890.7   |          |  |  | 105.5   |        
|                   |       |                  |         |                  |  |         |         |          |  |  |         |          |  |  |         |        
|                   | Total |                  |         | 14,179.7         |  |         |         | 14,635.1 |  |  |         | 15,518.2 |  |  |         | 1,838.6 | 
|                   |       |                  |         |                  |  |         |         |          |  |  |         |          |  |  |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Including imputed interest on liabilities for the
    acquisition of a 90.32% equity interest in Dayamitra, a 100%
    equity interest in Pramindo and a 100% equity interest in
    AriaWest.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | Amounts at December 31, 2001, 2002 and 2003
    translated into Rupiah at Rp.10,450, Rp.8,950 and Rp.8,440 =
    US$1, respectively, being the prevailing exchange rates for
    buying and selling U.S. Dollars at each of those dates.                                                                                                                                                                                                                                                                                                                                                                                                                  
|(3) | Amounts at December 31, 2002 includes
    imputed interest on liability for acquisition of subsidiary
    (which relates to Dayamitra and Pramindo) of US$1.1 million
    (Rp.10.0 billion) and US$31.1 million
    (Rp.278.1 billion), respectively, being imputed interest
    for installment payments of the liability. Amounts at
    December 31, 2003 includes imputed interest on liability
    for the acquisition of subsidiary (which relates to Pramindo and
    AriaWest) of US$9.5 million (Rp.80.2 billion) and
    US$14.5 million (Rp.122.4 billion), respectively,
    being imputed interest for installment payments of the liability.
|(4) | Amounts at December 31, 2001, 2002 and 2003
    translated into Rupiah at Rp.79.6, Rp.75.5 and Rp.79.05 =
    Yen 1, respectively, being the prevailing exchange rates for
    buying yen at each of those dates.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(5) | Amount at December 31, 2001 translated into
    Rupiah at Rp.1,409.3 = FRF 1, respectively, being the
    prevailing exchange rates to buy French francs at such date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(6) | Comprises amounts expressed in Netherland
    Guilders translated into Rupiah.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(7) | Amounts at December 31, 2002 and 2003
    translated into Rupiah at Rp.9,377.5 and Rp.10,663.9 =
    EURO 1, respectively, being the prevailing exchange rate
    for buying Euros at each of these dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                

Of total indebtedness at December 31, 2003,
Rp.3,601.0 billion, Rp.1,846.2 billion and
Rp.10,071.0 billion was scheduled for repayment in 2004,
2005, 2006-2025, respectively. Of these amounts,
Rp.190.2 billion of the indebtedness were scheduled to be
repaid in 2004, Rp.190.2 billion to be repaid in 2005,
Rp.190.2 billion to be repaid in 2006,
Rp.1,311.5 billion to be repaid in 2007 and
Rp.95.1 billion in 2008 by Telkomsel. Further,
Rp.226.9 billion was to be repaid by Dayamitra in 2004.

TELKOM expects scheduled repayments of
indebtedness to be financed primarily from net cash flows from
operating activities of and re-financing by TELKOM, Telkomsel
and Dayamitra, respectively.

At December 31, 2003, approximately 56.5% of
TELKOMs Rupiah-denominated indebtedness and approximately
37.7% of its U.S. Dollar-denominated indebtedness bore
interest at floating rates. TELKOMs Rupiah-denominated
floating rate indebtedness bore interest rates between 11.6% and
15.0%, with rates generally based on interest rates on
three-month Certificates of Bank Indonesia (SBI) plus a margin
of 1.0%. The weighted average interest rate on
Rupiah-denominated floating rate indebtedness at
December 31, 2003 was 11.9%. TELKOMs
U.S. Dollar-denominated floating rate indebtedness was
subject to interest rates between 1.9% and 7.1%, with rates
generally based on LIBOR plus a margin of between 0.8% and 4.5%.
The weighted average interest rate on U.S. Dollar
denominated floating rate indebtedness at December 31, 2003
was 5.7%. TELKOMs Rupiah-denominated fixed rate
indebtedness at that date bore a weighted average interest rate
of 15.4%, while its U.S. Dollar denominated fixed rate
indebtedness bore a weighted average interest rate of 7.3%. All
of

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TELKOMs Japanese yen denominated
indebtedness was fixed rate and bore a weighted average interest
rate at December 31, 2003 of 3.1%.


At December 31, 2003, TELKOM had the
following outstanding significant indebtedness:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rp.7,691.0 billion (US$911.3 million)
    (including current maturities) in two-step loans through the
    Government;                                                                                 
|
| |  | Rp.1,121.2 billion (US$132.5 million)
    (after discount) in guaranteed notes which is owed by Telkomsel;                                                                                             
|
| |  | Rp.981.3 billion (US$116.3.0 million)
    (after discount) IDR bonds issued by TELKOM;                                                                                                                 
|
| |  | US$172.3 million (Rp.1,456.1 billion)
    representing a loan of AriaWest that was assumed by TELKOM; and                                                                                              
|
| |  | Rp.2,334.7 billion (US$276.6 million)
    (including current maturities) in acquisition indebtedness
    relating to TELKOMs acquisition of 100% equity interest in
    each of Pramindo and AriaWest.

In addition, TELKOM, on its own and through its
subsidiaries, entered into several new bank facilities in 2002
and 2003 and owes amounts under various other facilities. These
amounts were approximately Rp.1,732.4 billion
(US$205.3 million) in aggregate as of December 31,
2003. These included:



| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rp.857.0 billion (US$101.5 million)
    (including current maturities) from Telkomsels loan
    facilities;                                                                               
|
| |  | Rp.255.9 billion (US$30.3 million)
    (including current maturities) from Dayamitras supplier
    credit loans and bridge facility (see Dayamitras
    Indebtedness below);           
|
| |  | Rp.458.6 billion (US$54.3 million)
    (including current maturities) from loan facilities relating to
    TELKOMs Sumatera backbone network and Regional
    Division V junction project;
|
| |  | Rp.160.8 billion (US$19.1 million)
    (including current maturities) from other loan facilities for
    other subsidiaries, including GSD, Infomedia and Napsindo.                        



| |               
| | --------------
| | Two-Step Loans

Since 1982, TELKOM has entered into a series of
two-step loans in which the Government borrows money from
supranational lenders and foreign export credit agencies, such
as the World Bank and the U.S. Export-Import Bank, for
on-lending to TELKOM to fund investment in property, plant and
equipment. TELKOM obtained its last two-step loan in 1994 and,
as a public company, is no longer eligible to obtain
Government-assisted financing of this type. For a table of
scheduled repayments of two-step loans, see
 Liquidity and Capital Resources 
Contractual Obligations and Commitments in Item 5.

At December 31, 2003, TELKOMs
outstanding principal indebtedness under the two-step loans
totaled Rp.7,691.0 billion (US$911.3 million), of
which US$348.7 million (Rp.2,946.7 billion) was
denominated in U.S. Dollars, EURO18.8 million
(Rp.200.0 billion) was denominated in Euro and Japanese Yen
17.4 billion (Rp.1,377.7 billion) was denominated in
Japanese Yen. As of December 31, 2003, TELKOM has used all
facilities of two-step loans and the draw period for the
two-step loan has expired.

Two-step loans bear fixed or floating rates.
Floating rates are determined by reference to interest rates on
the average of 3 month Certificates of Bank Indonesia (SBI)
during the six months preceding the installment due date
plus 1.0% per annum for two-step loan which are payable in
Rupiah and the interest rate offered by offshore lenders plus
0.5% for two-step loan which are payable on foreign currencies.
Repayments of principal are due on the loans at various dates
through 2025. For the years 2004 through 2008, aggregate
scheduled repayments of principal range from
Rp.578.3 billion to Rp.843.3 billion per year and
average Rp.707.7 billion per year.

111



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The Company must maintain financial ratios as
follows:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Projected net revenue to projected debt service
    ratio should exceed 1.5:1 and 1.2:1 for two-step loans
    originating from World Bank and Asian Development Bank
    (ADB), respectively; and          
|
| |  | Internal financing (earnings before depreciation
    and interest expenses) should exceed 50% and 20% compared to
    capital expenditures for loans originally from the World Bank
    and ADB, respectively.

As of December 31, 2003, the Company was in
compliance with the above covenants. Also see
 Guaranteed Notes.



| |                 
| | ----------------
| | Guaranteed Notes

In April 2002, Telekomunikasi Selular Finance
Limited (TSFL), Telkomsels wholly-owned
subsidiary, issued US$150 million in guaranteed notes
(Notes). The notes bear interest at 9.75%, payable
semi-annually on April 30 and October 30 of each year
and will mature on April 30, 2007.

On April 23, 2002, TSFL entered into
subscription agreements with UBS AG (UBS)
whereby UBS agreed to subscribe and pay for the notes at an
issue price equal to 99.709% of the principal amount of the
Notes, less any fees. TSFL has further authorized UBS to have
the Notes listed in the Singapore Exchange Securities Trading
Limited (the Singapore Exchange).

Based on the On-Loan Agreement dated
April 30, 2002, between Telkomsel and TSFL, the proceeds
from the subscription of the Notes were lent to Telkomsel at an
interest rate of 9.765% per annum, payable on the same terms as
above.

TSFL may, on the interest payment date falling on
or about the third anniversary of the issue date, redeem the
Notes, in whole or in part, at 102.50% of the principal amount
of such Notes, together with interest accrued up to the date
fixed for redemption. If only part of the Notes are redeemed,
the principal amount of the Notes outstanding after such
redemption must be at least US$100 million.

On September 8, 2003, the agreement was
amended such that if any Notes are cancelled, the outstanding
principal amount of the remaining Notes will be reduced by the
principal amount represented by the cancelled Notes.

In 2003, Telkomsel purchased US$17.3 million
(Rp.145.4 billion) of the Notes from Deutsche Bank.
Subsequent to December 31, 2003, Telkomsel purchased
US$52.0 million (Rp.438.5 billion) of the Notes from
Deutsche Bank.



| |                  
| | -----------------
| | IDR Bond Issuance

On July 16, 2002, TELKOM issued bonds
denominated in Rupiah amounting to Rp.1,000 billion
(US$118.5 million). The bonds were issued at par value and
have a term of five years. The bonds bear interest at a fixed
rate of 17% per annum, payable quarterly beginning
October 16, 2002. The bonds are traded on the Surabaya
Stock Exchange and will mature on July 15, 2007. Net
proceeds after expenses from the bond issued amounted to
Rp.980.8 billion (US$116.2 million) while the total
bond issuance cost was Rp.19.2 billion
(US$2.3 million).

As of December 31, 2003, the usage of bond
proceeds was Rp.504.7 billion (US$59.8 million) or
51.5% of bond proceeds. The planned usage of the bond proceeds
were approximately 84% for the CDMA project and approximately
16% for the access network.

112



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##### Table of Contents



The Company must maintain the following
consolidated financial ratios:



| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Debt service coverage ratio must exceed 1.5:1;                                                                                                                                                                                                                        
|
| |  | Debt to equity ratio must not exceed (i) 3:1
    for the period January 1, 2002 to December 31, 2002;
    (ii) 2.5:1 for the period January 1, 2003 to
    December 31, 2003; and (iii) 2:1 for the period
    January 1, 2004 to the date the bonds are redeemed; and
|
| |  | Debt to EBITDA ratio must not exceed 3:1.                                                                                                                                                                                                                             

As of December 31, 2003, the Company was in
compliance with these covenants.



| |                                                       
| | ------------------------------------------------------
| | Acquisition Indebtedness and Option
    Purchase Price



| |          
| | ---------
| | Dayamitra

On May 17, 2003, TELKOM paid in full the
unpaid portion of the purchase price for its 90.32% equity
interest in Dayamitra and the unpaid portion of the option
purchase price payable to TM Communications (HK) Ltd for the
right to purchase the remaining 9.68% equity interest in
Dayamitra held by TM Communications. As of December 31,
2003, TELKOM no longer had any obligations relating to the
acquisition of its 90.32% equity interest in Dayamitra.



| |         
| | --------
| | Pramindo

At December 31, 2003, TELKOM owed the
following amounts to the former shareholders of Pramindo.



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | US$76.5 million (Rp.646.1 billion),
    representing the unpaid portion of the purchase price for France
    Cable et Radio;
|
| |  | US$66.9 million (Rp.565.5 billion),
    representing the unpaid portion of the purchase price for
    Astratel;             
|
| |  | US$24.9 million (Rp.210.0 billion),
    representing the unpaid portion of the purchase price for
    Indosat;              
|
| |  | US$15.3 million (Rp.129.2 billion),
    representing the unpaid portion of the purchase price for
    Marubeni;             
|
| |  | US$5.7 million (Rp.48.5 billion),
    representing the unpaid portion of the purchase price for
    IFC USA; and            
|
| |  | US$1.9 million (Rp.16.2 billion),
    representing the unpaid portion of the purchase price for
    NMP Singapore.          

On January 29, 2004, TELKOM signed a
short-term loan agreement with ABN-AMRO Bank N.V. Jakarta
(ABN AMRO) in the amount of approximately
US$130 million. The loan proceeds were thereafter placed in
escrow and were subsequently released to TELKOM on
March 15, 2004, when TELKOM exercised its option to
repurchase the remaining outstanding promissory notes TELKOM
issued to Pramindos shareholders as payment for their
shares in Pramindo. This allowed TELKOM to accelerate the
purchase of the remaining 55% of Pramindo that it did not own.
Following this transaction, TELKOM owned 100% of Pramindo.
Subsequently, one share in Pramindo was transferred to
TELKOMs corporate secretary in order to comply with the
legal requirement that Indonesian limited liability companies
should have more than one shareholder and TELKOM now owns 99.99%
of Pramindo.

Principal and interest on the ABN AMRO loan will
be repaid in 10 monthly payments starting March 31,
2004 through December 31, 2004, with interest payable at
one month LIBOR plus 2.75%.

113



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##### Table of Contents





| |         
| | --------
| | AriaWest

On July 31, 2003, TELKOM acquired all the
shares of AriaWest. As a result of the acquisition, TELKOM owes
the former shareholders of AriaWest US$109.1 million, which
will be repaid in ten semi-annual installments from
July 31, 2004 through January 31, 2009. In addition,
TELKOM owes AriaWests former lenders
US$196.97 million, which is being repaid in installments
starting December 31, 2003 through June 30, 2007, with
interest payable at six month LIBOR plus 3.5%. After
the payment of the first installment on December 31, 2003,
the amount payable to AriaWests former lenders totaled
US$172.3 million.



| |                          
| | -------------------------
| | Sumatera backbone network

On April 10, 2002, TELKOM entered into four
term loan facilities to finance the construction of the Sumatera
high performance backbone network. These four facilities are
entered into with (i) Bank Central Asia, for
Rp.173 billion; (ii) Citibank, N.A., for US$6,950,000;
(iii) Citibank International plc as agent for certain
lenders to a syndicated loan, for US$23,400,000 (supported by an
export credit guarantee of Hermes Kreditversicherungs AG); and
(iv) Citibank International plc as agent for certain
lenders to a syndicated loan, for US$21,000,000 (supported by an
export credit guarantee of Istituto per I Servizi
Assicurativi del Commercio Estero). As of December 31,
2003, all of these facilities have been fully or partially
utilized, with the US$6,950,000 loan to Citibank, N.A. being
fully repaid in May 2003.



| |                                         
| | ----------------------------------------
| | Regional Division V Junction
    Project

On June 21, 2002, TELKOM entered into a loan
agreement with a consortium of banks for a Rp.400 billion
facility in order to finance the Regional Division V
junction project. The original loan was to be repaid in 14
quarterly installments starting from April 2004. The loan
agreement was amended on April 4, 2003 to reduce the
facility amount to Rp.150 billion and provide for
repayments to be made in 14 quarterly installments starting
on May 21, 2004. As of December 31, 2003, the facility
had not been drawn down. As of May 31, 2004, TELKOM had
drawn down a total of Rp.114.6 billion and Japanese Yen
428.9 million (Rp.34.3 billion) of this loan.



| |                                                    
| | ---------------------------------------------------
| | Telkomsels Indebtedness (including
    facilities)

In April 2002, Telekomunikasi Selular Finance
Limited (TSFL), Telkomsels wholly-owned
subsidiary, issued US$150 million in guaranteed notes
(Notes) which are guaranteed by Telkomsel. The Notes
bear interest at 9.75% per annum, payable semi-annually on
April 30 and October 30 of each year, and will be due
on April 30, 2007. In 2003, Telkomsel purchased
US$17.3 million worth of Notes from Deutsche Bank.

On July 12, 2002, Telkomsel entered into an
Opening L/C and Trust Receipt Loan Facility Agreement with
Citibank NA providing a total facility of US$40 million to
issue letters of credit in connection with the procurement
contracts with strategic partners. Telkomsel has the option of
deferring settlement of any letter of credit once it has been
drawn upon, in which case the outstanding amounts bear interest
at a rate equal to the banks cost of funds plus 2.5% per
annum. The facility was originally scheduled to mature on
July 12, 2003 but the maturity date has been extended to
July 31, 2004 pursuant to an amendment to the agreement. As
of December 31, 2003, open letters of credit under this
facility totaled US$14.6 million. In 2003, total loans
drawn from the facility amounted to US$32.4 million, which
was fully repaid as of December 31, 2003.

On July 19, 2002, Telkomsel entered into a
Letter of Credit Agreement with Standard Chartered Bank,
Jakarta. The agreement required Telkomsel to deposit an amount
equal to the LC amount prior to the issuance of the LC.

On October 29, 2002, Telkomsel entered into
a Banking Facilities Credit Agreement with Standard Chartered
Bank which includes import facilities (US$25 million),
local LC facility (Rp.100 billion), Bank Guarantee
(US$25 million) and other foreign exchange facilities.
Outstanding amounts (once the

114



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letters of credit are drawn upon the bank) bear
interest at a rate equal to SIBOR plus 2.5% per annum for
US Dollar amounts and of the indicative three-month SBI
plus 2.0% per annum for Indonesia Rupiah amounts. As of
December 31, 2003, open letters of credit under this
facility totaled US$17.4 million.




| |                       
| | ----------------------
| | Hermes Export Facility

On December 2, 2002, pursuant to the
Partnership Agreement with Siemens Aktiengesellschaft (AG),
Telkomsel entered into a Hermes Export Facility Agreement with
Citibank International plc (as Arranger and Agent) providing a
total facility of EURO76.2 million divided into several
tranches. The interest rate on this facility is the aggregate of
3 months EURIBOR plus 0.75%. Interest is paid
semi-annually, starting on the date amounts are drawn. The total
amount drawn down from this facility in 2003 was EURO72.2
million and as of December 31, 2003, the outstanding
balance was EURO64.9 million.

In addition to the interest due on this facility,
Telkomsel was also charged an insurance premium for the
insurance guarantee given by Hermes in favor of Telkomsel for
each loan utilization. The total amount of the premiums for 2003
was EURO6.1 million, of which 15% was paid by Telkomsel in cash
and the balance settled through utilization of the facility.



| |                    
| | -------------------
| | EKN-Backed Facility

On December 2, 2002, pursuant to the
partnership agreement with PT Ericsson Indonesia, Telkomsel
entered into the EKN-Backed Facility Agreement with Citibank
International plc (as Arranger and Agent) covering a total
facility amount of US$70.5 million divided into several
tranches. The interest rate on the facility is fixed at
4.27% per annum. Interest is paid semi-annually, starting
on the date amounts are drawn. As of December 31, 2003,
Telkomsel has drawn down US$21.7 million from this facility.



| |                         
| | ------------------------
| | Dayamitras Indebtedness

As of December 31, 2003, Dayamitra had the
following significant indebtedness outstanding:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | US$5.96 million (Rp.50.3 billion),
    representing a bridging loan payable by Dayamitra to Cable and
    Wireless Plc. The bridging facility is repayable in ten
    semi-annual installments from 2000 through 2004. Aggregate
    scheduled annual repayment of principal under the loans in 2004
    is US$5.96 million. This loan is secured by an assignment
    of KSO revenues and bank accounts, fiduciary transfer of
    Dayamitras movable assets, assignment of Tomen
    construction contract, assignment of proceeds of early
    termination of the KSO license by TELKOM and assignment of
    insurance proceeds. The loan bears interest at LIBOR plus 4% per
    annum;
|
| |  | US$19.6 million (Rp.165.4 billion),
    representing suppliers loan payable by Dayamitra to Cable
    and Wireless Plc. and Tomen. The suppliers credit loans
    are repayable in ten semi-annual installments commencing
    December 15, 2000. Aggregate scheduled annual repayment of
    principal under the loans in 2004 and 2005 is
    US$19.5 million and US$0.1 million, respectively. This
    loan is secured proportionally with collateral for bridging loan
    facility Cable & Wireless Plc. The loan bears interest at
    LIBOR plus 4.5% per annum; and                                                                                                               
|
| |  | Rp.39.9 billion (US$4.7 million),
    representing a loan payable by Dayamitra to Bank Mandiri
    pursuant to the terms of a loan agreement entered into on
    November 20, 2003. The loan is payable on a quarterly basis
    until the fourth quarter of 2005 and bears interest at 14.5% per
    annum.                                                                                                                                                                                                                                                                                                                                                                                 

In 2003, Dayamitra paid in full the
US$7.0 million (Rp.62.7 billion) long-term bank loan
payable by Dayamitra to the Export-Import Bank of Japan.

115



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Capital Expenditures

At December 31, 2003, TELKOM
(unconsolidated) incurred capital expenditures of
Rp.4,106.1 billion (US$486.5 million), which was
slightly less than the Rp.4,393.5 billion originally
budgeted in its capital expenditure plan. In addition, Telkomsel
incurred capital expenditures of Rp.5,348.8 billion
(US$633.7 million) for network infrastructure and other
investments and TELKOMs other subsidiaries incurred
capital expenditures of Rp.270.0 billion
(US$32.0 million).

TELKOM groups its capital expenditures into the
following categories for planning purposes:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Infrastructure, which consists of the
    transmission network, access network (including fixed wireless
    networks), data backbone and fixed line network backbone
    infrastructure;         
|
| |  | Phone, which is essentially fixed wireline and
    fixed wireless;                                                                                                                                
|
| |  | Mobile, which consists of GSM mobile wireless
    telephone services and is presently conducted principally
    through Telkomsel;                                                                
|
| |  | Multimedia, which consists of cable and satellite
    direct to home (DTH) television, Internet access, VoIP services,
    data services and B2B commerce; and                                    
|
| |  | Service-Net, which consists of various commercial
    services intended to increase traffic on TELKOMs network,
    including interconnection, Internet network and third-party call
    centers.

The following table sets out TELKOMs
historical and planned capital expenditure requirements for the
periods indicated, including historical and planned capital
expenditures for Telkomsel, Dayamitra and TELKOMs other
consolidated subsidiaries:

|                                     |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |         |         | 
|------------------------------------ | ------------------------------------- | ---------------------------- | -------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                     |                                       |                             
|                                     |                                       | Year ended December 31,     
|                                     |                                       |                             
|                                     |                                       | 2001(1)                      |          | 2002(1) |         | 2003(1) |         | 2004(2) |         | 2005(2)
|                                     |                                       |                              |          |         |         |         |         |         |         |        
|                                     |                                       |                             
|                                     |                                       | Rp. (billion)               
|TELKOM:                              |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |        
|Infrastructure:                      |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |        
|                                     | Transmission Network and Backbone (3) |                              |          | 78.2    |         |         |         | 337.1   |         |         |         | 1,767.4 |         |  |         | 1,653.4 |         |  |         | 3,363.3 |        
|                                     | Access Network                        |                              |          | 661.0   |         |         |         | 862.9   |         |         |         | 1,849.6 |         |  |         | 2,517.4 |         |  |         | 1,530.9 |        
|                                     |                                       | Subtotal Infrastructure      |          |         | 739.2   |         |         |         | 1,200.0 |         |         |         | 3,617.0 |  |         |         | 4,170.8 |  |         |         | 4,894.2 | 
|Commercial Services:                 |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |        
|                                     | Phone(4)                              |                              |          | 285.5   |         |         |         | 523.6   |         |         |         | 161.9   |         |  |         | 305.6   |         |  |         | 381.3   |        
|                                     | Mobile Cellular(5)                    |                              |          | 263.9   |         |         |         |        |         |         |         |        |         |  |         |        |         |  |         |        |        
|                                     | Multimedia(6)                         |                              |          | 113.7   |         |         |         | 154.7   |         |         |         | 76.2    |         |  |         | 197.4   |         |  |         | 179.4   |        
|                                     | Services-Net                          |                              |          | 275.6   |         |         |         | 59.8    |         |         |         | 99.9    |         |  |         | 32.2    |         |  |         | 235.4   |        
|                                     |                                       | Subtotal Commercial Services |          |         | 938.7   |         |         |         | 738.1   |         |         |         | 338.0   |  |         |         | 535.2   |  |         |         | 796.1   | 
|                                     | Supporting Services                   |                              |          | 196.3   |         |         |         | 140.2   |         |         |         | 151.1   |         |  |         | 313.8   |         |  |         | 433.3   |        
|                                     |                                       | Subtotal TELKOM              |          |         | 1,874.2 |         |         |         | 2,078.3 |         |         |         | 4,106.1 |  |         |         | 5,019.8 |  |         |         | 6,123.6 | 
|Long Term Investment(7)              |                                       |                              | 12,614.6 |         |         |         | 3,752.1 |         |         |         | 3,914.6 |         |         |  | 3,906.0 |         |         |  |        |        
|Subtotal for TELKOM (unconsolidated) |                                       |                              | 14,488.8 |         |         |         | 5,830.4 |         |         |         | 8,020.7 |         |         |  | 8,925.8 |         |         |  | 6,123.6 |        
|                                     |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |        
|TELKOMs Subsidiaries:               |                                       |                              |          |         |         |         |         |         |         |         |         |         |         |  |         |         |         |  |         |        
|Telkomsel                            |                                       |                              | 2,964.0  |         |         |         | 4,531.0 |         |         |         | 5,348.8 |         |         |  | 5,000.0 |         |         |  | 5,000.0 |        
|Dayamitra                            |                                       |                              | 30.2     |         |         |         | 40.6    |         |         |         | 109.5   |         |         |  | 76.5    |         |         |  | 157.3   |        
|Infomedia Nusantara                  |                                       |                              |         |         |         |         | 25.9    |         |         |         | 44.6    |         |         |  | 78.0    |         |         |  | 61.0    |        
|Pramindo Ikat Nusantara              |                                       |                              |         |         |         |         | 109.4   |         |         |         | 37.4    |         |         |  | 25.0    |         |         |  |        |        
|Indonusa Telemedia                   |                                       |                              |         |         |         |         | 2.6     |         |         |         | 0.8     |         |         |  | 3.4     |         |         |  |        |        

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|                                |  |                         |          |         |  |         |          |         |  |         |          |  |  |  |          |  |  |  |          | 
|------------------------------- |  | ----------------------- | -------- | ------- |  | ------- | -------- | ------- |  | ------- | -------- |  |  |  | -------- |  |  |  | -------- | 
|                                |  |                        
|                                |  | Year ended December 31,
|                                |  |                        
|                                |  | 2001(1)                 |          | 2002(1) |  | 2003(1) |          | 2004(2) |  | 2005(2)
|                                |  |                         |          |         |  |         |          |         |  |        
|                                |  |                        
|                                |  | Rp. (billion)          
|Graha Sarana Duta               |  |                         |         |         |  |         | 0.8      |         |  |         | 17.0     |  |  |  | 19.2     |  |  |  | 21.2     | 
|PT Pro Infokom Indonesia        |  |                         |         |         |  |         |         |         |  |         | 0.6      |  |  |  | 9.0      |  |  |  |         | 
|PT Metra (Holding)              |  |                         |         |         |  |         |         |         |  |         | 6.1      |  |  |  | 0.2      |  |  |  | 88.4     | 
|AriaWest                        |  |                         |         |         |  |         |         |         |  |         | 0.2      |  |  |  |         |  |  |  |         | 
|Napsindo                        |  |                         |         |         |  |         |         |         |  |         | 53.8     |  |  |  | 2.2      |  |  |  | 2.9      | 
|                                |  |                         |          |         |  |         |          |         |  |         |          |  |  |  |          |  |  |  |          | 
|Subtotal for subsidiaries       |  |                         | 2,994.2  |         |  |         | 4,710.3  |         |  |         | 5,618.8  |  |  |  | 5,213.5  |  |  |  | 5,330.8  | 
|Total for TELKOM (consolidated) |  |                         | 17,483.0 |         |  |         | 10,540.7 |         |  |         | 13,639.5 |  |  |  | 14,139.3 |  |  |  | 11,454.4 | 
|                                |  |                         |          |         |  |         |          |         |  |         |          |  |  |  |          |  |  |  |          | 



---



|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts for 2001, 2002 and 2003 are actual
    capital expenditures.                                                                                                                                          
|(2) | Amounts for 2004 and 2005 are planned capital
    expenditures included in TELKOMs budgets for the years
    2004 and 2005, respectively, and are subject to upward or
    downward adjustment.              
|(3) | Consists of data backbone and fixed-line network
    backbone.                                                                                                                                                
|(4) | Consists of capital expenditures by TELKOM and
    subsidiaries other than Dayamitra and Pramindo.                                                                                                            
|(5) | Consists of capital expenditures by TELKOM and
    subsidiaries other than Telkomsel. TELKOMs investment in
    its GSM mobile cellular business has been entirely through
    Telkomsel since April 3, 2002.
|(6) | Consists of VoIP, Internet and, from 2003
    onwards, includes hybrid fiber/coax (HFC) and cable television
    (CATV) systems.                                                                              
|(7) | Planned long term investments for 2004 consist
    only of capital expenditures for the takeover of KSO IV
    operations.                                                                                    

Actual future capital expenditures may differ
from the amounts indicated above due to various factors,
including but not limited to the Indonesian economy, the
availability of vendor or other financing on terms acceptable to
TELKOM, technical or other problems in obtaining or installing
equipment and whether TELKOM enters any new lines of business.
In particular, TELKOMs ability to make substantial future
capital expenditures will depend on whether it is successful in
implementing one or more forms of an innovative approach to
financing, which TELKOM refers to as pay as you
grow. See Item 3.D. Risk Factors 
Capital Expenditures  Financing and
Item 4.B. Business Overview  Business
Strategy  Reducing Cost of Capital.



| |                            
| | ---------------------------
| | Planned Investments in 2004

In 2004, TELKOM plans to make capital investments
in infrastructure, commercial services and supporting services.



| |                                          
| | -----------------------------------------
| | Planned Investments in
    Infrastructure

TELKOMs planned capital investments in
infrastructure in 2004 total Rp.4,170.8 billion, allocated
as follows:



| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rp.1,653.4 billion for capital investments
    in transmission infrastructure, which are expected to include
    investments in a fiber optic transmission network in the city of
    Surabaya, a backbone transmission network on the island of
    Kalimantan and Sulawesi and an additional ground satellite
    segment in Jakarta; and
|
| |  | Rp.2,517.4 billion for capital investments
    in access infrastructure, which are expected to include
    investments in fiber optic cable fixed line, copper wire fixed
    line and CDMA wireless access networks.                                                                                                                      

For a more complete discussion of TELKOMs
planned infrastructure investments, see Item 4.B.
Business Overview.

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| |                                               
| | ----------------------------------------------
| | Planned Investments in Commercial
    Services

In 2004, TELKOM also plans to spend
Rp.535.2 billion for capital investments in commercial
services, allocated as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rp.305.6 billion for capital investments in
    fixed-line commercial services (including fixed wireless
    services), which include additional capacity, service
    enhancements and upgrades, including to its value added services
    and software and mechanical and electrical systems;                                                                     
|
| |  | Rp.197.4 billion for capital investments in
    multimedia (including Internet, HFC and CATV services), which
    include increases in the number of VoIP access points, Internet
    multiplexing (IMUX) systems for Internet and data access,
    Internet value added services such as B2B e-commerce, and
    improving TELKOMs HFC and CATV systems;          
|
| |  | Rp.32.2 billion for capital investments in
    customer support and customer care, including the establishment
    of call center facilities, billing systems and TELKOMs
    business enterprise project, which caters to the largest 20% by
    value of TELKOMs corporate clients, as well as better
    network management and management information systems.



| |                                               
| | ----------------------------------------------
| | Planned Investments in Supporting
    Services

TELKOM plans to spend Rp.313.8 billion in
2004 for capital investments in supporting services, including
research and development, building facilities and office
facilities.



| |          
| | ---------
| | Financing

In common with many Indonesian state-owned
enterprises, TELKOM has historically relied on two-step loans
financed by the Government and revenue sharing with co-investors
to fund investment in property, plant and equipment. In recent
years, however, TELKOM has funded its capital investments
largely through internally generated cash flows from operating
activities and direct borrowing from commercial banks. On
July 16, 2002, TELKOM issued a fixed rate IDR Bond in the
amount of Rp.1,000 billion with tenor of five years with
fixed interest rate of 17% per annum. TELKOM is presently in the
process of exploring alternative sources of financing for
capital investment, including vendor-procured and other bank
financing, as well as other potential sources of borrowed funds.



| |               
| | --------------
| | Two-Step Loans

Since 1982, TELKOM has entered into a series of
two-step loans in which the Government borrows money from
supranational lenders and foreign export credit agencies for
on-lending to TELKOM to fund investment in property, plant and
equipment. TELKOM obtained its last two-step loan in 1994 and,
as a public company, is no longer eligible to obtain
Government-assisted financing of this type. See
 Liquidity and Capital Resources 
Indebtedness  Two-Step Loans.



| |                
| | ---------------
| | Revenue Sharing

Until recently, TELKOM made use of revenue
sharing arrangements to develop fixed line networks in heavily
populated urban areas of Indonesia, public card-phone booths and
its analog mobile cellular networks. Under these revenue sharing
arrangements, investors finance the costs incurred in procuring
and installing equipment, while TELKOM manages and operates the
equipment, and bears the cost of repairs and maintenance, after
installation and until the end of the revenue sharing period.
The investors legally retain rights to the equipment during the
revenue sharing period but transfer ownership to TELKOM at the
end of such period. See Item 4.B. Business
Overview  Revenue Sharing Arrangements (PBHs).

TELKOM did not fund any capital investments
(other than capital investments in fixed line telephone
services) through revenue sharing arrangements in 2001, 2002 or
2003 and does not intend to fund any such capital investments
(other than capital investments in fixed line telephone services)

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through such arrangements in the future, except
in the context of its efforts to promote the pay as you
grow program to fund capital investments. See Pay as
You Grow below. Beginning in 2004, TELKOM intends to
replace existing revenue sharing arrangements with new
partnership schemes on more favorable terms.




| |                 
| | ----------------
| | Direct Borrowing

Beginning in 2002, TELKOM began funding a
significant portion of its capital expenditures through
vendor-procured and other direct borrowing from banks and other
lenders, including the capital markets. On February 25,
2002, TELKOM borrowed US$4.0 million and
Rp.90.0 billion from a consortium of Indonesian banks to
finance the development of an Internet protocol backbone. TELKOM
had never previously borrowed directly from a commercial bank to
finance capital expenditures. As of December 31, 2003, the
outstanding amount under these facilities are
US$1.9 million and Rp.34.3 billion. On April 10,
2002, TELKOM borrowed US$44.4 million and
Rp.173.0 billion from Citibank N.A. and PT Bank
Central Asia to finance the development of a high performance
backbone in Sumatera. As of December 31, 2003, the
outstanding amount under these facilities are
US$31.8 million and Rp.139.8 billion. On June 21,
2002, TELKOM entered into a loan agreement with several
Indonesian banks in which Bank Bukopin acting as facility agent
with loan facility amounting to Rp.150 billion to fund the
development of regional junction Regional Division V project. A
substantial portion of these loans were supported by export
credit agency guarantees procured by the equipment vendors for
the project. Prior to this transaction, TELKOM had not
previously borrowed with the support of export credit agency
guarantees, except in the two-step loans extended through the
Government.

On August 27, 2003 TELKOM entered into a
Loan Agreement with The Export-Import Bank of Korea for
approximately US$124 million, with a portion of the loan
amount to be used by TELKOM to finance its obligations under the
Master of Procurement Partnership Agreement (MPPA)
it had entered into with a consortium led by Samsung
Corporation. As of December 31, 2003, TELKOM had not yet
drawn down on this loan. However, as of May 31, 2004 TELKOM
had drawn down a total of US$40.6 million from this loan.
See Item 10. Additional Information  C.
Material Contracts.



| |                
| | ---------------
| | Pay as You Grow

The Pay as You Grow program involves arrangements
in which TELKOM and its equipment suppliers agree that a
percentage of the contract cost will be paid upfront (typically
25%) and the balance will be paid once the lines are put into
service. TELKOM and its suppliers also agree to work together to
plan and design networks, assess capacity requirements and
determine timetable for procurement. TELKOM expects that only a
relatively small number of equipment suppliers will be invited
to participate in pay as you grow programs and supply a
substantial portion of TELKOMs infrastructure and other
equipment needs. See Item 4.B. Business
Overview  Business Strategy  Efficient Use
of Capital Liquidity through New Term of Payment Alternatives
with Lower Risk.



| |                  
| | -----------------
| | IDR Bond Issuance

See Item 5.B. Liquidity and Capital
Resources  Indebtedness.

Critical Accounting Policies, Estimates and
Judgments

The preparation of TELKOMs consolidated
financial statements in conformity with Indonesian GAAP, as well
as the reconciliation to U.S. GAAP, requires TELKOM to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenue
and expenses for the years reported. Management continually
evaluates its estimates and judgments including those related to
useful lives of plant and equipment, pension and other
post-retirement benefits, income taxes and legal contingencies.
Management bases its estimates and judgments on historical
experience and other factors that are

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believed to be reasonable under the
circumstances. For a complete discussion of the application of
these and other significant accounting policies, see Note 2
to the Companys consolidated financial statements. Actual
results could differ from those estimates under different
assumptions and conditions. TELKOM believes that of our
significant accounting policies, the following may involve a
higher degree of judgment or complexity or are areas where
assumptions and estimates are particularly critical to the
financial statements:




| |                             
| | ----------------------------
| | Consolidation/ Equity method

The consolidated financial statements include the
financial statements of the Company and entities in which the
Company directly or indirectly has ownership of more than 50%,
as well as entities the Company has the ability to control, even
though ownership is less than or equal to 50%. These entities
are consolidated from the date on which effective control is
obtained and are no longer consolidated from the date of
disposal. The Company does not consolidate an entity if control
is expected to be temporary.

All significant inter-company balances and
transactions have been eliminated in consolidation.

In the case of Pramindo, we have evaluated the
scope and terms of this investment and have concluded that we
have the ability to exercise control over Pramindo and the right
to obtain all of the future economic benefits of ownership as
though we owned 100% of the shares. The factors that we
considered include, among others, the fact that the purchase
price is fixed, our ability to vote 100% of the shares at
general stockholders meetings, subject to certain protective
rights retained by the selling stockholders, our ability to
appoint all of the board members and management and our
consequent ability to exclusively determine the financial and
operating policies of Pramindo subject to certain protective
rights, our issuance of irrevocable and unconditional promissory
notes in settlement of the purchase consideration to the selling
stockholders, the placement of the remaining 55% of shares not
yet transferred to the Companys escrow account as of
December 31, 2003 by the selling stockholders and the
protective provisions in the various agreements for the Company
to take over all shares (including powers of attorney issued by
the selling stockholders) or collapse the KSO arrangement once
the full amount payable for the shares has been paid.

In addition to its operating subsidiaries, TELKOM
has a number of investments in other associated companies. Such
investments were intended to give TELKOM the ability to
influence the business activities, such as the choices of
technologies, of these associated companies. TELKOMs
general policy is to invest in companies that are associated
with the following business sectors: fixed line
telecommunications, cellular, television, Internet and shared
services. In the majority of cases, our investments are in the
range between 20 and 50 per cent of the equity
interest of the investees such that they provide us with the
ability to significantly influence the operating and financial
policies of such investees.

We reflect our influence with these investee
affiliates by accounting for our interests in them using the
equity method of accounting which prescribes that TELKOM record
its share of the earnings and losses of such investees. The
carrying amount of the investments is written down to recognize
any permanent decline in the value of individual investments.
Any such write down is charged directly to current operations.

Investments in shares of stock with ownership
interest of less than 20% that do not have readily determinable
fair values and are not intended for long-term investments are
stated at cost. The carrying amount of the investments is
written down to recognize any more than temporary declines in
the value of the individual investments. Any such write down is
charged directly to current operations.

TELKOM periodically reviews each of its affiliate
investee relationships to determine its amount of share
ownership in its associated companies. TELKOMs policy is
to make its investment decision based on the performance and
business prospects of the relevant associated company.

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| |                    
| | -------------------
| | Revenue Recognition

Revenues arising from fixed line voice
transmission services, data communications facility services,
leased circuit services and other transmission services are
recognized at the time we provide these services to customers.

We recognize revenue from fixed line installation
services at the time the installations are placed in service.

Revenues from cellular service connections
(connection fee) are recognized as income at the time the
connection takes place, while those from airtime and monthly
subscription charges are recognized when earned. Revenues from
prepaid card customers, which consist of the sale of starter
packs, which include a Subscriber Identification Module
(SIM) card and pulse reload voucher, are recognized
as follows:



| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sales of starter packs are recognized as revenue
    upon delivery of the starter packs to distributors, dealers or
    directly to customers; and                                                                                                
|
| |  | Sales of pulse reload vouchers are recognized
    initially as unearned income and recognized proportionately as
    revenue based on successful calls made by the subscribers or
    whenever the unused stored value of the voucher has expired.

Other operating revenues such as revenue from
network interconnection with other domestic and international
telecommunication carriers are recognized as incurred and are
presented on a net basis.

We are required to interconnect our networks with
other telecommunications operators. In certain instances we rely
on other operators to measure the traffic flows interconnecting
with our networks. We use estimates in these cases to determine
the amount of income receivable from or payments we need to make
to these other operators. The prices at which these services are
charged are regulated and may be subject to retrospective
adjustment. We use estimates in assessing the likely effect of
these adjustments.

Revenue earned under revenue-sharing arrangements
is recognized on the basis of TELKOMs share as provided in
the agreement.

TELKOMs share of distributable KSO revenue
(revenue earned under Joint Operation Schemes) includes
amortization of the investors initial payments, Minimum
TELKOM Revenues (MTR) and the Companys share
of Distributable KSO Revenues (DKSOR). The unearned
initial investor payments received as compensation from the KSO
Investors are presented net of all direct costs incurred in
connection with the KSO agreement and are amortized using the
straight-line method over the KSO period. MTR are recognized on
a monthly basis based upon the contracted MTR amount for the
current year, in accordance with the KSO agreement. The
Companys share of distributable KSO revenues is recognized
on the basis of the Companys percentage share of the KSO
revenues, net of MTR and operational expenses of the KSO Units,
as provided in the KSO agreements.



| |                                     
| | ------------------------------------
| | Allowances for Doubtful
    Accounts

TELKOM provides services to certain of its
customers on credit terms. We maintain allowances for doubtful
accounts for estimated losses based on our expected level of
recoverability of accounts receivable, the aging of the accounts
receivable balances and a review of status of individual
receivables account.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Estimated Useful Lives of Property, Plant
    and Equipment  Direct Acquisitions

TELKOM estimates the useful lives of property,
plant and equipment in order to determine the amount of
depreciation and amortization expense to be recorded during any
reporting period. The useful lives are estimated at the time the
asset is acquired and are based on historical experience with
similar assets as well as taking into account anticipated
technological or other changes. When the book

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value of long-lived assets exceeds the
recoverable value of the asset due to technological changes,
industry changes or physical damage, the useful lives assigned
to these assets may either need to be shortened, resulting in
the recognition of increased depreciation and amortization
expense in future periods or these changes could result in the
recognition of an impairment charge to reflect the write-down in
value of the asset. TELKOM reviews these types of assets for
impairment periodically, when events or circumstances indicate
that the carrying amount may not be recoverable over the
remaining lives of the assets. Assessment of the timing and/or
the amount of such impairment is a matter of significant
judgment. In assessing impairments, TELKOM uses discounted cash
flows that take into account managements estimates of
future operations. The most important estimates that we use in
projecting our future cash flows involve our expectations of the
future prices at which our services will be charged, the number
of access lines that we will have in service and the discount
rate that is used to arrive at the discounted present value of
the projected future cash flows. The prices at which our
services are charged are subject to government regulation and
may be subject to retrospective adjustment. The number of access
lines that we will have in service will depend upon our ability
to source sufficient, affordable financing to build new access
lines.




| |                                           
| | ------------------------------------------
| | Acquisitions and Business
    Divestitures

The cross-ownership transactions with Indosat and
a portion of the Pramindo acquisition representing
Indosats interest in Pramindo have been accounted for as a
reorganization of entities under common control because TELKOM
and Indosat (at the dates of the relevant transactions) were
both controlled by the Government. These transactions have been
recorded at historical cost in a manner similar to that in
pooling of interests accounting.

The difference between the consideration paid or
received and the related historical carrying amount, after
considering income tax effects, has been charged to equity as
Difference in value of restructuring transactions between
entities under common control.

The acquisition of a subsidiary from a third
party is accounted for using the purchase method. The excess of
the acquisition cost over TELKOMs interest in the fair
value of identifiable assets and liabilities acquired is
recorded as goodwill and amortized using the straight-line
method over a period generally not expected to be more than five
years.



| |                                         
| | ----------------------------------------
| | Pension and Post-retirement
    Benefits

We have a commitment, mainly through
TELKOMs pension fund, to pay pension and other
post-retirement benefits to our employees and former employees
who reach 56 years of age. The cost of these benefits and
the present value of our pension and other post-retirement
liabilities depend on a number of factors which we determine on
an actuarial basis utilizing a number of assumptions. The
assumptions used in determining the net periodic cost (income)
for pension and post-retirement benefits include the expected
long-term rate of return on the relevant plans assets and the
discount rate. In the case of the post-retirement healthcare
plan, the expected rate of increase in medical costs is also
used. Any changes in these assumptions will impact the net
periodic cost (income) recorded for pension and post-retirement
benefits.

TELKOM uses long-term historical actual return
information and estimated future long-term investment return
information by reference to external sources to develop its
expected rate of return on plan assets.

At the end of each year, TELKOM determines the
appropriate discount rate, which represents the interest rate
that should be used to determine the present value of future
cash flows currently expected to be required to settle the
pension and post-retirement benefit obligations. In determining
the appropriate discount rate we considered the current yields
on high quality corporate fixed-income investments. We were not
able to identify suitable investments in Indonesia with a
corresponding maturity to the expected duration of the benefit
obligations so we have used a number of sources to extrapolate
to match the timing of maturity. These sources include current
and historical relationships

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between government bond yields and inflation and
the current yields available on high quality Indonesian debt
securities. At December 31, 2003, TELKOMs discount
rate was 11%.


The expected rate of medical cost has been
determined by comparing the historical relationship of our
actual medical cost increases with the rate of general inflation
in the Indonesian economy. Past experience has shown that our
actual medical costs have on average increased by a factor of
1.5 times the general rate of inflation. We have decreased our
projected medical cost inflation from 14% at December 31,
2002 to 12% at December 31, 2003 to reflect the decrease in
our medical cost trend experience which is in line with reducing
general inflationary trends in Indonesia.

Other assumptions include life expectancy of the
members, the rate of increase in compensation levels and the
average remaining years of service.

Early retirement benefits are recognized at the
time TELKOM makes a commitment to provide early retirement
benefits as a result of an offer made in order to encourage
voluntary redundancy. TELKOM is demonstrably committed to a
termination when and only when, TELKOM has a detailed formal
plan for the early retirement and such plan is without realistic
possibility of withdrawal.



| |             
| | ------------
| | Income Taxes

The actual tax we pay on our profits is
determined according to complex tax laws and regulations. Where
the effect of these laws and regulations is unclear, we use
estimates in determining the liability for the tax to be paid on
our past profits which we recognize in our financial statements.

Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts
recognized for income tax purposes. Deferred tax liabilities are
recognized for all taxable temporary differences and deferred
tax assets are recognized for deductible temporary differences
to the extent that it is probable that taxable income will be
available in future periods against which the deductible
temporary differences can be utilized or the tax asset will
crystallize in future periods.

Under Indonesian tax regulations, a dividend
distributed by a company to a corporate shareholder is currently
subject to a zero percent tax rate whereas a capital gain on the
sale of shares is subject to tax at the normal corporate tax
rate. As long as we continue to hold our investments in our
affiliated companies and the tax rate applicable to dividend
distributions continues to be 0%, we do not need to record a
deferred tax liability in respect of the undistributed earnings
of these affiliated companies.

A change in our intention to hold an investment
or other facts and circumstances may lead TELKOM to determine
that we no longer expect to realize our interest in the
undistributed earnings of the particular affiliated company in a
manner which enables us to take advantage of the zero percent
tax rate applicable to dividend distributions. Such a change in
the future would require us to recognize a deferred tax
liability with a commensurate charge to our income statement.

Deferred tax is calculated at the tax rates that
have been enacted or substantively enacted at the balance sheet
date. If enacted tax rates changed, TELKOM would adjust its
deferred tax assets and liabilities, through the income tax
expense in the period of change, to reflect the enacted (or
substantively enacted) tax rate expected to be in effect when
the deferred tax items reverse.



| |                    
| | -------------------
| | Legal Contingencies

We are currently involved in certain legal
proceedings and have accrued amounts that represent our estimate
of the probable outcome of these matters. Such estimates of
outcome are derived from consultation with outside counsel, as
well as an assessment of litigation and settlement strategies.
Whilst we believe that our current accruals are adequate, a
future event or change in the facts and circumstances may
require us to make additional accruals which would be charged to
our income

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statement in the future. See Note 55 to the
consolidated financial statements and Item 8.
Financial Information  Material
Litigation.


In addition, we may face SEC enforcement action
and other legal liability in connection with our failure to
timely file a compliant Annual Report on Form 20-F for 2002
by the June 30, 2003 filing deadline. See Item 3.
Risk Factors  TELKOM did not file a fully
compliant 2002 Annual Report on Form 20-F until
February 9, 2004 and may face an SEC enforcement action, or
other legal liability or adverse consequences.



|   |                                                       
|-- | ------------------------------------------------------
|C. | Research and Development and Intellectual
    Property

TELKOM makes investments to improve its product
and service offerings. Such expenditure amounted to
approximately Rp.3.1 billion in 2001, Rp.11.2 billion
in 2002 and Rp.2.1 billion (US$0.2 million) in 2003.

TELKOM is in the process of registering a number
of patents for technologies relating to, among others, cellular
phones and network, PSTN, switching systems and related
administration systems. It has also registered or is in the
process of registering its trade and service marks in Indonesia.

D.  Trend information

A number of developments have had and may have in
the future a material impact on TELKOMs results of
operations, financial condition and capital expenditures. These
developments include:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | ongoing consequences related to TELKOMs
    failure to file a compliant Form 20-F for 2002 by
    June 30, 2003;                       
|
| |  | upgrading of the network with soft switching
    technology;                                                                            
|
| |  | increasing relative contribution of Telkomsel to
    our consolidated revenues;                                                         
|
| |  | higher domestic fixed line tariffs beginning in
    2004 and ability of Government to implement additional planned
    tariff increases;
|
| |  | implementation of TELKOMs early retirement
    program;                                                                                
|
| |  | ongoing issues with KSO Investors;                                                                                                      
|
| |  | acquisition of control in Pramindo;                                                                                                     
|
| |  | acquisition of AriaWest;                                                                                                                
|
| |  | competition in the market for DLD services; and                                                                                         
|
| |  | commencement of TELKOMs IDD fixed-line
    services.                                                                                   

See Item 5.A. Operating Results.

E.  Off-Balance Sheet
Arrangements

During 2002, TELKOM entered into two foreign
exchange facilities agreements with the intention of hedging its
foreign currency liabilities. These agreements were made with
Bank Mandiri and HSBC to cover TELKOMs foreign exchange
liabilities for US$120 million and US$1 million,
respectively. The Bank Mandiri agreement expired on
April 4, 2004 while the HSBC agreement will expire on
August 31, 2004.

TELKOM is party to a number of operating leases,
all of which are cancelable on less than one months notice
at the option of TELKOM. These operating leases relate
principally to vehicles and computers. TELKOM does not believe
these operating leases are material to its business.

TELKOM has entered into a partnership agreement
with Motorola, Inc., Ericsson Radio A.B., Siemens
Aktiengesellschaft (AG) and Nokia Oyj whereby TELKOM is
obligated to purchase certain

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cellular equipment and services. In addition,
TELKOM has entered into agreements pursuant to which TELKOM is
committed to pay for services relating to the launch of the
TELKOM-2 Satellite and the construction of a PSTN network for
each of Regional Division II and V. For more details
relating to these agreements, please see Item 10.
Additional Information  C. Material
Contracts.


Except as disclosed above, TELKOM does not have
off-balance sheet arrangements that are material.



|   |                                                  
|-- | -------------------------------------------------
|F. | Tabular Disclosure of Contractual
    Obligations

The following summarizes TELKOMs
contractual obligations at December 31, 2003 and the effect
such obligations are expected to have on liquidity and cash flow
in future periods:

|                                      |                                    |                        |          |           |  |           |          |           |  |               |         |         |  |  |         |         |  |  |         |         | 
|------------------------------------- | ---------------------------------- | ---------------------- | -------- | --------- |  | --------- | -------- | --------- |  | ------------- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                      |                                    |                       
|                                      |                                    | Payments Due by Period
|                                      |                                    |                       
|                                      |                                    |                        |          | Less than |  |          
|Contractual Obligations               |                                    | Total                  |          | 1 year    |  | 1-3 years |          | 4-5 years |  | After 5 years
|                                      |                                    |                        |          |           |  |           |          |           |  |              
|                                      |                                    |                       
|                                      |                                    | (Rp. in billion)      
|Short Term Loans(1)                   |                                    |                        | 37.6     |           |  |           | 37.6     |           |  |               |        |         |  |  |        |         |  |  |        |        
|Long Term Debt(2)                     |                                    |                        | 15,480.7 |           |  |           | 3,563.4  |           |  |               | 3,511.6 |         |  |  | 4,276.3 |         |  |  | 4,129.4 |        
|Capital Lease Obligations(3)          |                                    |                        |         |           |  |           |         |           |  |               |        |         |  |  |        |         |  |  |        |        
|Operating Leases(3)                   |                                    |                        | 219.0    |           |  |           | 101.1    |           |  |               | 107.9   |         |  |  |        |         |  |  |        |        
|Unconditional Purchase Obligations(4) |                                    |                        | 12,797.8 |           |  |           | 12,138.1 |           |  |               | 659.6   |         |  |  |        |         |  |  |        |        
|Other Long Term Obligations(5)        |                                    |                        | 2,536.9  |           |  |           | 2,536.9  |           |  |               |        |         |  |  |        |         |  |  |        |        
|                                      |                                    |                        |          |           |  |           |          |           |  |               |         |         |  |  |         |         |  |  |         |        
|                                      | Total Contractual Cash Obligations |                        |          | 31,072.0  |  |           |          | 18,377.1  |  |               |         | 4,279.1 |  |  |         | 4,276.3 |  |  |         | 4,129.4 | 
|                                      |                                    |                        |          |           |  |           |          |           |  |               |         |         |  |  |         |         |  |  |         |        



---



|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Relates to liability under a short term loan
    obtained by Napsindo from Bank Mandiri. See Note 22 to the
    Companys consolidated financial statements included
    elsewhere in this Annual Report.
|(2) | See  Liquidity and Capital
    Resources  Indebtedness and Notes 24, 25,
    26, 27, 28 and 29 to the Companys consolidated financial
    statements included elsewhere in this Annual Report.      
|(3) | Relates primarily to leases of motor vehicles and
    computers.                                                                                                                                         
|(4) | Relates to commitments of TELKOMs suppliers
    and vendors to provide telecommunications-related equipment and
    infrastructure.                                                                     
|(5) | Relates to the present value as of
    December 31, 2003 of TELKOMs long term liabilities
    for post-retirement benefits and long service awards.                                                     






|        |                                               
|------- | ----------------------------------------------
|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND
    EMPLOYEES

A.  Directors and Senior
Management

In accordance with Indonesian law, the Company
has a two-tier board structure, consisting of a Board of
Commissioners and a Board of Directors. The executive management
functions are carried out by the Board of Directors, whose
members are comprised of the top executives of the Company,
comparable to the chief executive officer, chief financial
officer and other such officers of corporations incorporated
under the laws of many of the States in the United States of
America.

Board of Commissioners

TELKOMs Articles of Association (the
Articles), referring to the Indonesian Company Law,
states that the principal statutory duties of the Board of
Commissioners are to supervise the policies of the Board of
Directors in the operation and management of the Company and to
give advice to the Board of Directors. In carrying out its
supervisory activities, the Board of Commissioners is
accountable to the stockholders of the Company.

The Board of Commissioners, which supervises the
management of TELKOM and the implementation of TELKOM business
plan by the Board of Directors, does not have day-to-day
management functions or authority, except in limited
circumstances where all members of the Board of Directors have
been suspended for any reason.

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The current Board of Commissioners of TELKOM
consists of five members, two of whom are independent
commissioners.

Pursuant to the Articles, each Commissioner is
appointed for a term commencing from the date of the appointment
by the general meeting of stockholders until the closing of the
third annual general meeting of stockholders following the date
of appointment, without prejudice to the right of the general
meeting of stockholders to discharge a Commissioner at any time
before his or her term of office expires. If the position of a
Commissioner becomes vacant for any reason, the Articles further
provide that within 60 days of the occurrence of such
vacancy, an announcement that there will be notice for a general
meeting of stockholders must be made to nominate a successor.

Pursuant to the Articles, meetings of the Board
of Commissioners are presided over by the President
Commissioner. If the President Commissioner is absent, another
member of the Board of Commissioners chosen from the
Commissioners present presides over the meeting.

Meetings of the Board of Commissioners must be
held at least once every three months and at any other time
(i) upon request of the President Commissioner,
(ii) upon request of one-third of the members of the Board
of Commissioners, (iii) upon written request of the Board
of Directors, or (iv) upon request of a shareholder or a
group of stockholders holding at least one-tenth of the
outstanding shares of TELKOM with valid voting rights. The
quorum for all Board of Commissioners meetings is more than
one-half of the total number of the Commissioners then
represented in person or by proxy granted to one of the other
Commissioners of TELKOM at such meeting.

Resolutions of a meeting of the Board of
Commissioners shall be by consensus. If consensus cannot be
reached, it shall be by the affirmative vote of a majority of
the members of the Board of Commissioners present or represented
at the meeting. In the event of a tie, the proposed resolution
shall be deemed to have been rejected.

The members of the Board of Commissioners as of
December 31, 2003 were:

|               |  |                 |    |       |  |                          |  |              
|-------------- |  | --------------- | -- | ----- |  | ------------------------ |  | -------------
|               |  | Age as of       |    |       |  |                         
|Name           |  | January 1, 2004 |    | Title |  | Since                   
|               |  |                 |    |       |  |                         
|Bacelius Ruru  |  |                 | 56 |       |  | President Commissioner   |  | April 7, 2000
|P. Sartono     |  |                 | 59 |       |  | Independent Commissioner |  | June 21, 2002
|Arif Arryman   |  |                 | 48 |       |  | Independent Commissioner |  | June 21, 2002
|Agus Haryanto  |  |                 | 52 |       |  | Commissioner             |  | June 21, 2002
|Djamhari Sirat |  |                 | 58 |       |  | Commissioner             |  | June 21, 2002

At the Extraordinary General Meeting of
TELKOMs shareholders held on March 10, 2004, three
new Commissioners were elected, replacing Messrs. Ruru,
Haryanto and Sirat. As such, the members of the Board of
Commissioners as of the date of this Annual Report are as
follows:

|                 |  |                 |    |       |  |                          |  |               
|---------------- |  | --------------- | -- | ----- |  | ------------------------ |  | --------------
|                 |  | Age as of       |    |       |  |                         
|Name             |  | January 1, 2004 |    | Title |  | Since                   
|                 |  |                 |    |       |  |                         
|Tanri Abeng      |  |                 | 62 |       |  | President Commissioner   |  | March 10, 2004
|P. Sartono       |  |                 | 59 |       |  | Independent Commissioner |  | June 21, 2002 
|Arif Arryman     |  |                 | 48 |       |  | Independent Commissioner |  | June 21, 2002 
|Anggito Abimanyu |  |                 | 41 |       |  | Commissioner             |  | March 10, 2004
|Gatot Trihargo   |  |                 | 43 |       |  | Commissioner             |  | March 10, 2004



| |            
| | -----------
| | Tanri Abeng

Mr. Abeng has been President Commissioner of
TELKOM since March 10, 2004. From 1980 to 1998,
Mr. Abeng served as President Director (1980-1991) and
President Commissioner (1991-1998) of PT Multi Bintang
Indonesia, Indonesias largest brewery. He also served as
President Director of PT Bakrie & Brothers from 1991 to
1998, was President Commissioner of PT B.A.T. Indonesia
from 1993

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to 1998 and was a Commissioner of PT Sepatu
BATA from 1989 to 1998. He was also a member of Parliament from
1993 to 1999 and was Minister of State-Owned Enterprises from
1998 to 1999. Mr. Abeng holds a degree from the University
of Hasanudin, a masters degree in business administration from
the State University of New York, Buffalo and has completed the
Advanced Management Program at the Claremont Graduate School in
Los Angeles.




| |           
| | ----------
| | P. Sartono

Mr. P. Sartono has been an Independent
Commissioner of TELKOM since June 21, 2002. In addition, he
currently serves as the Senior Adviser of the Board of
Commissioners of PT Telekomindo Primabhakti and as a
Commissioner of PT Excelcomindo. Mr. P. Sartono became
an employee of TELKOM in 1972 and has served in various
management positions, including as Corporate Secretary from 1991
to 1995, until his retirement in 2000. During his tenure at
TELKOM, he also held various positions at Directorate General of
Post and Communications from 1972 to 1985 and served as
President Director of PT Telekomindo Primabhakti.
Mr. P. Sartono holds a degree in law from the University of
Indonesia and a Master of Management (Marketing) degree from
IPWI Jakarta and a Master of Law degree from the Institute
Business Law and Management (Sekolah Tinggi Ilmu Hukum IBLAM) in
Jakarta.



| |             
| | ------------
| | Arif Arryman

Mr. Arryman has been an Independent
Commissioner of TELKOM since June 21, 2002. In addition he
has served as Independent Commissioner of PT Bank BNI since
2001. Previously, he served as an advisor to the Coordinating
Minister for Economy and a member of the assistance team to the
Ministry of Finance. Mr. Arryman graduated with a degree in
Industrial Engineering from Bandung Institute of Technology, a
masters degree in Engineering from Asia Institute of Technology,
Bangkok, Diploma dEtude Approfondie from University
Paris-IX Dauphine France and a Ph.D degree in Economics from
University of Paris-IX Dauphine France.



| |                 
| | ----------------
| | Anggito Abimanyu

Mr. Abimanyu has been a Commissioner of
TELKOM since March 10, 2004. He is currently the Acting
Head of the Agency for Fiscal Analysis of the Ministry of
Finance and has been a member of the expert staff to the Finance
Minister since 2000. Mr. Abimanyu previously served as a
member of the Board of Commissioners of Bank Lippo and of Bank
Internasional Indonesia. Mr. Abimanyu is also a lecturer in
the Faculty of Economics of Gadjah Mada University.
Mr. Abimanyu holds both a bachelor and a master degree in
economics from Gadjah Mada University, a master in science
degree in International Development from the University of
Pennsylvania and a Ph.D. degree in Environmental Economics from
the University of Pennsylvania.



| |               
| | --------------
| | Gatot Trihargo

Mr. Trihargo has been a Commissioner of
TELKOM since March 10, 2004. He currently serves as a
member of the Special Staff of the Ministry of State-Owned
Enterprises. Mr. Trihargo holds a degree in accounting from
Sekolah Tinggi Akuntansi Negara, Jakarta, and a masters degree
in Accountancy and Financial Information Systems from Cleveland
State University in Ohio.

Board of Commissioners
Committees

The Board of Commissioners has currently two
standing committees: the Audit Committee and the Review and
Planning Committee. An Independent Commissioner chairs each
committee, while the other members consist entirely of
independent external members (i.e., not members of either
the Board of Commissioners or the Board of Directors) not
affiliated with TELKOM, its Board of Commissioners and its Board
of Directors. In addition, external members to the Audit
Committee, in order to be considered independent: (a) must
not be a member of any Indonesian registered public accountant
that

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has provided audit and/or non-audit services to
TELKOM within one year prior to his appointment to the Audit
Committee; (b) must not have been a TELKOM employee within
one year prior to his appointment to the Audit Committee;
(c) does not own, directly or indirectly, any shares in
TELKOM; (d) does not have any business relationship that
relates to TELKOMs businesses; and (e) is not a
member of the audit committee of another publicly listed company.


The Audit Committee of the Board of Commissioners
is currently composed of six members: (i) Mr. Arif
Arryman, an Independent Commissioner and the Chairman;
(ii) Mr. P. Sartono, an Independent Commissioner;
(iii) Mr. Mohammad Ghazali Latief;
(iv) Mr. Salam; (v) Mr. Dodi Syaripudin; and
(vi) Mr. Sahat Pardede. All of the members of the
Audit Committee (except for Mr. Arif Arryman and
Mr. Sartono) are independent external members and
Mr. Pardede is an accounting and finance expert. An Audit
Committee Charter (the Charter) that has been
adopted by the Board of Commissioners and the Board of Directors
governs the committee. The Charter outlines the committees
purpose, function and responsibilities and specifies that the
committee is responsible for:



| |   |                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Overseeing the Companys financial reporting
    process on behalf of the Board of Commissioners. As part of its
    responsibilities, the committee will recommend to the Board of
    Commissioners, subject to shareholder approval, the selection of
    TELKOMs external auditor;
|
| |  | Discussing with TELKOMs internal and
    external auditors the overall scope and specific plans for their
    respective audits. The committee will also discuss TELKOMs
    consolidated financial statements and the adequacy of
    TELKOMs internal controls;                   
|
| |  | Meeting regularly with TELKOMs internal and
    external auditors, without management present, to discuss the
    results of their examinations, their evaluation of TELKOMs
    internal controls and the overall quality of TELKOMs
    financial reporting; and                  
|
| |  | Carrying out additional tasks that are assigned
    by the Board of Commissioners, especially on financial and
    accounting related matters.                                                                                                                                         

The Review and Planning Committee was established
on August 1, 2003. There are six members on this
committee, consisting of: (i) Mr. Arif Arryman (the
Chairman); (ii) Mr. P. Sartono;
(iii) Mr. Wisnu Marantika; (iv) Mr. Kindy
Syahrir; (v) Mr. Adam Wirahadi; and
(vi) Mr. Arman Soeriasoemantri. The objective of this
committee is to review the companys long-term plans, as
well as business budget plans, following which recommendations
would be made by this committee to the Board of Directors. The
committee is also responsible for supervising the implementation
of the business plans of the company.

On May 20, 2003, following TELKOMs
2003 Annual General Meeting of stockholders, the Board of
Commissioners re-established the Nomination and Remuneration
Committee, with Mr. P. Sartono, an Independent
Commissioner, as the committee chairman. Pursuant to the decree
of the Board of Commissioners, Mr. Sartono appointed the
following as committee members: (i) Dr. Budi W.
Soetjipto; (ii) Dr. Ferdinand T Siagian; and
(iv) Dra. Psi. Wustari H. Mangunwidjaja. The committee
was tasked with formulating: (a) selection criteria and
nomination procedures for Commissioners and Directors; and
(b) a compensation system for Commissioners and Directors
for the 2003 fiscal year. In accordance with its mandate from
the Board of Commissioners, the committee will deliver a report
regarding its activities during the 2004 Annual General Meeting
of TELKOMs stockholders.

The Commissioners business address is 5th
Floor, Grha Citra Caraka Building, Jalan Gatot Subroto
Kav. 52, Jakarta 12710, Indonesia.

Board of Directors

The Board of Directors is comprised of one
President Director and four Directors. Directors are elected and
dismissed by stockholder resolutions at a general meeting of
stockholders at which the holder of the Series A Dwiwarna
Share is present and such holder approves the aforementioned

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stockholder resolutions. In order to be eligible
for election, candidates for Director must be nominated by the
holder of the Series A Dwiwarna Share. Each Director is
appointed for a term commencing from the date of appointment by
the general meeting of stockholders until the closing of the
fifth annual general meeting of stockholders after the date of
appointment, without prejudice to the right of the general
meeting of stockholders to discharge a Director at any time
before his/her term of office expires.


The principal functions of the Board of Directors
are to lead and manage TELKOM and to control and manage
TELKOMs assets. The Board of Directors is responsible for
the day-to-day management of TELKOM under the supervision of the
Board of Commissioners. The Articles provide that the Board of
Directors shall consist of at least two Directors, one of whom
shall be the President Director.

The President Director, or in case of his
absence, another Director as provided for in the Articles shall
have authority to represent TELKOM and execute documents on
behalf of TELKOM, subject to the provisions of the Articles. The
President Director shall preside over meetings of the Board of
Directors or in his absence, any other member of the Board of
Directors appointed from among and by those present may preside
over such meetings.

The Articles provide that meetings of the Board
of Directors may be held whenever considered necessary upon the
request of (i) the President Director, (ii) at least
one-third of the members of the Board of Directors,
(iii) the Board of Commissioners, or (iv) written
notice from any shareholder or group of shareholders holding at
least one-tenth of the outstanding shares of TELKOM with valid
voting rights. The Articles further provide that the quorum for
all Directors meetings is more than one-half of the
members of the Board of Directors present or represented in
person or by proxy granted to another Director of TELKOM in such
meeting. At Directors meetings, each Director shall have
one vote and one additional vote for each other Director he
represents as proxy.

Resolutions of a meeting of the Board of
Directors shall be by consensus. If consensus cannot be reached,
it shall be by the affirmative vote of a majority of the members
of the Board of Directors present or represented at the meeting.
In the event of a tie, the matter shall be determined by the
Chairman of the meeting.

The members of the Board of Directors as of
December 31, 2003 were:

|                  |  |                 |    |       |  |                                                  |  |              
|----------------- |  | --------------- | -- | ----- |  | ------------------------------------------------ |  | -------------
|                  |  | Age as of       |    |       |  |                                                 
|Name              |  | January 1, 2004 |    | Title |  | Since                                           
|                  |  |                 |    |       |  |                                                 
|Kristiono         |  |                 | 49 |       |  | President Director                               |  | June 21, 2002
|Agus Utoyo        |  |                 | 51 |       |  | Director of Human Resources and Support Business |  | June 21, 2002
|Guntur Siregar    |  |                 | 53 |       |  | Director of Finance                              |  | June 21, 2002
|Garuda Sugardo    |  |                 | 54 |       |  | Director of Telecommunications Service Business  |  | June 21, 2002
|Suryatin Setiawan |  |                 | 49 |       |  | Director of Telecommunications Network Business  |  | June 21, 2002

At the Extraordinary General Meeting of
TELKOMs shareholders held on March 10, 2004, three
new Directors were elected, replacing Messrs. Utoyo,
Siregar and Sugardo, and Mr. Setiawan was

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appointed as Director of Telecommunications
Service Business. As such, the members of the Board of Directors
as of the date of this Annual Report are as follows:


|                   |  |                 |    |       |  |                                                  |  |               
|------------------ |  | --------------- | -- | ----- |  | ------------------------------------------------ |  | --------------
|                   |  | Age as of       |    |       |  |                                                 
|Name               |  | January 1, 2004 |    | Title |  | Since                                           
|                   |  |                 |    |       |  |                                                 
|Kristiono          |  |                 | 49 |       |  | President Director                               |  | June 21, 2002 
|Woeryanto Soeradji |  |                 | 49 |       |  | Director of Human Resources and Support Business |  | March 10, 2004
|Rinaldi Firmansyah |  |                 | 43 |       |  | Director of Finance                              |  | March 10, 2004
|Suryatin Setiawan  |  |                 | 49 |       |  | Director of Telecommunications Service Business  |  | March 10, 2004
|Abdul Haris        |  |                 | 48 |       |  | Director of Telecommunications Network Business  |  | March 10, 2004



| |          
| | ---------
| | Kristiono

Mr. Kristiono has been the President
Director of TELKOM since June 21, 2002. He joined TELKOM in
1978 and has held several positions in various departments. He
previously served as Director of Technology and Planning of
TELKOM and Head of Regional Division V Surabaya.
Mr. Kristiono graduated with a degree in electrical
engineering from Surabaya Institute of Technology.



| |                   
| | ------------------
| | Woeryanto Soeradji

Mr. Soeradji has been Director of Human
Resources and Support Business of TELKOM since March 10,
2004. He joined TELKOM in 1990 and has held several positions in
various departments. He previously served as TELKOMs Vice
President for Marketing, head of TELKOMs Business
Development Group and Corporate Secretary of TELKOM, as well as
Director of Marketing for Telkomsel. Mr. Soeradji has a
degree in Electrical Engineering from the Bandung Institute of
Technology and a masters degree in business administration from
the Indonesian Institute of Management Development, Jakarta.



| |                   
| | ------------------
| | Rinaldi Firmansyah

Mr. Firmansyah has been Director of Finance
of TELKOM since March 10, 2004. He currently serves as the
Vice President Commissioner of PT Bahana Securities and is
also a Commissioner and head of the Audit Committee of
PT Semen Padang. He previously served as the Vice President
for Finance of PT Tirtamas Comexindo. Mr. Firmansyah
graduated with a degree in electrical engineering from the
Bandung Institute of Technology and a masters degree in business
administration from the Indonesian Institute of Management
Development, Jakarta. Mr. Firmansyah is also a Chartered
Financial Analyst (CFA).



| |                  
| | -----------------
| | Suryatin Setiawan

Mr. Setiawan has been Director of
Telecommunications Service Business of TELKOM since
March 10, 2004. Previously, he served as head of
TELKOMs Research and Information Technology Division from
1995 to 2000 and as Director of Telecommunications and Network
Business from June 2002 to March 2004. In addition,
Mr. Setiawan previously served as the President
Commissioner for Telkomsel. Mr. Setiawan graduated with a
degree in electrical engineering from Bandung Institute of
Technology.



| |            
| | -----------
| | Abdul Haris

Mr. Haris has been Director of
Telecommunications and Network Business of TELKOM since
March 10, 2004. Previously, he served as deputy head of
TELKOMs Regional Division II (Jakarta) and deputy
head of TELKOMs Regional Division V (East Java).
Mr. Haris has a degree in electrical

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engineering from North Sumatra University and a
masters degree in business administration from Prasetya Mulya
Management Institute.


None of the Directors has a service contract with
the Company nor are any such contracts proposed. The
Directors business address is Jalan Japati,
1, Bandung 40133, Indonesia. None of the Directors or
Commissioners is related to one another.

B.     Compensation

Each Commissioner is granted a monthly honorarium
and certain other allowances and is paid an annual bonus if
TELKOM surpasses certain financial and operating targets, the
amounts of which are determined by the stockholders at the
general meeting of stockholders. Each Commissioner also receives
a lump-sum bonus paid at the end of the Commissioners term
pursuant to an MoF letter which applies to all state-owned
companies. Each Director is granted a monthly salary and certain
other allowances (including a pension if such Director is
otherwise eligible). Each Director also receives an annual bonus
(tantiem) if TELKOM surpasses certain financial and
operating targets, the amounts of which are determined by the
stockholders at the general meeting of the stockholders. Bonuses
and incentives are budgeted annually and are based on the
recommendation of the Board of Directors which recommendation
must be approved by the Board of Commissioners before submission
to the stockholders. No fees are paid to the Commissioners or
Directors for their attendance at their respective board
meetings. In addition, Directors receive certain other in-kind
benefits, such as housing, car and driver. For the year ended
December 31, 2003, the aggregate compensation paid by
TELKOM and its consolidated subsidiaries to all of their
Commissioners and Directors was Rp.67.8 billion
(US$8.0 million), while the amount paid by TELKOM
(unconsolidated) to all its Commissioners and Directors was
approximately Rp.30.9 billion (US$3.66 million), in
each case including bonuses and the cost of benefits provided to
Directors, such as housing facilities.

C.     Board
practices

Individual Directors are charged with specific
responsibilities. In the event that a vacancy occurs in the
Board of Directors, so long as the position remains vacant, one
of the other directors will be nominated by the Board of
Commissioners to perform the work of the absent director. If,
for any reason, the Company ceases to have any Directors, the
Board of Commissioners is to assume the ongoing obligations of
the Board of Directors and must convene a general meeting of
stockholders to elect a new Board of Directors within
60 days.

The Board of Directors is required to obtain the
written approval of the Board of Commissioners for the following
actions: (i) buying or selling the shares of listed
companies in excess of the amount stipulated by the Board of
Commissioners; (ii) participating in or disposing of other
capital investments; (iii) establishing subsidiaries;
(iv) entering into licensing agreements, management
contracts or similar agreements with other entities for a period
of more than one year; (v) selling or otherwise disposing
of fixed assets; (vi) ceasing to collect or writing off bad
debts from the Companys books or inventory in excess of
the amount stipulated by the Board of Commissioners;
(vii) binding the Company as surety in excess of the amount
stipulated by the Board of Commissioners; and
(viii) assuming or granting intermediate or long-term loans
and assuming short-term loans not in the ordinary course of
business in excess of the amount stipulated in the
Companys work plan and budget, as approved by the Board of
Commissioners. In addition, any of the above transactions which
involves 10% or more of the Companys revenues or 20% or
more of stockholders equity or such other amount as
specified in Indonesian capital market regulations must be
authorized by the stockholders at the general meeting of
stockholders. In the performance of its duties, the Board of
Directors must act in the interests of the Company.

The Articles provide that members of the Board of
Directors are prohibited from assuming the following: (i) a
position as director of another state-owned corporation or
private companies, (ii) any position within the structural
or functional department of the central or district government,
or

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(iii) other positions outside TELKOM which
may directly or indirectly raise conflicts of interest with
TELKOM and/or which violate the provisions of applicable laws
and regulations. The Articles further provide that if members of
the Board of Directors wish to assume any other position not
prohibited above or wish to obtain an exemption from the
foregoing prohibitions, such Director would require permission
from the Board of Commissioners. In addition, such appointment
shall be reported to the general meeting of stockholders.


In addition, the Articles prohibit a Director
with conflicting interests representing TELKOM in the issues
causing such conflict of interest. In such cases, TELKOM shall
be represented by another member of the Board of Directors with
the consent of the Commissioners. In the event that TELKOM faces
a conflict of interest with all members of its Board of
Directors, TELKOM shall be represented by the Board of
Commissioners or a member of the Board of Commissioners chosen
by the Commissioners in the issues causing such conflict.

None of the Directors or Commissioners has any
substantial interest, direct or indirect, in any company
carrying on a similar trade as TELKOM.

D.     Employees

As of December 31, 2003 the Company had
30,820 employees, of which 24,206 were employed in TELKOM and
6,614 were employed in KSO regions. As of December 31,
2002, the Company had 34,678 employees, of which 24,543 and
10,135 personnel were employed in TELKOM and KSO Regions
respectively. As of December 31, 2001, the Company had
37,422 employees, of which 18,926 and 18,496 personnel were
employed in TELKOM and KSO Regions respectively.

The table below sets forth a breakdown of
TELKOMs employees by position as at December 31, 2003:

|                  |       |                |        |              |  |  |       |       | 
|----------------- | ----- | -------------- | ------ | ------------ |  |  | ----- | ----- | 
|                  |       | TELKOM regions |        | KSO regions 
|                  |       | as at          |        | as at       
|                  |       | December 31,   |        | December 31,
|                  |       | 2003           |        | 2003(1)     
|                  |       |                |        |             
|Senior management |       |                | 175    |              |  |  |      |      
|Middle management |       |                | 2,027  |              |  |  | 164   |      
|Supervisors       |       |                | 6,445  |              |  |  | 1,478 |      
|Others            |       |                | 15,559 |              |  |  | 4,972 |      
|                  |       |                |        |              |  |  |       |      
|                  | Total |                |        | 24,206       |  |  |       | 6,614 | 
|                  |       |                |        |              |  |  |       |      



---



|    |                                                   
|--- | --------------------------------------------------
|(1) | This includes employees in KSO IV and
    KSO VII.

TELKOMs KSO employees remain employees of
TELKOM and are subject to all employment rules and policies of
TELKOM in force at that time, except to the extent that rules
and policies are supplemented, in favor of the employee, by the
rules and policies of the KSO Unit. Additional KSO employees are
the employees of the KSO partner and TELKOM has no obligation to
continue their employment at the end of the KSO period.

In general, TELKOM employees receive a base
salary and salary-related allowances, a bonus and various
benefits, including a pension plan and a post-retirement health
care plan, medical benefits for themselves and certain members
of their immediate family, housing allowance, other allowances
and certain other benefits, including those related to
performance of the employees working unit.

Bonuses are budgeted in advance by the Board of
Directors and the Board of Commissioners and are paid out in the
year following the year in which they are earned. Over the past
five years, the size of the annual bonus pool has ranged from
Rp.135 billion to Rp.232 billion. In 2003, bonuses
were paid by TELKOM to all employees including TELKOMs
employees in KSO and Non-KSO divisions. After the size of the
bonus pool is determined, management allocates the pool among
the Divisions depending

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upon their respective performances and uniform
bonuses for employees at each staff level for each Division are
then determined.


Pursuant to TELKOMs Initial Public Offering
in 1995, 116,667,000 shares of Common Stock were reserved for
mandatory sale to employees of the Company. The Company paid for
such shares (which were sold at the same per share price as the
public offering price of shares of Common Stock sold in
Indonesia pursuant to the Initial Public Offering (i.e.,
Rp.2,050 per share)) on behalf of its employees as follows: 90%
of the purchase price was deducted from employee cash bonuses
that had been previously allocated but not paid; the Company
paid the balance of the purchase price plus taxes payable by its
employees on the purchase of such shares (amounting to
approximately 15% of the purchase price) and reported those
payments as additional vacation pay, employee incentives and
other allowances. TELKOM does not otherwise maintain an employee
share scheme for any of its employees or senior management.

TELKOMs mandatory retirement age for all
employees is 56. Upon reaching 56, employees and their
dependents are entitled to a pension under a defined benefit
plan depending on their length of service to TELKOM. The amount
of the pension entitlement is based on the employees years
of service and salary level upon retirement and is transferable
to dependents upon the employees death. The main sources
of pension fund are the contributions from the employees and
TELKOM. The participating employees contribute 18% of basic
salary (prior to March 2003 the employee contribution rate was
8.4%) and TELKOM contributes the remaining amount required to
fund the plan. TELKOMs contributions to the pension fund
were Rp.129.3 billion, Rp.297.4 billion and
Rp.460.6 billion (US$54.6 million), for the years
ended December 31, 2001, 2002 and 2003, respectively. See
Note 46 to the consolidated financial statements.

Effective January 1, 2003, TELKOM
(a) increased the minimum pension benefit for retired
employee to approximately Rp.425,000 per month and
(b) increased pension benefits for employees who retired
prior to August 1, 2000 by 50%. Current employees who
effectively retired on or after July 1, 2002 receive an
increase of monthly pension benefit amounting to twice the
amount of their basic monthly salary. This policy applied to
employees who retired at the normal pension age of 56.

The Companys employees are entitled to
receive certain cash awards based on length of services and
after completing certain years of services which are either paid
at the time the employee reaches a certain anniversary date or
upon retirement or at the time of termination if the employee
has met the required number of years of service.

TELKOM also provides post-retirement healthcare
benefits for all of its retired employees, including their
immediate family. There are two types of funding for
post-retirement healthcare benefits: (i) for employees
hired before November 1, 1995 who retired prior to
June 3, 1995 or who have 20 years of service for those
retired after June 3, 1995, such benefits are funded by the
TELKOM Healthcare Foundation; and (ii) for employees hired
after November 1, 1995, such benefits will be granted in
the form of an insurance allowance by TELKOM. TELKOMs
contributions (including contributions paid by all KSO units) to
the plan for employees hired before November 1, 1995 and
who have had 20 years of service were Rp.56.4 billion,
Rp.75.4 billion and Rp.188.4 billion
(US$22.3 million), for the year ended December 31,
2001, 2002 and 2003, respectively.

The post-retirement health care plan for
employees hired after November 1, 1995 is accounted for in
accordance with U.S. GAAP (SFAS 106). TELKOMs
actuary, in consultation with management, re-evaluated the key
assumptions used in previous calculations, principally the
medical cost trend projections and determined that it was
necessary to make adjustments to original reports because the
previous calculations contained certain errors and the
assumptions used did not provide for all of the assumptions
required to calculate TELKOMs obligation. TELKOM,
therefore, determined that adjustments were required to be made
to its 2001, 2002 and prior years consolidated financial
statements.

In May 2000, TELKOM employees formed a union
named Serikat Karyawan TELKOM or SEKAR.
The formation of SEKAR is in accordance with the Presidential
Decree No. 83 of 1998

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regarding ratification of ILO Convention
No. 87 of 1948 concerning the freedom to form a union and
the protection of the right to form an organization. Membership
with SEKAR is not compulsory. TELKOM believes that its relations
with SEKAR are good. However, there can be no assurance that the
activities of employee unions will not materially and adversely
affect TELKOMs business, financial condition and prospects.


E.     Commissioners
and Directors Remuneration

The Company and its subsidiaries provide
honoraria and facilities to support the operational duties of
the Board of Commissioners. The total of such benefits amounted
to Rp.7.2 billion, Rp.8.7 billion and
Rp.14.0 billion in 2001, 2002 and 2003 respectively, which
reflected 0.1%, 0.1% and 0.1% of total operating expenses in
2001, 2002 and 2003, respectively.

The Company and its subsidiaries provide salaries
and facilities to support the operational duties of the Board of
Directors. Total of such benefits amounted to
Rp.30.3 billion, Rp.35.1 billion and
Rp.45.6 billion in the year ended December 31, 2001,
2002 and 2003, respectively, which reflected 0.3%, 0.3% and 0.3%
of total operating expenses in the year ended December 31,
2001, 2002 and 2003, respectively.

F.     Share
ownership

All the directors and commissioners individually
beneficially own less than one percent of the shares of the
Company and their respective beneficial share ownership in the
Company has not been disclosed to stockholders or otherwise made
public.






|        |                                                      
|------- | -----------------------------------------------------
|ITEM 7. | MAJOR STOCKHOLDERS AND RELATED PARTY
    TRANSACTIONS

A.     Major
stockholders

General

At January 1, 2004, to the Companys
knowledge, apart from the Government, there were no stockholders
beneficially owning more than 5% of the Companys Common
Stock.

The following table sets forth certain
information as of December 31, 2003 with respect to
(1) persons known to the Company to be the owner of more
than 5% of the Companys Common Stock (whether directly or
beneficially through ADSs); and (2) the total amount of any
class of the Companys Common Stock owned by the
Commissioners and Directors of the Company as a group.

|               |  |                                      |  |              |               |                  |  |  |         | 
|-------------- |  | ------------------------------------ |  | ------------ | ------------- | ---------------- |  |  | ------- | 
|Title of Class |  | Identity of Person or Group          |  | Amount Owned |               | Percent of Class
|               |  |                                      |  |              |               |                 
|Series A       |  | Government                           |  |              | 1             |                  |  |  | 100.00% | 
|Series B       |  | Government                           |  |              | 5,160,235,355 |                  |  |  | 51.19%  | 
|Series B       |  | JPMCB US Resident (Norbax Inc.)      |  |              | 896,045,651   |                  |  |  | 8.89%   | 
|Series B       |  | The Bank of New York (BoNY)          |  |              | 657,263,408   |                  |  |  | 6.52%   | 
|Series B       |  | Board of Directors and Commissioners |  |              | 63,180        |                  |  |  | 0.0006% | 

As of December 31, 2003, a total of
38,317,046 American Depositary Shares (ADSs) and
10,079,999,639 Series B shares (including the Series B
shares represented by these ADSs) and 1 Series A share were
outstanding.

The Government holds a majority of the
outstanding Series B shares of TELKOM. In addition, the
Government is the holder of the Series A Dwiwarna share,
which has special voting rights. See Item 7. Major
Stockholders and Related Party Transactions 
Relationship with the Government  Government as
Shareholder.

The Government holds a majority of the
outstanding Common Stock of the Company and so retains control
of the Company and has the power to elect all of its Board of
Commissioners and all of

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its Board of Directors and to determine the
outcome of substantially all actions requiring the approval of
the stockholders. In addition, the Companys Common Stock
is also owned by Pension Funds, Insurance Funds and other
institutions, owned or controlled, directly or indirectly, by
the Government.


The Government is also the holder of the
Series A Dwiwarna Share, which has special voting rights.
The material rights and restrictions which are applicable to the
Common Stock are also applicable to the Dwiwarna Share, except
that the Government may not transfer the Dwiwarna Share and it
has a veto with respect to (i) election and removal of
Directors; (ii) election and removal of Commissioners; and
(iii) amendments to the Articles of Association, including
amendments to merge or dissolve the Company prior to the
expiration of its term of existence, increase or decrease its
authorized capital and reduce its subscribed capital.
Accordingly, the Government will have effective control of these
matters even if it were to beneficially own less than a majority
of the outstanding shares of Common Stock.

TELKOMs total number of shares immediately
prior to its Initial Public Offering was 8,400,000,000, which
consisted of 8,399,999,999 Series B shares and 1
Series A Dwiwarna share, all of which were owned by the
Government. On November 14, 1995, the Government sold some
of its TELKOM shares through an initial public offering on the
Jakarta Stock Exchange and Surabaya Stock Exchange. The shares
offered consisted of 933,333,000 new Series B shares and
233,334,000 Series B shares owned by the Government. The
Government also conducted a global share offering listed on the
New York Stock Exchange and the London Stock Exchange for
700 million Series B shares owned by the State of the
Republic of Indonesia, which were converted into 35 million
ADSs. Each ADS represents 20 Series B shares.

In December 1996, the Government of the Republic
of Indonesia completed a block sale of 388 million
Series B shares. In 1997, the Government distributed
2,670,300 Series B shares as an incentive to stockholders
who did not sell their shares within one year from the date of
the initial public offering.

In May 1999, the Government completed another
block sale of 898 million Series B shares.

Under Law No.1/1995 on Limited Liability
Companies, the minimum total par value of TELKOMs issued
share capital has to be at least 25% of the total par value of
TELKOMs authorized share capital, or in TELKOMs
case, Rp.5 trillion. To comply with the law, it was resolved at
the annual general meeting of stockholders on April 16,
1999 to increase the issued share capital by way of
capitalization of certain additional paid in capital. The bonus
shares were distributed to the then existing stockholders in
August 1999.

In December 2001, the Government conducted
another block-sale of 1,200 million shares (or 11.90% of
the total outstanding Series B shares).

In July 16, 2002, the Government sold
312 million Series B shares (3.1% of the Series B
shares) through an accelerated placement of TELKOMs shares
to institutional investors in Indonesia and globally at Rp.3,635
per share.

Relationship with the Government

Government as
Shareholder

As of December 31, 2003, the Government held
approximately 51.19% of TELKOMs Common Stock and the
Series A share (the Dwiwarna Share), which
carries special voting rights. As its largest shareholder, the
Government is interested in TELKOMs performance both in
terms of the benefits it provides to the nation as well as its
ability to operate on a commercial basis. The material rights
and restrictions that are applicable to the Common Stock are
also applicable to the Dwiwarna Share, except that the
Government may not transfer the Dwiwarna Share and as the holder
of the Dwiwarna Share has a veto with respect to (i) the
nomination, election and removal of Directors; (ii) the
nomination, election and removal of Commissioners;
(iii) the issuance of new shares; and (iv) amendments
to the

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Articles, including actions to merge or dissolve
TELKOM, increase or decrease its authorized capital, or reduce
its subscribed capital. Accordingly, the Government will have
effective control of these matters even if it were to
beneficially own less than a majority of the outstanding shares
of Common Stock. The Governments rights with respect to
the Dwiwarna Share will not terminate unless the Articles of
Association of the Company are amended, which would require the
consent of the Government as holder of such Dwiwarna Share.


It is the policy of the Company not to enter into
transactions with affiliates unless the terms thereof are no
less favorable to the Company than those which could be obtained
by the Company on an arms-length basis from an
unaffiliated third party. The State Minister of State-owned
Enterprise (SMSOE) has advised the Company that the
MoF, in its capacity as controlling shareholder of the Company,
will not cause the Company to enter into transactions with other
entities under its control unless the terms thereof are
consistent with the Companys policy set forth in the
preceding sentence. The Company anticipates that the SMSOE will
adopt a similar policy.

Under regulations of Badan Pengawas Pasar
Modal (BAPEPAM), Indonesias capital
markets supervisory agency, because the Company is listed on
Indonesias stock exchanges, any transaction in which there
is a conflict of interest (as defined below) must be approved by
a majority of the holders of shares of Common Stock who do not
have a conflict of interest in the proposed transaction, unless
the conflict existed before the Company was listed and was fully
disclosed in the offering documents. A conflict of interest is
defined in BAPEPAM regulations to mean the difference between
the economic interests of the Company and its stockholders, on
the one hand and the personal economic interests of the members
of the board of commissioners, board of directors or principal
stockholders (a holder of 20% or more of the issued shares) and
their respective affiliates jointly or separately on the other.
A conflict of interest also exists when members of the board of
commissioners, board of directors or a principal shareholder of
the Company or their respective affiliates is involved in a
transaction in which their personal interests may be in conflict
with the interest of the Company. BAPEPAM has powers to enforce
this rule; stockholders of the Company may also be entitled to
seek enforcement or bring enforcement action based on this rule.

Transactions between TELKOM and other state-owned
or controlled enterprises could constitute conflict of
interest transactions under the BAPEPAM regulations and
the approval of disinterested stockholders would have to be
obtained if a conflict of interest were to exist. TELKOM
believes that many transactions conducted with state-owned or
controlled enterprises in the ordinary course of their
businesses and TELKOMs business are on an arms-length,
commercial basis and do not constitute conflict of
interest transactions for which a disinterested
stockholder vote would be required. Such transactions might
include the sale by TELKOM of telephone services to state-owned
or controlled enterprises or the purchase by TELKOM of
electricity from a state-owned enterprise. Moreover, the BAPEPAM
regulations do not require TELKOM to obtain disinterested
shareholder approval of any transaction, the principal terms of
which were disclosed in the Indonesian prospectus for the
Initial Public Offering. TELKOM expects, however, in light of
the substantial presence enterprises owned or controlled by the
Government, through the MoF, SMSOE, or one of its or their
affiliates have in Indonesia, it may be desirable, in connection
with the development and growth of TELKOMs business, for
TELKOM to enter into joint ventures, arrangements or
transactions with such enterprises from time to time. Under such
circumstances, TELKOM may seek to consult BAPEPAM in determining
whether the proposed joint venture, arrangement or transaction
would require a vote of disinterested stockholders under the
terms of the BAPEPAM regulations. If BAPEPAM were of the view
that the proposed joint venture, arrangement or transaction
would not require a vote of disinterested stockholders under its
regulations, TELKOM would proceed without seeking disinterested
stockholders approval. If, however, BAPEPAM were to take the
position that the proposal would require a vote of disinterested
stockholders under its rule, TELKOM would either seek to obtain
the requisite disinterested stockholder approval or abandon the
proposal.

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| |                        
| | -----------------------
| | Government as Regulator

The Government regulates the telecommunications
sector through the MoC. In particular, the MoC has authority to
issue decrees implementing laws, which are typically broad in
scope, thereby giving the Ministry considerable latitude in
implementing and enforcing regulatory policy. Pursuant to such
decrees, the MoC defines the industry structure, determines the
tariff formula, determines TELKOMs USO obligations and
otherwise controls many factors that may affect TELKOMs
competitive position, operations and financial condition.
Through the DGPT, the Government regulates frequency and
bandwidth allocation and TELKOM must obtain a license from the
DGPT for each of its services as well as the utilization of
frequency and bandwidths. The Company and other operators are
also required to pay radio frequency usage fees. Telkomsel also
holds several licenses issued by the MoC for the provision of
its cellular services and from the Indonesian Investment
Coordinating Board relating to investment by Telkomsel for the
development of cellular phone line services with national
coverage, including the expansion of its network coverage. The
Government through the MoC, as regulator has the power to grant
new licenses for the establishment of new joint ventures and
other arrangements, particularly in the telecommunications
sector.



| |                     
| | --------------------
| | Government as Lender

As of December 31, 2003, the Government had
sub-loaned borrowings from foreign lenders to TELKOM amounting
to Rp.7,691.0 billion (US$911.3 million), including
current maturities. TELKOM is obligated to pay to the Government
interest and principal repayment that is subsequently remitted
by the Government to the respective lenders. At the end of
December 2003, foreign currency loans represented 58.8% of the
outstanding total of such loans. The remaining 41.2% of such
outstanding loans is denominated in Rupiah. In 2003, the annual
interest rates charged on loans repayable in Rupiah range from
1.86% to 13.25%, on those repayable in U.S. Dollar range
from 4.0% to 7.98% and on those repayable in Japanese Yen range
from 3.1% to 3.2%.



| |                       
| | ----------------------
| | Government as Customer

The Government purchases services from the
Company on a commercial basis. Government entities, in the
aggregate, constitute the largest user of the Companys
services. The Company, however, deals with the various
departments and agencies of the Government as separate customers
and the provision of services to any single department or agency
does not constitute a material part of TELKOMs revenues.
The Government and government agencies are treated for tariff
purposes as residential. which rates are lower than
the business service rates.

Other



| |                                                                               
| | ------------------------------------------------------------------------------
| | Proportion of securities of TELKOM held in
    Indonesia and outside Indonesia

As of December 31, 2003, 13,807 people,
including the Government, were registered as holders of
10,079,999,640 shares of TELKOMs Common Stock in
Indonesia. There were a total of 38,317,046 ADSs held by 169
registered holders as of December 31, 2003. The ADSs
are traded on the NYSE and the LSE.



| |                  
| | -----------------
| | Change in Control

There are no arrangements which are known to the
Company which may result in a change in control to the Company.

B.     Related party
transactions

TELKOM is a party to certain agreements and
engages in transactions with a number of entities that are
related to the Company, such as joint venture companies,
cooperatives and foundations, as well as the Government and
entities that are related to or owned or controlled by the
Government,

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such as state-owned entities. See Note 49 to
the Companys consolidated financial statements. The most
significant of these transactions include:




| |                                            
| | -------------------------------------------
| | Government of the Republic of
    Indonesia

The Company obtained two-step loans
from the Government of the Republic of Indonesia, the
Companys majority stockholder. Interest expense from
two-step loans amounted to Rp.960.4 billion,
Rp.969.0 billion and Rp.755.5 billion in 2001, 2002
and 2003, respectively. Interest expense from two-step loans
reflected 72.2%, 61.2% and 54.6% of interest expense in 2001,
2002 and 2003, respectively.

The Company and its subsidiaries pay concession
fees for telecommunication services provided and radio frequency
usage charges to the Ministry of Communication (formerly,
Ministry of Tourism, Post and Telecommunication) of the Republic
of Indonesia. Concession fees amounted to Rp.63.6 billion,
Rp.163.9 billion and Rp. 239.0 billion in 2001, 2002
and 2003, respectively. Concession fees reflected 0.7%, 1.4% and
1.6% of total operating expenses in 2001, 2002 and 2003,
respectively. Radio frequency usage charges amounted to Rp
101.3 billion, Rp 292.7 billion and
Rp.371.7 billion in 2001, 2002 and 2003, respectively.
Radio frequency usage charges reflected 1.1%, 2.5% and 2.5% of
total operating expenses in 2001, 2002 and 2003, respectively.



| |                                          
| | -----------------------------------------
| | Indosat (including Satelindo and
    IM3)

At the time TELKOM acquired Pramindo in August
2002, 13% of the issued and paid up share capital of Pramindo
was owned by Indosat, a company that, at that time, was majority
owned and controlled by our major shareholder, the Government of
Indonesia. As such, Indosat is considered as a related party.

The Company has an agreement with Indosat for the
provision of international telecommunication services to the
public. The principal matters covered by the agreement are as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company provides a local network for
    customers to make or receive international calls. Indosat
    provides the international network for the customers, except for
    certain border towns, as determined by the Director General of
    Post and Telecommunication of the Republic of Indonesia. The
    international telecommunication services include telephone,
    telex, telegram, package switched data network, television,
    teleprinter, Alternate Voice/Data Telecommunication (AVD),
    hotline and teleconferencing. The Company receives compensation
    for the services, based on the interconnection tariff determined
    by the Minister of Tourism, Post and Telecommunication of the
    Republic of Indonesia;  
|
| |  | The Company has also entered into an
    interconnection agreement between the Companys PSTN
    network and Indosats STBS network in connection with the
    implementation of Indosat Multimedia Mobile services and the
    settlement of the related interconnection rights and obligation.
    Pursuant to the Minister of Communication Decree regarding the
    transfer of license of Indosats mobile cellular network
    operation from Indosat to PT Indosat Multimedia Mobile
    (IM3), the Company agreed to transfer all
    interconnection rights and obligations to IM3 based on
    Interconnection Cooperation Agreement, as regulated in the
    Amendment of Agreement in the side letter No. 656 dated
    March 18, 2002;
|
| |  | The Companys compensation relating to
    leased lines/ channel services, such as IBS, AVD and bill
    printing is calculated at 15% of Indosats revenues from
    such services. Indosat also leases circuits from the Company to
    link Jakarta, Medan and Surabaya; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company has been handling customer billing
    and collection for Indosat. Indosat is gradually taking over the
    activities and performing its own direct billing and collection.
    The Company receives compensation from Indosat computed at 1% of
    the collections made by the Company beginning January 1,
    1995, plus the billing process expenses which are fixed at a
    certain amount per record.                                                                                                                                                                                                                                                                                                                            

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Telkomsel also entered into an agreement with
Indosat for the provision of international telecommunication
services to GSM mobile cellular customers. The principal matters
covered by the agreement are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Telkomsels GSM mobile cellular
    telecommunication network is connected with Indosats
    international gateway exchanges to make outgoing or receive
    incoming international calls through Indosats
    international gateway exchanges;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Telkomsel receives as compensation for the
    interconnection, a specific percentage of Indosats
    revenues from the related services made through Indosats
    international gateway exchanges;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Billings for international calls made by
    customers of GSM mobile cellular telecommunication are handled
    by Telkomsel. Telkomsel is obliged to pay Indosats share
    of revenue although billings to customers have not been
    collected; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The agreement dated March 29, 1996, was
    initially valid for one year, but extendable for one-year
    periods as agreed by both parties. The latest extension expired
    on February 29, 2004. Pending negotiations on a new
    agreement, Telkomsel and Indosat have entered into an interim
    agreement with terms similar to those set forth above. Under the
    terms of the interim agreement, Telkomsel will receive 27% of
    the applicable tariff for outgoing international calls from
    Telkomsel subscribers and Rp.800 per minute for incoming
    international calls to Telkomsel subscribers. The interim
    agreement will be effective from March 1, 2004 until such
    date that Telkomsel and Indosat enter into a new agreement.

Telkomsel also has an agreement for the usage of
Indosats telecommunication facilities. The agreement,
which was made in 1997, is valid for eleven years and subject to
change based on an annual review and agreement by both parties.
The charges for the usage of the facilities amounted to
Rp.13.4 billion, Rp.12.7 billion and Rp.
17.9 billion in 2001, 2002 and 2003, respectively,
reflecting 0.2%, 0.1% and 0.1% of total operating expenses in
2001, 2002 and 2003, respectively.

Other agreements between Telkomsel and Indosat
are as follows:

Agreement on
Construction and Maintenance for the Jakarta-Surabaya Cable
System (J-S Cable System)

Telkomsel, Lintasarta, Satelindo and Indosat
entered into the Construction and Maintenance for J-S Cable
System Agreement. The parties formed a management committee
consisting of a chief and a representative of the respective
parties, to direct the development and operation of the cable
system that was completed in 1998. Based on the agreement,
Telkomsel share of the total construction cost was 19.325%.
Telkomsel shares the total cost of operation and maintenance
based on an agreed formula.

Telkomsels share of the cost of operation
and maintenance amounted to Rp.1.4 billion,
Rp.0.9 billion and Rp.1.4 billion in 2001, 2002 and
2003, respectively.

Indefeasible
Right of Use Agreement

On September 21, 2000, Telkomsel entered
into an agreement with Indosat for the use of SEA 
ME  WE 3 and tail link in Jakarta and Medan. Based on
the agreement, Telkomsel was granted an irrevocable right to use
a certain capacity of the network commencing from
September 21, 2000 to 2015 by prepaying compensation
amounting to US$2,727,273. Besides the aforementioned
prepayment, Telkomsel is also charged annual operation and
maintenance costs amounting to US$136,364.

Interconnection
Agreement

On November 1, 2001, Telkomsel entered into
an interconnection agreement with Indosat (on behalf of IM3, a
subsidiary of Indosat). Based on this agreement,
Telkomsels GSM cellular mobile network is connected to
IM3s network and through this arrangement,
Telkomsels customers can make or receive calls from or to
IM3s customers.

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| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | Supply and installation of interconnection tools
    needed is Telkomsels responsibility; and          
|
| |  | The agreement is effective upon the signing date
    and extendable for a period agreed by both parties.

Based on the amendment upon the above agreement,
since December 14, 2001, Telkomsels customers are
able to send and receive short message services from IM3s
customers.

The Company and its subsidiaries earned net
interconnection revenue from IM3 of Rp.156.9 million and
Rp.50.9 billion in 2001 and 2002, respectively.
Interconnection revenues earned from IM3 in 2003 are included in
the total amount of interconnection revenues earned from Indosat
in 2003. See Interconnection Revenues below.

Agreements with
Satelindo

On November 20, 2003, Indosat, IM3,
Satelindo and PT Bimagraha Telekomindo merged, with Indosat
as the surviving entity. Pursuant to the terms of the merger,
all the rights and obligations of Satelindo and IM3,
respectively, arising from their agreements with TELKOM and
Telkomsel, as the case may be, were assumed by Indosat.

The Company has an agreement with Satelindo, a
subsidiary of Indosat, whereby both parties agreed, among other
matters, on the following:



| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interconnection of the Companys PSTN with
    Satelindos international gateway exchange, enabling the
    Companys customers to make outgoing or receive incoming
    international calls through Satelindos international
    gateway exchange; and
|
| |  | Billings for the international telecommunication
    services used by domestic customers through Satelindos
    international gateway exchange will be handled by the Company.                                                                         

The Company also has an agreement with Satelindo
for the interconnection of Satelindos GSM mobile cellular
telecommunication network with the Companys PSTN, enabling
the Companys customers to make outgoing calls to or
receive incoming calls from Satelindos customers.

Telkomsel also has an agreement with Satelindo
for interconnection on substantially the same terms as TELKOM.

Interconnection revenues earned from Satelindo
were Rp.293.7 billion and Rp.625.1 billion in 2001 and
2002, respectively, reflecting 1.8% and 3.0% of total operating
revenue for 2001 and 2002, respectively. Interconnection
revenues earned from Satelindo in 2003 are included in the total
amount of interconnection revenues earned from Indosat in 2003.
See Interconnection Revenues below.

The Company leases international circuits from
Satelindo. Payments made in relation to the lease amounted to
(2003 payments were made to Indosat) Rp.28.1 billion,
Rp.32.9 billion and Rp.30.2 billion in 2001, 2002 and
2003, respectively, which was 0.3%, 0.3% and 0.2% of total
operating expenses for 2001, 2002 and 2003, respectively.

Based on an agreement entered into among the
Company, PT Bimagraha Telekomindo and Indosat in 1993, at
the time of Satelindos establishment, the Company agreed
to transfer to Satelindo, its so-called B-2P, B-2R and B-4
Palapa satellites and other assets relating to the
Companys satellite control station located in Jakarta.
These transfers are to be covered in a separate agreement
between Satelindo and the Company. The separate agreement
regarding the transfers of these satellites and other assets has
not been made. However, the useful life of the B-2P and B-2R
Palapa satellites had expired. In November 2000, the Company
entered into an agreement with a third party, in which the
Company agreed to sell the expired B-2R Satellite, or to lease
the satellite to such third party if the sale is not consummated.

In 1994, the Company transferred to Satelindo the
right to use a parcel of Company-owned land located in Jakarta
that had been previously leased to Telekomindo, an associated
company. Based on

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the transfer agreement, Satelindo is given the
right to use the land for 30 years and can apply for the
right to build properties thereon. The ownership of the land is
retained by the Company. Satelindo agreed to pay
Rp.43.0 billion to the Company for the thirty-year right.
Satelindo paid Rp.17.2 billion in 1994 and the remaining
Rp.25.8 billion has not been paid because the Utilization
Right (Hak Pengelolaan Lahan) on the land
could not be delivered as provided in the transfer agreement. In
2000, the Company and Satelindo agreed on an alternative
solution by accounting for the above payment as lease expense up
to 2006. In 2001, Satelindo paid the remaining amount of
Rp.59.9 billion as lease expense up to 2024. As of
December 31, 2003, the prepaid portion is reflected in the
Companys consolidated balance sheet as Advances from
customers and suppliers.


Interconnection
Revenues

The Company and its subsidiaries earned net
interconnection revenues from Indosat (including Satelindo and
IM3 in 2003) of Rp.54.0 billion, Rp.274.7 billion and
Rp.235.7 billion in 2001, 2002 and 2003, respectively,
reflecting 0.3%, 1.3% and 0.9% of total operating revenues in
2001, 2002 and 2003 respectively.

Agreement
with Government agencies and associated companies

The Company has entered into agreements with
Government agencies and associated companies, Lintasarta, CSM
and Patrakom, for utilization of the Companys Palapa B-4
and TELKOM-1 satellite transponders or frequency channels.
Revenues earned from these transactions amounted to
Rp.89.5 billion, Rp.44.1 billion and
Rp.96.9 billion in 2001, 2002 and 2003, respectively, which
was 0.5%, 0.2% and 0.4% of total operating revenues in 2001,
2002 and 2003, respectively.

The Company provides leased lines to CSM,
Lintasarta, Satelindo, Komselindo, Mobisel, Metrosel and PSN
(2003 total excludes Satelindo, Komselindo and Metrosel). The
leased lines can be used by these companies for telephone,
telegraph, data, telex, facsimile or other telecommunication
services. Revenue earned from these transactions amounted to
Rp.19.8 billion, Rp.75.7 billion and
Rp.69.4 billion in 2001, 2002 and 2003, respectively, which
was 0.1%, 0.4% and 0.3% of total operating revenues in 2001,
2002 and 2003.

The Company provides a data communication network
system for Lintasarta, an Indosat subsidiary and operates a
telemetry tracking and command station for PSN. Revenues earned
by the Company from these transactions amounted to
Rp.28.0 billion in 2001, which was 0.2%, of total operating
revenues in 2001. There was no revenue earned from these
transactions in 2002 and 2003.

The Company purchases property and equipment
including construction and installation services from a number
of related parties. These related parties include
PT Industri Telekomunikasi Indonesia
(PT INTI), Lembaga Elektronika Nasional,
PT Adhi Karya, PT Pembangunan Perumahan,
PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya
Karya, PT Waskita Karya which are all state-owned
companies, PT Gratika, Telekomindo, Bangtelindo, Telesera
which are associated companies and Koperasi Pegawai
Telekomunikasi, a related party cooperative. Purchases made from
these related parties amounted to Rp.100.5 billion,
Rp.154.8 billion and Rp.127.0 billion in 2001, 2002
and 2003, respectively, reflecting 2.4%, 2.1% and 1.1% of total
fixed assets purchases in 2001, 2002 and 2003, respectively.

PT INTI was a major contractor and supplier
providing equipment, including construction and installation
services for Telkomsel. Total purchases from PT INTI in
2001, 2002 and 2003 amounted to Rp.663.6 billion,
Rp.34.7 billion and Rp.52.3 billion, respectively,
reflecting 15.7%, 0.5% and 0.5% of total fixed assets purchases
in 2001, 2002 and 2003, respectively.

The Company and its subsidiaries carry insurance
(on their property, plant and equipment against property losses,
inventory and on employees social security) obtained from
PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja
and PT Persero Asuransi Jiwasraya, which are state-owned
insurance companies. Insurance premiums amounted to
Rp.83.9 billion, Rp.131.4 billion and

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Rp.159.5 billion in 2001, 2002 and 2003,
respectively, reflecting 0.9%, 1.1% and 1.1% of total operating
expenses in 2001, 2002 and 2003, respectively.


The Company and its subsidiaries maintain current
accounts and time deposits in several state-owned banks. In
addition, some of those banks are appointed as collecting agents
for the Company. As of December 31, 2001, the Company also
had an investment in mutual funds managed by Danareksa, a
state-owned company. Total placements in form of current
accounts and time deposits in state-owned banks and mutual funds
amounted to Rp.3,779.9 billion, Rp.6,161.2 billion and
Rp.3,130.4 billion as of December 31, 2001, 2002 and
2003, respectively, reflecting 11.4%, 13.9% and 6.2% of total
assets as of December 31, 2001, 2002 and 2003,
respectively. Interest income recognized during 2003 was
Rp.274.0 billion, reflecting 74.9% of total interest income.

The Company (a) leases buildings,
(b) purchases materials and construction services and
(c) utilizes maintenance and cleaning services from Dana
Pensiun Telkom and PT Sandhy Putra Makmur, a subsidiary of
Yayasan Sandikara Putra Telkom (a foundation managed by Dharma
Wanita Telkom). Total charges from these transactions amounted
to Rp.18.7 billion, Rp14.6 billion and
Rp.32.8 billion in 2001, 2002 and 2003, respectively, which
was 0.2%, 0.1% and 0.2% of total operating expenses in 2001,
2002 and 2003, respectively.

The Company purchased encoded phone cards from
Perusahaan Umum Percetakan Uang Republik Indonesia, a
state-owned company. Expenses arising from this transaction
amounted to Rp.1.8 billion, Rp.1.4 billion and
Rp.7.7 billion in 2001, 2002 and 2003, respectively, which
was 0.02%, 0.01% and 0.05% of total operating expenses for 2001,
2002 and 2003, respectively.

In 1991, the Company granted loans to Koperasi
Telekomunikasi (Koptel) amounting to
Rp.1 billion to support Koptels activities in
providing housing loans to the Companys employees. The
balance of the loans amounted to Rp.0.2 billion, as of
December 31, 2001, Rp.0.1 billion as of
December 31, 2002 and nil as of December 31, 2003,
which is immaterial to the Companys total assets as of
December 31, 2001, 2002 and 2003.

The Company and its subsidiaries earned
interconnection revenues from Komselindo, Metrosel, Mobisel,
BBT, PSN and Patrakom (2003 totals exclude Komselindo and
Metrosel), which are associated companies, totaling
Rp.345.3 billion, Rp.78.0 billion and
Rp.21.0 billion in 2001, 2002 and 2003, respectively, which
was 2.1%, 0.4% and 0.1% of total operating revenues in 2001,
2002 and 2003, respectively.

In addition to revenues earned under the KSO
Agreement, the Company also earned income from building rental,
repairs and maintenance services and training services provided
to the KSO Units, amounting to Rp.114.2 billion,
Rp.73.7 billion and Rp.23.1 billion in 2001, 2002 and
2003, respectively, which was 0.7%, 0.4% and 0.1% of total
operating revenues in 2001, 2002 and 2003, respectively.

The Company provides a defined benefit pension
plan and a postretirement health care plan for its pensioners
through Dana Pensiun Telkom and Yayasan Kesehatan Pegawai
Telkom. See Notes 46 and 48 to the consolidated financial
statements in Item 18.

The Company has also seconded a number of its
employees to related parties to assist them in operating their
business. In addition, the Company provides certain of its
related parties with the right to use its buildings free of
charge.

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|   |                                
|-- | -------------------------------
|C. | Interest of experts and counsel

Not applicable.






|        |                      
|------- | ---------------------
|ITEM 8. | FINANCIAL INFORMATION



|   |                                                            
|-- | -----------------------------------------------------------
|A. | Consolidated statements and other financial
    information

See Item 18. Consolidated Financial
Statements, which is incorporated herein by reference.

Material Litigation



| |          
| | ---------
| | Aria West

On July 31, 2003, TELKOM acquired 100% of
the shares of its KSO partner for Regional Division III,
PT AriaWest International (AriaWest) for an
aggregate consideration of US$38.67 million in cash
(US$20 million of which was paid when the purchase
agreement was signed on May 8, 2002 and the remaining
US$18.67 million was paid on July 31, 2003) and
US$109.1 million in promissory notes. The promissory notes,
which are interest-free, are payable in 10 semi-annual
installments. At the same time, in consideration of the release
of AriaWests outstanding obligations to its lenders,
TELKOM also repaid approximately US$99 million of
AriaWests debt (on behalf of AriaWest) and entered into a
new loan agreement for approximately US$197 million with
AriaWests lenders. TELKOM and AriaWest also entered into a
settlement agreement pursuant to which TELKOM and AriaWest
irrevocably settled, discharged and released claims and
counterclaims in their ICC arbitration proceeding and TELKOM
agreed to pay a settlement amount of US$20 million.

The ICC arbitration proceeding which was settled
as of July 31, 2003 involved claims by AriaWest that TELKOM
was in material breach of provisions of the KSO Agreement.
AriaWest sought at least US$1.3 billion in damages in the
arbitration, although it did not specify the amount of damages
associated with most of its claims. TELKOM objected to the
ICCs jurisdiction over AriaWests claims relating to
the alleged loss of AriaWests exclusive rights and tariff
adjustment and, wholly apart from its jurisdictional objections,
TELKOM denied all of AriaWests claims. TELKOM also
asserted claims against AriaWest for material breaches of the
KSO Agreement.



| |                
| | ---------------
| | KAP Eddy Pianto

On February 19, 2004, KAP Eddy Pianto, the
auditor initially appointed by TELKOM to audit TELKOMs
2002 financial statements, commenced a legal suit in the South
Jakarta District Court against KAP Drs. Haryanto Sahari
& Rekan (member firm of PricewaterhouseCoopers in Indonesia,
formerly known as KAP Drs. Hadi Sutanto & Rekan and
TELKOMs auditor for the reaudit of TELKOMs 2002
financial statements), TELKOM, KAP Hans Tuanakotta
Mustofa & Halim (formerly KAP Hans
Tuanakotta & Mustofa) (member firm of Deloitte Touche
Tohmatsu in Indonesia and TELKOMs 2001 auditor) and
BAPEPAM (collectively, the Defendants), alleging
that the Defendants, through the reaudit of TELKOMs 2002
financial statements, had conspired to engage in an illegal
action against KAP Eddy Pianto, tarnishing the reputation of KAP
Eddy Pianto in the public accounting profession. KAP Eddy Pianto
seeks to recover approximately Rp.7,840.0 billion in
damages from the Defendants. As of the date of this Annual
Report, each Defendant has filed its response to KAP Eddy
Piantos allegations, as well as its respective rejoinder
to certain replies of KAP Eddy Pianto to such response. The
court is now in the process of examining the evidence and
witnesses presented by KAP Eddy Pianto and each of the
Defendants. TELKOM is contesting this legal suit vigorously
because it does not believe that the claim of KAP Eddy Pianto
has any merit or that KAP Eddy Pianto has any legal basis to
claim damages. As of the date of this Annual report, however,
TELKOM can give no assurance regarding the possible outcome of
the legal suit.

Apart from the above, TELKOM is not a party to
any other litigation or legal proceedings which it believes
would, individually or taken as a whole, have a material adverse
effect on its business, financial condition and results of
operations.

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|   |                    
|-- | -------------------
|B. | Significant changes

See the important disclosures made in
Item 3. Key Information  D. Risk
Factors  TELKOM did not file a fully compliant 2002
Annual Report on Form 20-F until February 9, 2004 and
may face an SEC enforcement action, or other legal liability or
adverse consequences.

On May 13, 2004, TELKOM received its
commercial license to provide IDD fixed-line services. On
June 7, 2004, TELKOM began offering IDD fixed-line services
to customers under the brand name  TIC 007.

See the important disclosures regarding changes
in the regulations governing the Indonesian telecommunications
industry in Item 4. Information on the
Company  B. Business Overview 
Regulations.

See Note 57 to the Companys
consolidated financial statements in Item 18 for
information relating to material subsequent events occurring
after December 31, 2003.

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|        |                      
|------- | ---------------------
|ITEM 9. | THE OFFER AND LISTING



|   |                          
|-- | -------------------------
|A. | Offer and listing details

The table below sets forth, for the periods
indicated, the reported high and low quoted prices for the
currently outstanding Common Stock on the JSX.

SHARE PRICE INFORMATION

|               |  |                 |       |     |  |  |       | 
|-------------- |  | --------------- | ----- | --- |  |  | ----- | 
|               |  |                
|               |  | Price per Share
|               |  |                
|Calendar Year  |  | High            |       | Low
|               |  |                 |       |    
|               |  |                
|               |  | (in Rupiah)    
|1999           |  |                 | 4,629 |     |  |  | 2,407 | 
|2000           |  |                 | 4,350 |     |  |  | 2,025 | 
|First Quarter  |  |                 | 4,350 |     |  |  | 3,325 | 
|Second Quarter |  |                 | 3,775 |     |  |  | 2,675 | 
|Third Quarter  |  |                 | 3,325 |     |  |  | 2,600 | 
|Fourth Quarter |  |                 | 2,890 |     |  |  | 2,025 | 
|2001           |  |                 | 3,400 |     |  |  | 1,825 | 
|First Quarter  |  |                 | 3,150 |     |  |  | 1,775 | 
|Second Quarter |  |                 | 3,200 |     |  |  | 2,175 | 
|Third Quarter  |  |                 | 3,525 |     |  |  | 2,650 | 
|Fourth Quarter |  |                 | 3,250 |     |  |  | 2,425 | 
|2002           |  |                 |       |     |  |  |       | 
|First Quarter  |  |                 | 4,300 |     |  |  | 2,825 | 
|Second Quarter |  |                 | 4,725 |     |  |  | 3,700 | 
|Third Quarter  |  |                 | 3,900 |     |  |  | 3,125 | 
|Fourth Quarter |  |                 | 4,000 |     |  |  | 2,350 | 
|2003           |  |                 |       |     |  |  |       | 
|First Quarter  |  |                 | 3,725 |     |  |  | 3,225 | 
|Second Quarter |  |                 | 4,950 |     |  |  | 3,650 | 
|Third Quarter  |  |                 | 6,000 |     |  |  | 4,125 | 
|Fourth Quarter |  |                 | 6,750 |     |  |  | 5,650 | 
|December       |  |                 | 6,900 |     |  |  | 5,850 | 
|2004           |  |                 |       |     |  |  |       | 
|January        |  |                 | 8,050 |     |  |  | 6,700 | 
|February       |  |                 | 7,800 |     |  |  | 7,000 | 
|March          |  |                 | 7,550 |     |  |  | 6,350 | 
|April          |  |                 | 8,800 |     |  |  | 7,000 | 
|May            |  |                 | 8,100 |     |  |  | 6,600 | 
|June 24, 2004  |  |                 | 7,250 |     |  |  | 7,100 | 

On December 30, 2003, (at last trading on
the JSX), the closing price for a share of Common Stock was
Rp.6,750.

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The table below sets forth, for the periods
indicated, the reported high and low quoted prices of the ADSs
on the NYSE and LSE.

ADS PRICE INFORMATION

|               |  |                |       |                |  |      |       |     |  |  |       |  |  |  |       | 
|-------------- |  | -------------- | ----- | -------------- |  | ---- | ----- | --- |  |  | ----- |  |  |  | ----- | 
|               |  |                |       |               
|               |  | Price per ADS  |       | Price per ADS 
|               |  | (NYSE)         |       | (LSE)         
|               |  |                |       |               
|Calendar Year  |  | High           |       | Low            |  | High |       | Low
|               |  |                |       |                |  |      |       |    
|               |  |                |       |               
|               |  | (in US Dollar) |       | (in US Dollar)
|1999           |  |                | 13.63 |                |  |      | 5.27  |     |  |  | 13.17 |  |  |  | 5.37  | 
|2000           |  |                | 12.00 |                |  |      | 4.13  |     |  |  | 12.15 |  |  |  | 4.27  | 
|First Quarter  |  |                | 12.00 |                |  |      | 9.1   |     |  |  | 12.1  |  |  |  | 9.2   | 
|Second Quarter |  |                | 9.7   |                |  |      | 6.4   |     |  |  | 9.6   |  |  |  | 6.4   | 
|Third Quarter  |  |                | 8.0   |                |  |      | 5.9   |     |  |  | 7.9   |  |  |  | 6.1   | 
|Fourth Quarter |  |                | 6.3   |                |  |      | 4.1   |     |  |  | 6.4   |  |  |  | 4.3   | 
|2001           |  |                | 7.06  |                |  |      | 3.65  |     |  |  | 7.05  |  |  |  | 3.80  | 
|First Quarter  |  |                | 6.7   |                |  |      | 4.0   |     |  |  | 6.5   |  |  |  | 3.9   | 
|Second Quarter |  |                | 5.6   |                |  |      | 3.7   |     |  |  | 5.6   |  |  |  | 3.8   | 
|Third Quarter  |  |                | 7.1   |                |  |      | 5.5   |     |  |  | 7.1   |  |  |  | 5.5   | 
|Fourth Quarter |  |                | 5.8   |                |  |      | 4.7   |     |  |  | 6.1   |  |  |  | 4.8   | 
|2002           |  |                | 9.77  |                |  |      | 5.56  |     |  |  | 9.82  |  |  |  | 5.27  | 
|First Quarter  |  |                | 8.6   |                |  |      | 5.5   |     |  |  | 8.6   |  |  |  | 5.5   | 
|Second Quarter |  |                | 9.8   |                |  |      | 8.4   |     |  |  | 9.8   |  |  |  | 8.4   | 
|Third Quarter  |  |                | 8.7   |                |  |      | 7.0   |     |  |  | 8.7   |  |  |  | 7.1   | 
|Fourth Quarter |  |                | 8.9   |                |  |      | 5.6   |     |  |  | 8.9   |  |  |  | 5.3   | 
|2003           |  |                | 8.44  |                |  |      | 7.30  |     |  |  | 8.53  |  |  |  | 7.27  | 
|First Quarter  |  |                | 8.44  |                |  |      | 7.30  |     |  |  | 8.53  |  |  |  | 7.27  | 
|Second Quarter |  |                | 12.09 |                |  |      | 8.19  |     |  |  | 11.78 |  |  |  | 8.33  | 
|Third Quarter  |  |                | 13.73 |                |  |      | 9.85  |     |  |  | 13.90 |  |  |  | 9.60  | 
|Fourth Quarter |  |                | 16.42 |                |  |      | 13.13 |     |  |  | 16.05 |  |  |  | 13.40 | 
|December       |  |                | 16.42 |                |  |      | 13.64 |     |  |  | 16.05 |  |  |  | 14.35 | 
|2004           |  |                |       |                |  |      |       |     |  |  |       |  |  |  |       | 
|January        |  |                | 19.48 |                |  |      | 16.60 |     |  |  | 18.50 |  |  |  | 16.15 | 
|February       |  |                | 18.58 |                |  |      | 16.75 |     |  |  | 18.15 |  |  |  | 16.95 | 
|March          |  |                | 17.75 |                |  |      | 15.00 |     |  |  | 17.55 |  |  |  | 14.75 | 
|April          |  |                | 20.19 |                |  |      | 17.10 |     |  |  | 19.95 |  |  |  | 16.55 | 
|May            |  |                | 19.15 |                |  |      | 15.15 |     |  |  | 18.55 |  |  |  | 14.55 | 
|June 24, 2004  |  |                | 15.65 |                |  |      | 14.85 |     |  |  | 14.95 |  |  |  | 14.95 | 

On December 31, 2003, the closing price for
an ADS was US$ 16.14 on the NYSE and US$ 16.05 on
the LSE.

B.     Plan of
distribution

Not applicable.

C.     Markets

TELKOMs Common Stock is listed on the
Jakarta Stock Exchange (JSX) and the Surabaya Stock
Exchange (SSX). The JSX is the principal non-U.S.
trading market for the Companys Common

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Stock. In addition, American Depositary Shares
(ADSs), each representing twenty shares of Common
Stock, are listed on the New York Stock Exchange
(NYSE) and the London Stock Exchange
(LSE). TELKOMs Common Stock has also been
publicly offered without listing in Japan.


The Indonesian Securities Market

Currently there are two stock exchanges in
Indonesia. The primary market is the JSX located in Jakarta and
the other is the SSX located in Surabaya, East Java. The JSX is
the larger and more prominent of the two exchanges, with an
aggregate equity market capitalization of Rp.460.4 trillion at
year end 2003 as compared to Rp.405.0 trillion for the SSX.
Total trading value on the JSX during 2003 was Rp.125.4
trillion, compared with Rp.3.1 trillion on the SSX.



| |                    
| | -------------------
| | Overview of the JSX

There are currently two daily trading sessions
from Monday to Thursday, 9:30 a.m. to 12:00 noon and
1:30 p.m. to 4:00 p.m. There are two trading sessions
on Friday, from 9:30 a.m. to 11:30 a.m. and from
2:00 p.m. to 4:00 p.m.

Trading is divided into three market segments:
regular market, negotiation market and cash market. The regular
market is the mechanism for trading stock in standard lots on a
continuous auction market during exchange hours. With respect to
the trading of stock, the round lots consist of 500 shares for
non-banking sector shares and of 5,000 shares for banking
sector shares. The price movements and the limits for such
movements in one trading session are determined in accordance
with the market price of the respective traded shares. For
shares with the market price of less than Rp.500 the movement
are in multiples of Rp.5 and each price movement is limited to
Rp.50. For shares with market prices ranging from Rp.500 to
Rp.5,000 movements are in multiples of Rp.25 and each price
movement is limited to Rp.250. For shares with a market price of
Rp.5,000 or more movements are in multiples of Rp.50 with a
maximum of Rp.500 for each price movement. Auctioning takes
place according to both price and time priority. Price priority
gives priority to buying orders at a higher price or selling
orders at a lower price. If buying or selling orders are placed
at the same price, priority is given to the buying or selling
order placed first (time priority).

The negotiation market trading consists of
(i) block trading, i.e. lots of 200,000 shares or
more; (ii) odd lot trading with round lots of less than
500 shares or less than 5000 shares for banking
companies; (iii) crossing by an exchange member receiving
buying and selling orders for the same number of shares at the
same price; and (iv) foreign board trading in stocks where
foreign ownership has reached 49% of listed shares. Odd lots may
not be traded more than 5% above or below the latest price on
the regular market. Odd lot dealers may set prices within a
range of not more than 7% above or below the regular market
price and must buy or sell stock directly to and from customers
in crossing without charging commission. In the case of newly
listed or newly traded shares which have yet to establish a
market price, the price referred to is the initial public
offering price.

Transactions on the JSX regular and negotiation
markets are required to be settled no later than the fourth
trading day after the transactions. In case of a default by an
exchange member on settlement upon the due date, the Indonesian
Clearing and Guarantee Corporation, PT Kliring Penjaminan
Efek Indonesia (KPEI) may perform the obligations or
rights of such a defaulting exchange member, by, for example,
buying and/or selling shares in the cash market in order to
settle the defaulted transaction. Any such action by KPEI does
not eliminate the liabilities of the defaulting party which
effected the transaction. All cash market transactions must be
reported to the JSX. An exchange member defaulting in settlement
is liable to a fine of 0.25% for the first day and thereafter a
fine of 0.5% of the transaction value payable to his counterpart
in the transaction and shall also be issued with a warning.
Delay in payment of the fine is also liable to a penalty equal
to 1% of the fine for each calendar day of delay.

The JSX board of directors may cancel a
transaction if proof exists of fraud, manipulation or the use of
insider information. The JSX board of directors may also suspend
trading if there are indications of bogus transactions or
jacking up of share prices, misleading information, use of
insider information,

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counterfeit securities or securities blocked from
trading, upon the occurrence of other important events that may
affect investment decisions.


Exchange members may charge a fee for their
services based on an agreement with the clients up to a maximum
of 1% of the transaction value. When conducting stock
transactions on the JSX, exchange members are required to pay a
transaction fee equal to the cumulative transaction value for
each month based on 0.04% (subject to a minimum fee of
Rp.250,000) of transaction for stocks and other registered
securities.

Stockholders or their appointees may request the
issuer or a Securities Administration Bureau appointed by the
issuer at any time during working hours to register their shares
in the issuers Registry of Stockholders.



| |                            
| | ---------------------------
| | Trading on the NYSE and LSE

The Bank of New York serves as depositary (the
Depositary) with respect to the ADSs traded on the
NYSE and the LSE. Each ADS represents twenty shares of Common
Stock. As of December 31, 2003, 38,317,046 ADSs were
outstanding in the United States and there were 169 registered
holders of ADSs.

D.     Selling
Stockholders

Not applicable.

E.     Dilution

Not applicable.

F.     Expenses of
the issue

Not applicable.




ITEM
10.     ADDITIONAL
INFORMATION

A.     Share
capital

Not applicable.

B.     Memorandum and
Articles of Association

The Companys articles of association
(Articles) have been registered with the Ministry of
Justice in accordance with the Limited Liability Company Law
No. 1 Year 1995 (Indonesian Company Law)
and was announced by Ministerial Decree number
C2-7468.HT.01.04.TH.97 year 1997. According to
article 3, the objectives and purposes of the Company are
to operate telecommunications networks and provide
telecommunications and information services.

In accordance with Indonesian company law, TELKOM
has a Board of Commissioners and a Board of Directors. The two
Boards are separate and no individual may be a member of both
Boards. See Item 6. Directors, Senior Management and
Employees  A. Directors and Senior
Management. The Articles states that any transaction
involving a conflict of interest between the Company and its
directors, commissioners and stockholders should be approved by
a stockholders meeting, in which approval is required from a
majority of independent stockholders.

Each director also receives an annual bonus and
other incentives if TELKOM surpasses certain financial and
operating targets, the amounts of which are determined by the
stockholders at the general meeting of stockholders. Bonuses and
incentives are budgeted annually and are based on the
recommendation of the Board of Directors which recommendation
must be approved by the Board of Commissioners before submission
to the stockholders. Each commissioner is granted a monthly

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honorarium and certain other allowances and is
paid an annual bonus if TELKOM surpasses certain financial
operating targets, the amounts of which are determined by the
stockholders at the general meeting of stockholders. Each
commissioner also receives a lump sum bonus paid at the end of
the commissioners term pursuant to a letter of the
Ministry of Finance which applies to all state-owned companies.
No fees are paid to the Commissioners or Directors for
attendance at their respective board meetings.


The Board of Directors are tasked with the
responsibility of leading and managing the Company in accordance
with its objectives and purposes and to control, preserve and
manage the assets of the Company. Within such broad scope of
responsibility, the Board of Directors are authorized to cause
the Company to borrow such sums as it may require from time to
time subject to the limitations set forth in the Articles. The
borrowing powers of the Board of Directors may only be varied
through an amendment to the Articles.

The Articles do not contain any requirement for
(i) the directors to retire by a specified age, or
(ii) the directors to own any or a specified number of
shares of the Company. The rights, preferences and restrictions
attaching to each class of the shares of the Company in respect
of specified matters are set forth below:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | dividend rights.Dividends are to be paid based upon the financial condition of
    TELKOM and in accordance with the resolution of the stockholders
    in a general meeting, which will also determine the form of and
    time for payment of the dividend;                                                                                                                                                                                                                                                              
|
| |  | voting rights.The
    holder of each voting share is entitled to one vote at a general
    meeting of stockholders;                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | rights to share in the Companys
    profits.See dividend rights;                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | rights to share in any surplus in the event of
    liquidation.Stockholders are entitled
    to surplus in the event of liquidation in accordance with their
    proportion of shareholding, provided the nominal value of the
    Common Stock that they hold is fully paid-up;                                                                                                                                                                                                                                           
|
| |  | redemption
    provisions.There are no stock
    redemption provisions in the Articles. However, based on
    Article 30 of Indonesian Company Law, TELKOM may buy back
    at the maximum 10% of its issued shares;                                                                                                                                                                                                                                                                                                       
|
| |  | reserved fund
    provisions.Retained earnings up to a
    minimum of 20% of the issued capital of the Company is to be set
    aside to cover potential losses suffered by the Company. If the
    amount in the reserved fund exceeds 20% of the issued capital of
    the Company, general meeting of stockholders may authorize the
    Company to utilize such excess funds as dividends;                                                                                                                             
|
| |  | liability to further capital
    calls.Stockholders of the Company may
    be asked to subscribe for new shares in the Company from time to
    time. Such right is to be offered to stockholders prior to being
    offered to third parties and may be transferred at the option of
    the shareholder. The Board of Directors of the Company is
    authorized to offer the new shares to third parties in the event
    that the existing shareholder is unable or unwilling to
    subscribe for such new shares; and
|
| |  | provisions discriminating against any existing
    or prospective holder of such securities as a result of such
    shareholder owning a substantial number of
    shares.The Articles do not contain
    any such provision.                                                                                                                                                                                                                                                                                              

In order to change the rights of holders of
stock, an amendment to the relevant provisions of the Articles
would be required. Any amendment to the Articles requires the
approval of the holder of the Series A Dwiwarna share and
two thirds of the holders of the Series B shares
present at a general meeting. Such meeting must also be attended
by the holder of the Series A Dwiwarna share.

General meetings of stockholders may only be
convened upon the issuance of the requisite notice by the
Company. The notice is to be published in at least
2 newspapers having general circulation within Indonesia,
one of which must be in Indonesian and the other in English. The
notice period for

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convening annual general meetings and
extraordinary general meetings is 21 days (not including
the date the meeting was called and the date of the meeting) and
14 days (not including the date the meeting was called and
the date of the meeting) respectively. The quorum for the
general meeting is stockholders representing at least 50% of the
outstanding share capital of the Company. In the event that
quorum is not achieved, another meeting is to be held, which
meeting does not require the issue of a notice. At the second
meeting, the quorum for the meeting is stockholders representing
one third of the outstanding share capital of the Company. In
the event that quorum is not achieved at the second meeting, a
third meeting may be held, the quorum for which shall be
determined by the Head of the District Court that has a judicial
jurisdiction over TELKOM. Stockholders may vote by proxy. All
resolutions are to be passed by consensus. If consensus cannot
be reached, resolutions are passed by simple majority, unless a
larger majority is required by the Articles.


The Articles do not contain any limitations on
the right of any person, to own shares of the Company.
Indonesian capital market regulations do not contain any
limitation on the right of any person, whether local or foreign,
to own shares in a company listed on an Indonesian stock
exchange.

Any takeover of the Company is required to be
approved by the holder of the Series A Dwiwarna share and a
majority constituting 75% of the holders of the Series B
shares at a general meeting of stockholders that must be
attended by the holder of the Series A Dwiwarna share.
There are no other provisions in the Articles that would have
the effect of delaying, deferring or preventing a change in
control of the Company.

Each director and commissioner has an obligation
to report to BAPEPAM with regard to their ownership and the
changes of their ownership in the Company and this obligation
also applies to stockholders who have an ownership of 5% or more
in the paid up capital of the Company. TELKOM believes that the
Articles are not significantly different from those generally
prevailing in Indonesia in respect of public companies listed on
an Indonesian stock exchange. TELKOM also believes that the
provisions in the Articles relating to changes in the capital of
TELKOM are not more stringent than that required by Indonesian
law.

Summary of significant differences between
Indonesian corporate governance practices and the NYSEs
corporate governance standards

The following sets forth a brief, general summary
of significant differences between the corporate governance
practices followed by Indonesian companies, such as TELKOM, and
those required by the listing standards of the New York Stock
Exchange (the NYSE) of U.S. companies that have
common stock listed on the NYSE. The NYSE listing standards are
available on the NYSEs website at http://www.nyse.com.



| |                          
| | -------------------------
| | Overview of Indonesia law

Indonesian public companies are required to
observe and comply with certain good corporate governance
practices. The requirements and the standards for good corporate
governance practices for public companies are mainly embodied in
the following regulations: Law No. 1 of 1995 on Limited
Liability Companies (Company Law); the Law
No. 8 of 1995 on Capital Market (Capital Market
Law); the Regulations of the Indonesian Capital Market
Supervisory Board (BAPEPAM Regulations); and the
rules issued by the Indonesian stock exchanges, namely Jakarta
Stock Exchange (JSX) and Surabaya Stock Exchange
(SSX). In addition to the above statutory
requirements, the articles of association (Articles)
of the public companies commonly incorporate provisions
directing the corporate governance practices in such companies.

Similar to the laws of the United States,
Indonesian laws require public companies to observe and comply
with standards of corporate governance practices that are more
stringent than those applied to privately-owned companies. It
should be noted that in Indonesia, the term public
company does not necessarily refer to a company whose
shares are listed on a securities exchange. Under the Capital
Market Law, a non-listed company may be deemed a public company,
and subjected to the laws and

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regulations governing public companies, if such
company meets or exceeds the capital and shareholder
requirements applicable to a publicly-listed company.


In 2000, the Government established the National
Committee on Corporate Governance (NCGI), an
informal committee that was tasked with formulating good
corporate governance standards for Indonesian companies. As a
result, the NCGI formulated the Code for Good Corporate
Governance (Code) which recommended setting more
stringent corporate governance standards for Indonesian
companies, such as the appointment of independent audit and
compensation committees by the Boards of Commissioners, as well
as increasing the scope of Indonesian companies disclosure
obligations. Although the NCGI recommended that the Code be
adopted by the Government as a basis for legal reform, as of the
date of this Annual Report the Government has not enacted
regulations that fully implement the provisions of the Code. For
example, while public companies such as TELKOM are now required
to have independent audit committees, they are not yet required
to have independent compensation committees. Accordingly, many
of the Codes provisions have not been implemented by
Indonesian companies.



| |                                                    
| | ---------------------------------------------------
| | Composition of Board of Directors;
    Independence

The NYSE listing standards provide that the board
of directors of a U.S. listed company must consist of a
majority of independent directors and that certain committees
must consist solely of independent directors. A director
qualifies as independent only if the board affirmatively
determines that the director has no material relationship with
the company, either directly or indirectly.

Unlike companies incorporated in the United
States, the management of an Indonesian company consists of two
organs of equal stature, the Board of Commissioners
(BoC) and the Board of Directors (BoD).
Generally, the BoD is responsible for the day-to-day business
activities of the company, while the BoC acts as the
representatives of the companys shareholders and is
authorized and responsible for the supervision of the BoD and is
statutorily mandated to provide advice to the BoD.

With regard to the BoC, the Company Law requires
a public companys BoC to have at least two members.
Although the Company Law is silent as to the composition of the
BoC, Listing Regulation No. 1A issued by the JSX
states that at least 30% of the members of the BoC of a public
company (such as TELKOM) must be independent.

As to the BoD, the Company Law states that the
BoD has the authority to manage the daily operation of the
company and must have at least two members, each of which must
meet the minimum qualification requirements set forth in the
Company Law. Given the difference between the role of the
members of the BoD in an Indonesian company to that of their
counterparts in a U.S. company, Indonesian law does not
require that certain members of the BoD must be independent and
neither does it require the creation of certain committees
composed entirely of independent directors.



| |           
| | ----------
| | Committees

The NYSE listing standards require that a
U.S. listed company must have an audit committee, a
nominating/ corporate governance committee and a compensation
committee. Each of these committees must consist solely of
independent directors and must have a written charter that
addresses certain matters specified in the listing standards.

The Company Law does not require Indonesian
public companies to form any of the committees described in the
NYSE listing standards. However, Listing Regulation No. 1A
issued by the JSX does require the BoC of a listed public
company (such as TELKOM) to form committees that will oversee
the companys audit process (which committee must be headed
by an independent member of the BoC).

TELKOMs BoC has formed an audit committee
composed of six members: two independent commissioners and four
members who are not affiliated with TELKOM. The NYSE listing
standards

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and the charter of TELKOMs audit committee
share the goal of establishing a system for overseeing the
companys accounting that is independent from management
and of ensuring the auditors independence. However, unlike
the requirements set forth in the NYSE listing standards,
TELKOMs audit committee does not have direct
responsibility for the appointment, compensation and retention
of TELKOMs external auditor. TELKOMs audit committee
can only recommend the appointment of the external auditor to
the BoC, and the BoCs decision is subject to shareholder
approval.


TELKOMs BoC also re-established
TELKOMs nomination and renumeration committee on
May 20, 2003. The committee was tasked with formulating:
(a) selection criteria and nomination procedures for
Commissioners and Directors; and (b) a compensation system
for Commissioners and Directors for the 2003 fiscal year. In
accordance with its mandate from the BoC, the committee will
deliver a report regarding its activities during the 2004 Annual
General Meeting of TELKOMs stockholders.

For more information on TELKOMs BoC
committees, see Item 6. Directors, Senior Management
and Employees  A. Directors and Senior
Managers  Board of Commissioners
Committees.



| |                                              
| | ---------------------------------------------
| | Disclosure regarding corporate
    governance

The NYSE listing standards require
U.S. companies to adopt, and post on their websites, a set
of corporate governance guidelines. The guidelines must address,
among other things: director qualification standards, director
responsibilities, director access to management and independent
advisers, director compensation, director orientation and
continuing education, management succession, and an annual
performance evaluation itself. In addition, the CEO of a
U.S. company must certify to the NYSE annually that he or
she is not aware of any violations by the company of the
NYSEs corporate governance listing standards. The
certification must be disclosed in the companys annual
report to shareholders. There are no disclosure requirements in
Indonesian law similar to the NYSE listing standards described
above. However, the Capital Market Law generally requires
Indonesian public companies to disclose certain types of
information to shareholders and to BAPEPAM, particularly
information relating to changes in the public companys
shareholdings and material facts that may affect the decision of
shareholders to maintain their share ownership in such public
company.



| |                                        
| | ---------------------------------------
| | Code of Business Conduct and
    Ethics

The NYSE listing standards require each
U.S. listed company to adopt, and post on its website, a
code of business conduct and ethics for its directors, officers
and employees. There is no similar requirement under Indonesian
law. However, companies that are required to submit periodic
reports to the SEC, including TELKOM, must disclose in their
Annual Reports whether they have adopted a code of ethics for
their senior financial officers. Although the requirements as to
the contents of the code of ethics under SEC rules are not
identical to those set forth in the NYSE listing standards,
there are significant similarities. Under SEC rules, the code of
ethics must be designed to promote: (a) honest and ethical
conduct, including the handling of conflicts of interest between
personal and professional relationships; (b) full, fair,
accurate and timely disclosure in reports and documents filed
with or submitted to the SEC; (c) compliance with
applicable laws and regulations; (d) prompt internal
reporting of violations of the code; and (e) accountability
for adherence to the code. Furthermore, shareholders must be
given access to physical or electronic copies of the code. See
Item 16B. Code of Ethics.

C.     Material
contracts

Transfer of DCS 1800 License to
Telkomsel

Prior to 2002, TELKOM had been working on the
construction of a DCS 1800 network and the setting up of a
DCS 1800 mobile cellular business through its TELKOM Mobile
unit and had been granted 15 MHz of radio frequency
bandwidth in the 1800 MHz band. On April 3, 2002,
TELKOM and Telkomsel entered into an agreement for the sale and
purchase of TELKOMs assets relating to the

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TELKOM Mobile unit. Under the agreement, TELKOM,
for a consideration of approximately Rp.135.5 billion
(i) transfer to Telkomsel specified assets of TELKOM
relating to the business of the TELKOM Mobile unit;
(ii) transfers its TELKOM Mobile unit employees to
Telkomsel; and (iii) transfers or novates to Telkomsel
TELKOMs rights and obligations under certain TELKOM Mobile
assets and contracts. In connection with such transaction the
MoC has approved the reissuance and transfer of DCS 1800 license
from TELKOM to Telkomsel on July 12, 2002.


Acquisition of AriaWest

On July 31, 2003, TELKOM acquired 100% of
the shares of its KSO partner for Regional Division III,
PT AriaWest International (AriaWest) for an
aggregate consideration of US$38.67 million in cash
(US$20 million of which was paid when the purchase
agreement was signed on May 8, 2002 and the remaining
US$18.67 million was paid on July 31, 2003) and
US$109.1 million in promissory notes. The promissory notes,
which are interest-free, are payable in 10 semi-annual
installments. At the same time, in consideration of the release
of AriaWests outstanding obligations to its lenders,
TELKOM also repaid approximately US$99 million of
AriaWests debt (on behalf of AriaWest) and entered into a
new loan agreement for approximately US$197 million with
AriaWests lenders. TELKOM and AriaWest also entered into a
settlement agreement pursuant to which TELKOM and AriaWest
irrevocably settled, discharged and released claims and
counterclaims in their ICC arbitration proceeding and TELKOM
agreed to pay a settlement amount of US$20 million.

Sale of Shares in Telkomsel

On July 30, 2002, TELKOM sold a 12.72%
shareholding in Telkomsel to Singapore Telecom Mobile Pte, Ltd
(SingTel Mobile), a wholly-owned subsidiary of
SingTel, for US$429 million in cash pursuant to a Sale and
Purchase Agreement dated April 3, 2002. As a result of this
transaction, TELKOM reduced its ownership in Telkomsel to 65%,
while SingTel Mobile increased its ownership to 35%.

Acquisition of Pramindo

Pursuant to a Conditional Sale and Purchase
Agreement dated April 19, 2002, TELKOM agreed to acquire
100% of its KSO partner in Regional Division I,
PT Pramindo Ikat Nusantara (Pramindo) and
obtained management control over Pramindo. Upon the closing of
the agreement on August 15, 2002, TELKOM acquired a 30%
interest in Pramindo. In September 2003, TELKOM acquired a
further 15% of the shares of Pramindo. The total purchase price
for 100% of Pramindo was US$384.4 million. Of this amount,
US$95.4 million was paid in August and September of 2002,
with TELKOM acquiring full control over Pramindo. The balance of
the purchase price was payable in ten unequal quarterly
installments from September 2002 through December 2004. Under
the agreement, TELKOM also agreed to repay loans to the
International Finance Corporation amounting to
US$86.2 million.

On January 29, 2004, TELKOM signed a
short-term loan agreement with ABN AMRO Bank N.V. Jakarta
in the amount of approximately US$130 million and on
March 15, 2004, TELKOM used the loan to repurchase the
remaining outstanding promissory notes that TELKOM had issued as
consideration for the purchase of Pramindos shares. This
allowed TELKOM to accelerate the purchase of the remaining 55%
of Pramindo that it did not yet own and as of the date of this
Annual Report TELKOM owns 100% of Pramindo.

Interconnection Agreement with
Indosat

On September 3, 2002, TELKOM signed an
Interconnection Agreement with Indosat. This agreement provides
for the interconnection of TELKOMs fixed-line network with
the local fixed-line network to be established by Indosat. The
Interconnection Agreement only regulates local fixed wireline in
Jakarta and Surabaya area.

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Contract with Orbital Sciences
Corporation

On October 24, 2002, TELKOM signed a
contract with Orbital Sciences Corporation, a U.S. company
which develops and manufactures affordable space systems for
commercial, civil government and military customers, to develop
the TELKOM-2 satellite. Pursuant to an amendment to this
agreement dated December 15, 2003, the total fixed cost
payable by TELKOM was increased from US$73 million to
US$ 73.14 million, which is expected to be fully paid by
TELKOM by January 2005. The TELKOM-2 satellite is a
geosynchronous communication satellite which will be
manufactured based on Orbitals state-of-the-art STAR-2
platform. TELKOM-2 will replace TELKOMs existing
Palapa B-4 satellite, the operational life of which expires
in late 2004. The TELKOM-2 satellite will have a capacity of
24 standard C-band transponders with transponder
specifications similar to those of the TELKOM-1 satellite. The
TELKOM-2 satellite will be designed for 15 years of
in-orbit life. TELKOM expects that the satellite will support
its national as well as regional communications network for
voice, video and data communications. The satellite will be
launched into geo-synchronous orbit 22,300 miles above the
earth and it will be operated in geostationary orbit position
located at 118 degrees east longitude.

Contract with Arianespace

On November 8, 2002, TELKOM signed a
US$62.9 million fixed price contract with Arianespace S.A.
for the launch of the TELKOM-2 satellite using an Ariane-5
launch vehicle with double launch. Payments will be made between
January 2004 and September 2004. As of the date of this Annual
Report, TELKOM has paid US$56.5 million to Arianespace,
with the remaining balance of US$6.4 million to be paid in
September 2004.

Master of Procurement Partnership Agreement
(MPPA) with Consortium led by Samsung

On December 23, 2002, TELKOM signed a Master
of Procurement Partnership Agreement (MPPA) with a
consortium led by Samsung Corporation. PT Samsung
Telecommunication Indonesia became a member of the consortium
pursuant to an amendment dated December 31, 2002 to this
MPAA. The MPPA provides planning, manufacturing, delivery and
construction of 1.6 million lines, as well as a service
level agreement. Under the MPPA, work related to network
deployment shall be carried out and completed within
42 months (six months after end of fiscal year 2005). The
MPPA between TELKOM and Samsung consists of construction of
1,656,300 lines of NSS for nationwide and
802,000 lines of BSS for Regional Division III, IV, V,
VI and VII for US$116 per line for BSS and US$34 per line
for NSS. This project has been financed in part by The
Export-Import Bank of Korea pursuant to a Loan Agreement dated
August 27, 2003, for approximately US$124 million.
This loan is repayable in ten semi-annual installments.

Master of Procurement Partnership Agreement
(MPPA) with Ericsson CDMA Consortium

TELKOM and the Ericsson CDMA Consortium have
entered into a Master of Procurement Partnership Agreement
(MPPA) on December 23, 2002. This MPPA is also
intended to provide planning, manufacturing, delivery and
construction of 1.6 million lines as well as a service
level agreement. Under the MPPA, the work related to network
deployment should be carried out and completed within
42 months (six months after the end of fiscal year 2005).
MPPA between TELKOM and Ericsson consists of constructing
631,800 lines of BSS for US$116 per line.

Master of Procurement Partnership Agreement
(MPPA) with PT INTI

TELKOM and PT INTI signed a Master of
Procurement Partnership Agreement on August 26, 2003,
whereby PT INTI is appointed to construct a CDMA fixed
wireless access network and integrate such network with
TELKOMs existing network and all ancillary services
relating thereto in West Java and Banten. Under the terms of
this Agreement, PT INTI must deliver the
CDMA 2000 IX system within thirty-four months of
August 26, 2003, and will be paid a total of
US$22.9 million and

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Rp.61.4 billion. PT INTI will service
and maintain the CDMA 2000 IX system pursuant to a
service level agreement dated the same date in return for an
annual consideration of US$2.3 million.


Partnership Agreement with Siemens
Consortium

TELKOM entered into a Partnership Agreement with
a consortium led by Siemens AG on September 24, 2003, for
the development, procurement and construction of a backbone
transmission network in Kalimantan and Sulawesi, a related
network management system and the provision of maintenance
services in connection with this network. Other members of the
consortium include PT Siemens Indonesia, PT LEN
Industri and Corning Cable System Gmbh & Co. K.G.
The consideration payable by TELKOM for the fiber optic networks
are US$3.8 million plus Rp.74.0 billion (for the
network located within Kalimantan) and US$3.8 million plus
Rp.70.7 billion (for the network located within Sulawesi).

PSTN Regional Junction in Jakarta
Area

On February 8, 2002, TELKOM signed an
agreement with Olex-Lucent-Brimbun for the award of the PSTN
Regional Junction Regional Division II Work, which
encompasses of SDH Transmission System, Optical Fibre, NMS and
other services. The agreement has been amended several times,
the latest being on December 4, 2003. As of the latest
amendment to the agreement, the total cost of services and
equipment is set at US$28.8 million and
Rp.123.2 billion, respectively.

Master of Procurement Partnership Agreement
(MPPA) with Motorola

On March 24, 2003, TELKOM has signed a
Master of Procurement Partnership Agreement (MPPA)
with Motorola, Inc. Under the MPPA, Motorola shall be obligated
to undertake and be jointly responsible for the demand forecast
and solely responsible for the survey, design, development,
manufacture, delivery, supply, installation, integration and
commissioning of the network, including all project management,
training and other related services.

MPPA between TELKOM and Motorola consists of
225,500 lines of BSS (radio system) for Regional Division I
Sumatera for a total of approximately US$20.7 million and
Rp.61.3 billion. The agreed unit price does not include
service level agreement, training for technical staff and
documentation. The NSS system will use nationwide Samsungs
NSS as contracted on December 23, 2002. The period of the
agreement is 42 months until approximately mid-2006.

Metro Junction and Optical Network Access
Agreement for Regional Division III with
PT INTI

On November 12, 2003, TELKOM entered into an
agreement with PT INTI for the construction and procurement
of an optical network, as well as a network management system
and other related services and equipment, with respect to
Regional Division III (West Java). Under this agreement,
TELKOM is obligated to pay PT INTI a total consideration of
US$6.5 million and Rp.112.4 billion.

Agreement for the Procurement of Softswitch
System Class 4 with a consortium led by
Santera-Olex

On December 18, 2003, TELKOM entered into an
agreement with a consortium led by Santera-Olex for the
construction and procurement of a softswitch system
(class 4) and the improvement of switching capacity in the
existing switching system in Jakarta, Bandung and Surabaya.
Pursuant to the terms of this agreement, TELKOM will pay
US$4.0 million and Rp.2.5 billion.

Co-Operation Agreement on Fixed Wireless CDMA
Facilities Construction in KSO Divre VII Area

On January 14, 2003, TELKOM and Bukaka
SingTel entered into a Co-Operation Agreement on Fixed Wireless
CDMA Facilities Construction in KSO Divre VII Area (the
Co-Operation Agreement)

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that implemented the terms of the June 11,
2002 Memorandum of Understanding between TELKOM and Bukaka
SingTel. Under the terms of the Co-Operation Agreement, TELKOM,
through its Fixed Wireless Division, will invest
US$30.8 million for the construction of fixed wireless CDMA
facilities for 146,700 line units in Denpasar, Makasar, Manado,
Kupang and Mataram, which facilities will be managed, operated
and maintained by Bukaka SingTel. The new facilities are
expected to be completed by 2006, with TELKOM and its Fixed
Wireless Division receiving 95% of net revenues generated by the
new facilities until such time as an internal rate of return of
28% is achieved, after which TELKOM and Bukaka SingTel will each
receive 50% of net revenues. The Co-Operation Agreement will
expire on December 31, 2010, at which time ownership of the
new facilities will vest in TELKOM.


Partnership Agreement for the Construction and
Provision of High Performance Backbone in Sumatera

On November 30, 2001, TELKOM signed a
partnership agreement with a consortium consisting of
PT Pirelli Cables Indonesia and PT Siemens Indonesia
for the construction and provision of a high performance
backbone network in Sumatera. The agreement became effective as
of June 10, 2002. The scope of work includes the provision
of an optical fiber cable, together with transmission equipment
and network management systems. TELKOM is obligated to pay
US$46.3 million and Rp.172.7 billion (together with
value-added tax thereon) as consideration. On June 12,
2003, the parties agreed to amend this agreement to reflect
additional work being carried out by the consortium in
consideration for an additional US$2.8 million and
Rp.1,699.1 million payable by TELKOM to the consortium. The
amount due under the agreement was fully paid in April 2004.

Partnership Agreement for the Development of a
PSTN Regional Junction for Regional Division V
(East Java)

On December 5, 2001, TELKOM entered into a
partnership agreement with a consortium consisting of Sumitomo
Corporation, NEC Corporation and PT Nasio Karya Pratama for
the development of a high quality PSTN Regional Junction for
Regional Division V (East Java). The scope of work
includes the development of a SDH transmission system, as well
as the provision of ancillary fiber optic and other related
equipment. TELKOM was initially obligated to pay Japanese Yen
3,670.9 million and Rp.125.5 billion (which is
inclusive of value-added tax). The parties agreed to add another
partner to the consortium, PT Communication Cable System
Indonesia, on September 27, 2002. In accordance with an
amendment agreement dated December 11, 2003, the parties
agreed to amend the contract price payable by TELKOM to Japanese
Yen 1,258.8 million and Rp.188.8 billion (which is
exclusive of value-added tax).

Supply Contract for
Thailand-Indonesia-Singapore (TIS) Cable Network

On November 27, 2002, TELKOM entered into a
supply contract with NEC Corporation, the Communication
Authority of Thailand (the CAT) and Singapore
Telecommunications Limited (SingTel) whereby NEC
Corporation has agreed to construct a submarine fiber optic
network linking Thailand, Indonesia and Singapore. Under the
terms of this agreement, TELKOM, SingTel and the CAT were to
contribute equally to a payment of US$32.7 million
(inclusive of value-added tax). Due to several contract
variations entered into during 2003, the total amount payable by
TELKOM, SingTel and CAT was increased to US$33.4 million.

Agreement for Dumai-Melaka Cable
System

On May 14, 2004, TELKOM entered into a
Cooperation Agreement with Telekom Malaysia Berhad
(Telekom Malaysia) pursuant to which TELKOM and
Telekom Malaysia formed a consortium for the deployment and
maintenance of the Dumai-Melaka Cable System. On the same date,
the consortium entered into a Supply Contract with NEC
Corporation for the deployment of the 160 km optical
submarine cable between Indonesia and Malaysia, which is
scheduled to be completed by the

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end of 2004. TELKOM and Telekom Malaysia were to
contribute equally to a payment to NEC Corporation of
US$8.7 million (inclusive of value-added tax).


Acquisition of Dayamitra

On May 17, 2001, TELKOM acquired 90.32% of
the issued and fully paid shares of Dayamitra, the KSO VI
Investor, for US$134.2 million (including consultants
fee of US$3.3 million) and also purchased a call option and
granted a put option with respect to the remaining 9.68% partner
shares of Dayamitra. An initial payment of US$18.3 million
was paid on the closing date of the transaction on May 17,
2001, US$8.9 million was paid on August 10, 2001 as an
adjustment to the purchase price based on Dayamitras
adjusted working capital and the balance of
US$103.6 million was and is to be paid through an escrow
account in eight quarterly installments of US$13.0 million
each beginning on August 17, 2001 and TELKOM paid the last
quarterly installment on May 17, 2003.

PT Mitra Global Telekomunikasi
Indonesia

On January 20, 2004, TELKOM and
PT Mitra Global Telekomunikasi Indonesia (MGTI)
entered into an agreement to amend and restate the KSO Agreement
with respect to Regional Division IV. Under this amendment,
for the remaining KSO period, TELKOM will be entitled at its
sole discretion and expense to construct new telecommunication
facilities in Regional Division IV and MGTI will receive
fixed monthly payments derived from revenues generated by the
Regional Division IV operations.

Indemnity given to KAP Hans Tuanakotta Mustofa
& Halim (formerly KAP Hans Tuanakotta &
Mustofa)

TELKOM has entered into two indemnity agreements
with KAP Hans Tuanakotta Mustofa & Halim (formerly KAP
Hans Tuanakotta & Mustofa), the member firm of Deloitte
Touche Tohmatsu in Indonesia (Deloitte). Under the
first agreement, dated February 9, 2004, TELKOM agreed to
indemnify Deloitte against reasonable legal costs incurred in
successfully defending any legal proceedings brought against
Deloitte on the basis of the inclusion of the audited 2000 and
2001 financial statements in Amendment No. 2 to
TELKOMs 2002 Annual Report on Form 20-F that was
filed on February 9, 2004, provided however that the
indemnity will be void and inoperative if a court, after
adjudication, determines that Deloitte is liable for
professional malpractice. If this situation were to arise,
Deloitte has agreed to immediately reimburse TELKOM for all
amounts paid by TELKOM under this indemnity.

Under the second agreement, dated June 29,
2004, TELKOM has agreed to indemnify Deloitte against reasonable
legal costs incurred in successfully defending any legal
proceedings brought against Deloitte on the basis of the
inclusion of the audited 2001 financial statements in this
Annual Report, provided however that the indemnity will be void
and inoperative if a court, after adjudication, determines that
Deloitte is liable for professional malpractice. If this
situation were to arise, Deloitte has agreed to immediately
reimburse TELKOM for all amounts paid by TELKOM under this
indemnity.

Short-Term Loan Agreement with ABN AMRO Bank
N.V. Jakarta

On January 28, 2004, TELKOM signed a
short-term loan agreement with ABN-AMRO Bank N.V. Jakarta
(ABN AMRO) in the amount of approximately
US$130 million. The loan proceeds were thereafter placed in
escrow and subsequently released to TELKOM on March 15,
2004 when TELKOM exercised its option to purchase the remaining
outstanding promissory notes TELKOM issued to Pramindos
shareholders as payment for their shares in Pramindo. Principal
and interest on the ABN AMRO loan will be repaid in
10 monthly payments starting March 31, 2004, through
December 31, 2004, with interest payable at one month LIBOR
plus 2.75%.

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D.     Exchange
controls

Foreign Equity Ownership
Restrictions

Prior to September 1997, foreign investors were
only permitted to purchase up to 49% of shares offered in a
public offering and up to 49% of the publicly listed shares of
any Indonesian listed company regardless of the nature of their
activities. On September 4, 1997, such restrictions were
removed for most Indonesian companies, including TELKOM.

Foreign Exchange

Foreign exchange controls were abolished in 1971
and Indonesia now maintains a liberal foreign exchange system
that permits the free flow of foreign exchange. Capital
transactions, including remittances of capital, profits,
dividends and interest, are free of exchange controls. A number
of regulations, however, have an impact on the exchange system.
For example, only banks are authorized to deal in foreign
exchange and execute exchange transactions related to the import
and export of goods. In addition, Indonesian banks (including
branches of foreign banks in Indonesia) are required to report
to Bank Indonesia (the Indonesian Central Bank) any fund
transfers exceeding US$10,000. As a state-owned company, TELKOM,
based on the decree of the Head of Foreign Commercial Loan
Coordinating Team (PKLN), is required to obtain an
approval from PKLN prior to acquiring foreign commercial loans
and must submit periodical reports to PKLN during the term of
the loans.

Bank Indonesia holds the authority to issue
Rupiah currency and has responsibility for maintaining the
stability of the Rupiah. Prior to August 14, 1997, Bank
Indonesia maintained stability of the Rupiah through a trading
band policy, pursuant to which Bank Indonesia would enter the
foreign currency market and buy or sell Rupiah, as required,
when trading in the Rupiah exceeded bid and offer prices
announced by Bank Indonesia on a daily basis. On August 14,
1997, Bank Indonesia terminated the trading band policy,
effectively free floating the Rupiah against other currencies.
Since that date, the Rupiah has depreciated significantly
against world currencies.

During the past 25 years, the value of the
Rupiah has been devalued three times against the
U.S. Dollar. These downward adjustments occurred in
November 1978, when the exchange rate was realigned from Rp.415
to Rp.623 to the U.S. Dollar; in March 1983, when the rate
went from Rp.703 to Rp.970 to the U.S. Dollar; and in
September 1986, when the rate fell from Rp.1,134 to Rp.1,644 to
the U.S. Dollar. Between the time of the 1986 devaluation
and August 14, 1997 the value of the Rupiah has gradually
adjusted downward in value against the U.S. Dollar by about
4% annually. Since the free-floating regime was implemented in
August 1997, the Rupiah fluctuation has been significant. During
2003, the average rate of Rupiah to the U.S. Dollar was
Rp.8,573.40, with the highest and lowest rates being Rp.9,120
and Rp.8,165 respectively.

E.     Taxation

THE FOLLOWING SUMMARY OF INDONESIAN AND UNITED
STATES FEDERAL INCOME TAX MATTERS CONTAINS A DESCRIPTION OF THE
PRINCIPAL INDONESIAN AND U.S. FEDERAL TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR SHARES OF
COMMON STOCK. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS ABOUT
THE INDONESIAN AND UNITED STATES FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF ADSs OR SHARES OF COMMON STOCK.

Indonesian Taxation

The following is a summary of the principal
Indonesian tax consequences of the ownership and disposition of
Common Stock or ADSs to a non-resident individual or
non-resident entity that holds Common Stock or ADSs (a
Non-Indonesian Holder). As used in the preceding
sentence, a non-resident individual is a foreign
national individual who is not physically present in Indonesia
for

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183 days or more during any twelve month
period or present for any period with the intent to reside in
Indonesia, during which period such non-resident individual
receives income in respect of the ownership or disposition of
Common Stock or ADSs and a non-resident entity is a
corporation or a non-corporate body that is established,
domiciled or organized under the laws of a jurisdiction other
than Indonesia and does not have a fixed place of business or
otherwise conducts business or carries out activities through a
permanent establishment in Indonesia during an Indonesian tax
year in which such non-Indonesian entity receives income in
respect of the ownership or disposition of Common Stock or ADSs.
In determining the residency of an individual or entity,
consideration will be given to the provisions of any applicable
double taxation treaty to which Indonesia is a party.




| |          
| | ---------
| | Dividends

Dividends declared by the Company out of retained
earnings and distributed to a Non-Indonesian Holder in respect
of Common Stock or ADSs are subject to Indonesian withholding
tax, currently at the rate of 20%, on the amount of the
distribution (in the case of cash dividends) or on the
stockholders proportional share of the value of the
distribution. A lower rate provided under double taxation
treaties may be applicable provided the recipient is the
beneficial owner of the dividend and has provided to the Company
(with a copy to the Indonesian Office of Tax Services where the
Company is registered) a Certificate of Tax Residence issued by
the competent authority, or its designee, of the jurisdiction
where the Non-Indonesian Holder is domiciled (the
Certificate of Residence). Indonesia has concluded
double taxation treaties with a number of countries, including
Australia, Belgium, Canada, France, Germany, Japan, Malaysia,
Mauritius, The Netherlands, Singapore, Sweden, Switzerland, the
United Kingdom and the United States of America. Under the
U.S.-Indonesia double taxation treaty, the withholding tax on
dividends is generally, in the absence of a 25% voting interest,
reduced to 15%.



| |              
| | -------------
| | Capital Gains

The sale or transfer of Common Stock through an
Indonesian stock exchange is subject to a final withholding tax
at the rate of 0.1% of the value of the transaction. The broker
executing the transaction is obligated to withhold such tax. The
holding of founder shares or the sale or transfer of founder
shares through an Indonesian stock exchange may, under current
Indonesian tax regulations, be subject to additional 0.5% final
income tax.

Subject to the promulgation of implementing
regulations (which have not yet been issued to date), the
estimated net income received or accrued from the sale of
movable assets in Indonesia, which may include Common Stock not
listed on an Indonesian stock exchange or ADSs, by a
Non-Indonesian holder (with the exception of the sale of assets
under Article 4 paragraph (2) of the Indonesian income
tax law) may be subject to Indonesian withholding tax at the
rate of 20%. In 1999, the Ministry of Finance issued a Decision
that stipulates the estimated net income for the sale of shares
in a non-public company to be 25% of the sale price, resulting
in an effective withholding tax rate of 5% of the sales price.
This is a final withholding tax and the obligation to pay lies
with the buyer (if it is an Indonesian taxpayer) or the Company
(if the buyer is a non-resident taxpayer). Exemption from
withholding tax on income from the sale of shares in a
non-public company may be available to non-resident sellers of
shares depending on the provisions of the relevant double
taxation treaties. In order to benefit from the exemption under
the relevant double taxation treaty, the non-resident seller
must provide the Certificate of Tax Residence to the buyer or
the Company and to the Indonesian Tax Office that has
jurisdiction over the buyer or the Company (if the buyer is a
non-resident taxpayer).

In cases where a purchaser or Indonesian broker
will be required under Indonesian tax laws to withhold tax on
payment of the purchase price for Common Stock or ADSs, that
payment may be exempt from Indonesian withholding or other
Indonesian income tax under applicable double taxation treaties
to which Indonesia is a party (including the U.S.-Indonesia
double taxation treaty). However, except for the sale or
transfer of shares in a non-public company, the current
Indonesian tax regulations do not provide specific procedures
for removing the purchasers or Indonesian brokers
obligation to withhold tax from the proceeds of such sale. To
take advantage of the double taxation treaty relief,

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Non-Indonesian Holders may have to seek a refund
from the Indonesian Tax Office by making a specific application
accompanied by a Certificate of Residence issued by the
competent tax authority, or its designee; of the jurisdiction in
which the Non-Indonesian Holder is domiciled.




| |           
| | ----------
| | Stamp Duty

Any documents that are prepared in the
transactions in common stock in Indonesia, which documents will
be used as evidence in Indonesia, are subject to stamp duty of
Rp.6,000. Generally, the stamp duty is due at the time the
document is executed.

United States Federal Income
Taxation

The following is a general description of the
principal United States federal income tax consequences to a
U.S. Holder, as defined below, of the purchase, ownership
and disposition of the ADSs or shares of Common Stock. This
description is for general information purposes only and is
based on the United States Internal Revenue Code of 1986, as
amended (the Code), Treasury regulations promulgated
thereunder, and judicial and administrative interpretations
thereof, all as in effect on the date hereof and all of which
are subject to change, possibly retroactively. The tax treatment
of a holder of ADSs or shares of Common Stock may vary depending
upon his particular situation. Certain holders (including, but
not limited to, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative
minimum tax, broker-dealers, persons that have a
functional currency other than the U.S. Dollar
and persons owning, directly or indirectly, 10% or more of the
voting shares of the Company) may be subject to special rules
not discussed below. The following summary is limited to
U.S. Holders, as defined below, who will hold the ADSs or
shares of Common Stock as capital assets within the
meaning of Section 1221 of the Code and not as part of a
hedge, straddle or conversion
transaction within the meaning of Sections 1221, 1092
and 1258 of the Code and the regulations thereunder. The
discussion below also does not address the effect of any United
States state, local or foreign tax law or any United States
federal estate, gift or alternative minimum tax law on a holder
of the ADSs or shares of Common Stock.

As used herein, the term
U.S. Holder means a holder of ADSs or shares of
Common Stock who is (i) a citizen or resident of the United
States for United States federal income tax purposes,
(ii) a corporation, or other entity treated as a
corporation, created or organized under the laws of the United
States or any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal
income tax without regard to its source, or (iv) a trust if
a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
United States persons have the authority to control all
substantial decisions of the trust.

If a partnership (including any entity treated as
a partnership for United States federal income tax purposes)
holds ADSs or shares of Common Stock, the tax treatment of a
partner in such partnership will depend upon the status of the
partner and the activities of the partnership. Partners in such
a partnership should consult their tax advisors as to the
particular United States federal income tax consequences
applicable to them.

Holders of ADSs evidencing Common Stock will be
treated as the owners of the Common Stock represented by those
ADSs. Accordingly, no gain or loss will be recognized upon the
exchange of ADSs for the holders proportionate interest in
the shares of Common Stock, a holders tax basis in the
withdrawn shares of Common Stock will be the same as his tax
basis in the ADSs surrendered therefor, and the holding period
in the withdrawn shares of Common Stock will include the period
during which the holder held the surrendered ADSs.

You are urged to consult your tax advisor
concerning the particular United States federal, state, local
and foreign income and other tax considerations regarding the
ownership and disposition of the ADSs or shares of Common Stock.

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| |                          
| | -------------------------
| | Taxation of Distributions

The gross amount of a distribution with respect
to ADSs or shares of Common Stock (other than certain pro rata
distributions of ADSs or shares of Common Stock or rights to
subscribe for ADSs or shares of Common Stock), without reduction
for Indonesian taxes withheld, will be treated as a dividend
subject to tax as ordinary income on the date of receipt by the
Depositary or the holder of such ADSs or shares of Common Stock,
respectively, to the extent of the Companys current and
accumulated earnings and profits as determined for
U.S. federal income tax purposes. A non-corporate recipient
of dividend income will generally be subject to tax on such
dividend income at a maximum U.S. federal rate of 15%
rather than the marginal tax rates generally applicable to
ordinary income so long as certain holding period requirements
are met. Dividends received from qualified foreign
corporations generally qualify for the reduced rate. A
non-U.S. corporation (other than a foreign personal holding
company, foreign investment company, or passive foreign
investment company) will generally be considered to be a
qualified foreign corporation (i) if it is eligible for the
benefits of a comprehensive tax treaty with the United States
which the Secretary of Treasury determines is satisfactory for
purposes of this provision and which includes an exchange of
information program or (ii) with respect to any dividend it
pays on stock which is readily tradable on an established
securities market in the United States. The Treasury Department
has determined that the income tax treaty between Indonesia and
the United States as currently in effect meets the requirements
described in clause (i) above. In addition, the ADSs are
expected to be readily tradable on the New York Stock Exchange,
an established securities market in the United States.
Distributions, if any, in excess of current and accumulated
earnings and profits will constitute a return of capital and
will be applied against and reduce such holders tax basis
in such ADSs or shares of Common Stock. To the extent that such
distributions are in excess of such basis, the distributions
will constitute capital gain as discussed below.
U.S. corporate holders will generally not be eligible for
the dividends received deduction otherwise allowed under
Section 243 of the Code for distributions to domestic
corporations in respect of distributions on ADSs or shares of
Common Stock.

If a distribution is paid with respect to ADSs or
shares of Common Stock in Rupiah, the amount of the distribution
will generally equal the U.S. Dollar value of the Rupiah
distribution, including the amount of any Indonesian tax
withheld, calculated by reference to the exchange rate in effect
on the date the distribution is actually or constructively
received by the Depositary or the holder of such shares of
Common Stock, respectively, regardless of whether the payment is
in fact converted into U.S. Dollars on that date. Any
subsequent gain or loss in respect of such Rupiah arising from
exchange rate fluctuations will be ordinary income or loss. This
gain or loss will generally be treated as United States source
income for United States foreign tax credit limitation purposes.
If the Depositary converts the Rupiah to U.S. Dollars on
the date it receives such Rupiah, U.S. Holders will not
recognize any such gain or loss.

Subject to the limitations and conditions set
forth in the Code, U.S. Holders may elect to claim a credit
against their United States federal income tax liability for
Indonesian tax withheld from dividends received in respect of
the ADSs or shares of Common Stock. The rules relating to the
determination of the foreign tax credit are complex and
prospective purchasers should consult their personal tax
advisors to determine whether and to what extent they would be
entitled to such credit. U.S. Holders that do not elect or
are not permitted to claim foreign tax credits may instead claim
a deduction for Indonesian tax withheld.



| |                          
| | -------------------------
| | Taxation of Capital Gains

The sale or other disposition of ADSs or shares
of Common Stock by a U.S. Holder will generally result in
the recognition of U.S. source gain or loss in an amount
equal to the difference between the amount realized on the sale
or other disposition and the holders adjusted basis in
such ADSs or shares of Common Stock. This will result in a
long-term or short-term capital gain or loss, depending on
whether the ADSs or shares of Common Stock have been held for
more than one year. Long-term capital gain of a non-corporate
holder is currently subject to a maximum tax rate of 15% in
respect of

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property with a holding period of more than one
year. The deductibility of a capital loss is subject to
limitations.




| |                                              
| | ---------------------------------------------
| | Passive Foreign Investment Company
    Status

Special adverse United States federal income tax
rules apply to holders of equity interests in a corporation
classified as a passive foreign investment company
(PFIC) under the Code. A foreign corporation will
constitute a PFIC for United States federal income tax purposes
if 75% or more of its gross income for a taxable year consists
of passive income (generally, interest, dividends, rents,
royalties and net gain from the disposition of assets that give
rise to such income) or 50% or more of its average assets held
during a taxable year consists of passive assets. Passive assets
are defined as assets that give rise, or that reasonably could
give rise during the reasonably foreseeable future, to passive
income.

Based on the Companys existing and
anticipated future operations, the Company believes that it is
not, and anticipates that it will not become in the foreseeable
future, a PFIC. If the Company is not operated in the manner
currently anticipated, however, the Company may be considered a
PFIC for the current or for a subsequent year depending upon the
composition of the Companys income or assets.

If the Company is or becomes a PFIC, any gain
upon sale or other disposition or any excess
distribution realized by a U.S. Holder with respect
to its ADSs or shares of Common Stock would be allocated ratably
over the entire period during which the U.S. Holder held
such ADSs or shares of Common Stock and would be subject to the
highest ordinary income tax rate for each taxable year (other
than the current year of the U.S. Holder) in which the
items were treated as having been earned, regardless of the rate
otherwise applicable to the U.S. Holder. Such
U.S. Holder would also be liable for an additional tax
equal to an interest charge on the tax liability attributable to
income that is treated as allocated to prior years as if such
liability had actually been due in each such prior year.

In general, an excess distribution is
any distribution with respect to the Companys ADSs or
shares of Common Stock to the extent it exceeds 125% of the
average annual distributions with respect to such ADSs or shares
of Common Stock received by the U.S. Holder over the prior
three years or, if shorter, the U.S. Holders holding
period for the ADSs or shares of Common Stock.

If the Company is classified as a PFIC, it may be
possible to avoid the adverse tax consequences associated
therewith but only if (i) the U.S. Holder elects to
annually mark-to-market the ADSs or shares of Common Stock and
recognize ordinary gain or loss therefrom, or (ii) assuming
certain conditions are met (which is not likely to be the case
with respect to the Company), the U.S. Holder elects to
include in income annually its share of the ordinary earnings
and capital gain of the Company. Should the Company ever be
classified as a PFIC, U.S. Holders are advised to consult
their tax advisors concerning the United States federal income
tax consequences of holding ADSs or shares of Common Stock and
of making the mark-to-market election. A U.S. Holder who
owns ADSs or shares of Common Stock during any year that the
Company is a PFIC must file with the IRS Form 8621.

Further, if the Company is classified as a PFIC,
a U.S. Holder would not be eligible for a reduced tax rate
on dividends paid on ADSs or shares of Common Stock. See
Taxation of Distributions above.

F.     Dividends and
paying agents

Not applicable.

G.     Statement by
experts

Not applicable.

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H.     Documents on
display

TELKOM files reports, including annual reports on
Form 20-F and other information with the SEC pursuant to
the rules and regulations of the SEC that apply to foreign
private issuers. You may read and copy any materials filed with
the SEC at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20459. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Subject to some exceptions, TELKOM is required
to file its periodic reports electronically through the
SECs EDGAR system. Any filings TELKOM makes electronically
will be available to the public over the Internet at the
SECs Website at http://www.sec.gov.

I.     Subsidiary
Information

Not applicable.




ITEM
11.     QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK

A.     Disclosure
About Market Risk

General

The Company is exposed to market risks primarily
from changes in foreign currency exchange rates, changes in
interest rates and equity price risk on the value of its
long-term investments. The Company does not generally hedge its
long-term foreign currency liabilities as it believes that the
expenses associated with fully hedging such liabilities are not
justified. Instead the Company hedged its obligations for the
current year. As of December 31, 2003, foreign currency
time deposits provided approximately 30% coverage against
foreign currency denominated current liabilities. The
Companys exposure to interest rate risk is managed through
maintaining a mix of fixed and variable rate liabilities and
assets, including short term fixed rate assets, rates for which
are reset periodically. The Companys exposure to such
market risks fluctuated significantly during 2001, 2002 and 2003
as the Indonesian economy has been affected by a significant
fluctuation of the Rupiah and interest rates. The Company is not
able to predict whether such conditions will continue during the
remainder of 2004 or thereafter.



| |                   
| | ------------------
| | Interest Rate Risk

The Companys exposure to interest rate
fluctuations results primarily from floating rate long-term debt
pursuant to loans under the Government on-lending program which
have been used to finance the Companys capital
expenditures which bears interest at rates based on the average
for the preceding six months for three month certificates issued
by Bank Indonesia plus 1% and from floating rate long-term debts
of the Companys consolidated subsidiary, Dayamitra, which
bear interests at LIBOR plus a certain margin of 4% per annum.
See Notes 24 and 29 to the Companys consolidated
financial statements. To the extent interest rates in Indonesia
fluctuate significantly, as they did from 10.95% in early 2003
to approximately 8.00% in early 2004, the Companys
interest obligations under its long-term debt could increase.

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The table below provides information about the
Companys material financial instruments, some of which are
sensitive to changes in interest rates. For debt obligations and
time deposits, the table presents principal cash flows and
related weighted average interest rates by expected maturity
dates. The information is presented in Rupiah equivalents, which
is the Companys reporting currency. The instruments
actual cash flows are denominated in Rupiah, U.S. Dollar,
Euro and Japanese Yen, as appropriate and as indicated in the
table. The information presented in the table has been
determined based on the following assumptions: (i) fixed
interest rates on Rupiah time deposits are based on average
interest rates offered in effect as of December 31, 2003 by
the banks where such deposits were located; (ii) variable
interest rates on Rupiah denominated long-term liabilities are
calculated as of December 31, 2003 and are based on
contractual terms setting interest rates based on average rates
for the preceding six months on three month certificates issued
by Bank Indonesia; (iii) variable interest rates on
U.S. Dollar deposits are based on interest rates offered by
the various lending institutions to the Republic of Indonesia as
of December 31, 2003; and (iv) the value of marketable
securities is based on the value of such securities at
December 31, 2003. However, no assurance can be given that
such assumptions will be correct for future periods. Such
assumptions and the information described in the table may be
influenced by a number of factors, including changes in interest
rates in Indonesia and other monetary and macro economic factors
affecting Indonesia. Such assumptions are different from the
rates used in the Companys consolidated financial
statements and accordingly amounts shown in the table may vary
from amounts shown in the Companys consolidated financial
statements.

|                          |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|------------------------- | -------------------- | ------------------------- |  | ---------------------- | ------- | ---- |  | ---------------- | --------- | ---- |  | ---- | ---- | ---- |  | ---- | --------- | --------- |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - | 
|                          |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |     
|                          |                      | Outstanding Balance as at |  |                        |         |      |  |                  |           |      |  |      |      |     
|                          |                      | December 31, 2003         |  |                       
|                          |                      |                           |  | Expected Maturity Date
|                          |                      | Foreign                   |  | Rp.                    |         |      |  |                 
|                          |                      | Currency                  |  | Equivalent             |         | Rate |  | 2004             |           | 2005 |  | 2006 |      | 2007 |  | 2008 |           | 2009-2025
|                          |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |          
|                          |                      |                           |  |                        |         |      |  |                 
|                          |                      | (In thousand)             |  | (Rp. in million)       |         | (%)  |  | (Rp. in million)
|ASSETS                    |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 
|Fixed Rate                |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 
|Cash and Cash equivalents |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 
|                          | Time deposit Rupiah  |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                          |                      | Principal                 |  |                        |         |      |  |                  | 3,253,587 |      |  |      |      |      |  |      | 3,253,587 |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          |                      | Interest                  |  |                        |         |      |  |                  |           |      |  |      | 6.90 |      |  |      |           |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          | U.S. Dollar          |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                          |                      | Principal                 |  |                        | 118,903 |      |  |                  | 1,002,349 |      |  |      |      |      |  |      | 1,002,349 |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          |                      | Interest                  |  |                        |         |      |  |                  |           |      |  |      | 1.00 |      |  |      |           |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          | Euro                 |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                          |                      | Principal                 |  |                        | 39,454  |      |  |                  | 420,726   |      |  |      |      |      |  |      | 420,726   |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          |                      | Interest                  |  |                        |         |      |  |                  |           |      |  |      | 1.90 |      |  |      |           |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Temporary Investments     |                      |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  | 
|                          | Time deposits Rupiah |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                          |                      | Principal                 |  |                        |        |      |  |                  | 4,006     |      |  |      |      |      |  |      | 4,006     |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          |                      | Interest                  |  |                        |         |      |  |                  |           |      |  |      | 6.00 |      |  |      |           |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                          | Available-for-Sale   |                           |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                          |                      | Securities                |  |                        |         |      |  |                  |           |      |  |      |      |      |  |      |           |           |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|                          |                      | Rupiah                    |  |                        |        |      |  |                  |          |      |  |      |     |      |  |      |          |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 

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|                  |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |           | 
|----------------- | ------------ | ------------------------- |  | ---------------------- | ---------- | ---- |  | ---------------- | --------- | ---- |  | ---- | ----- | ---- |  | ---- | --------- | --------- |  |  | ------- |  |  |  | ------- |  |  |  | --------- |  |  |  | ------- |  |  |  | --------- | 
|                  |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |     
|                  |              | Outstanding Balance as at |  |                        |            |      |  |                  |           |      |  |      |       |     
|                  |              | December 31, 2003         |  |                       
|                  |              |                           |  | Expected Maturity Date
|                  |              | Foreign                   |  | Rp.                    |            |      |  |                 
|                  |              | Currency                  |  | Equivalent             |            | Rate |  | 2004             |           | 2005 |  | 2006 |       | 2007 |  | 2008 |           | 2009-2025
|                  |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |          
|                  |              |                           |  |                        |            |      |  |                 
|                  |              | (In thousand)             |  | (Rp. in million)       |            | (%)  |  | (Rp. in million)
|LIABILITIES       |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  | 
|Short Term Bank   |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  | 
|                  | Loan         |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  | U.S. Dollar  |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 4,455      |      |  |                  | 37,642    |      |  |      |      |      |  |      | 37,642    |           |  |  |        |  |  |  |        |  |  |  |          |  |  |  |        |  |  |  |          | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 3.00  |      |  |      | 753       |           |  |  |        |  |  |  |        |  |  |  |          |  |  |  |        |  |  |  |          | 
|Long-term debt(1) |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  | 
|Variable Rate     |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  | 
|                  | Rupiah       |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        |           |      |  |                  | 2,535,279 |      |  |      |       |      |  |      | 335,721   |           |  |  | 347,732 |  |  |  | 257,531 |  |  |  | 190,058   |  |  |  | 189,326 |  |  |  | 1,214,911 | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 11.90 |      |  |      | 301,766   |           |  |  | 261,449 |  |  |  | 219,506 |  |  |  | 189,083   |  |  |  | 166,543 |  |  |  | 144,088   | 
|                  | U.S. Dollar  |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 388,836    |      |  |                  | 3,285,660 |      |  |      |       |      |  |      | 800,190   |           |  |  | 579,577 |  |  |  | 574,678 |  |  |  | 351,090   |  |  |  | 122,516 |  |  |  | 857,609   | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 5.69  |      |  |      | 186,965   |           |  |  | 146,126 |  |  |  | 117,173 |  |  |  | 88,409    |  |  |  | 69,687  |  |  |  | 60,976    | 
|                  | Euro         |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 64,765     |      |  |                  | 690,646   |      |  |      |       |      |  |      | 153,477   |           |  |  | 153,477 |  |  |  | 153,477 |  |  |  | 153,477   |  |  |  | 76,738  |  |  |  |           | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 2.98  |      |  |      | 20,581    |           |  |  | 16,008  |  |  |  | 11,434  |  |  |  | 6,860     |  |  |  | 2,287   |  |  |  |           | 
|Fixed Rate        |              |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  | 
|                  | Rupiah       |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        |           |      |  |                  | 1,949,838 |      |  |      |       |      |  |      | 160,353   |           |  |  | 113,968 |  |  |  | 72,688  |  |  |  | 1,053,966 |  |  |  | 72,688  |  |  |  | 476,175   | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 15.40 |      |  |      | 298,803   |           |  |  | 273,678 |  |  |  | 256,351 |  |  |  | 246,852   |  |  |  | 70,535  |  |  |  | 61,035    | 
|                  | U.S. Dollar  |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 643,954    |      |  |                  | 5,441,410 |      |  |      |       |      |  |      | 2,013,056 |           |  |  | 515,943 |  |  |  | 471,450 |  |  |  | 1,524,910 |  |  |  | 311,985 |  |  |  | 604,066   | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 7.29  |      |  |      | 211,647   |           |  |  | 194,175 |  |  |  | 175,458 |  |  |  | 159,431   |  |  |  | 38,013  |  |  |  | 30,945    | 
|                  | Japanese Yen |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 17,429,464 |      |  |                  | 1,377,726 |      |  |      |       |      |  |      | 55,266    |           |  |  | 90,183  |  |  |  | 90,183  |  |  |  | 90,183    |  |  |  | 75,361  |  |  |  | 976,550   | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 3.13  |      |  |      | 43,169    |           |  |  | 41,437  |  |  |  | 38,611  |  |  |  | 35,786    |  |  |  | 32,960  |  |  |  | 30,599    | 
|                  | Euro         |                           |  |                        |            |      |  |                  |           |      |  |      |       |      |  |      |           |           |  |  |         |  |  |  |         |  |  |  |           |  |  |  |         |  |  |  |          
|                  |              | Principal                 |  |                        | 18,756     |      |  |                  | 200,014   |      |  |      |       |      |  |      | 45,333    |           |  |  | 45,333  |  |  |  | 45,333  |  |  |  | 37,968    |  |  |  | 26,047  |  |  |  |          | 
|                  |              | Interest                  |  |                        |            |      |  |                  |           |      |  |      | 7.64  |      |  |      | 15,285    |           |  |  | 11,821  |  |  |  | 8,356   |  |  |  | 4,892     |  |  |  | 1,991   |  |  |  |          | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Long-term debt consists of loans which are
    subject to interest; namely two-step loans, guaranteed notes and
    bonds, liabilities for acquisition of subsidiaries,
    suppliers credit loans, bridging loans and long-term bank
    loans, in each case including their current maturities.
    Long-term debt, for the purpose of this table, includes
    liability for acquisition of a subsidiary and incorporated
    deferred interest.



| |                   
| | ------------------
| | Exchange Rate Risk

The Companys exposure to exchange rate
fluctuations results primarily from long-term debt obligations
and accounts receivable and payable, which are primarily paid
for through draw downs under the Government on-lending program
and are expressed in U.S. Dollar, Japanese Yen, French
Franc, Euro, Singapore Dollar and Netherlands Guilder. For a
description of the Companys foreign currency assets and
liabilities, see Note 56 to the Companys consolidated
financial statements. Part of these obligations might be offset
by increases in the value of foreign currency time deposits and
by increases in the value of foreign currency accounts
receivable, assuming that the counter-parties are able to meet
their foreign currency obligations to TELKOM at market rates.

165



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##### Table of Contents



The table below provides information about the
Companys financial instruments by functional currency and
presents such information in Rupiah equivalents, which is the
Companys reporting currency. The information on
instruments and transactions that are sensitive to foreign
exchange rates, including U.S. Dollar, Netherlands Guilder,
French Franc, Euro, Singapore Dollar and Japanese Yen debt
obligations and term deposits and the Companys accounts
payable and receivable. The table presents principal cash flows
by expected maturity dates. The information presented in the
table has been determined based on the assumptions the exchange
rates for U.S. Dollar as well as other currencies are based
on the selling and buying rates quoted by Reuters on
December 31, 2003, applied respectively to monetary assets
and liabilities. The buying and selling rates as of
December 31, 2003 were Rp. 8,430 and Rp.8,450 to US$1,
respectively. Telkomsel applied the Bank Indonesia middle buy
and sell rate for its monetary asset and liabilities which was
Rp.8,465 to US$1.00 as of December 31, 2003. However, no
assurance can be given that such assumptions will be correct for
future periods. Such assumptions and the information described
in the table may be influenced by a number of factors, including
a fluctuation and/or depreciation of the Rupiah in future
periods.

|                                     |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |   | 
|------------------------------------ | ------------------- | ------------------------- |  | ---------------------- | -- | ---------------- |  | --------- | --- | ---- |  | --------- | --- | ---- |  | --------- | - |  |  | - | - |  |  | - | - |  |  | - | - |  |  | - | - | 
|                                     |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |     
|                                     |                     | Outstanding Balance as at |  |                        |    |                  |  |           |     |      |  |           |     |     
|                                     |                     | December 31, 2003         |  |                       
|                                     |                     |                           |  | Expected Maturity Date
|                                     |                     | Foreign                   |  | Rp.                    |    |                 
|                                     |                     | Currency                  |  | Equivalent             |    | 2004             |  | 2005      |     | 2006 |  | 2007      |     | 2008 |  | 2009-2025
|                                     |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |          
|                                     |                     |                           |  |                        |    |                 
|                                     |                     | (in thousand)             |  | (Rp. in million)       |    | (Rp. in million)
|ASSETS                               |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|Cash and cash equivalents            |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 123,536                |    |                  |  | 1,043,400 |     |      |  | 1,043,400 |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Japanese Yen        |                           |  | 454                    |    |                  |  | 35        |     |      |  | 35        |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Euro                |                           |  | 39,583                 |    |                  |  | 421,288   |     |      |  | 421,288   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Trade accounts receivable            |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 13,332                 |    |                  |  | 112,559   |     |      |  | 112,559   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Other accounts receivable            |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 12,605                 |    |                  |  | 106,258   |     |      |  | 106,258   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Japanese Yen        |                           |  | 5,441                  |    |                  |  | 429       |     |      |  | 429       |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     | French Franc        |                           |  | 4,805                  |    |                  |  | 5,447     |     |      |  | 5,447     |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     | Netherland Guilder  |                           |  | 814                    |    |                  |  | 2,745     |     |      |  | 2,745     |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     | Euro                |                           |  | 21                     |    |                  |  | 224       |     |      |  | 224       |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|Other current assets                 |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 4,658                  |    |                  |  | 39,269    |     |      |  | 39,269    |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Advances and other noncurrent assets |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 12,290                 |    |                  |  | 103,651   |     |      |  | 103,651   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Escrow account                       |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 61,302                 |    |                  |  | 516,128   |     |      |  | 516,128   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|LIABILITIES                          |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|Trade accounts payable               |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 106,544                |    |                  |  | 900,408   |     |      |  | 900,408   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Japanese Yen        |                           |  | 126,925                |    |                  |  | 10,033    |     |      |  | 10,033    |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Great Britain Pound |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     |                     | Sterling                  |  |                        | 61 |                  |  |           | 916 |      |  |           | 916 |      |  |           |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                                     | Euro                |                           |  | 2,768                  |    |                  |  | 29,463    |     |      |  | 29,463    |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Singapore Dollar    |                           |  | 144                    |    |                  |  | 717       |     |      |  | 717       |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Other accounts payable               |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  |                       |    |                  |  |          |     |      |  |          |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Accrued expenses                     |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 28,946                 |    |                  |  | 244,925   |     |      |  | 244,925   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Japanese Yen        |                           |  | 14,135                 |    |                  |  | 1,117     |     |      |  | 1,117     |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Euro                |                           |  | 40,698                 |    |                  |  | 433,155   |     |      |  | 433,155   |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | French Franc        |                           |  | 710                    |    |                  |  | 808       |     |      |  | 808       |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     | Great Britain Pound |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     |                     | Sterling                  |  |                        | 46 |                  |  |           | 689 |      |  |           | 689 |      |  |           |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|                                     | Netherland Guilder  |                           |  | 482                    |    |                  |  | 1,631     |     |      |  | 1,631     |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Singapore Dollar    |                           |  | 189                    |    |                  |  | 940       |     |      |  | 940       |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|Advance from customers and suppliers |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 3,041                  |    |                  |  | 25,701    |     |      |  | 25,701    |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  
|                                     | Japanese Yen        |                           |  | 23,940                 |    |                  |  | 1,892     |     |      |  | 1,892     |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     | Great Britain Pound |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |   |  
|                                     |                     | Sterling                  |  |                        | 1  |                  |  |           | 7   |      |  |           | 7   |      |  |           |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 
|Short term bank loans                |                     |                           |  |                        |    |                  |  |           |     |      |  |           |     |      |  |           |   |  |  |   |   |  |  |   |   |  |  |   |   |  |  |  
|                                     | U.S. Dollar         |                           |  | 4,462                  |    |                  |  | 37,642    |     |      |  | 37,642    |     |      |  |          |   |  |  |  |   |  |  |  |   |  |  |  |   |  |  |  |  

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|                  |              |                           |  |                        |  |                  |  |           |  |      |  |           |  |      |  |           |  |  |  |           |  |  |  |           |  |  |  |         |  |  |  |           | 
|----------------- | ------------ | ------------------------- |  | ---------------------- |  | ---------------- |  | --------- |  | ---- |  | --------- |  | ---- |  | --------- |  |  |  | --------- |  |  |  | --------- |  |  |  | ------- |  |  |  | --------- | 
|                  |              |                           |  |                        |  |                  |  |           |  |      |  |           |  |     
|                  |              | Outstanding Balance as at |  |                        |  |                  |  |           |  |      |  |           |  |     
|                  |              | December 31, 2003         |  |                       
|                  |              |                           |  | Expected Maturity Date
|                  |              | Foreign                   |  | Rp.                    |  |                 
|                  |              | Currency                  |  | Equivalent             |  | 2004             |  | 2005      |  | 2006 |  | 2007      |  | 2008 |  | 2009-2025
|                  |              |                           |  |                        |  |                  |  |           |  |      |  |           |  |      |  |          
|                  |              |                           |  |                        |  |                 
|                  |              | (in thousand)             |  | (Rp. in million)       |  | (Rp. in million)
|Long term debt(1) |              |                           |  |                        |  |                  |  |           |  |      |  |           |  |      |  |           |  |  |  |           |  |  |  |           |  |  |  |         |  |  |  |          
|                  | U.S. Dollar  |                           |  | 1,032,526              |  |                  |  | 8,727,070 |  |      |  | 2,813,246 |  |      |  | 1,095,520 |  |  |  | 1,046,128 |  |  |  | 1,876,000 |  |  |  | 434,501 |  |  |  | 1,461,675 | 
|                  | Japanese Yen |                           |  | 17,429,464             |  |                  |  | 1,377,726 |  |      |  | 55,266    |  |      |  | 90,183    |  |  |  | 90,183    |  |  |  | 90,183    |  |  |  | 75,361  |  |  |  | 976,550   | 
|                  | Euro         |                           |  | 83,647                 |  |                  |  | 890,660   |  |      |  | 198,810   |  |      |  | 198,810   |  |  |  | 198,810   |  |  |  | 191,444   |  |  |  | 102,786 |  |  |  |          | 



---



|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Long-term debt for the purpose of this table
    consists of loans denominated in foreign currencies namely,
    two-step loans, suppliers credit loan, bridging loan,
    liabilities for acquisition of subsidiaries, long-term bank loan
    and guaranteed notes, in each case including their current
    maturities.



| |                  
| | -----------------
| | Equity Price Risk

The Companys long-term investments consist
primarily of minority investments in the equity of private
Indonesian companies. With respect to the Indonesian companies
in which the Company has investments, the financial performance
of such companies may be affected by the fluctuation of macro
economic and social conditions such as the level of economic
activity, Rupiah exchange rates against other currencies,
inflation and interest rates.






|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
    SECURITIES

Not applicable.




PART II






|         |                                                    
|-------- | ---------------------------------------------------
|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND
    DELINQUENCIES

Not applicable.






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
    SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.






|         |                       
|-------- | ----------------------
|ITEM 15. | CONTROL AND PROCEDURES

In the course of the audit of TELKOMs
consolidated financial statements as of and for the year ended
December 31, 2002 by KAP Drs. Haryanto Sahari &
Rekan (formerly KAP Drs. Hadi Sutanto & Rekan),
the member firm of PricewaterhouseCoopers in Indonesia
(PwC), TELKOM identified certain errors in and made
certain adjustments to, its consolidated financial statements as
of and for the year ended December 31, 2002 that had been
previously filed with the SEC. Following discussions between
TELKOM and KAP Hans Tuanakotta Mustofa & Halim
(formerly KAP Hans Tuanakotta & Mustofa), the member
firm of Deloitte Touche Tohmatsu in Indonesia
(Deloitte), the auditor of TELKOMs
consolidated financial statements as of and for the years ended
December 31, 2000 and 2001, TELKOM also identified certain
errors in and made certain adjustments to, its previously issued
consolidated financial statements as of and for the years ended
December 31, 2000 and 2001.

Our principal executive officer and principal
financial officer carried out an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended (Exchange Act)) as of
December 31, 2003.

In making this evaluation, our principal
executive officer and principal financial officer considered
matters relating to the restatement of our previously issued
consolidated financial statements for the years ended
December 31, 2000, 2001 and 2002, including the substantial
process that was undertaken during the period from December 2003
through the date hereof to ensure that all material adjustments
necessary to restate such previously issued consolidated
financial statements were recorded. TELKOM

167



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##### Table of Contents



believes that certain of the adjustments
necessary to correct such previously issued consolidated
financial statements occurred because TELKOMs control
processes and procedures related to the matters underlying such
adjustments were not sufficiently effective. TELKOM has also
considered the reportable conditions (as defined under standards
established by the American Institute of Certified Public
Accountants) relating to our internal control over financial
reporting as identified and communicated to us and our Audit
Committee by PwC in connection with its audit of the
consolidated financial statements as of and for the year ended
December 31, 2002 and by KAP Siddharta Siddharta &
Widjaja, the member firm of KPMG International in Indonesia
(KPMG), in connection with its audit of the
consolidated financial statements as of and for the year ended
December 31, 2003. As part of their communications, both
PwC and KPMG informed the Audit Committee that they had
identified reportable conditions each of which
constituted a material weakness (as each such term
is defined under standards established by the American Institute
of Certified Public Accountants) in TELKOMs internal
controls with respect to: (1) inadequate personnel
resources with sufficient knowledge and experience in the
application of Indonesian GAAP and US GAAP accounting
principles; (2) deficiencies in the organizational
structure of the accounting department, including the oversight
function for accounting and financial reporting;
(3) inadequate internal processes for the assessment of
critical, significant and judgmental accounting areas; and
(4) insufficient written policies and procedures for the
accounting and financial reporting function, insufficient
knowledge of and compliance with, existing policies and
procedures among relevant personnel and insufficient emphasis by
the internal audit function on the foregoing.


Based on the evaluation described above and
PwCs and KPMGs communications to our Audit
Committee, our principal executive officer and principal
financial officer concluded that these material weaknesses, if
not addressed, could result in accounting errors and inadequate
disclosures such as those underlying the restatements of
TELKOMs consolidated financial statements for the three
years ended December 31, 2002, which related to:
(1) our accounting for liabilities for post-employment
medical benefits; (2) our accounting for liabilities for
long service awards; (3) our calculation of deferred income
taxes; (4) our accounting for business acquisitions;
(5) our accounting for installation revenues; (6) our
accounting for revenue sharing arrangements; and (7) a
substantial number of other individually less significant items.

In response to the matters identified by PwC and
KPMG, under the supervision of the Audit Committee, our senior
management has directed that TELKOM dedicate resources and take
steps to strengthen control processes and procedures in order to
prevent a recurrence of the circumstances that resulted in the
need to restate such consolidated financial statements. These
steps include, among others: (1) an assessment of the
organizational structure of the finance department, including to
determine additional resources which need to be dedicated to it;
(2) the enhancement of all finance-related policies and
procedures covering accounting and financial reporting;
(3) the improvement of standard documentation requirements
for the assessment of critical, significant and judgmental
accounting areas; (4) the improvement of understanding of
relevant Indonesian GAAP and U.S. GAAP accounting
principles and financial reporting responsibilities across all
our business units through intensive and continuing training and
proactive consultations with advisors on technical matters as
they relate to our business; and (5) modification of the
mandate of TELKOMs internal audit function to place
greater emphasis on the adequacy of and compliance with,
procedures relating to internal control over financial reporting.

TELKOM, under the supervision of its Audit
Committee, has been working to improve its internal controls and
procedures, including those needed to enable it to comply with
Section 404 of the Sarbanes-Oxley Act of 2002. Due to the
pending requirements of Section 404 and as a result of the
material weaknesses identified by PwC and KPMG,
TELKOM has: (1) retained KAP Prasetio, Sarwoko &
Sandjaja, the member firm of Ernst & Young in Indonesia
(E&Y), under the supervision of the Audit
Committee, to assist TELKOM in improving its internal controls
and procedures; (2) established a task force with
responsibility for enhancing all finance-related policies and
procedures covering accounting and financial reporting;
(3) prepared a draft Action Plan to address the

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material weaknesses in TELKOMs internal
controls identified by PwC and KPMG; (4) reviewed the
organizational structure of TELKOMs finance department and
added a new oversight function to the accounting department
organization structure to provide (among others) an additional
level of review of critical, significant and judgmental
accounting areas; (5) hired additional experienced
personnel for TELKOMs accounting and internal audit
departments; and (6) held seminars involving members of the
accounting departments at two major Indonesian universities on
relevant accounting and internal control issues, attended by
senior management and certain accounting and finance-related
personnel. TELKOMs draft Action Plan involves several
additional steps which TELKOM intends to take throughout 2004 to
address the material weaknesses in its internal controls.


Other than as described above, there have been no
significant changes in TELKOMs internal control over
financial reporting that occurred during the last fiscal quarter
period covered by this report, that have materially affected, or
are reasonably likely to materially affect, TELKOMs
internal control over financial reporting.

TELKOMs disclosure controls and procedures,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance of achieving the objectives
of the control system. As such, disclosure controls and
procedures or internal control systems may not prevent all error
and all fraud. In addition, the design of a control system must
reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs
and our management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within TELKOM have been detected.

TELKOMs principal executive officer and
principal financial officer concluded, based on their most
recent evaluation of internal control over financial reporting,
that the material weaknesses in TELKOMs
internal controls materially and adversely impacted the
effectiveness of TELKOMs disclosure controls and
procedures relating to the disclosure of financial information,
financial performance and managements analysis of such
information and performance and that the remedial actions
referred to above to address such material
weaknesses are necessary to ensure the effectiveness of
TELKOMs disclosure controls and procedures as they relate
to such information. However, TELKOMs principal executive
officer and principal financial officer further concluded, based
on such evaluation, that in all other material respects the
design and operation of TELKOMs disclosure controls and
procedures were effective to ensure that information required to
be disclosed in the reports TELKOM files and submits under the
Exchange Act is recorded, processed, summarized and reported as
and when required.




ITEM 16.     RESERVED



ITEM 16A.     AUDIT
COMMITTEE FINANCIAL EXPERT

The Board of Commissioners has determined that
Mr. Sahat Pardede, a member of TELKOMs Audit
Committee, qualifies as an Audit Committee Financial Expert in
accordance with the requirements of Item 16A of
Form 20-F. Mr. Pardede has been a member of
TELKOMs Audit Committee since February 17, 2004, and
also serves as a member of the risk and compliance committee of
PT Bank BNI. Prior to his appointment as a member of
TELKOMs Audit Committee, Mr. Pardede practiced as a
Certified Public Accountant in Indonesia and provided auditing
services and other financial services to numerous private
companies and public institutions. Mr. Pardede graduated
with a degree in accounting from the State College of
Accountancy, Jakarta and holds a master degree in business
administration from Saint Marys University, Canada. He is
a Certified Public Accountant and is also a member of the
Indonesian Institute of Accountants.

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ITEM 16B.     CODE
OF ETHICS

We have adopted a code of ethics in accordance
with the provisions of Section 406 of the Sarbanes-Oxley
Act of 2002. Our code of ethics applies to our Chief Executive
Officer, Chief Financial Officer and persons performing similar
functions as well as to our Commissioners, Directors and other
officers and employees. Our code of ethics may be viewed on our
company web site at
www.telkom-indonesia.com/english/hubunganinvestor/index.asp. If
we amend the provisions of our code of ethics that apply to our
Chief Executive Officer, Chief Financial Officer and persons
performing similar functions, or if we grant any waiver of such
provisions, we will disclose such amendment or waiver on our
company web site at the same address.




ITEM 16C.     PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The following table summarizes the aggregate fees
billed to us by KAP Eddy Pianto and KAP Drs. Haryanto
Sahari & Rekan (formerly KAP Drs. Hadi
Sutanto & Rekan), the member firm of
PricewaterhouseCoopers in Indonesia (PwC), during
the fiscal year ended December 31, 2002, and by KAP
Siddharta Siddharta & Widjaja, the member firm of KPMG
International in Indonesia (KPMG), during the fiscal
year ended December 31, 2003:

|                   |  |                  |          |      |  |  |          | 
|------------------ |  | ---------------- | -------- | ---- |  |  | -------- | 
|                   |  |                 
|                   |  | Year Ended      
|                   |  | December 31,    
|                   |  |                 
|                   |  | 2002             |          | 2003
|                   |  |                  |          |     
|                   |  |                 
|                   |  | (in Rp. billion)
|Audit Fees         |  |                  | 33,578.0 |      |  |  | 10,715.0 | 
|Audit-Related Fees |  |                  |         |      |  |  |         | 
|Tax Fees           |  |                  |         |      |  |  |         | 
|Other Fees         |  |                  |         |      |  |  |         | 

A.     Audit
Fees

Audit fees in the above table are the aggregate
fees billed by KAP Eddy Pianto and PwC in 2002, and KPMG in
2003, in each case in connection with the audit of our annual
financial statements, the review of TELKOMs quarterly
financial statements and statutory and regulatory audits. KAP
Eddy Pianto, which was originally appointed to perform
TELKOMs 2002 audit, was not qualified for SEC purposes and
TELKOM appointed PwC in July 2003 to perform the re-audit of
TELKOMs 2002 annual financial statements.

B.     Audit-Related
Fees

None.

C.     Tax
Fees

None of KAP Eddy Pianto, PwC and KPMG performed
tax compliance, tax advisory or tax planning services for TELKOM
during the fiscal years ended December 31, 2002 and 2003.

D.     All Other
Fees

None of KAP Eddy Pianto, PwC and KPMG performed
other services for TELKOM during the fiscal years ended
December 31, 2002 and 2003.

E.     Audit
Committee Pre-Approval Policies and Procedures

TELKOM has adopted pre-approval policies and
procedures under which all non-audit services provided by its
independent public accounting firm must be pre-approved by
TELKOMs audit committee as set forth in the audit
committees charter. Pursuant to the charter, permissible
non-audit services may be performed by TELKOMs independent
public accounting firm provided that:

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(a) TELKOMs Board of Directors must
deliver to the Audit Committee (through the Board of
Commissioners) a detailed description of the non-audit service
that is to be performed by the independent public accounting
firm; and (b) the Audit Committee will determine whether
the proposed non-audit service will affect the independence of
TELKOMs independent public accounting firm or would give
rise to any conflict of interest.


Consistent with Section 10(i)(1)(B) of the
Exchange Act and paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-K issued thereunder, the charter of
TELKOMs audit committee waives the pre-approval
requirement for permissible non-audit services (x) where
the aggregate amount of the fees for such non-audit services
constitutes no more than five percent of the total amount of
fees paid by TELKOM to its independent public accounting firm
during the fiscal year in which the services are provided or
(y) the proposed services are not regarded as non-audit
services at the time the contract to perform the same is signed.
In either case, the performance of such non-audit services must
subsequently be approved either by a member of the Audit
Committee who has been delegated pre-approval authority by the
full Audit Committee or by the full Audit Committee itself.
Notwithstanding the foregoing, none of TELKOMs independent
public accounting firms performed non-audit services for TELKOM
during the fiscal years ended December 31, 2002 and 2003.






|          |                                                               
|--------- | --------------------------------------------------------------
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR
    AUDIT COMMITTEES

Not applicable.






|          |                                                                           
|--------- | --------------------------------------------------------------------------
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER
    AND AFFILIATED PURCHASERS

Not applicable.

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PART III



ITEM 17.     CONSOLIDATED
FINANCIAL STATEMENTS

Not applicable.




ITEM 18.     CONSOLIDATED
FINANCIAL STATEMENTS

See pages F-1 through F-137.




ITEM 19.     EXHIBITS

Exhibit 1  The Articles of
Incorporation of TELKOM, amended as of January 10, 2002,
together with an English translation thereof, are filed with
TELKOMs 2001 Form 20-F on May 30, 2002 and is
hereby incorporated by reference.

Exhibit 2  Not applicable.

Exhibit 3  Not applicable.

Exhibit 4  Material Contracts
Exhibits:

| |        |  |  |                                                                                                                                                                                                                                                                                                            
| | ------ |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1*   |  |  | Agreement for the Sale and Purchase of the Assets
    Relating to TELKOM Mobile between TELKOM and Telkomsel, dated
    April 3, 2002.                                                                                                                                                                     
| | 4.2*   |  |  | Settlement Agreement between TELKOM and the
    shareholders of AriaWest, dated July 31, 2003.                                                                                                                                                                                                             
| | 4.3*   |  |  | Credit Agreement between TELKOM and the AriaWest
    lenders, dated July 31, 2003.                                                                                                                                                                                                                         
| | 4.4*   |  |  | First Amendment to the Conditional Sale and
    Purchase Agreement between TELKOM and the shareholders of
    AriaWest, dated July 31, 2003.                                                                                                                                                               
| | 4.5*   |  |  | Conditional Sale and Purchase Agreement between
    TELKOM and the shareholders of AriaWest, dated May 8, 2002.                                                                                                                                                                                            
| | 4.6*   |  |  | Conditional Sale and Purchase Agreement between
    TELKOM and Singapore Telecom Mobile Pte. Ltd., dated
    April 3, 2002.                                                                                                                                                                                
| | 4.7*   |  |  | Conditional Sale and Purchase Agreement between
    TELKOM and the shareholders of Pramindo, dated April 19,
    2002.                                                                                                                                                                                     
| | 4.8*   |  |  | Cooperation Agreement on the Interconnection
    between TELKOMs Fixed Network and Indosats Local
    Fixed Network and the Settlement of the Interconnection
    Financial Rights and Obligations between TELKOM and Indosat,
    dated September 3, 2002, including an English translation
    thereof.
| | 4.9**  |  |  | Kontrak Pengadaan Satelit TELKOM-2 (Contract on
    Procurement of TELKOM-2 Satellite) between TELKOM and Orbital
    Sciences Corporation, dated October 24, 2002.                                                                                                                                        
| | 4.10   |  |  | First Amendment to Contract on Procurement of
    TELKOM-2 Satellite between TELKOM and Orbital Sciences
    Corporation, dated December 15, 2003.                                                                                                                                                         
| | 4.11** |  |  | Kontrak Jasa Peluncur Satelit TELKOM-2 (Agreement
    on Launch Services of TELKOM-2 Satellite) between TELKOM and
    Arianespace S.A., dated November 8, 2002.                                                                                                                                           
| | 4.12*  |  |  | Master Procurement Partnership Agreement between
    TELKOM and a consortium led by Samsung Electronics, dated
    December 23, 2003.                                                                                                                                                                      
| | 4.13*  |  |  | Amendment No. 1 to the Master Procurement
    Partnership Agreement between TELKOM and a consortium led by
    Samsung Electronics, dated December 31, 2003.                                                                                                                                               
| | 4.14*  |  |  | Service Level Agreement between TELKOM and a
    consortium led by Samsung Electronics, dated December 23,
    2002.                                                                                                                                                                                       
| | 4.15*  |  |  | Loan Agreement between TELKOM and The
    Export-Import Bank of Korea, dated August 27, 2003.                                                                                                                                                                                                              

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| |        |  |  |                                                                                                                                                                                                                                                                                           
| | ------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.16*  |  |  | Master Procurement Partnership Agreement between
    TELKOM and a consortium led by Ericsson, dated December 23,
    2002.                                                                                                                                                                
| | 4.17*  |  |  | Service Level Agreement between TELKOM and a
    consortium led by Ericsson, dated December 23, 2002.                                                                                                                                                                                     
| | 4.18*  |  |  | Master Procurement Partnership Agreement between
    TELKOM and PT Industri Telekomunikasi Indonesia (Persero),
    dated August 26, 2003, including an English translation
    thereof.                                                                                                  
| | 4.19*  |  |  | Service Level Agreement between TELKOM and
    PT Industri Telekomunikasi Indonesia Tbk., dated
    August 26, 2003.                                                                                                                                                                      
| | 4.20*  |  |  | Partnership Agreement for the Procurement and
    Construction of Backbone Transmission Network between TELKOM and
    a consortium led by Siemens AG, dated September 24,
    2003.                                                                                                      
| | 4.21** |  |  | Development Contract PSTN Excellence Regional
    Junction Divre-II between TELKOM and the Olex-Lucent-Brimbun
    consortium, dated February 8, 2002.                                                                                                                                    
| | 4.22   |  |  | Co-Operation Agreement on Fixed Wireless CDMA
    Facilities Construction in KSO Divre VII Area between
    TELKOM and PT Bukaka SingTel International, dated
    January 14, 2003.                                                                                                       
| | 4.23*  |  |  | Amendment No. 1 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated August 22, 2002.                                                                                                              
| | 4.24*  |  |  | Amendment No. 2 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated October 25, 2002.                                                                                                             
| | 4.25*  |  |  | Amendment No. 3 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated December 20, 2002.                                                                                                            
| | 4.26*  |  |  | Amendment No. 4 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated March 20, 2003.                                                                                                               
| | 4.27*  |  |  | Amendment No. 5 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated June 26, 2003.                                                                                                                
| | 4.28   |  |  | Amendment No. 6 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated October 9, 2003.                                                                                                              
| | 4.29   |  |  | Amendment No. 7 to the Development Contract
    PSTN Excellence Regional Junction Divre-II between TELKOM and
    the Olex-Lucent-Brimbun consortium, dated December 4, 2003.                                                                                                             
| | 4.30*  |  |  | Master Procurement Partnership Agreement between
    TELKOM and Motorola, Inc., dated March 24, 2003.                                                                                                                                                                                     
| | 4.31*  |  |  | Partnership Agreement for Procurement and
    Construction of Regional Metro Junction and Optic Access Network
    for Regional Division III between TELKOM and
    PT Industri Telekomunikasi Indonesia (Persero), dated
    November 12, 2003, including an English translation thereof.
| | 4.32*  |  |  | Contract Agreement in connection with the
    Softswitch System Class-4 Procurement Program Through Buy or
    Return Scheme between TELKOM and the Santera-Olex consortium,
    dated December 18, 2003.                                                                                 
| | 4.33*  |  |  | Side Letter to the Partnership Agreement for the
    Construction and Provision of the High Performance Backbone in
    Sumatera, dated June 12, 2003.                                                                                                                                    
| | 4.34*  |  |  | Amendment No. 1 to the Partnership Agreement
    for the Development of a PSTN Regional Junction for Regional
    Division V (East Java), dated September 27, 2002.                                                                                                                       

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| |       |  |  |                                                                                                                                                                                                                                                                                                        
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.35* |  |  | Amendment No. 2 to the Partnership Agreement
    for the Development of a PSTN Regional Junction for Regional
    Division V (East Java), dated December 30, 2002.                                                                                                                                     
| | 4.36  |  |  | Amendment No. 3 to the Partnership Agreement
    for the Development of a PSTN Regional Junction for Regional
    Division V (East Java), dated December 11, 2003.                                                                                                                                     
| | 4.37* |  |  | Supply Contract among TELKOM, NEC Corporation,
    the Communication Authority of Thailand and Singapore
    Telecommunications Limited, dated November 27, 2002.                                                                                                                                      
| | 4.38* |  |  | Thailand-Indonesia-Singapore Cable Network
    Construction and Maintenance Agreement among TELKOM, NEC
    Corporation, the Communication Authority of Thailand and
    Singapore Telecommunications Limited, dated November 27,
    2002.                                                            
| | 4.39* |  |  | Amended and Restated KSO Agreement between TELKOM
    and PT Mitra Global Telekomunikasi Indonesia, dated
    January 20, 2004.                                                                                                                                                                        
| | 4.40* |  |  | Service Level Agreement between TELKOM and
    Motorola, Inc., dated March 24, 2003.                                                                                                                                                                                                                   
| | 4.41* |  |  | Indemnity Agreement between TELKOM and KAP Hans
    Tuanakotta Mustofa & Halim (formerly KAP Hans
    Tuanakotta & Mustofa), dated February 9, 2004.                                                                                                                                                   
| | 4.42  |  |  | Supply Contract for the Procurement and
    Installation of Dumai-Melaka Cable System among TELKOM, Telekom
    Malaysia Berhad and NEC Corporation, dated May 14, 2004.                                                                                                                               
| | 4.43  |  |  | Loan Agreement and Acknowledgement of
    Indebtedness between TELKOM and ABN AMRO Bank N.V. Jakarta
    Branch, dated January 28, 2004.                                                                                                                                                               
| | 4.44  |  |  | Letter Agreement between Indosat and TELKOM,
    dated December 11, 2003 (with regard to the merger of
    PT Indonesian Satellite Corporation Tbk with
    PT Indosat Multi Media Mobile, PT Satelit Palapa
    Indonesia and PT Bimagraha Telekomindo), including an
    English translation thereof.
| | 4.45  |  |  | Indemnity Agreement between TELKOM and KAP Hans
    Tuanakotta Mustofa & Halim (formerly KAP Hans Tuanakotta
    & Mustofa), dated June 29, 2004.                                                                                                                                                      



---



|   |                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|*  | Filed with Amendment No. 2 to the Annual
    Report of Form 20-F/A filed February 9, 2004 and
    incorporated herein by reference.
|** | Filed with original Annual Report on
    Form 20-F filed April 17, 2003 and incorporated herein
    by reference.                  

Exhibit 5  Not applicable.

Exhibit 6  Earnings per share is
computed by dividing net income by the average number of shares
outstanding during the year, totaling 10,079,999,640 shares in
2001, 2002 and 2003. TELKOM does not have potentially dilutive
ordinary shares.

Exhibit 7  Not applicable.

Exhibit 8  List of subsidiaries
as of December 31, 2003:

|                                   |  |                 |  |                    
|---------------------------------- |  | --------------- |  | -------------------
|                                   |  |                 |  | Name Under Which   
|                                   |  | Jurisdiction of |  | Subsidiary Conducts
|Name of Subsidiary                 |  | Incorporation   |  | its Business       
|                                   |  |                 |  |                    
|PT AriaWest International          |  | Indonesia       |  | AriaWest           
|PT Multimedia Nusantara            |  | Indonesia       |  | Metra              
|PT Graha Sarana Duta               |  | Indonesia       |  | GSD                
|PT Indonusa Telemedia              |  | Indonesia       |  | Indonusa           
|PT Dayamitra Telekomunikasi        |  | Indonesia       |  | Mitratel           
|PT Telekomunikasi Selular          |  | Indonesia       |  | Telkomsel          
|PT Napsindo Primatel Internasional |  | Indonesia       |  | Napsindo           
|PT Infomedia Nusantara             |  | Indonesia       |  | Infomedia          
|PT Pro Infokom Indonesia           |  | Indonesia       |  | PII                
|PT Pramindo Ikat Nusantara         |  | Indonesia       |  | Pramindo           

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Exhibit 9  Not applicable.

Exhibit 10  Not applicable.

Exhibit 11  Not applicable.
TELKOM intends to comply with its obligation to disclose its
code of ethics by posting a copy of the code of ethics on its
company web site at
www.telkom-indonesia.com/english/hubunganinvestor/index.asp

Exhibit 12  See
Exhibits 12.1 and 12.2 attached hereto.

Exhibit 13  See
Exhibits 13.1 and 13.2 attached hereto.

Exhibit 14  Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 12
of the Securities Exchange Act of 1934, as amended, the
Registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly
caused this annual report to be signed on its behalf by the
undersigned, there unto duly authorized, in Jakarta, on the 29th
day of June, 2004.

PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk.




|    |              
|--- | -------------
|By: | /s/ Kristiono




KRISTIONO


President Director


Date: June 29, 2004




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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


TABLE OF CONTENTS

|                                              |                                                                   |      |     |      | 
|--------------------------------------------- | ----------------------------------------------------------------- | ---- | --- | ---- | 
|                                              |                                                                   | Page
|                                              |                                                                   |     
|Report of Independent Public Accounting Firms |                                                                   |      | F-2 |     
|Financial Statements                          |                                                                   |      |     |     
|                                              | 1. Consolidated Balance Sheets                                    |      |     | F-7  | 
|                                              | 2. Consolidated Statements of Income                              |      |     | F-10 | 
|                                              | 3. Consolidated Statements of Changes in
    Stockholders Equity |      |     | F-11 | 
|                                              | 4. Consolidated Statements of Cash Flows                          |      |     | F-14 | 
|                                              | 5. Notes to Consolidated Financial Statements                     |      |     | F-16 | 

F-1



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##### Table of Contents



Report of Independent Public Accounting
Firm

No. L.03-3737-04/ US

The Shareholders, Board of Commissioners and
Board of Directors

Perusahaan Perseroan (Persero) PT
Telekomunikasi Indonesia Tbk.:


We have audited the consolidated balance sheet of
Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk.
and subsidiaries (the Company) as of
December 31, 2003, and the related consolidated statements
of income, changes in stockholders equity, and cash flows
for the year then ended. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the
financial statements of PT Telekomunikasi Selular
(Telkomsel), a 65% owned subsidiary, which
statements reflect total assets constituting 31 percent and
total revenues constituting 40 percent of the related
consolidated totals. Those statements, which were prepared on
the basis of accounting principles generally accepted in
Indonesia, were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the
amounts included for Telkomsel, is based solely on the report of
the other auditors. The consolidated financial statements of the
Company for 2002 and 2001 were audited by other auditors whose
reports dated January 29, 2004 and February 28, 2002,
except with respect to certain items that were subsequently
restated as to which the date is January 29, 2004,
respectively, expressed unqualified opinions on those statements.

We conducted our audit in accordance with
auditing standards generally accepted in Indonesia and the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audit and the report
of other auditors, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Perusahaan Perseroan (Persero) PT
Telekomunikasi Indonesia Tbk. and subsidiaries as of
December 31, 2003, and the results of their operations and
their cash flows for the year then ended in conformity with
accounting principles generally accepted in Indonesia.

Accounting principles generally accepted in
Indonesia vary in certain significant respects from accounting
principles generally accepted in the United States of America.
Information relating to the nature and effect of such
differences is presented in Note 58 to the consolidated
financial statements.

The accompanying financial statements as of and
for the year ended December 31, 2003 have been translated
into United States Dollars solely for the convenience of the
readers. We have audited the translation and, in our opinion,
the consolidated financial statements expressed in Indonesian
Rupiah have been translated into dollars on the basis as set
forth in Note 3 to the consolidated financial statements.

Kantor Akuntan Publik Siddharta Siddharta &
Widjaja

Member Firm of KPMG International


License No. : KEP-232/ KM.6/2002


/s/Istata Taswin Siddharta 
 Drs. Istata Taswin Siddharta

Public Accountant License
No. 98.1.0192


Jakarta-Indonesia, June 29, 2004.

F-2



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INDEPENDENT AUDITORS REPORT

TO THE STOCKHOLDERS, BOARD OF COMMISSIONERS
AND DIRECTORS OF

PERUSAHAAN PERSEROAN (PERSERO)
PT TELEKOMUNIKASI INDONESIA TBK.


We have audited the accompanying consolidated
balance sheet of Perusahaan Perseroan (Persero)
PT Telekomunikasi Indonesia Tbk. and its subsidiaries (the
Company) as of December 31, 2002, and the
related consolidated statements of income, changes in
stockholders equity and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated
financial statements of the Company as of December 31, 2001
were audited by other independent auditors whose report that was
dated February 28, 2002 except with respect to certain
items that were subsequently restated, as to which the date is
January 29, 2004, expressed an unqualified opinion on those
statements.

We conducted our audit in accordance with
auditing standards established by the Indonesian Institute of
Accountants and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as
of December 31, 2002, and the consolidated results of its
operations and its consolidated cash flows for the year then
ended in conformity with accounting principles generally
accepted in the Indonesia.

Accounting principles generally accepted in
Indonesia vary in certain significant respects from accounting
principles generally accepted in the United States of America.
Information relating to the nature and effect of such
differences is presented in Note 58 to the consolidated
financial statements.

Jakarta, January 29, 2004

(-s- DRS. IRHOAN TANUDIREDJA BAP)

DRS. IRHOAN TANUDIREDJA BAP

License of Public Accountant No. 99.1.0683


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INDEPENDENT AUDITORS REPORT

TO THE STOCKHOLDERS OF

PT TELEKOMUNIKASI SELULAR AND
SUBSIDIARY


We have audited the accompanying consolidated
balance sheets of PT Telekomunikasi Selular (the
Company) and its subsidiary (collectively the
Group) as at December 31, 2003 and the related
consolidated statements of income, changes in stockholders
equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Groups management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
auditing standards established by the Indonesian Institute of
Accountants and the standards of the Public Company Accounting
Oversight Board (United States). These standards require that we
plan and perform the audit to obtain reasonable assurance that
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as
evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Group as at
December 31, 2003 and the consolidated results of their
operations, and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting
principles in Indonesia.

Accounting principles generally accepted in
Indonesia vary in certain significant respects from accounting
principles generally accepted in the United States of America.
Information relating to the nature and effect of such
differences is presented in Notes 34 and 35 to the consolidated
financial statements.

JAKARTA

April 8, 2004


(-s- DRS. IRHOAN TANUDIREDJA BAP)

Drs. Irhoan Tanudiredja BAP

License of Public Accountant No. 99.1.0683


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INDEPENDENT AUDITORS REPORT

No. 280202 TI LSW SAR4 
20F

The Stockholders, Boards of Commissioners and
Directors

Perusahaan Perseroan (Persero) P.T.
Telekomunikasi Indonesia Tbk


We have audited the accompanying consolidated
statements of income, changes in equity, and cash flows for the
year ended December 31, 2001 of Perusahaan Perseroan
(Persero) P.T. Telekomunikasi Indonesia Tbk and its
subsidiaries. These financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our
audit. The consolidated financial statements give retroactive
effect to the Companys acquisition of a controlling
interest in PT Telekomunikasi Selular (Telkomsel), in a
transaction between entities under common control that has been
accounted for in a manner similar to a pooling of interests as
described in Note 4 to the consolidated financial
statements. We did not audit the financial statements of
Telkomsel for the year ended December 31, 2001, which
statements reflect total revenues constituting 27%, of
consolidated total revenues for the year ended December 31,
2001. Those statements were audited by other auditors, who have
ceased operations, and whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included
for Telkomsel, is based solely on the report of such other
auditors who have ceased operations.

We conducted our audits in accordance with
auditing standards established by the Indonesian Institute of
Accountants and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit and the report of the other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report
of the other auditors who have ceased operations, the 2001
consolidated statements of income, changes in equity, and cash
flows present fairly, in all material respects, the results of
operations, changes in equity, and cash flows of Perusahaan
Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk and
its subsidiaries for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in
Indonesia.

(DELOITTE LETTERHEAD FOOTER)

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Generally accepted accounting principles in
Indonesia vary in certain respects from accounting principles
generally accepted in the United States of America (U.S. GAAP).
A description of the significant differences between those two
generally accepted accounting principles and approximate effects
of those differences on the net income for the year ended
December 31, 2001 and equity as of December 31, 2001
are set forth in Note 58 to the consolidated financial
statements.

HANS TUANAKOTTA MUSTOFA & HALIM

-s- HANS TUANAKOTTA MUSTOFA AND HALIM

Ludovicus Sensi W, SE, MM, BAP


License No. 99.1.0705


February 28, 2002, except with respect to
certain items that were subsequently restated, as to which the
date is January 29, 2004.

F-6



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PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


ASSETS

|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |           |         |           | 
|------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------- |  | ---- | ---------- | ------------ | --------- | ---------- | ---------- | ---------- | --------- | ---------- | --------- | --------- | ------- | --------- | 
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |     
|                   |                                                                                                                                                                             | Notes                                                                                                                       |                          | 2002        |  | 2003
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |     
|                   |                                                                                                                                                                             |                                                                                                                             |                          | Rp          |  | Rp   |            | US$ (Note 3)
|CURRENT ASSETS     |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|                   | Cash and cash equivalents                                                                                                                                                   |                                                                                                                             |                          | 2c,2f,6,49  |  |      |            | 5,699,070    |           |            |            | 5,094,472  |           |            |           | 603,610   |        
|                   | Temporary investments                                                                                                                                                       |                                                                                                                             |                          | 2c,2g,7,49  |  |      |            | 573,000      |           |            |            | 4,006      |           |            |           | 475       |        
|                   | Trade accounts receivable                                                                                                                                                   |                                                                                                                             |                          | 2c,2h,8,49  |  |      |            |              |           |            |            |            |           |            |           |           |        
|                   |                                                                                                                                                                             | Related parties  net of allowance for
    doubtful accounts of Rp95,676 million in 2002, and
    Rp110,932 million in 2003 |                          |             |  |      |            |              | 886,763   |            |            |            | 410,923   |            |           |           | 48,687  |          
|                   |                                                                                                                                                                             | Third parties  net of allowance for
    doubtful accounts of Rp407,313 million in 2002, and
    Rp332,960 million in 2003  |                          |             |  |      |            |              | 1,919,904 |            |            |            | 2,422,005 |            |           |           | 286,967 |          
|                   | Other accounts receivable  net of
    allowance for doubtful accounts of Rp24,253 million in
    2002, and Rp45,544 million in 2003                                        |                                                                                                                             |                          | 2c,2h,49    |  |      |            | 198,493      |           |            |            | 170,121    |           |            |           | 20,157    |        
|                   | Inventories  net of allowance for
    obsolescence of Rp53,795 million in 2002, and
    Rp40,489 million in 2003                                                           |                                                                                                                             |                          | 2i,9        |  |      |            | 139,682      |           |            |            | 154,003    |           |            |           | 18,247    |        
|                   | Prepaid expenses                                                                                                                                                            |                                                                                                                             |                          | 2c,2j,10,49 |  |      |            | 353,656      |           |            |            | 717,917    |           |            |           | 85,061    |        
|                   | Prepaid taxes                                                                                                                                                               |                                                                                                                             |                          | 43a         |  |      |            | 84,674       |           |            |            | 212,282    |           |            |           | 25,152    |        
|                   | Other current assets                                                                                                                                                        |                                                                                                                             |                          | 2c,11,49    |  |      |            | 691,788      |           |            |            | 45,083     |           |            |           | 5,342     |        
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|                   |                                                                                                                                                                             |                                                                                                                             | Total Current Assets     |             |  |      |            |              |           | 10,547,030 |            |            |           | 9,230,812  |           |           |         | 1,093,698 | 
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|NON-CURRENT ASSETS |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|                   | Long-term investments                                                                                                                                                       |                                                                                                                             |                          | 2g,12       |  |      |            | 183,147      |           |            |            | 64,648     |           |            |           | 7,660     |        
|                   | Property, plant and equipment  net of
    accumulated depreciation of Rp18,886,345 million in 2002,
    and Rp23,581,560 million in 2003                                   |                                                                                                                             |                          | 2k,2l,13    |  |      |            | 28,448,606   |           |            |            | 34,775,140 |           |            |           | 4,120,277 |        
|                   | Property, plant and equipment under revenue-
    sharing arrangements  net of accumulated depreciation
    of Rp842,964 million in 2002, and Rp791,645 million in
    2003 |                                                                                                                             |                          | 2m,15,52    |  |      |            | 377,622      |           |            |            | 305,041    |           |            |           | 36,142    |        
|                   | Advances and other non-current assets                                                                                                                                       |                                                                                                                             |                          | 2c,49       |  |      |            | 306,363      |           |            |            | 175,954    |           |            |           | 20,847    |        
|                   | Intangible assets  net of accumulated
    amortization of Rp187,990 million in 2002, and
    Rp730,659 million in 2003                                                     |                                                                                                                             |                          | 1c,2d,16    |  |      |            | 3,898,817    |           |            |            | 5,144,050  |           |            |           | 609,485   |        
|                   | Advance payments for investments in shares of
    stock                                                                                                                     |                                                                                                                             |                          | 5e          |  |      |            | 247,583      |           |            |            | 65,458     |           |            |           | 7,756     |        
|                   | Escrow accounts                                                                                                                                                             |                                                                                                                             |                          | 17          |  |      |            | 297,928      |           |            |            | 522,146    |           |            |           | 61,866    |        
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|                   |                                                                                                                                                                             |                                                                                                                             | Total Non-current Assets |             |  |      |            |              |           | 33,760,066 |            |            |           | 41,052,437 |           |           |         | 4,864,033 | 
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          
|TOTAL ASSETS       |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      | 44,307,096 |              |           |            | 50,283,249 |            |           |            | 5,957,731 |          
|                   |                                                                                                                                                                             |                                                                                                                             |                          |             |  |      |            |              |           |            |            |            |           |            |           |          

See accompanying notes to consolidated financial
statements, which form an integral part of the
consolidated financial statements.

F-7



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS  (Continued)

DECEMBER 31, 2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


LIABILITIES AND STOCKHOLDERS
EQUITY

|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |         |         |           | 
|----------------------- | -------------------------------------------------------------------- | -------------------------------------------- | ----------------------------- | -------- | -------- | ---- | --------- | ------------ | --------- | ---------- | --------- | --------- | --------- | ---------- | ------- | ------- | ------- | --------- | 
|                        |                                                                      |                                              |                               |          |          |     
|                        |                                                                      | Notes                                        |                               | 2002     |          | 2003
|                        |                                                                      |                                              |                               |          |          |     
|                        |                                                                      |                                              |                               | Rp       |          | Rp   |           | US$ (Note 3)
|CURRENT LIABILITIES     |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|                        | Trade accounts payable                                               |                                              |                               | 2c,18,49 |          |      |           |              |           |            |           |           |           |            |         |         |        
|                        |                                                                      | Related parties                              |                               |          |          |      |           |              | 790,227   |            |           |           | 657,478   |            |         |         | 77,900  |          
|                        |                                                                      | Third parties                                |                               |          |          |      |           |              | 2,272,624 |            |           |           | 3,109,854 |            |         |         | 368,466 |          
|                        | Other accounts payable                                               |                                              |                               |          |          |      |           | 215,775      |           |            |           | 188,112   |           |            |         | 22,288  |        
|                        | Taxes payable                                                        |                                              |                               | 2s,43b   |          |      |           | 1,109,632    |           |            |           | 1,513,038 |           |            |         | 179,269 |        
|                        | Dividends payable                                                    |                                              |                               |          |          |      |           | 1,494        |           |            |           | 3,779     |           |            |         | 448     |        
|                        | Accrued expenses                                                     |                                              |                               | 2c,19,49 |          |      |           | 1,949,914    |           |            |           | 1,215,872 |           |            |         | 144,061 |        
|                        | Unearned income                                                      |                                              |                               | 20       |          |      |           | 445,561      |           |            |           | 763,211   |           |            |         | 90,428  |        
|                        | Advances from customers and suppliers                                |                                              |                               | 21       |          |      |           | 293,522      |           |            |           | 268,148   |           |            |         | 31,771  |        
|                        | Short-term bank loans                                                |                                              |                               | 2c,22,49 |          |      |           | 39,205       |           |            |           | 37,642    |           |            |         | 4,460   |        
|                        | Current maturities of long-term liabilities                          |                                              |                               | 2c,23,49 |          |      |           | 2,590,227    |           |            |           | 3,443,516 |           |            |         | 407,999 |        
|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|                        |                                                                      |                                              | Total Current Liabilities     |          |          |      |           |              |           | 9,708,181  |           |           |           | 11,200,650 |         |         |         | 1,327,090 | 
|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|                       
|NON-CURRENT LIABILITIES |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|                        | Deferred tax liabilities  net                                       |                                              |                               | 2s,43e   |          |      |           | 3,083,166    |           |            |           | 3,546,770 |           |            |         | 420,234 |        
|                        | Unearned income on revenue-sharing arrangements                      |                                              |                               | 2m,15,52 |          |      |           | 142,797      |           |            |           | 111,732   |           |            |         | 13,238  |        
|                        | Unearned initial investor payments under joint
    operation schemes |                                              |                               | 2n,36,51 |          |      |           | 66,117       |           |            |           | 31,584    |           |            |         | 3,742   |        
|                        | Provision for long service awards                                    |                                              |                               | 2r,47    |          |      |           | 489,231      |           |            |           | 473,614   |           |            |         | 56,115  |        
|                        | Provision for post-retirement health care benefits                   |                                              |                               | 2r,48    |          |      |           | 1,602,494    |           |            |           | 2,063,350 |           |            |         | 244,474 |        
|                        | Long-term liabilities  net of current
    maturities                |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |         |        
|                        |                                                                      | Two-step loans  related party               |                               |          | 2c,24,49 |      |           |              | 7,734,033 |            |           |           | 6,858,910 |            |         |         | 812,667 |          
|                        |                                                                      | Guaranteed notes and bonds                   |                               |          | 25       |      |           |              | 2,313,510 |            |           |           | 2,102,502 |            |         |         | 249,112 |          
|                        |                                                                      | Bank loans                                   |                               |          | 2c,26,49 |      |           |              | 85,355    |            |           |           | 2,115,797 |            |         |         | 250,687 |          
|                        |                                                                      | Liabilities for acquisitions of subsidiaries |                               |          | 27       |      |           |              | 1,618,979 |            |           |           | 746,974   |            |         |         | 88,504  |          
|                        |                                                                      | Suppliers credit loans                      |                               |          | 28       |      |           |              | 175,625   |            |           |           | 671       |            |         |         | 80      |          
|                        |                                                                      | Bridging loan                                |                               |          | 29       |      |           |              | 53,405    |            |           |           | 510       |            |         |         | 60      |          
|                        |                                                                      | Other long-term debt                         |                               |          |          |      |           |              | 9,275     |            |           |           | 9,153     |            |         |         | 1,084   |          
|                        |                                                                      | Project cost payables                        |                               |          |          |      |           |              | 15,512    |            |           |           |          |            |         |         |        |          
|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|                        |                                                                      |                                              | Total Non-current Liabilities |          |          |      |           |              |           | 17,389,499 |           |           |           | 18,061,567 |         |         |         | 2,139,997 | 
|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        
|MINORITY INTEREST       |                                                                      |                                              | 30                            |          |          |      | 2,595,799 |              |           |            | 3,708,155 |           |           |            | 439,355 |        
|                        |                                                                      |                                              |                               |          |          |      |           |              |           |            |           |           |           |            |         |        



See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements.


F-8



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS  (Continued)

DECEMBER 31, 2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


LIABILITIES AND STOCKHOLDERS
EQUITY

|                                                  |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |          |           |           | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------- | ---- | -- | ---- | ---------- | ------------ | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | -------- | --------- | --------- | 
|                                                  |                                                                                             |                                                                                                |                            |      |    |     
|                                                  |                                                                                             | Notes                                                                                          |                            | 2002 |    | 2003
|                                                  |                                                                                             |                                                                                                |                            |      |    |     
|                                                  |                                                                                             |                                                                                                |                            | Rp   |    | Rp   |            | US$ (Note 3)
|STOCKHOLDERS EQUITY                              |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |         
|Capital stock  Rp 500 par value
    per Series A |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |         
|                                                  |                                                                                             | Dwiwarna share and Series B share                                                              |                            |      |    |      |            |              |            |            |            |            |            |            |           |          |           |          
|                                                  |                                                                                             | Authorized  one Series A Dwiwarna
    share and 39,999,999,999 Series B shares                |                            |      |    |      |            |              |            |            |            |            |            |            |           |          |           |          
|                                                  |                                                                                             | Issued and fully paid  one
    Series A Dwiwarna share and 10,079,999,639 Series B
    shares |                            |      | 31 |      |            |              | 5,040,000  |            |            |            | 5,040,000  |            |           |          | 597,156   |          
|                                                  | Additional paid-in capital                                                                  |                                                                                                |                            | 32   |    |      |            | 1,073,333    |            |            |            | 1,073,333  |            |            |           | 127,172  |          
|                                                  | Difference in value of restructuring transactions
    between entities under common control |                                                                                                |                            | 33   |    |      |            | (7,288,271   | )          |            |            | (7,288,271 | )          |            |           | (863,539 | )        
|                                                  | Difference due to change of equity in associated
    companies                              |                                                                                                |                            | 2g   |    |      |            | 424,020      |            |            |            | 385,595    |            |            |           | 45,687   |          
|                                                  | Translation adjustment                                                                      |                                                                                                |                            | 2e   |    |      |            | 235,665      |            |            |            | 224,232    |            |            |           | 26,568   |          
|                                                  | Retained earnings                                                                           |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |          |          
|                                                  |                                                                                             | Appropriated                                                                                   |                            |      |    |      |            |              | 745,404    |            |            |            | 1,559,068  |            |           |          | 184,724   |          
|                                                  |                                                                                             | Unappropriated                                                                                 |                            |      |    |      |            |              | 14,383,466 |            |            |            | 16,318,920 |            |           |          | 1,933,521 |          
|                                                  |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |         
|                                                  |                                                                                             |                                                                                                | Total Stockholders Equity |      |    |      |            |              |            | 14,613,617 |            |            |            | 17,312,877 |           |          |           | 2,051,289 | 
|                                                  |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |         
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY        |                                                                                             |                                                                                                |                            |      |    |      | 44,307,096 |              |            |            | 50,283,249 |            |            |            | 5,957,731 |         
|                                                  |                                                                                             |                                                                                                |                            |      |    |      |            |              |            |            |            |            |            |            |           |         



See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements.


F-9



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars,


except per share and per ADS data)


|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |           |           | 
|----------------------------------------------------------------- | ---------------------------------------------------------- | ----------- | -------------- | ---- | ---------- | ---------- | --------- | ---- | ---------- | ------------ | --------- |  | ---------- | ---------- | --------- |  | --------- | --------- | --------- | 
|                                                                  |                                                            |             |                |      |            |            |           |     
|                                                                  |                                                            | Notes       |                | 2001 |            | 2002       |           | 2003
|                                                                  |                                                            |             |                |      |            |            |           |     
|                                                                  |                                                            |             |                |      |            |            |           |      |            |             
|                                                                  |                                                            |             |                | Rp   |            | Rp         |           | Rp   |            | US$ (Note 3)
|OPERATING REVENUES                                                |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Telephone                                                  |             | 2p,34          |      |            |            |           |      |            |              |           |  |            |            |           |  |           |           |          
|                                                                  |                                                            | Fixed lines |                |      |            |            | 6,415,156 |      |            |              | 7,264,099 |  |            |            | 8,896,865 |  |           |           | 1,054,131 | 
|                                                                  |                                                            | Cellular    |                |      |            |            | 4,707,998 |      |            |              | 6,226,801 |  |            |            | 8,458,830 |  |           |           | 1,002,231 | 
|                                                                  | Interconnection                                            |             | 2p,35,49       |      |            | 1,423,686  |           |      |            | 2,831,334    |           |  |            | 4,162,148  |           |  |           | 493,145   |          
|                                                                  | Joint operation schemes                                    |             | 2n,36,49,51    |      |            | 2,219,586  |           |      |            | 2,128,145    |           |  |            | 1,486,307  |           |  |           | 176,103   |          
|                                                                  | Data and Internet                                          |             | 37             |      |            | 673,184    |           |      |            | 1,551,626    |           |  |            | 3,108,562  |           |  |           | 368,313   |          
|                                                                  | Network                                                    |             | 38             |      |            | 414,929    |           |      |            | 316,098      |           |  |            | 517,865    |           |  |           | 61,358    |          
|                                                                  | Revenue-sharing arrangements                               |             | 2m,39,52       |      |            | 264,253    |           |      |            | 263,754      |           |  |            | 258,464    |           |  |           | 30,624    |          
|                                                                  | Other telecommunications services                          |             |                |      |            | 165,015    |           |      |            | 220,961      |           |  |            | 226,882    |           |  |           | 26,882    |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Total Operating Revenues                                   |             |                |      |            | 16,283,807 |           |      |            | 20,802,818   |           |  |            | 27,115,923 |           |  |           | 3,212,787 |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|OPERATING EXPENSES                                                |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Personnel                                                  |             | 40             |      |            | 2,281,245  |           |      |            | 4,387,568    |           |  |            | 4,440,096  |           |  |           | 526,078   |          
|                                                                  | Depreciation                                               |             | 2k,2l,2m,13,15 |      |            | 2,869,772  |           |      |            | 3,473,370    |           |  |            | 4,779,520  |           |  |           | 566,294   |          
|                                                                  | Operations, maintenance and telecommunication
    services |             | 41             |      |            | 2,149,921  |           |      |            | 2,290,219    |           |  |            | 3,338,693  |           |  |           | 395,580   |          
|                                                                  | General and administrative                                 |             | 42             |      |            | 1,343,456  |           |      |            | 1,146,294    |           |  |            | 2,078,777  |           |  |           | 246,300   |          
|                                                                  | Marketing                                                  |             |                |      |            | 220,006    |           |      |            | 375,152      |           |  |            | 502,898    |           |  |           | 59,585    |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Total Operating Expenses                                   |             |                |      |            | 8,864,400  |           |      |            | 11,672,603   |           |  |            | 15,139,984 |           |  |           | 1,793,837 |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|OPERATING INCOME                                                  |                                                            |             |                |      | 7,419,407  |            |           |      | 9,130,215  |              |           |  | 11,975,939 |            |           |  | 1,418,950 |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|OTHER INCOME (EXPENSE)                                            |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Gain on sale of long-term investment in Telkomsel          |             | 1c             |      |            |           |           |      |            | 3,196,380    |           |  |            |           |           |  |           |          |          
|                                                                  | Interest income                                            |             | 49             |      |            | 571,586    |           |      |            | 479,802      |           |  |            | 366,024    |           |  |           | 43,367    |          
|                                                                  | Interest expense                                           |             | 49             |      |            | (1,329,642 | )         |      |            | (1,582,750   | )         |  |            | (1,383,446 | )         |  |           | (163,915  | )        
|                                                                  | Gain (loss) on foreign exchange  net                      |             | 2e             |      |            | (378,720   | )         |      |            | 556,613      |           |  |            | 126,121    |           |  |           | 14,943    |          
|                                                                  | Equity in net income (loss) of associated
    companies    |             | 2g,12          |      |            | (85,686    | )         |      |            | 4,598        |           |  |            | 2,819      |           |  |           | 334       |          
|                                                                  | Others  net                                               |             |                |      |            | 352,946    |           |      |            | (35,956      | )         |  |            | 364,338    |           |  |           | 43,169    |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Other income (expense)  net                               |             |                |      |            | (869,516   | )         |      |            | 2,618,687    |           |  |            | (524,144   | )         |  |           | (62,102   | )        
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|INCOME BEFORE TAX                                                 |                                                            |             |                |      | 6,549,891  |            |           |      | 11,748,902 |              |           |  | 11,451,795 |            |           |  | 1,356,848 |          
|TAX EXPENSE                                                       |                                                            | 2s,43c      |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Current tax                                                |             |                |      |            | (2,177,366 | )         |      |            | (2,747,762   | )         |  |            | (3,791,280 | )         |  |           | (449,203  | )        
|                                                                  | Deferred tax                                               |             |                |      |            | 170,471    |           |      |            | (151,209     | )         |  |            | (69,810    | )         |  |           | (8,271    | )        
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  |                                                            |             |                |      | (2,006,895 | )          |           |      | (2,898,971 | )            |           |  | (3,861,090 | )          |           |  | (457,474  | )        
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|INCOME BEFORE MINORITY INTEREST IN NET INCOME OF
    SUBSIDIARIES |                                                            |             |                |      | 4,542,996  |            |           |      | 8,849,931  |              |           |  | 7,590,705  |            |           |  | 899,374   |          
|MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES,
    net          |                                                            | 30          |                |      | (474,605   | )          |           |      | (810,222   | )            |           |  | (1,503,478 | )          |           |  | (178,137  | )        
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|NET INCOME                                                        |                                                            |             |                |      | 4,068,391  |            |           |      | 8,039,709  |              |           |  | 6,087,227  |            |           |  | 721,237   |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|BASIC EARNINGS PER SHARE                                          |                                                            | 2t,44       |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Net income per share                                       |             |                |      |            | 403.61     |           |      |            | 797.59       |           |  |            | 603.89     |           |  |           | 0.07      |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          
|                                                                  | Net income per ADS                                         |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |           |          
|                                                                  | (20 Series B shares per ADS)                               |             |                |      |            | 8,072.20   |           |      |            | 15,951.80    |           |  |            | 12,077.83  |           |  |           | 1.43      |          
|                                                                  |                                                            |             |                |      |            |            |           |      |            |              |           |  |            |            |           |  |           |          



See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements.


F-10



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES




CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


|                                                                                    |                                   |       |       |         |  |            |           |                |  |                |           |             |  |            |            |                |  |  |          |   |  |  |         |   |  |  |      |   |  |  |            |   | 
|----------------------------------------------------------------------------------- | --------------------------------- | ----- | ----- | ------- |  | ---------- | --------- | -------------- |  | -------------- | --------- | ----------- |  | ---------- | ---------- | -------------- |  |  | -------- | - |  |  | ------- | - |  |  | ---- | - |  |  | ---------- | - | 
|                                                                                    |                                   |       |       |         |  |            |           | Difference in  |  |                |           |             |  |            |            |               
|                                                                                    |                                   |       |       |         |  |            |           | Value of       |  |                |           |             |  |            |            | Equity in     
|                                                                                    |                                   |       |       |         |  |            |           | Restructuring  |  | Difference Due |           |             |  | Unrealized |            | Subsidiary    
|                                                                                    |                                   |       |       |         |  |            |           | Transactions   |  | to Change      |           |             |  | Loss on    |            | Resulting from
|                                                                                    |                                   |       |       |         |  | Additional |           | Between        |  | of Equity      |           |             |  | Decline in |            | the Recast of 
|                                                                                    |                                   |       |       | Capital |  | Paid-In    |           | Entities Under |  | in Associated  |           | Translation |  | Value of   |            | Financial     
|Description                                                                         |                                   | Notes |       | Stock   |  | Capital    |           | Common Control |  | Companies      |           | Adjustment  |  | Securities |            | Statements    
|                                                                                    |                                   |       |       |         |  |            |           |                |  |                |           |             |  |            |            |               
|                                                                                    |                                   |       |       | Rp      |  | Rp         |           | Rp             |  | Rp             |           | Rp          |  | Rp         |            | Rp            
|Balance as of January 1, 2001                                                       |                                   |       |       |         |  |            | 5,040,000 |                |  |                | 1,073,333 |             |  |            |           |                |  |  | 609,139  |   |  |  | 253,020 |   |  |  | (165 | ) |  |  | 1,221,533  |  
|Restructuring transactions between entities under
    common control                |                                   |       | 4     |         |  |            |          |                |  |                |          |             |  |            | (6,992,233 | )              |  |  |         |   |  |  |        |   |  |  |     |   |  |  | (1,221,533 | )
|Reversal of difference due to change of equity in
    Satelindo                     |                                   |       |       |         |  |            |          |                |  |                |          |             |  |            |           |                |  |  | (290,442 | ) |  |  |        |   |  |  |     |   |  |  |           |  
|Difference due to change of equity in Telkomsel                                     |                                   |       |       |         |  |            |          |                |  |                |          |             |  |            |           |                |  |  | 170,481  |   |  |  |        |   |  |  |     |   |  |  |           |  
|Unrealized loss on decline in value of securities                                   |                                   |       |       |         |  |            |          |                |  |                |          |             |  |            |           |                |  |  |         |   |  |  |        |   |  |  | (42  | ) |  |  |           |  
|Foreign currency translation of CSM                                                 |                                   |       | 2g,12 |         |  |            |          |                |  |                |          |             |  |            |           |                |  |  |         |   |  |  | 3,654   |   |  |  |     |   |  |  |           |  
|Resolved during the Annual General Meeting of the
    Stockholders on May 10, 2001: |                                   |       |       |         |  |            |           |                |  |                |           |             |  |            |            |                |  |  |          |   |  |  |         |   |  |  |      |   |  |  |            |  
|                                                                                    | Declaration of cash dividend      |       |       | 45      |  |            |           |               |  |                |           |            |  |            |            |               |  |  |          |  |  |  |         |  |  |  |      |  |  |  |            |  | 
|                                                                                    | Appropriation for general reserve |       |       | 45      |  |            |           |               |  |                |           |            |  |            |            |               |  |  |          |  |  |  |         |  |  |  |      |  |  |  |            |  | 
|Net income for the year                                                             |                                   |       |       |         |  |            |          |                |  |                |          |             |  |            |           |                |  |  |         |   |  |  |        |   |  |  |     |   |  |  |           |  
|                                                                                    |                                   |       |       |         |  |            |           |                |  |                |           |             |  |            |            |                |  |  |          |   |  |  |         |   |  |  |      |   |  |  |            |  
|Balance as of December 31, 2001                                                     |                                   |       |       |         |  |            | 5,040,000 |                |  |                | 1,073,333 |             |  |            | (6,992,233 | )              |  |  | 489,178  |   |  |  | 256,674 |   |  |  | (207 | ) |  |  |           |  
|                                                                                    |                                   |       |       |         |  |            |           |                |  |                |           |             |  |            |            |                |  |  |          |   |  |  |         |   |  |  |      |   |  |  |            |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                    |                                   |                   |         |                |  |        |           |          |   |  |            |          |  
|----------------------------------------------------------------------------------- | --------------------------------- | ----------------- | ------- | -------------- |  | ------ | --------- | -------- | - |  | ---------- | -------- | -
|                                                                                    |                                   |                   |         |               
|                                                                                    |                                   | Retained earnings |         | Total         
|                                                                                    |                                   |                   |         | Stockholders 
|Description                                                                         |                                   | Appropriated      |         | Unappropriated |  | Equity
|                                                                                    |                                   |                   |         |                |  |       
|                                                                                    |                                   | Rp                |         | Rp             |  | Rp    
|Balance as of January 1, 2001                                                       |                                   |                   | 193,442 |                |  |        | 6,082,762 |          |   |  | 14,473,064 |         
|Restructuring transactions between entities under
    common control                |                                   |                   |        |                |  |        | (241,725  | )        |   |  | (8,455,491 | )       
|Reversal of difference due to change of equity in
    Satelindo                     |                                   |                   |        |                |  |        |          |          |   |  | (290,442   | )       
|Difference due to change of equity in Telkomsel                                     |                                   |                   |        |                |  |        |          |          |   |  | 170,481    |         
|Unrealized loss on decline in value of securities                                   |                                   |                   |        |                |  |        |          |          |   |  | (42        | )       
|Foreign currency translation of CSM                                                 |                                   |                   |        |                |  |        |          |          |   |  | 3,654      |         
|Resolved during the Annual General Meeting of the
    Stockholders on May 10, 2001: |                                   |                   |         |                |  |        |           |          |   |  |            |         
|                                                                                    | Declaration of cash dividend      |                   |         |               |  |        |           | (888,654 | ) |  |            | (888,654 | )
|                                                                                    | Appropriation for general reserve |                   |         | 126,950        |  |        |           | (126,950 | ) |  |            |         |  
|Net income for the year                                                             |                                   |                   |        |                |  |        | 4,068,391 |          |   |  | 4,068,391  |         
|                                                                                    |                                   |                   |         |                |  |        |           |          |   |  |            |         
|Balance as of December 31, 2001                                                     |                                   |                   | 320,392 |                |  |        | 8,893,824 |          |   |  | 9,080,961  |         
|                                                                                    |                                   |                   |         |                |  |        |           |          |   |  |            |         

See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements

F-11



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES




CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY (continued)


FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


|                                                                                                                     |                                   |       |       |         |  |            |           |                  |  |                |           |             |  |            |            |   |  |  |         |   |  |  |         |   |  |  |      |   | 
|-------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----- | ----- | ------- |  | ---------- | --------- | ---------------- |  | -------------- | --------- | ----------- |  | ---------- | ---------- | - |  |  | ------- | - |  |  | ------- | - |  |  | ---- | - | 
|                                                                                                                     |                                   |       |       |         |  |            |           | Difference in    |  |                |           |             |  |           
|                                                                                                                     |                                   |       |       |         |  |            |           | Value of         |  |                |           |             |  |           
|                                                                                                                     |                                   |       |       |         |  |            |           | Restructuring    |  | Difference Due |           |             |  | Unrealized
|                                                                                                                     |                                   |       |       |         |  |            |           | Transactions     |  | to Change      |           |             |  | Loss on   
|                                                                                                                     |                                   |       |       |         |  | Additional |           | Between Entities |  | of Equity      |           |             |  | Decline in
|                                                                                                                     |                                   |       |       | Capital |  | Paid-In    |           | Under Common     |  | in Associated  |           | Translation |  | Value of  
|Description                                                                                                          |                                   | Notes |       | Stock   |  | Capital    |           | Control          |  | Companies      |           | Adjustment  |  | Securities
|                                                                                                                     |                                   |       |       |         |  |            |           |                  |  |                |           |             |  |           
|                                                                                                                     |                                   |       |       | Rp      |  | Rp         |           | Rp               |  | Rp             |           | Rp          |  | Rp        
|Balance as of January 1, 2002                                                                                        |                                   |       |       |         |  |            | 5,040,000 |                  |  |                | 1,073,333 |             |  |            | (6,992,233 | ) |  |  | 489,178 |   |  |  | 256,674 |   |  |  | (207 | )
|Foreign currency translation of CSM                                                                                  |                                   |       | 2g,12 |         |  |            |          |                  |  |                |          |             |  |            |           |   |  |  |        |   |  |  | (21,009 | ) |  |  |     |  
|Sale of investment in mutual fund Reksa Dana
    Seruni                                                              |                                   |       |       |         |  |            |          |                  |  |                |          |             |  |            |           |   |  |  |        |   |  |  |        |   |  |  | 207  |  
|Acquisition of Pramindo                                                                                              |                                   |       | 5b    |         |  |            |          |                  |  |                |          |             |  |            | (296,038   | ) |  |  |        |   |  |  |        |   |  |  |     |  
|Realized difference due to change of equity in
    associated companies as the result of sale of 12.72% of Telkomsel |                                   |       | 1c    |         |  |            |          |                  |  |                |          |             |  |            |           |   |  |  | (65,158 | ) |  |  |        |   |  |  |     |  
|Resolved during the Annual General Meeting of the
    Stockholders on June 21, 2002:                                 |                                   |       |       |         |  |            |           |                  |  |                |           |             |  |            |            |   |  |  |         |   |  |  |         |   |  |  |      |  
|                                                                                                                     | Declaration of cash dividend      |       |       | 45      |  |            |           |                 |  |                |           |            |  |            |            |  |  |  |         |  |  |  |         |  |  |  |      |  | 
|                                                                                                                     | Appropriation for general reserve |       |       | 45      |  |            |           |                 |  |                |           |            |  |            |            |  |  |  |         |  |  |  |         |  |  |  |      |  | 
|Net income for the year                                                                                              |                                   |       |       |         |  |            |          |                  |  |                |          |             |  |            |           |   |  |  |        |   |  |  |        |   |  |  |     |  
|                                                                                                                     |                                   |       |       |         |  |            |           |                  |  |                |           |             |  |            |            |   |  |  |         |   |  |  |         |   |  |  |      |  
|Balance as of December 31, 2002                                                                                      |                                   |       |       |         |  |            | 5,040,000 |                  |  |                | 1,073,333 |             |  |            | (7,288,271 | ) |  |  | 424,020 |   |  |  | 235,665 |   |  |  |     |  
|                                                                                                                     |                                   |       |       |         |  |            |           |                  |  |                |           |             |  |            |            |   |  |  |         |   |  |  |         |   |  |  |      |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                     |                                   |                   |         |                |  |        |            |            |   |  |            |            |  
|-------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----------------- | ------- | -------------- |  | ------ | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                                                                                                     |                                   |                   |         |               
|                                                                                                                     |                                   | Retained earnings |         | Total         
|                                                                                                                     |                                   |                   |         | Stockholders 
|Description                                                                                                          |                                   | Appropriated      |         | Unappropriated |  | Equity
|                                                                                                                     |                                   |                   |         |                |  |       
|                                                                                                                     |                                   | Rp                |         | Rp             |  | Rp    
|Balance as of January 1, 2002                                                                                        |                                   |                   | 320,392 |                |  |        | 8,893,824  |            |   |  | 9,080,961  |           
|Foreign currency translation of CSM                                                                                  |                                   |                   |        |                |  |        |           |            |   |  | (21,009    | )         
|Sale of investment in mutual fund Reksa Dana
    Seruni                                                              |                                   |                   |        |                |  |        |           |            |   |  | 207        |           
|Acquisition of Pramindo                                                                                              |                                   |                   |        |                |  |        |           |            |   |  | (296,038   | )         
|Realized difference due to change of equity in
    associated companies as the result of sale of 12.72% of Telkomsel |                                   |                   |        |                |  |        |           |            |   |  | (65,158    | )         
|Resolved during the Annual General Meeting of the
    Stockholders on June 21, 2002:                                 |                                   |                   |         |                |  |        |            |            |   |  |            |           
|                                                                                                                     | Declaration of cash dividend      |                   |         |               |  |        |            | (2,125,055 | ) |  |            | (2,125,055 | )
|                                                                                                                     | Appropriation for general reserve |                   |         | 425,012        |  |        |            | (425,012   | ) |  |            |           |  
|Net income for the year                                                                                              |                                   |                   |        |                |  |        | 8,039,709  |            |   |  | 8,039,709  |           
|                                                                                                                     |                                   |                   |         |                |  |        |            |            |   |  |            |           
|Balance as of December 31, 2002                                                                                      |                                   |                   | 745,404 |                |  |        | 14,383,466 |            |   |  | 14,613,617 |           
|                                                                                                                     |                                   |                   |         |                |  |        |            |            |   |  |            |           

See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements

F-12



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES




CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY (continued)


FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollars)


|                                                                                                                                |                                   |       |       |         |  |            |           |                |  |                |           |             |  |  |            |   |  |  |         |   |  |  |         |   | 
|------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----- | ----- | ------- |  | ---------- | --------- | -------------- |  | -------------- | --------- | ----------- |  |  | ---------- | - |  |  | ------- | - |  |  | ------- | - | 
|                                                                                                                                |                                   |       |       |         |  |            |           | Difference in  |  |                |           |            
|                                                                                                                                |                                   |       |       |         |  |            |           | Value of       |  |                |           |            
|                                                                                                                                |                                   |       |       |         |  |            |           | Restructuring  |  | Difference Due |           |            
|                                                                                                                                |                                   |       |       |         |  |            |           | Transactions   |  | to Change      |           |            
|                                                                                                                                |                                   |       |       |         |  | Additional |           | Between        |  | of Equity      |           |            
|                                                                                                                                |                                   |       |       | Capital |  | Paid-In    |           | Entities Under |  | in Associated  |           | Translation
|Description                                                                                                                     |                                   | Notes |       | Stock   |  | Capital    |           | Common Control |  | Companies      |           | Adjustments
|                                                                                                                                |                                   |       |       |         |  |            |           |                |  |                |           |            
|                                                                                                                                |                                   |       |       | Rp      |  | Rp         |           | Rp             |  | Rp             |           | Rp         
|Balance as of January 1, 2003                                                                                                   |                                   |       |       |         |  |            | 5,040,000 |                |  |                | 1,073,333 |             |  |  | (7,288,271 | ) |  |  | 424,020 |   |  |  | 235,665 |  
|Realized difference due to change of equity in
    associated companies as the result of disposal of investment in
    Metrosel |                                   |       | 12    |         |  |            |          |                |  |                |          |             |  |  |           |   |  |  | (38,425 | ) |  |  |        |  
|Foreign currency translation of CSM                                                                                             |                                   |       | 2g,12 |         |  |            |          |                |  |                |          |             |  |  |           |   |  |  |        |   |  |  | (11,433 | )
|Resolved during the Annual General Meeting of the
    Stockholders on May 9, 2003:                                              |                                   |       |       |         |  |            |           |                |  |                |           |             |  |  |            |   |  |  |         |   |  |  |         |  
|                                                                                                                                | Declaration of cash dividend      |       |       | 45      |  |            |           |               |  |                |           |            |  |  |            |  |  |  |         |  |  |  |         |  | 
|                                                                                                                                | Appropriation for general reserve |       |       | 45      |  |            |           |               |  |                |           |            |  |  |            |  |  |  |         |  |  |  |         |  | 
|Net income for the year                                                                                                         |                                   |       |       |         |  |            |          |                |  |                |          |             |  |  |           |   |  |  |        |   |  |  |        |  
|                                                                                                                                |                                   |       |       |         |  |            |           |                |  |                |           |             |  |  |            |   |  |  |         |   |  |  |         |  
|Balance as of December 31, 2003                                                                                                 |                                   |       |       |         |  |            | 5,040,000 |                |  |                | 1,073,333 |             |  |  | (7,288,271 | ) |  |  | 385,595 |   |  |  | 224,232 |  
|                                                                                                                                |                                   |       |       |         |  |            |           |                |  |                |           |             |  |  |            |   |  |  |         |   |  |  |         |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                                |                                   |                   |           |                |  |        |            |            |   |  |            |            |  
|------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----------------- | --------- | -------------- |  | ------ | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                                                                                                                |                                   |                   |           |               
|                                                                                                                                |                                   | Retained earnings |           | Total         
|                                                                                                                                |                                   |                   |           | Stockholders 
|Description                                                                                                                     |                                   | Appropriated      |           | Unappropriated |  | Equity
|                                                                                                                                |                                   |                   |           |                |  |       
|                                                                                                                                |                                   | Rp                |           | Rp             |  | Rp    
|Balance as of January 1, 2003                                                                                                   |                                   |                   | 745,404   |                |  |        | 14,383,466 |            |   |  | 14,613,617 |           
|Realized difference due to change of equity in
    associated companies as the result of disposal of investment in
    Metrosel |                                   |                   |          |                |  |        |           |            |   |  | (38,425    | )         
|Foreign currency translation of CSM                                                                                             |                                   |                   |          |                |  |        |           |            |   |  | (11,433    | )         
|Resolved during the Annual General Meeting of the
    Stockholders on May 9, 2003:                                              |                                   |                   |           |                |  |        |            |            |   |  |            |           
|                                                                                                                                | Declaration of cash dividend      |                   |           |               |  |        |            | (3,338,109 | ) |  |            | (3,338,109 | )
|                                                                                                                                | Appropriation for general reserve |                   |           | 813,664        |  |        |            | (813,664   | ) |  |            |           |  
|Net income for the year                                                                                                         |                                   |                   |          |                |  |        | 6,087,227  |            |   |  | 6,087,227  |           
|                                                                                                                                |                                   |                   |           |                |  |        |            |            |   |  |            |           
|Balance as of December 31, 2003                                                                                                 |                                   |                   | 1,559,068 |                |  |        | 16,318,920 |            |   |  | 17,312,877 |           
|                                                                                                                                |                                   |                   |           |                |  |        |            |            |   |  |            |           

See accompanying notes to consolidated financial
statements, which form an integral part of the consolidated
financial statements

F-13



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollar)


|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |            |         |           |           | 
|----------------------------------------- | --------------------------------------------------------------------- | ----------------------------------- | ----------- | ------------------------------------------- | --------- | --------- | ---------- | ------------- | --------- | --------- | ---------- | ---------- | --------- | --------- | ---------- | ---------- | ------- | --------- | --------- | 
|                                          |                                                                       |                                     |             |                                             |           |          
|                                          |                                                                       | 2001                                |             | 2002                                        |           | 2003     
|                                          |                                                                       |                                     |             |                                             |           |          
|                                          |                                                                       | Rp                                  |             | Rp                                          |           | Rp        |            | US$ (Notes 3)
|CASH FLOWS FROM OPERATING ACTIVITIES      |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|                                          | Cash receipts from operating revenues                                 |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |            |        
|                                          |                                                                       | Telephone and interconnection  net |             |                                             |           |           |            |               |           |           |            |            |           |           |            |            |         |          
|                                          |                                                                       |                                     | Fixed lines |                                             |           | 6,310,052 |            |               |           | 7,230,394 |            |            |           | 8,201,928 |            |            |         | 971,792   |          
|                                          |                                                                       |                                     | Cellular    |                                             |           | 5,237,087 |            |               |           | 7,098,585 |            |            |           | 8,925,503 |            |            |         | 1,057,524 |          
|                                          |                                                                       | Joint operation scheme              |             |                                             | 1,717,154 |           |            |               | 1,577,976 |           |            |            | 1,195,563 |           |            |            | 141,654 |          
|                                          |                                                                       | Interconnection  net               |             |                                             | 1,127,545 |           |            |               | 1,697,073 |           |            |            | 4,203,802 |           |            |            | 498,081 |          
|                                          |                                                                       | Other services                      |             |                                             | 697,348   |           |            |               | 1,132,077 |           |            |            | 3,932,084 |           |            |            | 465,887 |          
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|                                          |                                                                       |                                     |             | Total cash receipts from operating revenues |           |           | 15,089,186 |               |           |           | 18,736,105 |            |           |           | 26,458,880 |            |         |           | 3,134,938 | 
|                                          | Cash payments for operating expenses                                  |                                     |             | (5,321,836                                  | )         |           |            | (5,800,470    | )         |           |            | (8,861,797 | )         |           |            | (1,049,976 | )      
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|                                          | Cash generated from operations                                        |                                     |             | 9,767,350                                   |           |           |            | 12,935,635    |           |           |            | 17,597,083 |           |           |            | 2,084,962  |        
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|                                          | Interest received                                                     |                                     |             | 590,966                                     |           |           |            | 480,288       |           |           |            | 369,982    |           |           |            | 43,836     |        
|                                          | Income tax payments                                                   |                                     |             | (2,098,272                                  | )         |           |            | (1,914,895    | )         |           |            | (3,905,317 | )         |           |            | (462,715   | )      
|                                          | Interest paid                                                         |                                     |             | (1,256,404                                  | )         |           |            | (900,660      | )         |           |            | (1,178,332 | )         |           |            | (139,613   | )      
|                                          | Cash receipt (refund) from/to customers and
    advances              |                                     |             | 8,949                                       |           |           |            | 264,105       |           |           |            | (30,884    | )         |           |            | (3,659     | )      
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|Net Cash Provided by Operating Activities |                                                                       |                                     | 7,012,589   |                                             |           |           | 10,864,473 |               |           |           | 12,852,532 |            |           |           | 1,522,811  |           
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES      |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|                                          | Proceeds from investments and maturity of time
    deposits           |                                     |             | 7,892,554                                   |           |           |            | 1,497,883     |           |           |            | 1,895,199  |           |           |            | 224,550    |        
|                                          | Proceeds from sale of property, plant and
    equipment               |                                     |             | 10,944                                      |           |           |            | 204,008       |           |           |            | 255,750    |           |           |            | 30,302     |        
|                                          | Purchase of marketable securities and placements
    in time deposits |                                     |             | (4,370,479                                  | )         |           |            | (2,222,175    | )         |           |            | (679,500   | )         |           |            | (80,509    | )      
|                                          | Sale of 12.72% of Telkomsel                                           |                                     |             |                                            |           |           |            | 3,948,945     |           |           |            |           |           |           |            |           |        
|                                          | Payment for cross ownership transactions                              |                                     |             | (5,967,430                                  | )         |           |            | (2,406,309    | )         |           |            |           |           |           |            |           |        
|                                          | Acquisition of businesses, net of cash acquired                       |                                     |             | (275,849                                    | )         |           |            | (243,561      | )         |           |            | 141,985    |           |           |            | 16,823     |        
|                                          | Acquisition of property, plant and equipment                          |                                     |             | (3,591,449                                  | )         |           |            | (6,625,292    | )         |           |            | (9,007,186 | )         |           |            | (1,067,202 | )      
|                                          | Decrease in advances and others                                       |                                     |             | 187,313                                     |           |           |            | 71,569        |           |           |            | 96,830     |           |           |            | 11,473     |        
|                                          | Payments of advances for investments in shares of
    stock           |                                     |             |                                            |           |           |            | (230,223      | )         |           |            | (14,338    | )         |           |            | (1,699     | )      
|                                          | Acquisition of long-term investments                                  |                                     |             | (1,400                                      | )         |           |            | (37,607       | )         |           |            |           |           |           |            |           |        
|                                          | Sale of long-term investments                                         |                                     |             |                                            |           |           |            |              |           |           |            | 5,398      |           |           |            | 640        |        
|                                          | Acquisition of intangible assets                                      |                                     |             |                                            |           |           |            | (7,213        | )         |           |            |           |           |           |            |           |        
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           
|Net Cash Used in Investing Activities     |                                                                       |                                     | (6,115,796  | )                                           |           |           | (6,049,975 | )             |           |           | (7,305,862 | )          |           |           | (865,622   | )         
|                                          |                                                                       |                                     |             |                                             |           |           |            |               |           |           |            |            |           |           |            |           

F-14



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2001,
2002 AND 2003


(Figures in tables are presented in millions
of Rupiah and thousands of United States Dollar)


|                                                                 |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |          |       | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ---------- | ----- | ---- | ---------- | ------------- | ------- | - | ---------- | ---------- | ------ |  | -------- | -------- | ----- | 
|                                                                 |                                                                                       |                                         |            |            |       |     
|                                                                 |                                                                                       | 2001                                    |            | 2002       |       | 2003
|                                                                 |                                                                                       |                                         |            |            |       |     
|                                                                 |                                                                                       | Rp                                      |            | Rp         |       | Rp   |            | US$ (Notes 3)
|CASH FLOWS FROM FINANCING ACTIVITIES                             |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|                                                                 | Payment for debt issuance cost                                                        |                                         |            |           |       |      |            | (53,915       | )       |   |            |           |        |  |          |         |      
|                                                                 | Proceeds from bonds                                                                   |                                         |            |           |       |      |            | 2,365,314     |         |   |            |           |        |  |          |         |      
|                                                                 | Repayments of long-term liabilities                                                   |                                         |            | (985,403   | )     |      |            | (2,493,738    | )       |   |            | (1,536,941 | )      |  |          | (182,102 | )    
|                                                                 | Repayments of promissory notes                                                        |                                         |            | (247,640   | )     |      |            | (771,066      | )       |   |            | (1,513,064 | )      |  |          | (179,273 | )    
|                                                                 | Cash dividends paid                                                                   |                                         |            | (1,023,355 | )     |      |            | (2,327,458    | )       |   |            | (3,738,586 | )      |  |          | (442,960 | )    
|                                                                 | Increase in escrow accounts                                                           |                                         |            | (171,077   | )     |      |            | (126,848      | )       |   |            | (224,219   | )      |  |          | (26,566  | )    
|                                                                 | Redemption of Telkomsels bonds                                                       |                                         |            |           |       |      |            |              |         |   |            | (160,509   | )      |  |          | (19,019  | )    
|                                                                 | Decrease in other non-current assets                                                  |                                         |            | 264,664    |       |      |            |              |         |   |            |           |        |  |          |         |      
|                                                                 | Receipts from loan                                                                    |                                         |            | 500,000    |       |      |            | 737,495       |         |   |            | 995,903    |        |  |          | 117,998  |      
|                                                                 |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|Net Cash Used in Financing Activities                            |                                                                                       |                                         | (1,662,811 | )          |       |      | (2,670,216 | )             |         |   | (6,177,416 | )          |        |  | (731,922 | )       
|                                                                 |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS         |                                                                                       |                                         | (766,018   | )          |       |      | 2,144,282  |               |         |   | (630,746   | )          |        |  | (74,733  | )       
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
    EQUIVALENTS |                                                                                       |                                         | 76,568     |            |       |      | (89,425    | )             |         |   | 26,148     |            |        |  | 3,098    |         
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |                                                                                       |                                         | 4,333,663  |            |       |      | 3,644,213  |               |         |   | 5,699,070  |            |        |  | 675,245  |         
|                                                                 |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |                                                                                       |                                         | 3,644,213  |            |       |      | 5,699,070  |               |         |   | 5,094,472  |            |        |  | 603,610  |         
|                                                                 |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|SUPPLEMENTAL CASH FLOW INFORMATION                               |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|Noncash investing and financing activities:                      |                                                                                       |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |         
|                                                                 | Increase in property under construction through
    the incurrence of long-term debts |                                         |            | 60,341     |       |      |            | 480,756       |         |   |            | 536,248    |        |  |          | 63,536   |      
|                                                                 | Payment of insurance premium through incurrence
    of long-term debts                |                                         |            |           |       |      |            |              |         |   |            | 81,186     |        |  |          | 9,619    |      
|                                                                 | Increase in property and equipment through lease
    liabilities                      |                                         |            | 2,483      |       |      |            |              |         |   |            |           |        |  |          |         |      
|                                                                 | Capitalization of borrowing costs during
    construction:                            |                                         |            |            |       |      |            |               |         |   |            |            |        |  |          |          |      
|                                                                 |                                                                                       | Losses (gains) on foreign exchange, net |            |            | 1,746 |      |            |               | (27,568 | ) |            |            |       |  |          |          |      | 
|                                                                 |                                                                                       | Interest                                |            |            | 8,089 |      |            |               | 20,108  |   |            |            | 22,925 |  |          |          | 2,716 | 
|                                                                 | Conversion of receivables to long-term investments                                    |                                         |            | 92,750     |       |      |            |              |         |   |            | 13,500     |        |  |          | 1,600    |      
|                                                                 | Acquisition of subsidiary through the issuance of
    Promissory Notes                |                                         |            | 1,171,157  |       |      |            | 3,329,004     |         |   |            | 927,273    |        |  |          | 109,866  |      

See accompanying notes to consolidated financial
statements which form an integral part of the

consolidated financial statements.


F-15



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)

P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|   |        
|-- | -------
|1. | GENERAL

a. Establishment
and General Information

Perusahaan Perseroan (Persero)
P.T. Telekomunikasi Indonesia Tbk (the Company)
was originally part of Post en Telegraafdienst,
which was established in 1884 under the framework of Decree
No. 7 dated March 27, 1884 of the Governor General of
the Dutch Indies and published in State Gazette No. 52
dated April 3, 1884.

In 1991, based on Government
Regulation No. 25 year 1991, the status of the
Company was changed into a state-owned limited liability
corporation (Persero). The Company was established
based on notarial deed No. 128 dated September 24,
1991 of Imas Fatimah, S.H. The deed of establishment was
approved by the Minister of Justice of the Republic of Indonesia
in his decision letter No. C2-6870.HT.01.01.Th.1991 dated
November 19, 1991, and was published in State Gazette of
the Republic of Indonesia No. 210 dated January 17,
1992, Supplement No. 5. The articles of association have
been amended several times, the most recent amendment was made
through deed No. 4 dated January 10, 2002, of
Notary A. Partomuan Pohan, S.H., LLM., concerning
the change in the Companys objective, scope of activities,
directors scope of authorities and the composition of the
Companys board of commissioners. The notarial deed was
approved by the Minister of Justice and Human Rights of the
Republic of Indonesia in his decision letter
No. C-00682HT.01.04.Th.2002 dated January 15, 2002.

In accordance with article 3 of its articles of
association, the scope of the Companys activities is as
follows:



| |    |                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The Companys objective is to provide
    telecommunications and information facilities and services, in
    accordance with prevailing regulations.
|
| | 2. | To achieve the above objective, the Company is
    involved in the following activities:                                                            



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Planning, building, providing,
    developing, operating, marketing or selling, leasing and
    maintaining telecommunications and information networks in
    accordance with prevailing regulations.                                                                                                              
|
| | ii. Planning, developing, providing,
    marketing or selling and improving telecommunications and
    information services in accordance with prevailing regulations.                                                                                                                                                 
|
| | iii. Performing activities and other
    undertakings in connection with the utilization and development
    of the Companys resources and optimizing the utilization
    of the Companys property, plant and equipment, information
    systems, education and training, and repairs and maintenance
    facilities.

The Companys principal business is the
provision of domestic telecommunications services, including
telephone, telex, telegram, satellite, leased lines, electronic
mail, mobile communication and cellular services. In order to
accelerate the construction of telecommunications facilities, to
make the Company a world-class operator, and to increase the
technology as well as the knowledge and skills of its employees,
in 1996, the Company entered into agreements with investors to
develop, manage and operate telecommunications facilities in
five of the Companys seven regional divisions under Joint
Operation Schemes (known as Kerja Sama Operasi
or KSO).

The Companys head office is located at
Jalan Japati No. 1, Bandung, West Java.

F-16



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Under Law No. 3/1989 on Telecommunications
which took effect on April 1, 1989, Indonesian legal
entities are allowed to provide basic telecommunications
services in cooperation with the Company as the domestic
telecommunications organizing body (or badan
penyelenggara). Other Indonesian legal entities are also
allowed to individually provide non-basic telecommunications
services. In providing telecommunications services, these
entities are required to obtain licenses from the Minister of
Communications of the Republic of Indonesia (the Ministry of
Communications assumed responsibility for the telecommunications
sector from the previous Ministry of Tourism, Post and
Telecommunications in March 1998). Government
Regulation No. 8/1993 concerning the provision of
telecommunications services, further regulates that cooperation
to provide basic telecommunications services can be in the form
of joint venture, joint operation or contract management and
that the entities cooperating with the domestic
telecommunications organizing body must use the organizing
bodys telecommunications networks. If the
telecommunications networks are not available, the Government
Regulation requires that the cooperation be in the form of a
joint venture that is capable of constructing the necessary
networks.

The Minister of Tourism, Post and
Telecommunications of the Republic of Indonesia
(MTPT), through his two decision letters both dated
August 14, 1995, reaffirmed the status of the Company as
the organizing body for the provision of domestic
telecommunications services.

Further, effective from January 1, 1996, the
Company was granted the exclusive right to provide local
wireline and fixed wireless services for a minimum period of
15 years and the exclusive right to provide domestic
long-distance telecommunications services for a minimum period
of 10 years. The exclusive rights also apply to
telecommunications services provided for and on behalf of the
Company through a KSO. This grant of rights does not affect the
Companys right to provide other domestic
telecommunications services.

On September 8, 1999, the Government issued
Law No. 36/1999 on Telecommunications to replace Law
No. 3/1989. Under the new Law, which took effect from
September 2000, telecommunications activities cover:



| |                                
| | -------------------------------
| | i. Telecommunications networks 
|
| | ii. Telecommunications services
|
| | iii. Special telecommunications

National state-owned companies, regional
state-owned companies, privately-owned companies and
cooperatives are allowed to provide telecommunications networks
and services. Special telecommunications can be provided by
individuals, government agencies and legal entities other than
telecommunications networks and service providers.

Under Law No. 36/1999, activities that
result in monopolistic practices and unfair competition are
prohibited. In connection with this law, Government
Regulation No. 52/2000 was issued, which provides that
interconnection fees shall be charged to originating
telecommunications network operators where telecommunications
service is provided by two or more telecommunications network
operators.

Based on press release No. 05/ HMS/ JP/
VIII/2000 dated August 1, 2000 from the Director General of
Post and Telecommunications and the correction thereto
No. 1718/ UM/ VIII/2000 dated August 2, 2000, the
period of exclusive rights granted to the Company to provide
local and domestic long-

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


distance fixed-line telecommunications services
was shortened to expire in August 2002 and
August 2003, respectively. In return, the Government is
required to pay compensation to the Company, the amount of which
is to be estimated by an independent appraiser appointed by the
Government.

Based on a press release from the Coordinating
Minister of Economics dated July 31, 2002, the Government
decided to terminate the Companys exclusive rights as a
network provider for local and long-distance services with
effect from August 1, 2002. On August 1, 2002, PT
Indonesian Satellite Corporation Tbk (Indosat) was
granted a license to provide local and long-distance
telecommunications services.

On March 30, 2004, the Minister of
Communications issued Announcement No. PM. 2 year
2004 regarding the Implementation of Restructuring in the
Telecommunications Sector which, among others, conveys the
compensation for early termination of exclusive rights (See
Note 57d).

On May 13, 2004, pursuant to the Ministry of
Communications Decree No. KP. 162/2004, the Company
was granted a commercial license to provide International Direct
Dialing (IDD) services.

Based on the resolution of the Extraordinary
General Meeting of Stockholders, the minutes of which have been
notarized by deed No. 37 dated June 21, 2002 of
A. Partomuan Pohan, S.H., LLM., the composition
of the Companys Board of Commissioners and Board of
Directors as of December 31, 2002 and 2003 was as follows:

|                                                 |  |   |  |                  
|------------------------------------------------ |  | - |  | -----------------
|President Commissioner                           |  | : |  | Bacelius Ruru    
|Commissioner                                     |  | : |  | Agus Haryanto    
|Commissioner                                     |  | : |  | Djamhari Sirat   
|Independent Commissioner                         |  | : |  | Arif Arryman     
|Independent Commissioner                         |  | : |  | Petrus Sartono   
|President Director                               |  | : |  | Kristiono        
|Director of Finance                              |  | : |  | Guntur Siregar   
|Director of Telecommunications Service Business  |  | : |  | Garuda Sugardo   
|Director of Human Resources and Support Business |  | : |  | Agus Utoyo       
|Director of Telecommunications Network Business  |  | : |  | Suryatin Setiawan

Subsequently, the composition of the
Companys Board of Commissioners and Board of Directors was
changed based on the Extraordinary General Meeting of
Stockholders, the minutes of which have been notarized by deed
No. 4 dated March 10, 2004 of A. Partomuan Pohan, S.H.,
LLM. as follows:

|                                                 |  |   |  |                   
|------------------------------------------------ |  | - |  | ------------------
|President Commissioner                           |  | : |  | Tanri Abeng       
|Commissioner                                     |  | : |  | Anggito Abimanyu  
|Commissioner                                     |  | : |  | Gatot Trihargo    
|Independent Commissioner                         |  | : |  | Arif Arryman      
|Independent Commissioner                         |  | : |  | Petrus Sartono    
|President Director                               |  | : |  | Kristiono         
|Director of Finance                              |  | : |  | Rinaldi Firmansyah
|Director of Telecommunications Service Business  |  | : |  | Suryatin Setiawan 
|Director of Human Resources and Support Business |  | : |  | Woeryanto Soeradji
|Director of Telecommunications Network Business  |  | : |  | Abdul Haris       

F-18



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


As of December 31, 2002 and 2003, the
Company had 34,678 employees and 30,820 employees, respectively,
including those in the KSO Units, while the subsidiaries had
3,722 employees and 4,384 employees, respectively.

b. Public
Offering of Shares of the Company

The Companys total number of shares
immediately prior to its initial public offering was
8,400,000,000, which consisted of 8,399,999,999 series B
shares and 1 series A Dwiwarna share, all of which were
owned by the Government of the Republic of Indonesia (the
Government). On November 14, 1995, the
Government sold the Companys shares through an initial
public offering on the Jakarta Stock Exchange and Surabaya Stock
Exchange. The shares offered consisted of 933,333,000 new
series B shares and 233,334,000 series B shares owned
by the Government. A share offering was also conducted on the
New York Stock Exchange and London Stock Exchange for
700,000,000 series B shares owned by the Government of the
Republic of Indonesia, which were converted into 35,000,000
American Depositary Shares (ADS). Each ADS represents 20
series B shares.

In December 1996, the Government completed a
block sale of 388,000,000 series B shares, and later in
1997, distributed 2,670,300 series B shares as an incentive
to stockholders who did not sell their shares within one year
from the date of the initial public offering. In May 1999,
the Government sold 898,000,000 series B shares.

Under Law No. 1/1995 on Limited Liability
Companies, the minimum total par value of the Companys
issued shares of capital stock must be at least 25% of the total
par value of the Companys authorized capital stock, or in
the Companys case Rp5,000,000 million. To comply with
the Law, it was resolved at the Annual General Meeting of
Stockholders on April 16, 1999 to increase the issued share
capital by way of capitalization of certain additional paid-in
capital. The bonus shares were distributed to the then existing
stockholders in August 1999.

In December 2001, the Government conducted
another block sale of 1,200,000,000 shares or 11.9% of the
total outstanding series B shares. In July 2002, the
Government sold 312,000,000 shares or 3.1% of the total
outstanding series B shares.

As of December 31, 2003, all of the
Companys series B shares were listed on the Jakarta
Stock Exchange and Surabaya Stock Exchange and
38,317,046 ADS shares were listed on the New York Stock
Exchange and London Stock Exchange.

F-19



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


c. Subsidiaries

The Company consolidates the following
subsidiaries as a result of majority ownership or its right to
control operations.

|                                   |  |            |  |                                                |  |               |  |            |  |                     |      |      |  |            |  |           
|---------------------------------- |  | ---------- |  | ---------------------------------------------- |  | ------------- |  | ---------- |  | ------------------- | ---- | ---- |  | ---------- |  | ----------
|                                   |  |            |  |                                                |  |               |  |            |  |                    
|                                   |  |            |  |                                                |  | Percentage of |  |            |  | Total Assets Before
|                                   |  |            |  |                                                |  | Ownership     |  | Start of   |  | Eliminations       
|                                   |  |            |  |                                                |  |               |  | Commercial |  |                    
|Subsidiaries                       |  | Domicile   |  | Nature of Business                             |  | 2002          |  | 2003       |  | Operations          |      | 2002 |  | 2003      
|                                   |  |            |  |                                                |  |               |  |            |  |                     |      |      |  |           
|                                   |  |            |  |                                                |  | %             |  | %          |  |                     |      |      |  |           
|PT Pramindo Ikat Nusantara         |  | Medan      |  | Telecommunications construction &
    services |  | 100.00        |  | 100.00     |  |                     | 1995 |      |  | 1,911,183  |  | 1,954,907 
|PT AriaWest International          |  | Bandung    |  | Telecommunications                             |  |              |  | 100.00     |  |                     | 1995 |      |  |           |  | 1,628,605 
|PT Multimedia Nusantara            |  | Jakarta    |  | Pay TV                                         |  | 31.00         |  | 100.00     |  |                     | 1998 |      |  | 9,290      |  | 7,908     
|PT Graha Sarana Duta               |  | Jakarta    |  | Real estate, construction and services         |  | 99.99         |  | 99.99      |  |                     | 1982 |      |  | 44,998     |  | 69,752    
|PT Indonusa Telemedia              |  | Jakarta    |  | Multimedia                                     |  | 57.50         |  | 90.39      |  |                     | 1997 |      |  | 49,787     |  | 54,319    
|PT Dayamitra Telekomunikasi        |  | Balikpapan |  | Telecommunications                             |  | 90.32         |  | 90.32      |  |                     | 1995 |      |  | 854,007    |  | 797,810   
|PT Telekomunikasi Selular          |  | Jakarta    |  | Telecommunications                             |  | 65.00         |  | 65.00      |  |                     | 1995 |      |  | 11,255,500 |  | 15,386,289
|PT Napsindo Primatel International |  | Jakarta    |  | Telecommunications                             |  | 32.00         |  | 60.00      |  |                     | 1999 |      |  | 45,668     |  | 47,389    
|PT Infomedia Nusantara             |  | Jakarta    |  | Data and information service                   |  | 51.00         |  | 51.00      |  |                     | 1984 |      |  | 265,830    |  | 247,646   
|PT Pro Infokom Indonesia           |  | Jakarta    |  | System information network                     |  |              |  | 51.00      |  |                     | 2003 |      |  |           |  | 5,032     

The Company has indirect investments through its
subsidiaries in the following companies:

|                                         |  |                           |  |          |             |           |  |            |              |            |  |            |       |  |  |  |        |  |  |  |      | 
|---------------------------------------- |  | ------------------------- |  | -------- | ----------- | --------- |  | ---------- | ------------ | ---------- |  | ---------- | ----- |  |  |  | ------ |  |  |  | ---- | 
|                                         |  |                           |  |          |             |           |  |            |              |           
|                                         |  |                           |  |          |             |           |  | Effective  |              |           
|                                         |  |                           |  |          |             |           |  | Ownership  |              |           
|                                         |  |                           |  |          |             |           |  | Percentage |              | Start of  
|                                         |  |                           |  |          |             | Nature of |  |            |              | Commercial
|Indirect Subsidiaries                    |  | Stockholders              |  | Domicile |             | Business  |  | 2002       |              | 2003       |  | Operations
|                                         |  |                           |  |          |             |           |  |            |              |            |  |           
|                                         |  |                           |  |          |             |           |  | %          |              | %          |  |           
|Telekomunikasi Selular Finance Limited   |  | PT Telekomunikasi Selular |  |          | Mauritius   |           |  |            | Fund raising |            |  |            | 65.00 |  |  |  | 65.00  |  |  |  | 2002 | 
|Aria West International
    Finance B.V. |  | PT AriaWest International |  |          | Netherlands |           |  |            | Finance      |            |  |            |      |  |  |  | 100.00 |  |  |  | 1996 | 
|PT Balebat Dedikasi Prima                |  | PT Infomedia Nusantara    |  |          | Bogor       |           |  |            | Printing     |            |  |            |      |  |  |  | 26.18  |  |  |  | 2000 | 



| |                                            
| | -------------------------------------------
| | PT Pramindo Ikat Nusantara
    (Pramindo)

Pramindo is the investor in KSO I
(Note 51), the joint operating scheme that provides
telecommunications services in Sumatra. On April 19, 2002,
the Company entered into a Conditional Sale and

F-20



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Purchase Agreement (CSPA) (as amended
on August 1, 2002) to acquire 100% of the issued and
paid-up share capital of Pramindo (Note 5b).

Effective with the closing of the first tranche,
the Company obtained control over the operations of Pramindo and
KSO Unit I. As a result, the Company has consolidated
Pramindo as of the date of the acquisition reflecting a 100%
ownership interest in Pramindo (Note 2b).



| |                                      
| | -------------------------------------
| | PT AriaWest International
    (AWI)

AWI is the investor in KSO III
(Note 51), the joint operating scheme that provides
telecommunication services in West Java. On May 8, 2002,
the Company entered into a Conditional Sale and Purchase
Agreement (CSPA) to acquire 100% of the issued and
paid-up capital of AWI. The acquisition was effective on
July 31, 2003, the date when the Company entered into the
First Amendment to the Conditional Sale and Purchase Agreement
with the stockholders of AWI in which both parties agreed to the
Companys acquisition of AWI (Note 5c).

The CSPA provides for certain conditions that
have to be satisfied at or prior to the closing date to effect
the acquisition, e.g. completion of the restructuring of
AWIs loan, amendment of KSO III agreement, final and
unconditional dismissal with prejudice of any proceeding. Those
conditions have been satisfied at or prior to July 31, 2003.



| |                                      
| | -------------------------------------
| | PT Multimedia Nusantara
    (Metra)

Metra is engaged in providing pay television and
multimedia telecommunications services.

On April 8, 2003, the Company increased its
ownership interest in Metra from 31% to 100% through a
share-swap agreement with PT Indocitra Grahabawana
(Indocitra). Pursuant to the agreement, the Company
sold its investment in PT Menara Jakarta in exchange for
Indocitras 69% ownership interest in Metra (Note 12f).



| |                                 
| | --------------------------------
| | PT Graha Sarana Duta
    (GSD)

GSD is currently engaged primarily in leasing of
offices as well as providing building management and maintenance
services.

On April 6, 2001, the Company acquired a
100% ownership interest in GSD from Koperasi Mitra Duta and Dana
Pensiun Bank Duta, for a purchase consideration of
Rp119,000 million. This acquisition resulted in goodwill of
Rp106,348 million which is being amortized over a period of
five years (Note 16).

On November 28, 2001, the Company sold one
share of GSD to a related party for Rp9.5 million thereby
reducing the Companys ownership interest to 99.99%.



| |                                       
| | --------------------------------------
| | PT Indonusa Telemedia
    (Indonusa)

Indonusa is engaged in providing multimedia
telecommunications services.

The Company increased its investment in Indonusa
from 35% in 2000 to 57.5% in 2001, by acquiring
2,800,000 shares for Rp28,000 million. This
acquisition resulted in goodwill of Rp654 million which was
fully amortized in 2001.

F-21



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


On August 8, 2003, the Company increased its
investment in Indonusa to 88.08% through a share-swap agreement
with PT Centralindo Pancasakti Cellular (CPSC)
(Note 12).

Pursuant to the extraordinary meeting of
stockholders of Indonusa on October 29, 2003, Indonusa
agreed to convert its payable to the Company amounting to
Rp13,500 million to 1,350,000 shares of Indonusa.
Following such conversion, the Companys ownership in
Indonusa increased from 88.08% to 90.39%.



| |                                              
| | ---------------------------------------------
| | PT Dayamitra Telekomunikasi
    (Dayamitra)

Dayamitra is the investor in KSO VI
(Note 51), the joint operating scheme that provides
telecommunications services in Kalimantan. The Companys
acquisition of a 90.32% ownership interest in Dayamitra was
effective on May 17, 2001, the date when the Deed of Share
Transfer was signed. The Company also entered into an Option
Agreement to acquire the remaining 9.68% interest from the
selling stockholders (Note 5a).



| |                                            
| | -------------------------------------------
| | PT Telekomunikasi Selular
    (Telkomsel)

Telkomsel is engaged in providing
telecommunications facilities and mobile cellular services using
Global System for Mobile Communication (GSM)
technology on a nationwide basis.

The Companys cross-ownership transaction
with Indosat in 2001 increased the Companys ownership
interest in Telkomsel to 77.72%. The accounting treatment for
the cross-ownership transaction is discussed further in
Note 4.

On April 3, 2002, the Company entered into a
Conditional Sale and Purchase Agreement (CSPA) with
Singapore Telecom Mobile Pte. Ltd. (Singtel).
Pursuant to the agreement, the Company sold 23,223 ordinary
registered shares of Telkomsel, representing 12.72% of the
issued and paid-up capital of Telkomsel for a total
consideration of US$429,000,000 (equivalent to
Rp3,948,945 million). This transaction reduced the
Companys ownership in Telkomsel from 77.72% to 65%.

The sale of the shares was effective on
July 30, 2002 and the Company recognized a gain of
Rp3,196,380 million which was specifically identified in
the Statement of Income as Gain on sale of long-term
investment in Telkomsel and included an amount of
Rp65,158 million reflecting the realisation of a portion of
gains attributable to past equity transactions in Telkomsel. For
tax purposes, the gain was Rp30,294 million due to the
higher tax bases of the shares sold.



| |                                                    
| | ---------------------------------------------------
| | PT Napsindo Primatel Internasional
    (Napsindo)

Napsindo is engaged in providing Network
Access Point (NAP), Voice Over Data (VOD) and
other related services.

In connection with an increase in Napsindos
paid-in capital, the Company increased its investment in
Napsindo by Rp13,840 million on October 31, 2000. The
increase in investment was made to maintain the Companys
ownership interest at 32% and was effective on March 29,
2001.

Based on the notarial Deed No. 47 dated
December 30, 2002 of Notary H. Yunardi, S.H., the Company
purchased 28% of Napsindos shares from PT Info Asia
Sukses Makmur Mandiri for

F-22



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


US$4,900,000 (equivalent to
Rp43,620 million), thereby increasing the Companys
ownership interest to 60% after the settlement of payment on
January 28, 2003.



| |                                         
| | ----------------------------------------
| | PT Infomedia Nusantara
    (Infomedia)

Infomedia is engaged in providing
telecommunications information services and other information
services in the form of print and electronic media. In 2002,
Infomedia established a new line of business to provide call
center services.

PT Pro
Infokom Indonesia (PII)

On January 29, 2003, the Company together
with PT Indonesia Comnets Plus, a subsidiary of Perusahaan
Perseroan (Persero) PT Perusahaan Listrik Negara
(PLN), and PT Prima Infokom Indonesia
established PT Pro Infokom Indonesia (PII). The
establishment was notarized by deed of A. Partomuan Pohan,
S.H., LLM., notary in Jakarta, under Article of Association
No. 24, dated January 29, 2003. As of
December 31, 2003, the Company had an ownership interest of
51% in PII.

PII was established to develop a national
information network system as the back-bone for the development
of the Indonesian e-Government. PII is intended to maximize the
utilization of both the Companys and PLNs existing
infrastructures.

PII will act as a service provider that manages
the government secure intranet and government information center
management where all government institutions, including
state-owned companies, are expected to take advantage of this
network.



| |                                                    
| | ---------------------------------------------------
| | Telekomunikasi Selular Finance Limited
    (TSFL)

Telkomsel has 100% direct ownership interest in
TSFL, a company established in Mauritius on April 22, 2002.
TSFLs objective is to raise funds for the development of
Telkomsels business through the issuance of debenture
stock, bonds, mortgages or any other securities.



| |                                                    
| | ---------------------------------------------------
| | Aria West International Finance B.V.
    (AWI BV)

AWI BV, a company established in the Netherlands,
is a wholly owned subsidiary of AWI. AWI BV is engaged in
rendering services in the field of trade and finance.



| |                                          
| | -----------------------------------------
| | PT Balebat Dedikasi Prima
    (Balebat)

Infomedia has 51.33% direct ownership interest in
Balebat, a company engaged in the printing business, domiciled
in Bogor.



| |                                                 
| | ------------------------------------------------
| | d. Authorization of the Financial
    Statements

The consolidated financial statements were
authorized for issue by the Board of Directors on June 29,
2004.



|   |                                               
|-- | ----------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

The consolidated financial statements of the
Company and subsidiaries have been prepared in accordance with
generally accepted accounting principles in Indonesia
(Indonesian GAAP). Indone-

F-23



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


sian GAAP varies in certain significant respects
to accounting principles generally accepted in the United States
of America (U.S. GAAP). Information relating to the nature and
effect of such differences is presented in Note 58.

a. Basis for Preparation
of Financial Statements

The consolidated financial statements, except for
the statements of cash flows, are prepared on the accrual basis
of accounting. The measurement basis used is historical cost,
except for certain accounts recorded on the basis described in
the related accounting policies.

The consolidated statements of cash flows are
prepared using the direct method and present the changes in cash
and cash equivalents from operating, investing and financing
activities.

Figures in the consolidated financial statements
are rounded to and presented in millions of Indonesian Rupiah
(Rp) unless otherwise stated.

b. Principles of
Consolidation

The consolidated financial statements include the
financial statements of the Company and its subsidiaries in
which the Company directly or indirectly has ownership of more
than 50%, or the Company has the ability to control the entity,
even though the ownership is less than or equal to 50%.
Subsidiaries are consolidated from the date on which effective
control is obtained and are no longer consolidated from the date
of disposal. The Company does not consolidate a subsidiary if
control is expected to be temporary.

All significant inter-company balances and
transactions have been eliminated in consolidation.

In the case of PT Pramindo Ikat Nusantara
(Pramindo), the Company has evaluated the scope and
terms of this investment and concluded that it has the ability
to exercise control over Pramindo and the right to obtain all of
the future economic benefits of ownership as though the Company
owned 100% of the shares. The factors that the Company
considered include, among others, the fact that the purchase
price is fixed, its ability to vote 100% of the shares at
general stockholders meetings, subject to certain
protective rights retained by the selling stockholders, its
ability to appoint all of the board members and management and
its consequent ability to exclusively determine the financial
and operating policies of Pramindo subject to certain protective
rights, its issuance of irrevocable and unconditional promissory
notes in settlement of the purchase consideration to the selling
stockholders, the placement of the 70% of Pramindo shares not
yet transferred to the Company in an escrow account by the
selling stockholders and the protective provisions in the
various agreements for the Company to take over all shares
(including powers of attorney issued by the selling
stockholders) or collapse the KSO arrangement once the full
amount payable for the shares has been paid (Note 5b).

c. Transactions with
Related Parties

The Company and subsidiaries have transactions
with related parties. The definition of related parties used is
in accordance with Indonesian Statement of Financial Accounting
Standards (PSAK) No. 7 Related Party
Disclosures.

F-24



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


d. Acquisitions of
Subsidiaries

The acquisition of a subsidiary from a third
party is accounted for using the purchase method of accounting.
The excess of the acquisition cost over the Companys
interest in the fair value of identifiable assets acquired and
liabilities assumed is recorded as goodwill and amortized using
the straight-line method over a period of not more than five
years.

The acquisition transaction with entities under
common control is accounted for in a manner similar to that in
pooling of interests accounting (carryover basis). The
difference between the consideration paid or received and the
related historical carrying amount, after considering income tax
effects, is recognized directly in equity and are reported as
Difference in value of restructuring transactions between
entities under common control in the stockholders
equity section.

The Company continually assesses whether events
or changes in circumstances have occurred that would require
revision of the remaining estimated useful life of goodwill, or
whether there is any indication of impairment. If any indication
of impairment exists, the recoverable amount of goodwill is
estimated based on the expected future cash flows which are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset.

e. Foreign Currency
Translation

The functional currency of the Company and its
subsidiaries is the Indonesian Rupiah and the books of accounts
of the Company and its subsidiaries are maintained in Indonesian
Rupiah. Transactions in foreign currencies are translated into
Indonesian Rupiah at the rates of exchange prevailing at
transaction date. At the balance sheet date, monetary assets and
monetary liabilities balances denominated in foreign currencies
are translated into Indonesian Rupiah based on the buy and sell
rates quoted by Reuters prevailing at the balance sheet date.
The Reuters buy and sell rates, applied respectively to
translate monetary assets and monetary liability balances, were
Rp8,940 and Rp8,960 to US$1 as of December 31, 2002, and
Rp8,430 and Rp8,450 to US$1 as of December 31, 2003.

The resulting foreign exchange gains or losses,
realized and unrealized, are credited or charged to income of
the current year, except for foreign exchange differences
incurred on borrowings during the construction of qualifying
assets which are capitalized to the extent that the borrowings
can be attributed to the construction of those qualifying assets
(Note 2k).

f. Cash and Cash
Equivalents

Cash and cash equivalents consist of cash on hand
and in banks and all unrestricted time deposits with maturities
of not more than three months from the date of placement. For
the purpose of the statements of cash flows, bank overdrafts
that are repayable on demand and form an integral part of cash
management of the Company and subsidiaries are included as a
component of cash and cash equivalents.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


g. Investments

i. Time Deposits

Time deposits with maturities of more than three
months are presented as temporary investments.

ii. Investments in
Securities

Investments in available-for-sale securities are
stated at fair value. Unrealized holding gains or losses on
available-for-sale securities are excluded from income of the
current year and are reported as a separate component in the
stockholders equity section until realized. Realized gains
or losses from the sale of available-for-sale securities are
recognized in the income of the current year, and are determined
on a specific-identification basis. A decline in the fair value
of any available-for-sale securities below cost that is deemed
to be other-than-temporary is charged to income of the current
year.

iii. Investments in
Associated Companies

Investments in shares of stock in which the
Company has 20% to 50% of the voting rights, and over which the
Company exerts significant influence, but not control, over the
financial and operating policies are accounted for using the
equity method. Under this method, the Company recognizes the
Companys proportionate share in the income or loss of the
associated company from the date that significant influence
commences until the date that significant influence ceases. When
the Companys share of loss exceeds the carrying amount of
the associated company, the carrying amount is reduced to nil
and recognition of further losses is discontinued except to the
extent that the Company has incurred obligations in respect of
the associated company.

On a continuous basis, but no less frequently
than at the end of each year, the Company evaluates the carrying
amount of its ownership interests in investee companies for
possible impairment. Factors considered in assessing whether an
indication of other than temporary impairment exists include the
achievement of business plan objectives and milestones including
cash flow projections and the results of planned financing
activities, the financial condition and prospects of each
investee company, the fair value of the ownership interest
relative to the carrying amount of the investment, the period of
time the fair value of the ownership interest has been below the
carrying amount of the investment and other relevant factors.
Impairment to be recognized is measured based on the amount by
which the carrying amount of the investment exceeds the fair
value of the investment. Fair value is determined based on
quoted market prices (if any), projected discounted cash flows
or other valuation techniques as appropriate.

Changes in the value of investments due to
changes in the equity of associated companies arising from
capital transactions of such associated companies with other
parties are recognized directly in equity and are reported as
Difference due to change of equity in associated
companies in the stockholders equity section.
Differences previously credited directly to equity as a result
of equity transactions in associated companies are released to
the statement of income upon the sale of an interest in the
associate in proportion with percentage of the interest sold.

The functional currency of PT Pasifik Satelit
Nusantara and PT Citra Sari Makmur is the U.S. Dollar. For
the purpose of reporting these investments using the equity
method, the assets and liabilities of these companies as of the
balance sheet date are translated into Rupiah using the rates of

F-26



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


exchange prevailing at that date, while revenues
and expenses are translated into Rupiah at the average rates of
exchange for the year. The resulting translation adjustments are
reported as part of Translation adjustment in the
stockholders equity section.

iv. Other
Investments

Investments in shares of stock with ownership
interests of less than 20% that do not have readily determinable
fair values and are intended for long-term investments are
carried at cost and are adjusted only for other-than-temporary
decline in the value of individual investments. Any such
write-down is charged directly to income of the current year.

h. Trade and Other
Accounts Receivable

Trade and other accounts receivable are recorded
net of an allowance for doubtful accounts, based upon a review
of the collectibility of the outstanding amounts at the end of
the year. Accounts are written off against the allowance during
the period in which they are determined to be not collectible.

Trade and other accounts receivable are recorded
at the invoiced amount. The allowance for doubtful accounts is
the Companys best estimate of the amount of probable
credit losses in the Companys existing accounts
receivable. The Company determines the allowance based on
historical write-off experience. The Company reviews its
allowance for doubtful accounts monthly. Past due balances over
90 days for retail customers are fully provided, and past
due balance for non-retail customers over a specified amount are
reviewed individually for collectibility. Account balances are
charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote. The Company does not have any off-balance sheet credit
exposure related to its customers.

i. Inventories

Inventories, principally consist of components
and modules, which are transferred to Plant, Property and
Equipment upon use. Inventories also include SIM card and
prepaid voucher blanks.

Cost is determined using the weighted average
method for components, SIM card and prepaid voucher blanks, and
the specific-identification method for modules.

Allowance for obsolescence is primarily based on
the estimated forecast of future usage of these items.

j. Prepaid
Expenses

Prepaid expenses are amortized over their
beneficial periods using the straight-line method.

k. Property, Plant and
Equipment  Direct Acquisitions

Property, plant and equipment directly acquired
are stated at cost, except for certain revalued assets, less
accumulated depreciation.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Property, plant and equipment, except land, are
depreciated using the straight-line method, based on the
estimated useful lives of the assets as follows:

|                                                  |  |       |      | 
|------------------------------------------------- |  | ----- | ---- | 
|                                                  |  | Years
|                                                  |  |      
|Buildings                                         |  |       | 20   | 
|Switching equipment                               |  |       | 515 | 
|Telegraph, telex and data communication equipment |  |       | 515 | 
|Transmission installation and equipment           |  |       | 520 | 
|Satellite, earth station and equipment            |  |       | 315 | 
|Cable network                                     |  |       | 515 | 
|Power supply                                      |  |       | 310 | 
|Data processing equipment                         |  |       | 310 | 
|Other telecommunications peripherals              |  |       | 5    | 
|Office equipment                                  |  |       | 35  | 
|Vehicles                                          |  |       | 58  | 
|Other equipment                                   |  |       | 5    | 

Land is stated at cost and is not depreciated.

When the carrying amount of an asset exceeds its
estimated recoverable amount, the asset is written down to its
estimated recoverable amount, which is determined based upon the
greater of its net selling price or value in use.

The cost of maintenance and repairs is expensed
as incurred. Expenditures, which extend the useful life of the
asset or result in increased future economic benefits such as
increase in capacity or improvement in the quality of output or
standard of performance, are capitalized and depreciated based
on the applicable depreciation rates.

When assets are retired or otherwise disposed of,
their carrying values and the related accumulated depreciation
are eliminated from the consolidated financial statements, and
the resulting gains or losses on the disposal or sale of
property, plant and equipment are recognized in the statement of
income.

Computer software used for data processing is
included in the value of the associated hardware.

Property under construction is stated at cost
until construction is complete, at which time it is reclassified
to the specific property, plant and equipment account it relates
to. During the construction period, borrowing costs, which
include interest expense and foreign exchange gains or losses
incurred to finance the construction of the asset, are
capitalized in proportion to the average amount of accumulated
expenditures during the period. Capitalization of borrowing cost
ceases when the assets are ready for its intended use.

l. Property, Plant and
Equipment under Capital Leases

Property, plant and equipment acquired under
capital leases are stated at the present value of minimum lease
payments. At inception of the lease, a corresponding liability,
which equals to the present value of minimum lease payments, is
also recorded and subsequently reduced by the principal
component of each minimum lease payment. The interest component
of each minimum lease payment is recognized in the statement of
income.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Leased assets are capitalized only if all of the
following criteria are met: (a) the lessee has an option to
purchase the leased asset at the end of the lease period at a
price agreed upon at the inception of the lease agreement, and
(b) the sum of periodic lease payments, plus the residual
value, will cover the acquisition price of the leased asset and
related interest, and (c) there is a minimum lease period
of 2 years.

Leased assets are depreciated using the same
method and over the same estimated useful lives used for
directly acquired property, plant and equipment.

m. Revenue-Sharing
Arrangements

The Company records assets under revenue-sharing
agreements as Property, plant and equipment under
revenue-sharing arrangements (with a corresponding initial
credit to Unearned income under revenue-sharing
arrangements presented in the Liabilities section of the
balance sheet) based on the costs incurred by the investors as
agreed upon in the contracts entered into between the Company
and the investors. Property, plant and equipment are depreciated
over their estimated useful lives using the straight-line method.

Unearned income related to the acquisition of the
property, plant and equipment under revenue-sharing arrangements
is amortized over the revenue-sharing period using the
straight-line method.

At the end of the revenue-sharing period, the
respective property, plant and equipment under revenue-sharing
arrangements are reclassified to the Property, plant and
equipment account.

Revenue earned under revenue-sharing arrangements
is recognized on the basis of the Companys share as
provided in the agreement.

n. Joint Operation
Schemes

Revenues from joint operation schemes include
amortization of the investors initial payments, Minimum
Telkom Revenues (MTR) and the Companys share
of Distributable KSO Revenues (DKSOR).

Unearned initial investor payments received as
compensation from the KSO Investors are presented net of all
direct costs incurred in connection with the KSO agreement and
are amortized using the straight-line method over the KSO period
of 15 years starting from January 1, 1996.

MTR are recognized on a monthly basis based upon
the contracted MTR amount for the current year, in accordance
with the KSO agreement.

The Companys share of DKSOR is recognized
on the basis of the Companys percentage share of the KSO
revenues, net of MTR and operational expenses of the KSO Units,
as provided in the KSO agreements.

Under PSAK No. 39, Accounting for
Joint Operation Schemes, which supersedes
paragraph 14 of PSAK No. 35, Accounting for
Telecommunication Services Revenue, the assets built by
the KSO Investors under the Joint Operation Schemes are recorded
in the books of the KSO Investors which operate the assets and
are transferred to the Company at the end of the KSO period or
upon termination of the KSO agreement.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


o. Deferred Charges for
Landrights

Costs incurred to process and extend the
landrights are deferred and amortized using the straight-line
method over the term of the landrights.

p. Revenue and Expense
Recognition

i. Fixed Line Telephone
Revenues

Revenues from fixed line installations are
recognized at the time the installations are placed in service.
Revenues from usage charges are recognized as customers incur
the charges.

ii. Cellular and Fixed
Wireless Telephone Revenues

Revenues from service connections (connection
fees) are recognized as income at the time the connections
occur. Revenues from airtime (for cellular) and monthly
subscription charges are recognized as accessed and as earned.
Revenues from prepaid card customers, which consist of the sale
of starter packs, also known as Subscriber Identification Module
(SIM) cards in the case of cellular and Removable
Unit Identity Card (RUIM) in the case of fixed
wireless telephone, and pulse reload vouchers, are recognized as
follows:



| |    |                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Sale of starter packs is recognized as revenue
    upon delivery of the starter packs to distributors, dealers or
    directly to customers.                                                                                                    
|
| | 2. | Sale of pulse reload vouchers is recognized
    initially as unearned income and recognized proportionately as
    revenue based on successful calls made by the subscribers or
    whenever the unused stored value of the voucher has expired.

iii. Interconnection
Revenues

Revenues from network interconnection with other
domestic and international telecommunications carriers are
recognized as incurred and are presented net of interconnection
expenses.

Expenses are recognized on an accrual basis.

q. Pension
Benefits

i. Defined Benefit Pension
Plans

The Company and certain subsidiaries established
defined benefit pension plans covering substantially all of
their permanent employees.

The Companys net obligation in respect of
the defined benefit pension plans is calculated at the net
present value of estimated future benefits that the employees
have earned in return for their service in the current and prior
periods, deducted by any plan assets. The calculation is
performed by an independent actuary using the projected unit
credit method.

The benefits earned by the employees are
recognized in the statement of income on a straight-line basis
over the period until the benefits become vested. To the extent
that the benefits vest immediately, the expense is recognized
immediately in the statement of income.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


ii. Early
Retirement Benefits

Early retirement benefits are accrued at the time
the Company makes a commitment to provide early retirement
benefits as a result of an offer made in order to encourage
voluntary redundancy. The Company is demonstrably committed to a
termination when, and only when, the Company has a detailed
formal plan for the early retirement and is without realistic
possibility of withdrawal.

r. Employee Benefits Other
Than Pension

i. Long
Service Awards (LSA)

The Companys employees are entitled to
receive certain cash awards based on length of service
requirement. The benefits are either paid at the time the
employee reaches certain anniversary dates during employment,
upon retirement or at the time of termination.

The Companys obligation with respect to LSA
is calculated by an independent actuary using the projected unit
credit method.

ii. Post-Retirement
Health Care Plan

The Company provides a post-retirement health
care plan that covers its retired employees who meet age,
participation and length of service requirements at retirement,
and their eligible dependants.

The Companys obligation with respect to
post-retirement health care plan is calculated by an independent
actuary using the projected unit credit method.

s. Income
Tax

The Company and subsidiaries apply the asset and
liability method of accounting for income tax. Under this
method, deferred tax assets and liabilities are recognized for
temporary differences between the financial and tax bases of
assets and liabilities at each reporting date. This method also
requires the recognition of future tax benefits, such as the
benefit of tax loss carryforwards, to the extent their
realization is probable. Deferred tax assets and liabilities are
measured using enacted or substantially enacted tax rates at
each reporting date which are expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.

Income tax is charged or credited in the
statement of income, except to the extent that it relates to
items recognized directly in equity, in which case it is also
recognized directly in equity.

t. Earnings per Share and
Earnings per American Depositary Share
(ADS)

Basic earnings per share is computed by dividing
net income by the weighted average number of shares outstanding
during the year. Net income per ADS is computed by multiplying
basic earnings per share by 20, the number of shares
represented by each ADS.

u. Segment
Information

The Company and its subsidiaries segment
information is presented based upon identified business
segments. A business segment is a distinguishable unit that
provides different products and

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


services and is managed separately. Business
segment information is consistent with operating information
routinely reported to the Companys chief operating
decision maker.

Segment information is prepared in conformity
with the accounting policies adopted for preparing and
presenting the consolidated financial statements.

v. Derivative
Instruments

Derivative transactions are accounted for in
accordance with PSAK 55, Accounting for Derivative
Instruments and Hedging Activities which requires that all
derivative instruments be recognized in the financial statements
at fair value. To qualify for hedge accounting, PSAK 55 requires
certain criteria to be met, including documentation required to
have been in place at the inception of the hedge.

Changes in fair value of derivative instruments
that do not qualify for hedge accounting are recognized in the
statement of income. If a derivative instrument are designated
and qualify for hedge accounting, changes in fair value of
derivative instruments are recorded as adjustments to the assets
or liabilities being hedged in the income of the current year or
in the stockholders equity, depending on the type of hedge
transaction represented and the effectiveness of the hedge.

w. Use of
Estimates

The preparation of the consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period.
Significant items subject to such estimates and assumptions
include the carrying amount of property, plant and equipment and
intangible assets, valuation allowance for receivables and
obligations related to employee benefits. Actual results could
differ from those estimates.

3. TRANSLATION OF RUPIAH INTO UNITED
STATES DOLLARS

The consolidated financial statements are stated
in Rupiah. The translations of Rupiah amounts into United States
Dollars are included solely for the convenience of the readers
and have been made using the average of the market buy and sell
rates of Rp8,440 to US$1 published by Reuters on
December 31, 2003. The convenience translations should not
be construed as representations that the Rupiah amounts have
been, could have been, or could in the future be, converted into
United States Dollars at this or any other rate of exchange.

4. CROSS-OWNERSHIP TRANSACTIONS WITH
INDOSAT

On April 3, 2001, the Company signed a
Conditional Sale and Purchase Agreement with Indosat, for a
series of transactions to consolidate their cross-ownership in
certain companies. The transactions under the agreement are as
follows:



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Acquisition by the Company of
    Indosats 35% equity interest in Telkomsel for
    US$945,000,000 (Telkomsel Transaction);                                       
|
| | ii. Acquisition by Indosat of the
    Companys 22.5% equity interest in PT Satelit Palapa
    Indonesia (Satelindo) for US$186,000,000
    (Satelindo Transaction);

F-32



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | iii. Acquisition by Indosat of the
    Companys 37.66% equity interest in PT Aplikanusa
    Lintasarta (Lintasarta) for US$38,000,000 plus
    convertible bonds of Rp4,051 million issued by Lintasarta
    (Lintasarta Transaction); and                                                                                                                                        
|
| | iv. The acquisition by Indosat of all of the
    Companys rights and novation of all of the Companys
    obligations, under the KSO IV Agreement dated October 20,
    1995, between the Company and PT Mitra Global Telekomunikasi
    Indonesia (MGTI), together with all of the
    Companys assets being used as KSO IV assets, for
    US$375,000,000 (KSO IV Transaction).

Lintasartas convertible bonds were
subsequently converted into shares, thereby reducing the
Companys 37.66% equity interest to 37.21% prior to the
consummation of the Lintasarta Transaction.

The Telkomsel and Lintasarta Transactions were
consummated on May 16, 2001 based on Deed of Share Transfer
No. 1/ V/2001/triplo and No. 2/ V/2001/duplo,
respectively, of Notary Ny. Liliana Arif Gondoutomo, S.H.

The Satelindo Transaction was consummated on
July 23, 2001 after DeTeAsia Holding GmbH and PT Bimagraha
Telekomindo (the other Satelindo stockholders) waived their
pre-emptive rights on 7.26% and 13.06% of Satelindos
shares, respectively.

On February 1, 2002, the Company and Indosat
announced the cancellation of the KSO IV Transaction. As a
result, the Company settled this portion of the cross-ownership
transaction in cash.

At the time of the transaction, the Government
was the majority and controlling shareholder of both the Company
and Indosat. Accordingly, the Telkomsel, Satelindo and
Lintasarta Transactions have been accounted for as a
restructuring of entities under common control. The
Companys acquisition of a controlling interest in
Telkomsel was accounted for in a manner similar to that of
pooling of interests accounting (carryover basis). Accordingly,
for reporting purposes, the financial statements of the Company
and those of Telkomsel have been combined, as if they had been
combined from the beginning of the earliest period presented.
The effects of the transactions between the Company and
Telkomsel before the combination were eliminated in preparing
the combined financial statements. The difference between the
consideration paid or received and the historical amount of the
net assets of the investee acquired or carrying amount of the
investment sold, is included as a component of
stockholders equity as Difference in value of
restructuring transactions between entities under common
control, as follows:

|           |  |               |            |             |  |          |           |        |  |       |         |     |  |     |          |   |  |  |            |   |  |  |          |   |  |  |            |  
|---------- |  | ------------- | ---------- | ----------- |  | -------- | --------- | ------ |  | ----- | ------- | --- |  | --- | -------- | - |  |  | ---------- | - |  |  | -------- | - |  |  | ---------- | -
|           |  |               |            | Historical  |  |          |           |        |  |       |         |     |  |    
|           |  | Consideration |            | Amount of   |  | Deferred |           | Change |  |       |         |     |  |    
|           |  | Paid/         |            | Net Assets/ |  | Income   |           | in     |  |       |         |     |  |    
|           |  | (Received)    |            | Investment  |  | Tax      |           | Equity |  | Total |         | Tax |  | Net
|           |  |               |            |             |  |          |           |        |  |       |         |     |  |    
|Telkomsel  |  |               | 10,782,450 |             |  |          | 1,466,658 |        |  |       | 337,324 |     |  |     |         |   |  |  | 8,978,468  |   |  |  |         |   |  |  | 8,978,468  |  
|Satelindo  |  |               | (2,122,260 | )           |  |          |          |        |  |       |        |     |  |     | (290,442 | ) |  |  | (2,412,702 | ) |  |  | (627,678 | ) |  |  | (1,785,024 | )
|Lintasarta |  |               | (437,631   | )           |  |          | 116,834   |        |  |       |        |     |  |     |         |   |  |  | (320,797   | ) |  |  | (119,586 | ) |  |  | (201,211   | )
|           |  |               |            |             |  |          |           |        |  |       |         |     |  |     |          |   |  |  |            |   |  |  |          |   |  |  |            |  
|Total      |  |               | 8,222,559  |             |  |          | 1,583,492 |        |  |       | 337,324 |     |  |     | (290,442 | ) |  |  | 6,244,969  |   |  |  | (747,264 | ) |  |  | 6,992,233  |  
|           |  |               |            |             |  |          |           |        |  |       |         |     |  |     |          |   |  |  |            |   |  |  |          |   |  |  |            |  

F-33



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


5. ACQUISITION OF KSO INVESTORS

a. Dayamitra

On May 17, 2001, the Company acquired 90.32%
of the shares of Dayamitra for an aggregate purchase price of
US$134,172,232 (including consultants fees of
approximately US$3,303,191 or Rp37,325 million). Pursuant
to the terms of the agreement, the Company paid the initial
payment amount of US$18,289,800 (Rp206,675 million) on
May 17, 2001, the closing date of the transaction, and
US$8,937,041 (Rp100,989 million) on August 10, 2001 as
a post-closing working capital adjustment to the purchase price.
The remaining amount of US$103,642,200
(Rp1,171,157 million) was paid through an escrow
arrangement discussed below, in eight quarterly installments of
US$12,955,275, from August 17, 2001 to May 17, 2003.
The estimated present value of US$103,642,200 at the discount
rate of 14% was estimated to be US$89,053,984
(Rp1,006,310 million).

This acquisition resulted in the identification
of an intangible asset amounting to Rp1,276,575 million
representing the right to operate the business in the KSO Area.
The amount is being amortized over the remaining term of the KSO
agreement (Note 16).

The Company acquired control of Dayamitra on
May 17, 2001 and has consequently consolidated Dayamitra
from that date.

The allocation of the acquisition cost for the
90.32% ownership in Dayamitra was as follows:

|                                                                 |                                        |    |           |           |  
|---------------------------------------------------------------- | -------------------------------------- | -- | --------- | --------- | -
|                                                                 |                                        | Rp
|                                                                 |                                        |   
|Purchase consideration  net of
    discount on promissory notes |                                        |    | 1,351,299 |          
|                                                                 |                                        |    |           |          
|Fair value of net assets acquired:                               |                                        |    |           |          
|                                                                 |  Cash and cash equivalents            |    |           | 93,652    |  
|                                                                 |  Distributable KSO revenue receivable |    |           | 62,398    |  
|                                                                 |  Other current assets                 |    |           | 9,450     |  
|                                                                 |  Property, plant and equipment        |    |           | 1,401,479 |  
|                                                                 |  Intangible assets                    |    |           | 1,276,575 |  
|                                                                 |  Other non-current assets             |    |           | 19,510    |  
|                                                                 |  Current liabilities                  |    |           | (236,265  | )
|                                                                 |  Deferred tax liabilities             |    |           | (581,816  | )
|                                                                 |  Non-current liabilities              |    |           | (693,684  | )
|                                                                 |                                        |    |           |          
|                                                                 |                                        |    | 1,351,299 |          
|                                                                 |                                        |    |           |          

Net cash outflow on the acquisition of Dayamitra
amounted to Rp241,300 million.

In connection with the Dayamitra transaction, the
Company also entered into the following agreements:

1. Option Agreement

The Company entered into an Option Agreement with
TM Communications (HK) Ltd (TMC), providing the
Company with an option to acquire the remaining 9.68% equity
interest in Dayamitra, referred to as the Option Share. Under
the agreement, TMC, the selling stockholder, granted the

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Company an exclusive option to purchase full and
legal title to the Option Share (the Call Option),
and the Company granted the selling stockholder an exclusive
option to sell to the Company full legal title to those shares
(the Put Option).

In consideration for the grant of the options,
the Company will pay to the selling stockholder the option
purchase price of US$6,300,000, plus US$957,823 as payment for
Dayamitras adjusted working capital, or a total of
US$7,257,823. The amount is payable in eight quarterly
installments of US$907,228, beginning on August 17, 2001
and ending on May 17, 2003. Payments will be made through
an escrow account established under the Escrow Agreement
discussed below.

The Company may exercise the option any time
after Dayamitra has satisfied all of its obligations under the
JBIC (formerly J-Exim) loan (Note 26i) beginning on
May 17, 2003 and until five business days prior to
March 26, 2006. The strike price payable by the Company to
the selling stockholder for the Option Shares upon exercise of
the option is US$16,200,000, less certain amounts that are
stipulated in the Option Agreement. As of December 31, 2003
the Company has not exercised the option.

As of December 31, 2003, the option purchase
price that has been paid by the Company amounted to US$7,257,823
or equivalent to Rp65,458 million (2002: US$5,443,367 or
equivalent to Rp51,120 million), and is presented as part
of Advance payments for investments in shares of
stock (Note 5e).

2. Escrow Agreement

An Escrow Agreement dated May 17, 2001, was
entered into by and among the Company, Dayamitra, PT Intidaya
Sistelindomitra (Intidaya), Cable and Wireless plc
(C&W plc), PT Mitracipta Sarananusa
(Mitracipta), TMC, Tomen Corporation
(Tomen), Citibank N.A. Singapore (the Singapore
Escrow Agent) and Citibank N.A. Jakarta (the Jakarta Escrow
Agent), to establish an Escrow Account and facilitate the
payment (Note 17).

b. Pramindo

On April 19, 2002, the Company and the
stockholders of Pramindo, namely France Cables et Radio SA, PT
Astratel Nusantara, Indosat, Marubeni Corporation, International
Finance Corporation (IFC) and NMP Singapore Pte.
Ltd. (NMP Singapore) (collectively the Selling
Stockholders) entered into a Conditional Sale and Purchase
Agreement (CSPA) pursuant to which the Company
acquired all of Pramindos shares. The Selling Stockholders
shares were transferred to an escrow account (hereafter referred
as escrow shares).

Legal title to the escrow shares will be
transferred to Telkom in 3 (three) specific tranches on
15 September 2002  30%, 30 September
2003   15% and on 31 December 2004 
55% upon payment of the promissory notes issued to the selling
stockholders as payment for the acquisition of the shares. The
escrow shares can be accessed by the selling stockholders only
upon default on payment of the promissory notes by the Company
and no dividends can be paid out until the arrangements between
the parties are completed or terminated in accordance with the
terms of the relevant agreements.

The Company and the Selling Stockholders also
entered into a Stockholders Voting Agreement (SVA)
on August 15, 2002, pursuant to which each stockholder of
Pramindo delivered to the Company a Power of Attorney
(PoA) whereby the Company obtained the right to vote
the escrow shares. The Company, thereby acquired the right to
nominate all of the members of the Board of

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Directors and Board of Commissioners of Pramindo.
The SVA is subject to certain reserve matters which serve as
protective rights to the Selling Stockholders.

The aggregate purchase price amounted to
US$390,308,972 (Rp3,464,040 million) plus
Rp250,000 million, represented by an initial payment of
approximately US$9,263,953 (Rp82,218 million),
consultants fees of US$5,945,946 (Rp52,818 million),
working capital reimbursement of Rp250,000 million, and the
issue by Telkom of Promissory Notes (series I and
series II) with an aggregate face value of US$375,099,073,
of which the present value at the discount rate of 8.15% at the
effective date of the acquisition was estimated to be
US$332,802,122 (Rp2,953,617 million). The series I
promissory notes are non-interest bearing and the series II
promissory notes carry a market interest rate. The Promissory
Notes are to be paid in 10 unequal quarterly installments
beginning September 15, 2002 and are irrevocable,
unconditional and transferable.

The total purchase consideration was allocated
first to the net monetary assets and then the fixed assets
acquired. An intangible asset of Rp2,752,267 million was
identified representing right to operate the business in the KSO
Area. The amount is being amortized over the remaining term of
the KSO agreement (Note 16). There was no goodwill arising
from this acquisition.

In addition, the portion that relates to
Indosats 13% equity interest in Pramindo has been
accounted for as a restructuring of entities under common
control. The difference between the purchase consideration and
the historical amount of the net assets acquired amounting to
Rp296,038 million, included as Difference in value of
restructuring transactions between entities under common
control in the stockholders equity section is
calculated as follows:

|                                                                                        |  |    |           | 
|--------------------------------------------------------------------------------------- |  | -- | --------- | 
|                                                                                        |  | Rp
|                                                                                        |  |   
|Purchase consideration  net of
    discount on promissory notes                        |  |    | 3,338,653 | 
|Historical amount of net assets                                                         |  |    | 1,061,437 | 
|                                                                                        |  |    |           | 
|Difference in value for 100% ownership                                                  |  |    | 2,277,216 | 
|                                                                                        |  |    |           | 
|Difference adjusted to stockholders equity
    for Indosats 13% ownership in Pramindo |  |    | 296,038   | 
|                                                                                        |  |    |           | 

The Company acquired control of Pramindo on
August 15, 2002 and has consequently consolidated Pramindo
from August 1, 2002 being the nearest convenient balance
date.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The allocation of the acquisition cost was as
follows:

|                                                                          |                                        |    |           |            |  
|------------------------------------------------------------------------- | -------------------------------------- | -- | --------- | ---------- | -
|                                                                          |                                        | Rp
|                                                                          |                                        |   
|Purchase consideration  net of
    discount on promissory notes          |                                        |    | 3,338,653 |           
|                                                                          |                                        |    |           |           
|Fair value of net assets acquired:                                        |                                        |    |           |           
|                                                                          |  Cash and cash equivalents            |    |           | 141,475    |  
|                                                                          |  Distributable KSO revenue receivable |    |           | 187,468    |  
|                                                                          |  Other current assets                 |    |           | 13,839     |  
|                                                                          |  Property, plant and equipment        |    |           | 1,807,338  |  
|                                                                          |  Intangible assets                    |    |           | 2,752,267  |  
|                                                                          |  Other non-current assets             |    |           | 160,139    |  
|                                                                          |  Current liabilities                  |    |           | (284,120   | )
|                                                                          |  Deferred tax liabilities             |    |           | (1,115,645 | )
|                                                                          |  Non-current liabilities              |    |           | (620,146   | )
|                                                                          |                                        |    |           |           
|Fair value of net assets                                                  |                                        |    | 3,042,615 |           
|Difference adjusted to equity for 13%
    Indosats ownership in Pramindo |                                        |    | 296,038   |           
|                                                                          |                                        |    |           |           
|Total purchase consideration                                              |                                        |    | 3,338,653 |           
|                                                                          |                                        |    |           |           

Net cash outflow on the acquisition of Pramindo
amounted to Rp243,561 million.

The outstanding promissory notes issued for the
acquisition of Pramindo are presented as Liabilities for
acquisitions of subsidiaries in the consolidated balance
sheets as of December 31, 2002 and 2003 (Note 27). As
of December 31, 2002 and 2003, the outstanding promissory
notes, before unamortized discount, amounted to
US$342 million (Rp3,060,884 million) and
US$191 million (Rp1,615,473 million).

Subsequent to December 31, 2003, the Company
obtained a loan to finance the payment of these promissory notes
and legal title to all of Pramindos shares has been
completely transferred to the Company (Note 57c).

c. PT
AriaWest International (AWI)

Effective on July 31, 2003 (the
closing date), the Company acquired 100% of the
outstanding common stock of AWI, the investor in KSO III,
for approximately Rp1,141,752 million plus the assumption
of AWIs debts of Rp2,577,926 million. The purchase
consideration included non-interest bearing promissory notes
with a face value of US$109,090,909 (Rp927,272 million), of
which the present value at the discount rate of 5.16% at the
closing date was estimated to be US$92,743,741
(Rp788,322 million). The promissory notes are to be paid in
10 equal semi-annual installments beginning July 31, 2004.

The acquisition of AWI has been accounted for
using the purchase method of accounting. There was no goodwill
arising from this acquisition. The following table summarizes
the final purchase price

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


allocation of the acquired assets and assumed
liabilities based on estimates of their respective fair values
at the closing date:

|                                             |  |    |            |  
|-------------------------------------------- |  | -- | ---------- | -
|                                             |  | Rp
|                                             |  |   
|Distributable KSO revenue receivable         |  |    | 540,267    |  
|Property, plant and equipment                |  |    | 1,556,269  |  
|Intangible assets                            |  |    | 1,982,564  |  
|Other assets                                 |  |    | 34,372     |  
|Deferred tax liabilities                     |  |    | (393,794   | )
|                                             |  |    |            |  
|Fair value of net assets acquired            |  |    | 3,719,678  |  
|Borrowings assumed                           |  |    | (2,577,926 | )
|                                             |  |    |            |  
|Amount of cash and promissory notes given up |  |    | 1,141,752  |  
|                                             |  |    |            |  

The Companys consolidated results of
operations includes the operating results of AWI since
July 31, 2003, the date of acquisition.

The outstanding promissory notes issued for the
acquisition of AWI are presented as Liabilities for
acquisitions of subsidiaries in the consolidated balance
sheet as of December 31, 2003 (Note 27). As of
December 31, 2003 the outstanding promissory notes, before
unamortized discount, amounted to US$109,090,909
(Rp921,818 million).

The purchase price described above was based on
third party appraisal. In addition, the Company also entered
into a settlement agreement with AWI pursuant to which the
Company and AWI irrevocably settled, discharged, and released
claims and counterclaims in their ICC arbitration proceeding,
and the Company agreed to pay a settlement amount of
US$20,000,000. Based on this settlement and subsequent receipt
of trade receivables from KSO III, the Company decided to
reverse the provision for bad debts that had previously been
recognized and has accrued the costs related to the settlement
at December 31, 2002 (Notes 8d and 19).

d. Pro Forma Operating
Results Related to Acquisition of KSO Investors

The following unaudited pro forma financial
information reflects the consolidated results of operations of
the Company as if the acquisition of Dayamitra and Pramindo had
taken place on January 1, 2001 and AWI on January 1,
2002. The pro forma information includes adjustments for
amortization of intangible assets, depreciation expense on
property, plant and equipment based on the allocated purchase
price, interest expense on incremental borrowings and income
taxes. The pro forma

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


financial information is not necessarily
indicative of the results of operations as it would have been
had the transactions been effected on the assumed dates or
indicative of future operations.

|                                   |  |      |            |      |  |      |            |  |  |  |            | 
|---------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                   |  | 2001 |            | 2002 |  | 2003
|                                   |  |      |            |      |  |     
|Operating revenues                 |  |      | 17,622,331 |      |  |      | 22,297,575 |  |  |  | 27,513,766 | 
|Operating income                   |  |      | 7,215,988  |      |  |      | 8,778,831  |  |  |  | 11,819,863 | 
|Income before tax                  |  |      | 5,797,788  |      |  |      | 11,726,254 |  |  |  | 11,531,510 | 
|Net income                         |  |      | 3,409,285  |      |  |      | 8,127,080  |  |  |  | 6,571,287  | 
|Net income per share (full amount) |  |      | 338.22     |      |  |      | 806.26     |  |  |  | 651.91     | 
|Net income per ADS (full amount)   |  |      | 6,764.45   |      |  |      | 16,125.16  |  |  |  | 13,038.27  | 

e. Advance Payments for
Investments in Shares of Stock

|                    |  |      |         |      |  |  |        | 
|------------------- |  | ---- | ------- | ---- |  |  | ------ | 
|                    |  | 2002 |         | 2003
|                    |  |      |         |     
|Dayamitra (Note 5a) |  |      | 51,120  |      |  |  | 65,458 | 
|AWI                 |  |      | 196,463 |      |  |  |       | 
|                    |  |      |         |      |  |  |        | 
|                    |  |      | 247,583 |      |  |  | 65,458 | 
|                    |  |      |         |      |  |  |        | 

Advance payment for investment in shares of AWI
represented advance amounting to US$20,000,000
(Rp196,463 million) paid to the former stockholders of AWI
upon the signing of the Conditional Sale and Purchase Agreement
on May 8, 2002.

6. CASH AND CASH EQUIVALENTS

|                        |                 |                    |                       |      |  |         |         |  |  |         | 
|----------------------- | --------------- | ------------------ | --------------------- | ---- |  | ------- | ------- |  |  | ------- | 
|                        |                 | 2002               |                       | 2003
|                        |                 |                    |                       |     
|Cash on hand            |                 |                    | 12,696                |      |  |         | 6,790   | 
|                        |                 |                    |                       |      |  |         |         | 
|Cash in banks           |                 |                    |                       |      |  |         |         | 
|                        | Related parties |                    |                       |      |  |         |         |  | 
|                        |                 | Rupiah             |                       |      |  |         |         |  |  |        
|                        |                 |                    | Bank Negara Indonesia |      |  | 152,774 |         |  |  | 217,276 | 
|                        |                 |                    | Bank Mandiri          |      |  | 64,603  |         |  |  | 109,887 | 
|                        |                 |                    | Bank Rakyat Indonesia |      |  | 8,059   |         |  |  | 9,988   | 
|                        |                 |                    | Bank Pos Nusantara    |      |  | 2,582   |         |  |  | 1,135   | 
|                        |                 |                    |                       |      |  |         |         | 
|Total                   |                 |                    | 228,018               |      |  |         | 338,286 | 
|                        |                 |                    |                       |      |  |         |         | 
|                        |                 | Foreign currencies |                       |      |  |         |         |  |  |        
|                        |                 |                    | Bank Mandiri          |      |  | 29,019  |         |  |  | 32,016  | 
|                        |                 |                    | Bank Negara Indonesia |      |  | 4,560   |         |  |  | 1,576   | 
|                        |                 |                    | Bank Rakyat Indonesia |      |  | 479     |         |  |  | 453     | 
|                        |                 |                    |                       |      |  |         |         | 
|Total                   |                 |                    | 34,058                |      |  |         | 34,045  | 
|                        |                 |                    |                       |      |  |         |         | 
|Total  related parties |                 |                    | 262,076               |      |  |         | 372,331 | 
|                        |                 |                    |                       |      |  |         |         | 

F-39



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                      |               |                    |                              |      |  |        |         |  |  |       | 
|--------------------- | ------------- | ------------------ | ---------------------------- | ---- |  | ------ | ------- |  |  | ----- | 
|                      |               | 2002               |                              | 2003
|                      |               |                    |                              |     
|                      | Third parties |                    |                              |      |  |        |         |  | 
|                      |               | Rupiah             |                              |      |  |        |         |  |  |      
|                      |               |                    | Citibank                     |      |  | 10,426 |         |  |  | 302   | 
|                      |               |                    | Bank Bukopin                 |      |  | 6,428  |         |  |  | 9,463 | 
|                      |               |                    | Bank Central Asia            |      |  | 5,630  |         |  |  | 7,889 | 
|                      |               |                    | Bank Niaga                   |      |  | 540    |         |  |  | 2,102 | 
|                      |               |                    | Bank Mizuho Indonesia        |      |  | 142    |         |  |  |      | 
|                      |               |                    | ABN Amro Bank                |      |  | 140    |         |  |  | 251   | 
|                      |               |                    | Bank Danamon                 |      |  | 103    |         |  |  | 172   | 
|                      |               |                    | Lippo Bank                   |      |  | 97     |         |  |  | 274   | 
|                      |               |                    | Chase Manhattan              |      |  | 39     |         |  |  |      | 
|                      |               |                    | Bank International Indonesia |      |  | 136    |         |  |  | 3     | 
|                      |               |                    | Bank Buana Indonesia         |      |  | 2      |         |  |  | 218   | 
|                      |               |                    | Bank Muamalat Indonesia      |      |  |       |         |  |  | 76    | 
|                      |               |                    | Bank Mega                    |      |  |       |         |  |  | 4,239 | 
|                      |               |                    | Deutsche Bank                |      |  |       |         |  |  | 6,097 | 
|                      |               |                    |                              |      |  |        |         | 
|Total                 |               |                    | 23,683                       |      |  |        | 31,086  | 
|                      |               |                    |                              |      |  |        |         | 
|                      |               | Foreign currencies |                              |      |  |        |         |  |  |      
|                      |               |                    | Citibank                     |      |  | 940    |         |  |  | 3,231 | 
|                      |               |                    | Deutsche Bank                |      |  | 456    |         |  |  | 2,412 | 
|                      |               |                    | Standard Chartered Bank      |      |  | 194    |         |  |  | 1,808 | 
|                      |               |                    | ABN Amro Bank                |      |  | 33     |         |  |  | 73    | 
|                      |               |                    | Bank Internasional Indonesia |      |  |       |         |  |  | 22    | 
|                      |               |                    | Bank Central Asia            |      |  |       |         |  |  | 31    | 
|                      |               |                    | Bank of Tokyo Mitsubishi     |      |  |       |         |  |  | 26    | 
|                      |               |                    |                              |      |  |        |         | 
|Total                 |               |                    | 1,623                        |      |  |        | 7,603   | 
|                      |               |                    |                              |      |  |        |         | 
|Total  third parties |               |                    | 25,306                       |      |  |        | 38,689  | 
|                      |               |                    |                              |      |  |        |         | 
|Total cash in banks   |               |                    | 287,382                      |      |  |        | 411,020 | 
|                      |               |                    |                              |      |  |        |         | 

F-40



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                |                 |                    |                              |      |  |           |           |  |  |         | 
|------------------------------- | --------------- | ------------------ | ---------------------------- | ---- |  | --------- | --------- |  |  | ------- | 
|                                |                 | 2002               |                              | 2003
|                                |                 |                    |                              |     
|Time deposits                   |                 |                    |                              |      |  |           |           | 
|                                | Related parties |                    |                              |      |  |           |           |  | 
|                                |                 | Rupiah             |                              |      |  |           |           |  |  |        
|                                |                 |                    | Bank Mandiri                 |      |  | 779,983   |           |  |  | 968,829 | 
|                                |                 |                    | Bank Rakyat Indonesia        |      |  | 607,420   |           |  |  | 529,350 | 
|                                |                 |                    | Bank Negara Indonesia        |      |  | 298,565   |           |  |  | 485,115 | 
|                                |                 |                    | Bank Tabungan Negara         |      |  | 108,480   |           |  |  | 169,590 | 
|                                |                 |                    |                              |      |  |           |           | 
|Total                           |                 |                    | 1,794,448                    |      |  |           | 2,152,884 | 
|                                |                 |                    |                              |      |  |           |           | 
|                                |                 | Foreign currencies |                              |      |  |           |           |  |  |        
|                                |                 |                    | Bank Mandiri                 |      |  | 3,022,661 |           |  |  | 526,384 | 
|                                |                 |                    | Bank Negara Indonesia        |      |  | 2,447     |           |  |  | 5,789   | 
|                                |                 |                    |                              |      |  |           |           | 
|Total                           |                 |                    | 3,025,108                    |      |  |           | 532,173   | 
|                                |                 |                    |                              |      |  |           |           | 
|Total  related parties         |                 |                    | 4,819,556                    |      |  |           | 2,685,057 | 
|                                |                 |                    |                              |      |  |           |           | 
|                                | Third parties   |                    |                              |      |  |           |           |  | 
|                                |                 | Rupiah             |                              |      |  |           |           |  |  |        
|                                |                 |                    | Standard Chartered Bank      |      |  | 142,000   |           |  |  | 287,122 | 
|                                |                 |                    | Bank Mega                    |      |  | 129,757   |           |  |  | 91,342  | 
|                                |                 |                    | Bank Bukopin                 |      |  | 58,214    |           |  |  | 96,099  | 
|                                |                 |                    | Bank Yudha Bhakti            |      |  | 6,000     |           |  |  | 1,000   | 
|                                |                 |                    | Bank Niaga                   |      |  | 5,000     |           |  |  | 4,500   | 
|                                |                 |                    | Bank Internasional Indonesia |      |  | 2,000     |           |  |  |        | 
|                                |                 |                    | Deutsche Bank                |      |  |          |           |  |  | 359,342 | 
|                                |                 |                    | Bank Danamon                 |      |  |          |           |  |  | 145,725 | 
|                                |                 |                    | ABN Amro Bank                |      |  |          |           |  |  | 1,000   | 
|                                |                 |                    | Bank NISP                    |      |  |          |           |  |  | 47,369  | 
|                                |                 |                    | Bank Jabar                   |      |  |          |           |  |  | 67,204  | 
|                                |                 |                    |                              |      |  |           |           | 
|Total                           |                 |                    | 342,971                      |      |  |           | 1,100,703 | 
|                                |                 |                    |                              |      |  |           |           | 
|                                |                 | Foreign currencies |                              |      |  |           |           |  |  |        
|                                |                 |                    | Standard Chartered Bank      |      |  |          |           |  |  | 5,697   | 
|                                |                 |                    | Deutsche Bank                |      |  | 236,465   |           |  |  | 885,205 | 
|                                |                 |                    |                              |      |  |           |           | 
|Total                           |                 |                    | 236,465                      |      |  |           | 890,902   | 
|                                |                 |                    |                              |      |  |           |           | 
|Total  third parties           |                 |                    | 579,436                      |      |  |           | 1,991,605 | 
|                                |                 |                    |                              |      |  |           |           | 
|Total time deposits             |                 |                    | 5,398,992                    |      |  |           | 4,676,662 | 
|                                |                 |                    |                              |      |  |           |           | 
|Total cash and cash equivalents |                 |                    | 5,699,070                    |      |  |           | 5,094,472 | 
|                                |                 |                    |                              |      |  |           |           | 

Range of interest rates per annum for time
deposits is as follows:

|                   |  |      |                 |      |  |  |               | 
|------------------ |  | ---- | --------------- | ---- |  |  | ------------- | 
|                   |  | 2002 |                 | 2003
|                   |  |      |                 |     
|Rupiah             |  |      | 11.59%  18.45% |      |  |  | 5.5%  14.25% | 
|Foreign currencies |  |      | 1.15%  5.03%   |      |  |  | 0.92%  2.25% | 

Refer to Note 49 for details of related
party transactions.

F-41



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


7. TEMPORARY INVESTMENTS

|                                    |                          |        |                         |        |  |         |       |   |  |       | 
|----------------------------------- | ------------------------ | ------ | ----------------------- | ------ |  | ------- | ----- | - |  | ----- | 
|                                    |                          | 2002   |                         | 2003  
|                                    |                          |        |                         |       
|Time deposits                       |                          |        |                         |        |  |         |       |  
|                                    | Related parties          |        |                         |        |  |         |       |   | 
|                                    |                          | Rupiah |                         |        |  |         |       |   |  |      
|                                    |                          |        | Bank Mandiri            |        |  | 100,000 |       |   |  |      | 
|                                    |                          |        | Bank Rakyat Indonesia   |        |  | 423,000 |       |   |  |      | 
|                                    |                          |        |                         |        |  |         |       |  
|                                    |                          |        | 523,000                 |        |  |         |      |  
|                                    | Third parties            |        |                         |        |  |         |       |   | 
|                                    |                          |        | Bank Muamalat Indonesia |        |  |        |       |   |  | 4,006 | 
|                                    |                          |        |                         |        |  |         |       |  
|Total time deposits                 |                          |        | 523,000                 |        |  |         | 4,006 |  
|                                    |                          |        |                         |        |  |         |       |  
|Available-for-sale securities       |                          |        |                         |        |  |         |       |  
|                                    | Medium Term Notes  PSSI |        |                         | 50,000 |  |         |       |  | 
|                                    |                          |        |                         |        |  |         |       |  
|Total available-for-sale securities |                          |        | 50,000                  |        |  |         |      |  
|                                    |                          |        |                         |        |  |         |       |  
|Total temporary investments         |                          |        | 573,000                 |        |  |         | 4,006 |  
|                                    |                          |        |                         |        |  |         |       |  

Range of interest rates per annum for time
deposits is as follows:

|       |  |      |                 |      |  |  |               | 
|------ |  | ---- | --------------- | ---- |  |  | ------------- | 
|       |  | 2002 |                 | 2003
|       |  |      |                 |     
|Rupiah |  |      | 11.14%  14.33% |      |  |  | 6.00%  6.76% | 

The terms of time deposits range from
3 months to 1 year.

Medium Term Notes  PSSI represent
medium term notes issued by Persatuan Sepakbola Seluruh
Indonesia (PSSI) amounting to Rp50,000 million
maturing on February 22, 2003. On the maturity date, the
medium term notes were settled in cash.

Investments placed with related parties have
similar interest rates, terms and conditions as those placed
with third parties. Refer to Note 49 for details of related
party transactions.

F-42



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


8. TRADE ACCOUNTS RECEIVABLE

a. By
Debtor

Related
parties:

|                                                                        |  |      |         |      |  |  |          |  
|----------------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | -------- | -
|                                                                        |  | 2002 |         | 2003
|                                                                        |  |      |         |     
|KSO Units                                                               |  |      | 633,327 |      |  |  | 265,517  |  
|Government agencies                                                     |  |      | 253,845 |      |  |  | 181,551  |  
|PT Mandara Selular Indonesia (formerly PT Mobile
    Selular Indonesia) |  |      | 33,560  |      |  |  | 37,326   |  
|PT Citra Sari Makmur                                                    |  |      | 16,262  |      |  |  | 20,450   |  
|PT Bakrie Telecom (formerly PT Radio Telepon
    Indonesia)             |  |      | 18,233  |      |  |  |         |  
|PT Komunikasi Selular Indonesia*                                        |  |      | 7,500   |      |  |  |         |  
|PT Metro Selular Nusantara*                                             |  |      | 5,607   |      |  |  |         |  
|PT Patra Telekomunikasi Indonesia                                       |  |      |        |      |  |  | 8,513    |  
|PT Aplikanusa Lintasarta                                                |  |      | 3,578   |      |  |  | 5,819    |  
|Other                                                                   |  |      | 10,527  |      |  |  | 2,679    |  
|                                                                        |  |      |         |      |  |  |          |  
|Total                                                                   |  |      | 982,439 |      |  |  | 521,855  |  
|Allowance for doubtful accounts                                         |  |      | (95,676 | )    |  |  | (110,932 | )
|                                                                        |  |      |         |      |  |  |          |  
|Net                                                                     |  |      | 886,763 |      |  |  | 410,923  |  
|                                                                        |  |      |         |      |  |  |          |  



---



|  |                                  
|- | ---------------------------------
|* | no longer related parties in 2003

Trade accounts receivable from certain related
parties are presented net of the Companys liabilities to
such parties due to legal right of offset in accordance with
agreements with those parties.

Third
parties:

|                                     |  |      |           |      |  |  |           |  
|------------------------------------ |  | ---- | --------- | ---- |  |  | --------- | -
|                                     |  | 2002 |           | 2003
|                                     |  |      |           |     
|Residential and business subscribers |  |      | 2,140,894 |      |  |  | 2,682,288 |  
|Overseas international carriers      |  |      | 167,853   |      |  |  | 42,836    |  
|Others                               |  |      | 18,470    |      |  |  | 29,841    |  
|                                     |  |      |           |      |  |  |           |  
|Total                                |  |      | 2,327,217 |      |  |  | 2,754,965 |  
|Allowance for doubtful accounts      |  |      | (407,313  | )    |  |  | (332,960  | )
|                                     |  |      |           |      |  |  |           |  
|Net                                  |  |      | 1,919,904 |      |  |  | 2,422,005 |  
|                                     |  |      |           |      |  |  |           |  

F-43



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


b. By
Age

Related
parties:

|                                |  |      |         |      |  |  |          |  
|------------------------------- |  | ---- | ------- | ---- |  |  | -------- | -
|                                |  | 2002 |         | 2003
|                                |  |      |         |     
|Up to 6 months                  |  |      | 763,820 |      |  |  | 350,348  |  
|7 to 12 months                  |  |      | 143,773 |      |  |  | 42,250   |  
|13 to 24 months                 |  |      | 30,227  |      |  |  | 42,920   |  
|More than 24 months             |  |      | 44,619  |      |  |  | 86,337   |  
|                                |  |      |         |      |  |  |          |  
|Total                           |  |      | 982,439 |      |  |  | 521,855  |  
|Allowance for doubtful accounts |  |      | (95,676 | )    |  |  | (110,932 | )
|                                |  |      |         |      |  |  |          |  
|Net                             |  |      | 886,763 |      |  |  | 410,923  |  
|                                |  |      |         |      |  |  |          |  

Third
parties:

|                                |  |      |           |      |  |  |           |  
|------------------------------- |  | ---- | --------- | ---- |  |  | --------- | -
|                                |  | 2002 |           | 2003
|                                |  |      |           |     
|Up to 3 months                  |  |      | 1,919,904 |      |  |  | 2,358,570 |  
|More than 3 months              |  |      | 407,313   |      |  |  | 396,395   |  
|                                |  |      |           |      |  |  |           |  
|Total                           |  |      | 2,327,217 |      |  |  | 2,754,965 |  
|Allowance for doubtful accounts |  |      | (407,313  | )    |  |  | (332,960  | )
|                                |  |      |           |      |  |  |           |  
|Net                             |  |      | 1,919,904 |      |  |  | 2,422,005 |  
|                                |  |      |           |      |  |  |           |  

c. By
Currency

Related
parties

|                                |  |      |         |      |  |  |          |  
|------------------------------- |  | ---- | ------- | ---- |  |  | -------- | -
|                                |  | 2002 |         | 2003
|                                |  |      |         |     
|Rupiah                          |  |      | 911,065 |      |  |  | 443,930  |  
|United States Dollar            |  |      | 71,374  |      |  |  | 77,925   |  
|                                |  |      |         |      |  |  |          |  
|Total                           |  |      | 982,439 |      |  |  | 521,855  |  
|Allowance for doubtful accounts |  |      | (95,676 | )    |  |  | (110,932 | )
|                                |  |      |         |      |  |  |          |  
|Net                             |  |      | 886,763 |      |  |  | 410,923  |  
|                                |  |      |         |      |  |  |          |  

Third
parties

|                                |  |      |           |      |  |  |           |  
|------------------------------- |  | ---- | --------- | ---- |  |  | --------- | -
|                                |  | 2002 |           | 2003
|                                |  |      |           |     
|Rupiah                          |  |      | 2,251,199 |      |  |  | 2,720,331 |  
|United States Dollar            |  |      | 76,018    |      |  |  | 34,634    |  
|                                |  |      |           |      |  |  |           |  
|Total                           |  |      | 2,327,217 |      |  |  | 2,754,965 |  
|Allowance for doubtful accounts |  |      | (407,313  | )    |  |  | (332,960  | )
|                                |  |      |           |      |  |  |           |  
|Net                             |  |      | 1,919,904 |      |  |  | 2,422,005 |  
|                                |  |      |           |      |  |  |           |  

F-44



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


d. Movements
in the Allowance for Doubtful Accounts

|                                                                           |  |      |          |      |  |      |          |   |  |  |          |  
|-------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                           |  | 2001 |          | 2002 |  | 2003
|                                                                           |  |      |          |      |  |     
|Beginning balance                                                          |  |      | 429,579  |      |  |      | 578,785  |   |  |  | 502,989  |  
|Additions                                                                  |  |      | 266,433  |      |  |      | 523,024  |   |  |  | 296,099  |  
|Reversal of allowance for trade accounts
    receivable from AWI (Note 5c) |  |      |         |      |  |      | (511,933 | ) |  |  |         |  
|Bad debts write-off                                                        |  |      | (117,227 | )    |  |      | (86,887  | ) |  |  | (355,196 | )
|                                                                           |  |      |          |      |  |      |          |   |  |  |          |  
|Ending balance                                                             |  |      | 578,785  |      |  |      | 502,989  |   |  |  | 443,892  |  
|                                                                           |  |      |          |      |  |      |          |   |  |  |          |  

Management believes that the allowance for
doubtful receivables is adequate to cover probable losses on
uncollectible accounts.

Except for the amounts receivable from Government
Agencies, management believes that there are no significant
concentrations of credit risk on these receivables.

Refer to Note 49 for details of related
party transactions.

9. INVENTORIES

|                                     |                                                 |      |         |         |   |  |         |         |  
|------------------------------------ | ----------------------------------------------- | ---- | ------- | ------- | - |  | ------- | ------- | -
|                                     |                                                 | 2002 |         | 2003   
|                                     |                                                 |      |         |        
|Components:                          |                                                 |      |         |         |   |  |         |        
|                                     | Telephone terminals and spare parts             |      |         | 29,311  |   |  |         | 27,407  |  
|                                     | Cable and transmission installation spare parts |      |         | 15,226  |   |  |         | 1,540   |  
|                                     | Other spare parts                               |      |         | 11,020  |   |  |         | 13,521  |  
|                                     |                                                 |      |         |         |   |  |         |        
|                                     | Total                                           |      |         | 55,557  |   |  |         | 42,468  |  
|                                     | Allowance for obsolescence                      |      |         | (30,160 | ) |  |         | (14,757 | )
|                                     |                                                 |      |         |         |   |  |         |        
|                                     | Net                                             |      |         | 25,397  |   |  |         | 27,711  |  
|                                     |                                                 |      |         |         |   |  |         |        
|Modules:                             |                                                 |      |         |         |   |  |         |        
|                                     | Cable and transmission installation spare parts |      |         | 54,912  |   |  |         | 55,997  |  
|                                     | Telephone terminals and spare parts             |      |         | 42,563  |   |  |         | 37,917  |  
|                                     | Other spare parts                               |      |         | 434     |   |  |         | 272     |  
|                                     |                                                 |      |         |         |   |  |         |        
|                                     | Total                                           |      |         | 97,909  |   |  |         | 94,186  |  
|                                     | Allowance for obsolescence                      |      |         | (23,464 | ) |  |         | (25,584 | )
|                                     |                                                 |      |         |         |   |  |         |        
|                                     | Net                                             |      |         | 74,445  |   |  |         | 68,602  |  
|                                     |                                                 |      |         |         |   |  |         |        
|SIM cards and prepaid voucher blanks |                                                 |      | 40,011  |         |   |  | 57,838  |        
|                                     | Allowance for obsolescence                      |      |         | (171    | ) |  |         | (148    | )
|                                     |                                                 |      |         |         |   |  |         |        
|                                     | Net                                             |      |         | 39,840  |   |  |         | 57,690  |  
|                                     |                                                 |      |         |         |   |  |         |        
|Total                                |                                                 |      | 139,682 |         |   |  | 154,003 |        
|                                     |                                                 |      |         |         |   |  |         |        

F-45



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Movements in the allowance for obsolescence are
as follows:

|                    |  |      |         |      |  |  |         |  
|------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                    |  | 2002 |         | 2003
|                    |  |      |         |     
|Beginning balance   |  |      | 48,997  |      |  |  | 53,795  |  
|Additions           |  |      | 20,012  |      |  |  | 4,523   |  
|Inventory write-off |  |      | (15,214 | )    |  |  | (17,829 | )
|                    |  |      |         |      |  |  |         |  
|Ending balance      |  |      | 53,795  |      |  |  | 40,489  |  
|                    |  |      |         |      |  |  |         |  

Management believes that the allowance is
adequate to cover probable losses from decline in inventory
value due to obsolescence.

At December 31, 2003, inventory held by a
certain subsidiary was insured against fire, theft and other
specified risks for US$750,000. Management believes that the
insurance amount is adequate to cover such risks.



|    |                 
|--- | ----------------
|10. | PREPAID EXPENSES

|                                  |  |      |         |      |  |  |         | 
|--------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                  |  | 2002 |         | 2003
|                                  |  |      |         |     
|Pension cost (Note 46)            |  |      | 28,181  |      |  |  | 286,652 | 
|Rental                            |  |      | 131,906 |      |  |  | 173,242 | 
|Salary                            |  |      | 105,090 |      |  |  | 124,061 | 
|Insurance                         |  |      | 9,144   |      |  |  | 98,167  | 
|Telephone directory issuance cost |  |      | 68,382  |      |  |  | 11,091  | 
|Other                             |  |      | 10,953  |      |  |  | 24,704  | 
|                                  |  |      |         |      |  |  |         | 
|Total                             |  |      | 353,656 |      |  |  | 717,917 | 
|                                  |  |      |         |      |  |  |         | 



|    |                     
|--- | --------------------
|11. | OTHER CURRENT ASSETS

This account consists of time deposits and
restricted funds at the following banks:

|                           |  |      |         |      |  |  |        | 
|-------------------------- |  | ---- | ------- | ---- |  |  | ------ | 
|                           |  | 2002 |         | 2003
|                           |  |      |         |     
|Bank Mandiri               |  |      | 540,520 |      |  |  | 45,083 | 
|Deutsche Bank and Citibank |  |      | 151,268 |      |  |  |       | 
|                           |  |      |         |      |  |  |        | 
|Total                      |  |      | 691,788 |      |  |  | 45,083 | 
|                           |  |      |         |      |  |  |        | 

a. Bank
Mandiri

As of December 31, 2002, the balance
consists of the Companys time deposits of
Rp500,000 million pledged as collateral for a credit
facility from Bank Mandiri and Telkomsels Rupiah time
deposits of Rp40,520 million representing security deposits
for payments of customs duties. The Companys credit
facility from Bank Mandiri was obtained on February 11,
2002 with a maximum facility of Rp500,000 million which
bears interest at 2% above the interest rate on the pledged time
deposits. The credit facility was never used and was terminated
on February 18, 2003. The time deposits have been released
from the pledge.

F-46



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


As of December 31, 2003, the balance
consists of the Companys time deposits of US$4,600,000
(Rp38,778 million) pledged as collateral for credit
facility obtained by Napsindo (Note 22a) and
Rp2,412 million (included US$58,251) pledged as collateral
for bank guarantees, and Telkomsels Rupiah time deposits
of Rp3,893 million pledged as collateral for bank
guarantees covering payments of customs duties.

b. Deutsche
Bank and Citibank

As of December 31, 2002, the balance
consists of Telkomsels time deposits in Deutsche Bank and
Citibank totaling US$9,971,936 (Rp89,149 million) for
letter of credit facilities (Note 22b), and the
Companys time deposits in Citibank of US$6,950,000
(Rp62,119 million) that was pledged as collateral for a
loan facility for the High Performance Backbone Project from
Citibank for the two-year period ending April 10, 2004
(Note 26b).

12. LONG-TERM INVESTMENTS

|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|--------------------------------------- |  | ---------- | ------ | ------- |  | ----------- | ------- | ---------- |  | ----------- | ------- | ------- |  |  | ------ | - |  |  | ------- | - |  |  | ------- | 
|                                        |  |           
|                                        |  | 2002      
|                                        |  |           
|                                        |  | Percentage |        |         |  | Equity in   |         |           
|                                        |  | of         |        | Opening |  | Addition/   |         | Net Income |  | Translation |         | Ending 
|                                        |  | Ownership  |        | Balance |  | (Deduction) |         | (Loss)     |  | Adjustment  |         | Balance
|                                        |  |            |        |         |  |             |         |            |  |             |         |        
|Equity method:                          |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|PT Citra Sari Makmur                    |  |            | 25.00  |         |  |             | 74,833  |            |  |             |        |         |  |  | 8,446  |   |  |  | (21,009 | ) |  |  | 62,270  | 
|PT Telekomindo Selular Raya             |  |            | 100.00 |         |  |             | 87,907  |            |  |             | (62,907 | )       |  |  | 1,642  |   |  |  |        |   |  |  | 26,642  | 
|PT Metro Selular Nusantara              |  |            | 20.17  |         |  |             | 1,657   |            |  |             | 13,513  |         |  |  | 1,137  |   |  |  |        |   |  |  | 16,307  | 
|PT Patra Telekomunikasi Indonesia       |  |            | 30.00  |         |  |             | 12,133  |            |  |             |        |         |  |  | 710    |   |  |  |        |   |  |  | 12,843  | 
|PT Napsindo Primatel International      |  |            | 32.00  |         |  |             | 12,030  |            |  |             |        |         |  |  | (7,337 | ) |  |  |        |   |  |  | 4,693   | 
|PT Multimedia Nusantara                 |  |            | 31.00  |         |  |             | 1,928   |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  | 1,928   | 
|PT Mandara Selular Indonesia            |  |            | 25.00  |         |  |             |        |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  |        | 
|PT Pasifik Satelit Nusantara            |  |            | 22.57  |         |  |             |        |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  |        | 
|PT Menara Jakarta                       |  |            | 20.00  |         |  |             |        |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  |        | 
|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|                                        |  |            |        |         |  |             | 190,488 |            |  |             | (49,394 | )       |  |  | 4,598  |   |  |  | (21,009 | ) |  |  | 124,683 | 
|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|Cost method:                            |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|PT Batam Bintan Telekomunikasi          |  |            | 5.00   |         |  |             | 587     |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  | 587     | 
|PT Komunikasi Selular Indonesia         |  |            | 14.20  |         |  |             |        |            |  |             | 57,570  |         |  |  |       |   |  |  |        |   |  |  | 57,570  | 
|PT Pembangunan Telekomunikasi Indonesia |  |            | 3.18   |         |  |             | 199     |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  | 199     | 
|Medianusa Pte. Ltd.                     |  |            | 9.44   |         |  |             | 108     |            |  |             |        |         |  |  |       |   |  |  |        |   |  |  | 108     | 
|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|                                        |  |            |        |         |  |             | 894     |            |  |             | 57,570  |         |  |  |       |   |  |  |        |   |  |  | 58,464  | 
|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 
|                                        |  |            |        |         |  |             | 191,382 |            |  |             | 8,176   |         |  |  | 4,598  |   |  |  | (21,009 | ) |  |  | 183,147 | 
|                                        |  |            |        |         |  |             |         |            |  |             |         |         |  |  |        |   |  |  |         |   |  |  |         | 

F-47



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |        | 
|-------------- | --------------------------------------- | ---------- |  | --------- |  | ----------- | ------- | ------ |  | ----------- | -------- | ------- | - |  | ----- | ----- |  |  | ------- | ------- | - |  | ------ | ------ | 
|               |                                         |           
|               |                                         | 2003      
|               |                                         |           
|               |                                         |            |  | Equity in |  |            
|               |                                         | Percentage |  |           |  | Net         |         |       
|               |                                         | of         |  | Opening   |  | Addition/   |         | Income |  | Translation |          | Ending 
|               |                                         | Ownership  |  | Balance   |  | (Deduction) |         | (Loss) |  | Adjustment  |          | Balance
|               |                                         |            |  |           |  |             |         |        |  |             |          |        
|Equity method: |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|               | PT Citra Sari Makmur                    |            |  | 25.00     |  |             |         | 62,270 |  |             |          |        |   |  |       | 1,585 |  |  |         | (11,433 | ) |  |        | 52,422 | 
|               | PT Patra Telekomunikasi Indonesia**     |            |  | 30.00     |  |             |         | 12,843 |  |             |          | (2,745  | ) |  |       | 1,234 |  |  |         |        |   |  |        | 11,332 | 
|               | PT Napsindo Primatel International*     |            |  | 60.00     |  |             |         | 4,693  |  |             |          | (4,693  | ) |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Multimedia Nusantara*                |            |  | 100.00    |  |             |         | 1,928  |  |             |          | (1,928  | ) |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Telekomindo Selular Raya             |            |  |          |  |             |         | 26,642 |  |             |          | (26,642 | ) |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Metro Selular Nusantara              |            |  |          |  |             |         | 16,307 |  |             |          | (16,307 | ) |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Pasifik Satelit Nusantara            |            |  | 43.69     |  |             |         |       |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Menara Jakarta                       |            |  |          |  |             |         |       |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        |       | 
|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|               |                                         |            |  |           |  |             | 124,683 |        |  |             | (52,315  | )       |   |  | 2,819 |       |  |  | (11,433 | )       |   |  | 63,754 |       
|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|Cost method:   |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|               | PT Batam Bintan Telekomunikasi          |            |  | 5.00      |  |             |         | 587    |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        | 587    | 
|               | PT Pembangunan Telekomunikasi Indonesia |            |  | 3.18      |  |             |         | 199    |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        | 199    | 
|               | Medianusa Pte. Ltd.                     |            |  | 9.44      |  |             |         | 108    |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        | 108    | 
|               | PT Komunikasi Selular Indonesia         |            |  |          |  |             |         | 57,570 |  |             |          | (57,570 | ) |  |       |      |  |  |         |        |   |  |        |       | 
|               | PT Mandara Selular Indonesia            |            |  | 7.44      |  |             |         |       |  |             |          |        |   |  |       |      |  |  |         |        |   |  |        |       | 
|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|               |                                         |            |  |           |  |             | 58,464  |        |  |             | (57,570  | )       |   |  |      |       |  |  |        |         |   |  | 894    |       
|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       
|               |                                         |            |  |           |  |             | 183,147 |        |  |             | (109,885 | )       |   |  | 2,819 |       |  |  | (11,433 | )       |   |  | 64,648 |       
|               |                                         |            |  |           |  |             |         |        |  |             |          |         |   |  |       |       |  |  |         |         |   |  |        |       






| |   |                     
| | - | --------------------
| | * | Consolidated in 2003



|   |                                                                
|-- | ---------------------------------------------------------------
|** | Deduction represents cash dividends received by
    the Company

On August 8, 2003, the Company and PT
Centralindo Pancasakti Cellular (CPSC) signed a
share-swap agreement (KMT-IP share-swap transaction)
in which the Company delivered its 14.20% outstanding
shares in PT Komunikasi Selular Indonesia
(Komselindo), its 20.17% outstanding shares in
PT Metro Selular Nusantara (Metrosel), and its
100% outstanding shares in PT Telekomindo Selular Raya
(Telesera) to CPSC. In return, CPSC delivered its
30.58% outstanding shares in PT Indonusa Telemedia
(Indonusa), 21.12% outstanding shares in
PT Pasifik Satelit Nusantara (PSN) under
certain terms and paid cash of Rp5,398 million to the
Company.

From the KMT-IP share-swap transaction, the
Company recognized a loss of Rp47.3 billion being the
difference between the fair value of assets received and the
carrying amount of the Companys investments given to CPSC,
and reversal of difference due to change of equity in Metrosel
previously recognized directly in equity.

a. PT Citra
Sari Makmur (CSM)

CSM is engaged in providing Very Small Aperture
Terminal (VSAT), network application services and
consulting services on telecommunications technology and related
facilities.

F-48



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


b. PT Patra
Telekomunikasi Indonesia (Patrakom)

Patrakom is engaged in providing satellite
communication system services and related services and
facilities to companies in the petroleum industry.

c. PT Telekomindo
Seluler Raya (Telesera)

In 2001, the Minister of Justice and Human Rights
approved the corporate restructuring of PT Telekomindo
Primabhakti (Telekomindo), an associated company
engaged in the construction and development of
telecommunications facilities. Pursuant to the restructuring,
Telekomindos authorized and paid-up capital was reduced
and the capital reduction became the paid-up capital of two new
companies: PT Telekomindo Media Informatika
(TMI) and PT Griya Insani Primabhakti
(GIP).

Based on a share-swap agreement dated
December 5, 2001 among the Company, PT Rajawali Corporation
(RC), Telekomindo and TMI, the parties agreed on the
following:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company sold its investments in Telekomindo,
    TMI and GIP to RC for Rp101,838 million and recognized a
    gain of Rp101,838 million.                                                               
|
| |  | TMI sold its investments in PT Telekomindo
    Selular Raya (Telesera) and the fixed assets of
    PT Multisaka Mitra (MSM) to the Company for
    Rp87,907 million and Rp17,442 million, respectively.

This transaction resulted in the Company owning
69.77% shares of Telesera as of December 31, 2001. In 2002,
the Company acquired the remaining 30.23% interest in Telesera
from Dana Pensiun Telkom for Rp38,093 million. In 2002, the
Company also recognized a loss of Rp101,000 million to
write down the carrying amount of this investment to net asset
value. As of December 31, 2002, the carrying amount of this
investment was Rp26,642 million.

On August 8, 2003, the Company exchanged its
investment in Telesera to CPSC.

d. PT Metro
Selular Nusantara (Metrosel)

Metrosel is engaged in providing national mobile
cellular services and related facilities in Central Java,
Yogyakarta, East Java, Maluku and Irian Jaya.

On May 30, 2002, Metrosel made an equity
call. The Company made additional capital contributions
amounting to Rp13,513 million to maintain its ownership in
Metrosel at 20.17%.

On August 8, 2003, the Company exchanged its
investment in Metrosel to CPSC.

e. PT Pasifik
Satelit Nusantara (PSN)

PSN is engaged in providing satellite transponder
leasing and satellite-based communication services in the Asia
Pacific Region.

In 2001, Management decided to recognize the
decline in value of this investment due to the financial
condition of PSN.

On August 8, 2003, as a result of share-swap
transaction with CPSC, the Company interest in PSN effectively
increased to 43.69%.

F-49



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


In 2003, PSN entered into a negotiation with its
current creditors to restructure its debts. Up to the date of
this report, the debt restructuring has not yet been effective.

f. PT Menara
Jakarta (MJ)

MJ was engaged in the construction and the
operation of towers and related facilities. The economic
difficulties faced by Indonesia have resulted in the termination
of MJs construction projects at the end of 1997. The value
of this investment has been reduced to nil.

On April 8, 2003, the Company exchanged all
its shares in MJ to PT Indocitra Grahabawana
(Indocitra) for Indocitras 69% ownership
interest in Metra (Note 1c).

g. PT Batam
Bintan Telekomunikasi (BBT)

BBT is engaged in providing fixed line
telecommunication services at Batamindo Industrial Park in Muka
Kuning, Batam Island and at Bintan Beach International Resort
and Bintan Industrial Estate in Bintan Island.

h. PT Pembangunan
Telekomunikasi Indonesia (Bangtelindo)

Bangtelindo is primarily engaged in providing
consultancy services on the installation and maintenance of
telecommunications facilities.

i. Medianusa
Pte. Ltd.

Medianusa Pte. Ltd. is an associated company of
Infomedia, which is engaged as a sales agent, in search of
advertisers for telephone directories.

j. PT Komunikasi
Selular Indonesia (Komselindo)

Komselindo is a joint venture between the Company
and PT Elektrindo Nusantara (Elektrindo), and
is engaged in providing analog mobile cellular services. These
services were previously provided by the Company under a
revenue-sharing arrangement with Elektrindo.

Based on the Deed of Komselindos
Stockholders Extraordinary General Meeting No. 110 dated
October 10, 2000, which was notarized by Ny. R. Arie
Soetardjo, S.H., the Company agreed to the conversion of
Rp92,750 million of receivables from Komselindo into equity
in order to maintain a 35% ownership interest.

In 2001, the Company recorded the conversion of
the receivables into equity and recognized a loss upon the
write-down of the new carrying amount of the investment
amounting to Rp92,750 million.

On August 30, 2002, Komselindos
stockholders through an Extraordinary Stockholders Meeting
approved the equity call for debt restructuring which was
included in the Settlement Agreement and the Settlement,
Termination and Release Agreement dated August 30, 2002.
The Company released and waived its pre-emptive right to
subscribe newly issued shares resulting in the dilution of the
Companys ownership in Komselindo to 14.20%.

F-50



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


This debt restructuring transaction resulted in a
net equity of Komselindo amounting to Rp405,421 million. As
of December 31, 2002, the Company recorded its 14.20%
interest in Komselindo at its net equity value of
Rp57,570 million.

On August 8, 2003, the Company sold its
investment in Komselindo to CPSC.

k. PT Mandara
Selular Indonesia (formerly PT Mobile Selular Indonesia,
Mobisel)

Mobisel is engaged in providing mobile cellular
services and related facilities. These services were previously
provided by the Company under a revenue-sharing arrangement with
PT Rajasa Hazanah Perkasa (RHP). The capital
contribution made by the Company of Rp10,398 million
represented a 25% equity ownership in Mobisel.

On July 28, 2003, Mobisels
stockholders agreed to a restructuring program which included a
debt to equity conversion of Mobisels interconnection
payables to the Company, and an equity investment by a new
stockholder. The debt conversion was completed in August 2003
which resulted in dilution of the Companys interest to
7.44%.

As of December 31, 2003, the value of
investment has been reduced to nil.

Subsequently, in January 2004, the Companys
ownership interest was further diluted to 6.4% following the
debt to equity conversion of Mobisels debt to PT Property
Java, Boston Investment Limited and Inquam (Indonesia) Limited
Company.

l. PT Radio
Telepon Indonesia (Ratelindo)

Ratelindo is engaged in providing facilities and
telecommunication services using a domestic fixed wireless
network.

As of December 31, 2001, the Company had
recognized a loss due to an other-than-temporary decline in
value of this investment because of Ratelindos continuing
operating losses and capital deficiency.

The Company sold its equity interest in Ratelindo
on March 28, 2002 for Rp14,000 million and recognized
a gain for this amount because the carrying amount of the
investment in Ratelindo was nil.

13. PROPERTY, PLANT AND
EQUIPMENT

|                             |                                                   |            |  |             |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |           |   |  |  |            | 
|---------------------------- | ------------------------------------------------- | ---------- |  | ----------- |  | --------- |  | ---------- |  | ----------------- |  | ------------ |  |  |  | ------- | - |  |  | --------- | - |  |  | ---------- | 
|                             |                                                   | January 1, |  | Pramindo    |  |           |  |            |  |                   |  | December 31,
|                             |                                                   | 2002       |  | Acquisition |  | Additions |  | Deductions |  | Reclassifications |  | 2002        
|                             |                                                   |            |  |             |  |           |  |            |  |                   |  |             
|At cost or revalued amounts: |                                                   |            |  |             |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |           |   |  |  |           
|Direct ownership             |                                                   |            |  |             |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |           |   |  |  |           
|                             | Land                                              |            |  | 195,153     |  |           |  | 8,881      |  |                   |  | 60,553       |  |  |  | (54     | ) |  |  | 3,400     |   |  |  | 267,933    | 
|                             | Buildings                                         |            |  | 1,596,806   |  |           |  |           |  |                   |  | 42,130       |  |  |  | (18,888 | ) |  |  | 38,342    |   |  |  | 1,658,390  | 
|                             | Switching equipment                               |            |  | 8,842,943   |  |           |  | 456,062    |  |                   |  | 53,341       |  |  |  | (15,606 | ) |  |  | 292,463   |   |  |  | 9,629,203  | 
|                             | Telegraph, telex and data communication equipment |            |  | 206,592     |  |           |  |           |  |                   |  | 4,141        |  |  |  | (3,001  | ) |  |  | (1,065    | ) |  |  | 206,667    | 
|                             | Transmission installation and equipment           |            |  | 4,899,964   |  |           |  | 776,597    |  |                   |  | 2,349,624    |  |  |  | (8,942  | ) |  |  | 2,323,071 |   |  |  | 10,340,314 | 
|                             | Satellite, earth station and equipment            |            |  | 5,772,334   |  |           |  |           |  |                   |  | 5,892        |  |  |  |        |   |  |  | 19,785    |   |  |  | 5,798,011  | 

F-51



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |            |         | 
|------------------------- | ------------------------------------------------- | --------------------------------------- | ---------- | ----------- | ------- | --------- |  | ---------- | ------ | ----------------- |  | ------------ | --------- |  |  | -------- | - |  |  | -------- | ---------- | - | ---------- | ---------- | ------- | 
|                          |                                                   | January 1,                              |            | Pramindo    |         |           |  |            |        |                   |  | December 31,
|                          |                                                   | 2002                                    |            | Acquisition |         | Additions |  | Deductions |        | Reclassifications |  | 2002        
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |             
|                          | Cable network                                     |                                         |            | 11,689,767  |         |           |  | 333,111    |        |                   |  | 267,993      |           |  |  | (7,602   | ) |  |  | 839,067  |            |   |            | 13,122,336 |        
|                          | Power supply                                      |                                         |            | 998,461     |         |           |  |           |        |                   |  | 30,037       |           |  |  | (538     | ) |  |  | 4,574    |            |   |            | 1,032,534  |        
|                          | Data processing equipment                         |                                         |            | 1,863,387   |         |           |  | 104,895    |        |                   |  | 442,409      |           |  |  | (79,550  | ) |  |  | 408,696  |            |   |            | 2,739,837  |        
|                          | Other telecommunications peripherals              |                                         |            | 507,652     |         |           |  | 97,316     |        |                   |  | 55,511       |           |  |  | (6,704   | ) |  |  | 27,588   |            |   |            | 681,363    |        
|                          | Office equipment                                  |                                         |            | 615,046     |         |           |  | 9,492      |        |                   |  | 40,429       |           |  |  | (26,589  | ) |  |  | 1,304    |            |   |            | 639,682    |        
|                          | Vehicles                                          |                                         |            | 187,874     |         |           |  |           |        |                   |  | 3,968        |           |  |  | (1,717   | ) |  |  | (2,772   | )          |   |            | 187,353    |        
|                          | Other equipment                                   |                                         |            | 68,048      |         |           |  | 4,736      |        |                   |  | 14,951       |           |  |  | (365     | ) |  |  |         |            |   |            | 87,370     |        
|                          | Property under construction:                      |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |            |        
|                          |                                                   | Buildings                               |            |             | 17,556  |           |  |            |       |                   |  |              | 67,666    |  |  |          |  |  |  |          | (42,309    | ) |            |            | 42,913  | 
|                          |                                                   | Switching equipment                     |            |             | 187,125 |           |  |            |       |                   |  |              | 519,066   |  |  |          |  |  |  |          | (357,905   | ) |            |            | 348,286 | 
|                          |                                                   | Transmission installation and equipment |            |             | 291,861 |           |  |            | 16,248 |                   |  |              | 2,157,089 |  |  |          |  |  |  |          | (2,325,699 | ) |            |            | 139,499 | 
|                          |                                                   | Satellite, earth station and equipment  |            |             | 306,365 |           |  |            |       |                   |  |              |          |  |  |          |  |  |  |          | (42,336    | ) |            |            | 264,029 | 
|                          |                                                   | Cable network                           |            |             | 189,883 |           |  |            |       |                   |  |              | 806,897   |  |  |          |  |  |  |          | (881,360   | ) |            |            | 115,420 | 
|                          |                                                   | Power supply                            |            |             | 6,258   |           |  |            |       |                   |  |              | 5,095     |  |  |          |  |  |  |          | (5,638     | ) |            |            | 5,715   | 
|                          |                                                   | Data processing equipment               |            |             | 133,543 |           |  |            |       |                   |  |              | 287,916   |  |  |          |  |  |  |          | (410,652   | ) |            |            | 10,807  | 
|                          |                                                   | Other telecommunications peripherals    |            |             | 3,492   |           |  |            |       |                   |  |              | 10,157    |  |  |          |  |  |  |          |           |   |            |            | 13,649  | 
|Leased assets             |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|                          | Vehicles                                          |                                         |            | 3,804       |         |           |  |           |        |                   |  | 215          |           |  |  |         |   |  |  | (379     | )          |   |            | 3,640      |        
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|                          | Total                                             |                                         |            | 38,583,914  |         |           |  | 1,807,338  |        |                   |  | 7,225,080    |           |  |  | (169,556 | ) |  |  | (111,825 | )          |   |            | 47,334,951 |        
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|Accumulated depreciation: |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|Direct ownership          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|                          | Buildings                                         |                                         |            | 654,142     |         |           |  |           |        |                   |  | 93,210       |           |  |  | (10,471  | ) |  |  | 116      |            |   |            | 736,997    |        
|                          | Switching equipment                               |                                         |            | 3,985,490   |         |           |  |           |        |                   |  | 650,215      |           |  |  | (568     | ) |  |  | (65,850  | )          |   |            | 4,569,287  |        
|                          | Telegraph, telex and data communication equipment |                                         |            | 201,748     |         |           |  |           |        |                   |  | 4,186        |           |  |  | (2,703   | ) |  |  | (1,188   | )          |   |            | 202,043    |        
|                          | Transmission installation and equipment           |                                         |            | 2,075,653   |         |           |  |           |        |                   |  | 1,120,179    |           |  |  | (1,653   | ) |  |  | (10,443  | )          |   |            | 3,183,736  |        
|                          | Satellite, earth station and equipment            |                                         |            | 1,875,016   |         |           |  |           |        |                   |  | 126,658      |           |  |  |         |   |  |  | (3       | )          |   |            | 2,001,671  |        
|                          | Cable network                                     |                                         |            | 4,482,733   |         |           |  |           |        |                   |  | 829,627      |           |  |  | (1,102   | ) |  |  | (25,049  | )          |   |            | 5,286,209  |        
|                          | Power supply                                      |                                         |            | 667,615     |         |           |  |           |        |                   |  | 42,673       |           |  |  | (654     | ) |  |  | 15,351   |            |   |            | 724,985    |        
|                          | Data processing equipment                         |                                         |            | 679,382     |         |           |  |           |        |                   |  | 388,453      |           |  |  | (58,618  | ) |  |  | (19,163  | )          |   |            | 990,054    |        
|                          | Other telecommunications peripherals              |                                         |            | 437,610     |         |           |  |           |        |                   |  | 65,036       |           |  |  | (326     | ) |  |  | (3,227   | )          |   |            | 499,093    |        
|                          | Office equipment                                  |                                         |            | 425,057     |         |           |  |           |        |                   |  | 49,706       |           |  |  | (16,244  | ) |  |  | 1,999    |            |   |            | 460,518    |        
|                          | Vehicles                                          |                                         |            | 158,945     |         |           |  |           |        |                   |  | 14,385       |           |  |  | (3,361   | ) |  |  | (2,743   | )          |   |            | 167,226    |        
|                          | Other equipment                                   |                                         |            | 48,815      |         |           |  |           |        |                   |  | 13,820       |           |  |  | (298     | ) |  |  | 683      |            |   |            | 63,020     |        
|Leased assets             |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|                          | Vehicles                                          |                                         |            | 669         |         |           |  |           |        |                   |  | 837          |           |  |  |         |   |  |  |         |            |   |            | 1,506      |        
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|                          | Total                                             |                                         |            | 15,692,875  |         |           |  |           |        |                   |  | 3,398,985    |           |  |  | (95,998  | ) |  |  | (109,517 | )          |   |            | 18,886,345 |        
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           
|Net Book Value            |                                                   |                                         | 22,891,039 |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   | 28,448,606 |           
|                          |                                                   |                                         |            |             |         |           |  |            |        |                   |  |              |           |  |  |          |   |  |  |          |            |   |            |           

F-52



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |            |         | 
|---------------------------- | ------------------------------------------------- | --------------------------------------- |  | ------------ | ------- | --------- |  | ---------- | ------ | ----------------- |  | ------------ | --------- |  |  | -------- | ------ | - |  | --------- | ---------- | - |  | ---------- | ------- | 
|                             |                                                   | January 1,                              |  | AWI          |         |           |  |            |        |                   |  | December 31,
|                             |                                                   | 2003                                    |  | Acquisitions |         | Additions |  | Deductions |        | Reclassifications |  | 2003        
|                             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |             
|At cost or revalued amounts: |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|Direct ownership             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|                             | Land                                              |                                         |  | 267,933      |         |           |  |           |        |                   |  | 52,738       |           |  |  | (20,762  | )      |   |  | (945      | )          |   |  | 298,964    |        
|                             | Buildings                                         |                                         |  | 1,658,390    |         |           |  | 2,436      |        |                   |  | 43,301       |           |  |  | (43,293  | )      |   |  | 158,261   |            |   |  | 1,819,095  |        
|                             | Switching equipment                               |                                         |  | 9,629,203    |         |           |  | 402,598    |        |                   |  | 144,658      |           |  |  | (10      | )      |   |  | 296,943   |            |   |  | 10,473,392 |        
|                             | Telegraph, telex and data communication equipment |                                         |  | 206,667      |         |           |  |           |        |                   |  | 3,833        |           |  |  | (86      | )      |   |  | (11,100   | )          |   |  | 199,314    |        
|                             | Transmission installation and equipment           |                                         |  | 10,340,314   |         |           |  | 7,565      |        |                   |  | 278,020      |           |  |  | (11,903  | )      |   |  | 6,204,183 |            |   |  | 16,818,179 |        
|                             | Satellite, earth station and equipment            |                                         |  | 5,798,011    |         |           |  |           |        |                   |  | 21,512       |           |  |  |         |        |   |  | 390,304   |            |   |  | 6,209,827  |        
|                             | Cable network                                     |                                         |  | 13,122,336   |         |           |  | 1,075,987  |        |                   |  | 637,068      |           |  |  | (59,275  | )      |   |  | 712,681   |            |   |  | 15,488,797 |        
|                             | Power supply                                      |                                         |  | 1,032,534    |         |           |  | 9,549      |        |                   |  | 18,473       |           |  |  | (3,996   | )      |   |  | 92,898    |            |   |  | 1,149,458  |        
|                             | Data processing equipment                         |                                         |  | 2,739,837    |         |           |  | 2,269      |        |                   |  | 131,942      |           |  |  | (1,810   | )      |   |  | 380,429   |            |   |  | 3,252,667  |        
|                             | Other telecommunications peripherals              |                                         |  | 681,363      |         |           |  |           |        |                   |  | 33,769       |           |  |  | (369     | )      |   |  | 20,425    |            |   |  | 735,188    |        
|                             | Office equipment                                  |                                         |  | 639,682      |         |           |  |           |        |                   |  | 25,585       |           |  |  | (1,802   | )      |   |  | (2,974    | )          |   |  | 660,491    |        
|                             | Vehicles                                          |                                         |  | 187,353      |         |           |  |           |        |                   |  | 1,298        |           |  |  | (1,760   | )      |   |  | 962       |            |   |  | 187,853    |        
|                             | Other equipment                                   |                                         |  | 87,370       |         |           |  |           |        |                   |  | 1,890        |           |  |  | (6       | )      |   |  | 18,319    |            |   |  | 107,573    |        
|                             | Property under construction:                      |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |            |        
|                             |                                                   | Buildings                               |  |              | 42,913  |           |  |            |       |                   |  |              | 36,173    |  |  |          |       |   |  |           | (24,198    | ) |  |            | 54,888  | 
|                             |                                                   | Switching equipment                     |  |              | 348,286 |           |  |            |       |                   |  |              | 222,275   |  |  |          |       |   |  |           | (412,505   | ) |  |            | 158,056 | 
|                             |                                                   | Transmission installation and equipment |  |              | 139,499 |           |  |            |       |                   |  |              | 5,843,119 |  |  |          |       |   |  |           | (5,888,711 | ) |  |            | 93,907  | 
|                             |                                                   | Satellite, earth station and equipment  |  |              | 264,029 |           |  |            |       |                   |  |              | 390,994   |  |  |          |       |   |  |           | (47,851    | ) |  |            | 607,172 | 
|                             |                                                   | Cable network                           |  |              | 115,420 |           |  |            | 55,865 |                   |  |              | 1,567,652 |  |  |          |       |   |  |           | (1,724,413 | ) |  |            | 14,524  | 
|                             |                                                   | Power supply                            |  |              | 5,715   |           |  |            |       |                   |  |              | 18,416    |  |  |          |       |   |  |           | (24,025    | ) |  |            | 106     | 
|                             |                                                   | Data processing equipment               |  |              | 10,807  |           |  |            |       |                   |  |              | 63,945    |  |  |          | (634   | ) |  |           | (63,592    | ) |  |            | 10,526  | 
|                             |                                                   | Other telecommunications peripherals    |  |              | 13,649  |           |  |            |       |                   |  |              | 15,853    |  |  |          | (1,392 | ) |  |           | (11,627    | ) |  |            | 16,483  | 
|Leased assets                |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|                             | Vehicles                                          |                                         |  | 3,640        |         |           |  |           |        |                   |  | 73           |           |  |  | (1,689   | )      |   |  | (1,785    | )          |   |  | 239        |        
|                             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|                             | Total                                             |                                         |  | 47,334,951   |         |           |  | 1,556,269  |        |                   |  | 9,522,587    |           |  |  | (148,787 | )      |   |  | 61,679    |            |   |  | 58,356,699 |        
|                             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|Accumulated depreciation:    |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|Direct ownership             |                                                   |                                         |  |              |         |           |  |            |        |                   |  |              |           |  |  |          |        |   |  |           |            |   |  |           
|                             | Buildings                                         |                                         |  | 736,997      |         |           |  |           |        |                   |  | 115,602      |           |  |  | (41,293  | )      |   |  | 1,013     |            |   |  | 812,319    |        
|                             | Switching equipment                               |                                         |  | 4,569,287    |         |           |  |           |        |                   |  | 668,136      |           |  |  | (4       | )      |   |  | 29,069    |            |   |  | 5,266,488  |        
|                             | Telegraph, telex and data communication equipment |                                         |  | 202,043      |         |           |  |           |        |                   |  | 3,365        |           |  |  | (59      | )      |   |  | (11,100   | )          |   |  | 194,249    |        
|                             | Transmission installation and equipment           |                                         |  | 3,183,736    |         |           |  |           |        |                   |  | 1,784,031    |           |  |  | (4,534   | )      |   |  | (6,338    | )          |   |  | 4,956,895  |        
|                             | Satellite, earth station and equipment            |                                         |  | 2,001,671    |         |           |  |           |        |                   |  | 153,506      |           |  |  |         |        |   |  | 3,202     |            |   |  | 2,158,379  |        
|                             | Cable network                                     |                                         |  | 5,286,209    |         |           |  |           |        |                   |  | 1,300,460    |           |  |  | (20,312  | )      |   |  | 46,924    |            |   |  | 6,613,281  |        
|                             | Power supply                                      |                                         |  | 724,985      |         |           |  |           |        |                   |  | 77,765       |           |  |  | (3,437   | )      |   |  | (1,388    | )          |   |  | 797,925    |        
|                             | Data processing equipment                         |                                         |  | 990,054      |         |           |  |           |        |                   |  | 492,799      |           |  |  | (2,394   | )      |   |  | (10,643   | )          |   |  | 1,469,816  |        
|                             | Other telecommunications peripherals              |                                         |  | 499,093      |         |           |  |           |        |                   |  | 71,217       |           |  |  | (240     | )      |   |  | 2,120     |            |   |  | 572,190    |        
|                             | Office equipment                                  |                                         |  | 460,518      |         |           |  |           |        |                   |  | 37,251       |           |  |  | (1,088   | )      |   |  | 786       |            |   |  | 497,467    |        

F-53



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|               |                 |            |            |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  |            |            | 
|-------------- | --------------- | ---------- | ---------- | ------------ |  | --------- |  | ---------- |  | ----------------- |  | ------------ |  |  |  | ------- | - |  |  | ------ | - |  | ---------- | ---------- | 
|               |                 | January 1, |            | AWI          |  |           |  |            |  |                   |  | December 31,
|               |                 | 2003       |            | Acquisitions |  | Additions |  | Deductions |  | Reclassifications |  | 2003        
|               |                 |            |            |              |  |           |  |            |  |                   |  |             
|               | Vehicles        |            |            | 167,226      |  |           |  |           |  |                   |  | 7,986        |  |  |  | (1,705  | ) |  |  | (373   | ) |  |            | 173,134    | 
|               | Other equipment |            |            | 63,020       |  |           |  |           |  |                   |  | 2,028        |  |  |  | (6      | ) |  |  | 4,260  |   |  |            | 69,302     | 
|Leased assets  |                 |            |            |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  |            |           
|               | Vehicles        |            |            | 1,506        |  |           |  |           |  |                   |  | 307          |  |  |  | (848    | ) |  |  | (851   | ) |  |            | 114        | 
|               |                 |            |            |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  |            |           
|               | Total           |            |            | 18,886,345   |  |           |  |           |  |                   |  | 4,714,453    |  |  |  | (75,920 | ) |  |  | 56,681 |   |  |            | 23,581,559 | 
|               |                 |            |            |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  |            |           
|Net Book Value |                 |            | 28,448,606 |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  | 34,775,140 |           
|               |                 |            |            |              |  |           |  |            |  |                   |  |              |  |  |  |         |   |  |  |        |   |  |            |           

|                                                        |  |      |         |      |  |  |         | 
|------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                        |  | 2002 |         | 2003
|                                                        |  |      |         |     
|Proceeds from sale of property, plant and
    equipment |  |      | 204,008 |      |  |  | 255,750 | 
|Net book value                                          |  |      | 73,558  |      |  |  | 72,867  | 
|                                                        |  |      |         |      |  |  |         | 
|Gain on sale                                            |  |      | 130,450 |      |  |  | 182,883 | 
|                                                        |  |      |         |      |  |  |         | 

Interest capitalized to property under
construction amounted to Rp8,089 million,
Rp20,108 million and Rp22,925 million in 2001, 2002
and 2003, respectively.

Foreign exchange losses (gains) capitalized
as part of property under construction amounted to
Rp1,746 million, (Rp27,568) million and nil in 2001,
2002 and 2003, respectively.

The Company and its subsidiaries own several
pieces of land located throughout Indonesia with Building Use
Rights (Hak Guna Bangunan or HGB) for a period of
20-30 years, which will expire between 2004-2032.
Management believes that there will be no difficulty in
obtaining the extension of the landrights when they expire.

Some of the Companys land of 330,690 sqm is
still under the name of other parties including, among others,
the Ministry of Tourism, Post and Telecommunications and the
Ministry of Communications of the Republic of Indonesia. The
transfer to the Company of the legal title of ownership on those
parcels of land is still in progress.

The estimated date of completion of assets under
construction is between January 2004 up to January 2005.
Management believes that there is no impediment to the
completion of the construction in progress.

As of December 31, 2003, property, plant and
equipment of the Company and subsidiaries, except for land, were
insured with various insurance companies against fire, theft and
other specified risks for a coverage of
Rp22,518,012 million and US$1,982,291,950. In addition, the
Palapa B4 and Telkom-1 satellites are insured for US$59,456,265.
Management believes that the insurance coverage is adequate.

Certain property, plant and equipment of the
Company and subsidiaries have been pledged as collateral for
lending agreements (Notes 26, 28 and 29).

F-54



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                                                               
|--- | --------------------------------------------------------------
|14. | PROPERTY, PLANT AND EQUIPMENT UNDER JOINT
    OPERATION SCHEME

Set forth below are the Companys property,
plant and equipment (included in Note 13 above) that are
being managed, operated and maintained by the KSOs:

|                                                  |  |      |            |      |  |  |            |  
|------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                                  |  | 2002 |            | 2003
|                                                  |  |      |            |     
|Land                                              |  |      | 3,783      |      |  |  | 200        |  
|Buildings                                         |  |      | 203,660    |      |  |  | 237,045    |  
|Switching equipment                               |  |      | 1,346,764  |      |  |  | 871,799    |  
|Telegraph, telex and data communication equipment |  |      | 62,501     |      |  |  | 34,014     |  
|Transmission installation and equipment           |  |      | 513,601    |      |  |  | 351,172    |  
|Satellite, earth station and equipment            |  |      | 51,878     |      |  |  | 51,455     |  
|Cable network                                     |  |      | 1,638,469  |      |  |  | 1,164,364  |  
|Power supply                                      |  |      | 146,045    |      |  |  | 145,993    |  
|Data processing equipment                         |  |      | 87,745     |      |  |  | 67,213     |  
|Other telecommunications peripherals              |  |      | 93,045     |      |  |  | 58,103     |  
|Office equipment                                  |  |      | 42,133     |      |  |  | 48,765     |  
|Vehicles                                          |  |      | 22,391     |      |  |  | 16,901     |  
|Other equipment                                   |  |      | 463        |      |  |  | 463        |  
|Property under construction                       |  |      | 60,106     |      |  |  | 3,322      |  
|                                                  |  |      |            |      |  |  |            |  
|Total cost                                        |  |      | 4,272,584  |      |  |  | 3,050,809  |  
|Accumulated depreciation                          |  |      | (3,073,555 | )    |  |  | (2,254,971 | )
|                                                  |  |      |            |      |  |  |            |  
|Net book value                                    |  |      | 1,199,029  |      |  |  | 795,838    |  
|                                                  |  |      |            |      |  |  |            |  

The fixed assets under joint operation scheme
decreased in 2003 due to the acquisition and consolidation of
AWI, the investor in KSO III (Note 5c).



|    |                                                                     
|--- | --------------------------------------------------------------------
|15. | PROPERTY, PLANT AND EQUIPMENT UNDER
    REVENUE-SHARING ARRANGEMENTS

|         |                                         |            |  |           |  |            |  |                   |  |              |  |         |   |  |  |        |   |  |  |           | 
|-------- | --------------------------------------- | ---------- |  | --------- |  | ---------- |  | ----------------- |  | ------------ |  | ------- | - |  |  | ------ | - |  |  | --------- | 
|         |                                         | January 1, |  |           |  |            |  |                   |  | December 31,
|         |                                         | 2002       |  | Additions |  | Deductions |  | Reclassifications |  | 2002        
|         |                                         |            |  |           |  |            |  |                   |  |             
|At cost: |                                         |            |  |           |  |            |  |                   |  |              |  |         |   |  |  |        |   |  |  |          
|         | Land                                    |            |  | 3,160     |  |            |  |                  |  |              |  |        |   |  |  |       |   |  |  | 3,160     | 
|         | Buildings                               |            |  | 23,952    |  |            |  |                  |  |              |  |        |   |  |  | (225   | ) |  |  | 23,727    | 
|         | Switching equipment                     |            |  | 624,794   |  |            |  |                  |  |              |  |        |   |  |  | (1,037 | ) |  |  | 623,757   | 
|         | Transmission installation and equipment |            |  | 107,558   |  |            |  |                  |  |              |  |        |   |  |  |       |   |  |  | 107,558   | 
|         | Cable network                           |            |  | 334,345   |  |            |  |                  |  |              |  |        |   |  |  | (1,157 | ) |  |  | 333,188   | 
|         | Other telecommunications peripherals    |            |  | 199,842   |  |            |  |                  |  |              |  | (69,267 | ) |  |  | (1,379 | ) |  |  | 129,196   | 
|         |                                         |            |  |           |  |            |  |                   |  |              |  |         |   |  |  |        |   |  |  |          
|         | Total                                   |            |  | 1,293,651 |  |            |  |                  |  |              |  | (69,267 | ) |  |  | (3,798 | ) |  |  | 1,220,586 | 
|         |                                         |            |  |           |  |            |  |                   |  |              |  |         |   |  |  |        |   |  |  |          

F-55



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  |         |         | 
|------------------------- | --------------------------------------- | ---------- | ------- | --------- |  | ---------- | ------ | ----------------- |  | ------------ | ------- | ------- | - |  | ------ | ------ | - |  | ------- | ------- | 
|                          |                                         | January 1, |         |           |  |            |        |                   |  | December 31,
|                          |                                         | 2002       |         | Additions |  | Deductions |        | Reclassifications |  | 2002        
|                          |                                         |            |         |           |  |            |        |                   |  |             
|Accumulated depreciation: |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  |         |        
|                          | Land                                    |            |         | 1,146     |  |            |        | 132               |  |              |         |        |   |  |        |       |   |  |         | 1,278   | 
|                          | Buildings                               |            |         | 9,334     |  |            |        | 1,183             |  |              |         |        |   |  |        | (106   | ) |  |         | 10,411  | 
|                          | Switching equipment                     |            |         | 322,455   |  |            |        | 38,776            |  |              |         |        |   |  |        | (594   | ) |  |         | 360,637 | 
|                          | Transmission installation and equipment |            |         | 87,143    |  |            |        | 8,055             |  |              |         |        |   |  |        |       |   |  |         | 95,198  | 
|                          | Cable network                           |            |         | 221,034   |  |            |        | 26,203            |  |              |         |        |   |  |        | (993   | ) |  |         | 246,244 | 
|                          | Other telecommunications peripherals    |            |         | 199,806   |  |            |        | 36                |  |              |         | (69,267 | ) |  |        | (1,379 | ) |  |         | 129,196 | 
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  |         |        
|Total                     |                                         |            | 840,918 |           |  |            | 74,385 |                   |  |              | (69,267 | )       |   |  | (3,072 | )      |   |  | 842,964 |        
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  |         |        
|Net Book Value            |                                         |            | 452,733 |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  | 377,622 |        
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |        |        |   |  |         |        

|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |           | 
|------------------------- | --------------------------------------- | ---------- | ------- | --------- |  | ---------- | ------ | ----------------- |  | ------------ | ------- | ------- | - |  | ------- | -------- | - |  | ------- | --------- | 
|                          |                                         | January 1, |         |           |  |            |        |                   |  | December 31,
|                          |                                         | 2003       |         | Additions |  | Deductions |        | Reclassifications |  | 2003        
|                          |                                         |            |         |           |  |            |        |                   |  |             
|At cost:                  |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|                          | Land                                    |            |         | 3,160     |  |            |        |                  |  |              |         |        |   |  |         |         |   |  |         | 3,160     | 
|                          | Buildings                               |            |         | 23,727    |  |            |        |                  |  |              |         |        |   |  |         | (3,472   | ) |  |         | 20,255    | 
|                          | Switching equipment                     |            |         | 623,757   |  |            |        |                  |  |              |         | (9,154  | ) |  |         | (76,713  | ) |  |         | 537,890   | 
|                          | Transmission installation and equipment |            |         | 107,558   |  |            |        |                  |  |              |         | (14,530 | ) |  |         |         |   |  |         | 93,028    | 
|                          | Cable network                           |            |         | 333,188   |  |            |        | 27,314            |  |              |         |        |   |  |         | (42,121  | ) |  |         | 318,381   | 
|                          | Other telecommunications peripherals    |            |         | 129,196   |  |            |        |                  |  |              |         | (2,711  | ) |  |         | (2,513   | ) |  |         | 123,972   | 
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|                          | Total                                   |            |         | 1,220,586 |  |            |        | 27,314            |  |              |         | (26,395 | ) |  |         | (124,819 | ) |  |         | 1,096,686 | 
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|Accumulated depreciation: |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|                          | Land                                    |            |         | 1,278     |  |            |        | 171               |  |              |         |        |   |  |         |         |   |  |         | 1,449     | 
|                          | Buildings                               |            |         | 10,411    |  |            |        | 1,155             |  |              |         |        |   |  |         | (1,762   | ) |  |         | 9,804     | 
|                          | Switching equipment                     |            |         | 360,637   |  |            |        | 37,458            |  |              |         | (9,154  | ) |  |         | (47,416  | ) |  |         | 341,525   | 
|                          | Transmission installation and equipment |            |         | 95,198    |  |            |        | 9,052             |  |              |         | (14,530 | ) |  |         |         |   |  |         | 89,720    | 
|                          | Cable network                           |            |         | 246,244   |  |            |        | 17,231            |  |              |         |        |   |  |         | (38,300  | ) |  |         | 225,175   | 
|                          | Other telecommunications peripherals    |            |         | 129,196   |  |            |        |                  |  |              |         | (2,711  | ) |  |         | (2,513   | ) |  |         | 123,972   | 
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|Total                     |                                         |            | 842,964 |           |  |            | 65,067 |                   |  |              | (26,395 | )       |   |  | (89,991 | )        |   |  | 791,645 |          
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          
|Net Book Value            |                                         |            | 377,622 |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  | 305,041 |          
|                          |                                         |            |         |           |  |            |        |                   |  |              |         |         |   |  |         |          |   |  |         |          

In accordance with revenue-sharing arrangements
agreements, ownership rights to the property, plant and
equipment under revenue-sharing arrangements are legally
retained by the investors until the end of the revenue-sharing
period.

F-56



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The unearned income on revenue-sharing
arrangements is as follows:

|                          |  |      |            |      |  |  |            |  
|------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                          |  | 2002 |            | 2003
|                          |  |      |            |     
|Gross amount              |  |      | 1,220,586  |      |  |  | 1,096,686  |  
|                          |  |      |            |      |  |  |            |  
|Accumulated amortization: |  |      |            |      |  |  |            |  
|Beginning balance         |  |      | (1,098,583 | )    |  |  | (1,077,789 | )
|Addition (Note 39)        |  |      | (52,271    | )    |  |  | (58,379    | )
|Deduction                 |  |      | 73,065     |      |  |  | 151,214    |  
|                          |  |      |            |      |  |  |            |  
|Ending balance            |  |      | (1,077,789 | )    |  |  | (984,954   | )
|                          |  |      |            |      |  |  |            |  
|Net                       |  |      | 142,797    |      |  |  | 111,732    |  
|                          |  |      |            |      |  |  |            |  



|    |                  
|--- | -----------------
|16. | INTANGIBLE ASSETS

|                  |  |      |           |      |  |  |           | 
|----------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                  |  | 2002 |           | 2003
|                  |  |      |           |     
|Intangible assets |  |      | 3,892,145 |      |  |  | 5,144,050 | 
|License  net     |  |      | 6,672     |      |  |  |          | 
|                  |  |      |           |      |  |  |           | 
|Net               |  |      | 3,898,817 |      |  |  | 5,144,050 | 
|                  |  |      |           |      |  |  |           | 

Movement of intangible assets during 2002 and
2003 is as follows:

|                  |  |                   |           |          |  |     |           |     |  |       |   |  |  |  |         |   |  |  |           |  
|----------------- |  | ----------------- | --------- | -------- |  | --- | --------- | --- |  | ----- | - |  |  |  | ------- | - |  |  | --------- | -
|                  |  |                  
|                  |  | 2002             
|                  |  |                  
|                  |  |                   |           |         
|                  |  | Intangible Assets |           | Goodwill |  |    
|                  |  |                   |           |          |  |    
|                  |  | Dayamitra         |           | Pramindo |  | AWI |           | GSD |  | Total
|                  |  |                   |           |          |  |     |           |     |  |      
|Beginning balance |  |                   | 1,233,932 |          |  |     |          |     |  |       |  |  |  |  | 93,936  |   |  |  | 1,327,868 |  
|Additions         |  |                   |          |          |  |     | 2,752,267 |     |  |       |  |  |  |  |        |   |  |  | 2,752,267 |  
|Amortization      |  |                   | (72,504   | )        |  |     | (94,217   | )   |  |       |  |  |  |  | (21,269 | ) |  |  | (187,990  | )
|                  |  |                   |           |          |  |     |           |     |  |       |   |  |  |  |         |   |  |  |           |  
|Ending balance    |  |                   | 1,161,428 |          |  |     | 2,658,050 |     |  |       |  |  |  |  | 72,667  |   |  |  | 3,892,145 |  
|                  |  |                   |           |          |  |     |           |     |  |       |   |  |  |  |         |   |  |  |           |  

|                  |  |                   |           |          |  |     |           |     |  |       |           |   |  |  |         |   |  |  |           |  
|----------------- |  | ----------------- | --------- | -------- |  | --- | --------- | --- |  | ----- | --------- | - |  |  | ------- | - |  |  | --------- | -
|                  |  |                  
|                  |  | 2003             
|                  |  |                  
|                  |  |                   |           |         
|                  |  | Intangible Assets |           | Goodwill |  |    
|                  |  |                   |           |          |  |    
|                  |  | Dayamitra         |           | Pramindo |  | AWI |           | GSD |  | Total
|                  |  |                   |           |          |  |     |           |     |  |      
|Beginning balance |  |                   | 1,161,428 |          |  |     | 2,658,050 |     |  |       |          |   |  |  | 72,667  |   |  |  | 3,892,145 |  
|Additions         |  |                   |          |          |  |     |          |     |  |       | 1,982,564 |   |  |  |        |   |  |  | 1,982,564 |  
|Amortization      |  |                   | (228,973  | )        |  |     | (369,036  | )   |  |       | (111,380  | ) |  |  | (21,270 | ) |  |  | (730,659  | )
|                  |  |                   |           |          |  |     |           |     |  |       |           |   |  |  |         |   |  |  |           |  
|Ending balance    |  |                   | 932,455   |          |  |     | 2,289,014 |     |  |       | 1,871,184 |   |  |  | 51,397  |   |  |  | 5,144,050 |  
|                  |  |                   |           |          |  |     |           |     |  |       |           |   |  |  |         |   |  |  |           |  

The intangible assets resulted from the
acquisitions of Dayamitra, Pramindo and AWI, and represent the
right to operate the business in the KSO areas. Goodwill
resulted from the acquisition of GSD (Note 1c).

The license represented the Nationwide DCS 1800
Operations and License for Nationwide DCS 1800 Radio
Frequency Spectrum Utilization held by Telkomsel which was fully
amortized in 2003.

F-57



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                
|--- | ---------------
|17. | ESCROW ACCOUNTS

Escrow accounts consist of the following:

|                         |  |      |         |      |  |  |         | 
|------------------------ |  | ---- | ------- | ---- |  |  | ------- | 
|                         |  | 2002 |         | 2003
|                         |  |      |         |     
|Citibank N.A., Singapore |  |      | 129,188 |      |  |  | 239,689 | 
|JP Morgan Chase Bank     |  |      | 168,740 |      |  |  | 276,439 | 
|Bank Mandiri             |  |      |        |      |  |  | 6,018   | 
|                         |  |      |         |      |  |  |         | 
|                         |  |      | 297,928 |      |  |  | 522,146 | 
|                         |  |      |         |      |  |  |         | 

a. Citibank
N.A., Singapore

This escrow account with Citibank N.A., Singapore
(Dayamitra Escrow Agent) was established to
facilitate the payment of the Companys obligations under
the Conditional Sale and Purchase Agreement and Option Agreement
entered into with the selling stockholders of Dayamitra
(Note 5a).

In accordance with the Escrow Agreement, the
Company made the first installment payment of US$14,343,750 on
May 17, 2001. Further monthly installments of US$6,250,000
for twenty four months are required by the agreement. The
Company is also obliged to make additional installment payments
necessary to settle the obligation on the due dates and to
maintain a minimum balance of US$14,343,750.

The escrow account earns interest at LIBOR minus
0.75% per annum, which is computed on a daily basis. The
interest income earned is included as part of the escrow funds.
The remaining funds available will be transferred to the Company
after all of the obligations related to the Dayamitra
transaction are satisfied.

b. JP
Morgan Chase Bank

This escrow account with JP Morgan Chase Bank
(Pramindo Escrow Agent) was established to
facilitate the settlement of the Companys obligations
under its Conditional Sale and Purchase Agreement for the
acquisition of Pramindo (Note 5b).

In accordance with the Escrow Agreement, the
Company will make installment payments of US$12,800,000 for
eleven months and US$15,000,000 for sixteen months. The first
installment was due on October 1, 2002.

The escrow account earns interest at LIBOR minus
0.4% per annum, which is computed on a daily basis. The
interest income earned will be included as part of the escrow
funds. The remaining funds available will be transferred to the
Company after all of the obligations related to the Pramindo
transaction are satisfied.

c. Bank
Mandiri

The escrow account with Bank Mandiri was
established by Dayamitra in relation with the credit facilities
from Bank Mandiri (Note 26f).

F-58



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                       
|--- | ----------------------
|18. | TRADE ACCOUNTS PAYABLE

|                |                                                  |      |           |           |  |  |           |           | 
|--------------- | ------------------------------------------------ | ---- | --------- | --------- |  |  | --------- | --------- | 
|                |                                                  | 2002 |           | 2003     
|                |                                                  |      |           |          
|Related parties |                                                  |      |           |           |  |  |           |          
|                | Payables to other telecommunications carriers    |      |           | 365,786   |  |  |           | 322,842   | 
|                | Concession fees                                  |      |           | 359,665   |  |  |           | 224,370   | 
|                | Purchases of equipment, materials and services   |      |           | 64,776    |  |  |           | 110,266   | 
|                |                                                  |      |           |           |  |  |           |          
|Total           |                                                  |      | 790,227   |           |  |  | 657,478   |          
|                |                                                  |      |           |           |  |  |           |          
|Third parties   |                                                  |      |           |           |  |  |           |          
|                | Purchases of equipment, materials and services   |      |           | 2,015,145 |  |  |           | 2,892,803 | 
|                | Payables related to revenue-sharing arrangements |      |           | 81,710    |  |  |           | 94,508    | 
|                | Payables to other telecommunication providers    |      |           | 175,769   |  |  |           | 122,543   | 
|                |                                                  |      |           |           |  |  |           |          
|Total           |                                                  |      | 2,272,624 |           |  |  | 3,109,854 |          
|                |                                                  |      |           |           |  |  |           |          
|Total           |                                                  |      | 3,062,851 |           |  |  | 3,767,332 |          
|                |                                                  |      |           |           |  |  |           |          

Trade accounts payable by currency are as follows:

|                             |  |      |           |      |  |  |           | 
|---------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                             |  | 2002 |           | 2003
|                             |  |      |           |     
|Rupiah                       |  |      | 1,961,804 |      |  |  | 2,825,795 | 
|U.S. Dollars                 |  |      | 831,258   |      |  |  | 900,408   | 
|Euro                         |  |      | 264,959   |      |  |  | 29,463    | 
|Japanese Yen                 |  |      | 229       |      |  |  | 10,033    | 
|Great Britain Pound Sterling |  |      | 4,598     |      |  |  | 916       | 
|Singapore Dollars            |  |      | 3         |      |  |  | 717       | 
|                             |  |      |           |      |  |  |           | 
|Total                        |  |      | 3,062,851 |      |  |  | 3,767,332 | 
|                             |  |      |           |      |  |  |           | 

Refer to Note 49 for details of related
party transactions.



|    |                 
|--- | ----------------
|19. | ACCRUED EXPENSES

|                                                            |  |      |           |      |  |  |           | 
|----------------------------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                                                            |  | 2002 |           | 2003
|                                                            |  |      |           |     
|Early retirement benefits                                   |  |      | 670,981   |      |  |  | 132,810   | 
|Salaries and employee bonuses                               |  |      | 411,739   |      |  |  | 473,447   | 
|Interest and bank charges                                   |  |      | 298,840   |      |  |  | 261,050   | 
|General, administrative and marketing                       |  |      | 199,625   |      |  |  | 259,462   | 
|Operations, maintenance and telecommunications
    services |  |      | 180,740   |      |  |  | 89,103    | 
|AWI settlement (Note 5c)                                    |  |      | 179,000   |      |  |  |          | 
|Other                                                       |  |      | 8,989     |      |  |  |          | 
|                                                            |  |      |           |      |  |  |           | 
|Total                                                       |  |      | 1,949,914 |      |  |  | 1,215,872 | 
|                                                            |  |      |           |      |  |  |           | 

Based on the Board of Directors Resolution
No. KD.20/ PS900/ SDM-10/2001 dated June 11, 2001 and
Resolution of Human Resources Director No. KR.18/ PS900/
SDM-30/2003 dated October 9, 2003 concerning Early
Retirement, the Company offered an Early Retirement Program for
interested and eligible employees. Employees rights under
the early retirement program, method of calculation and payments
for compensation and other benefits in 2002 and 2003 are
provided in the Board of Directors

F-59



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Resolution No. KD.35/ PS900/ SDM-10/01 dated
November 30, 2001 regarding Employees Rights under
Early Retirement Program Year 2002 and the Board of
Directors Resolution No. KD 80/ PS900/ SDM-20/2002
regarding Employees Rights under Early Retirement Program
year 2003, respectively. Accrued early retirement benefits as of
December 31, 2002 were fully paid in 2003. Accrued early
retirement benefits as of December 31, 2003 represents the
continued early retirement program which was paid out in early
2004.



|    |                
|--- | ---------------
|20. | UNEARNED INCOME

|                                 |  |      |         |      |  |  |         | 
|-------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                 |  | 2002 |         | 2003
|                                 |  |      |         |     
|Prepaid pulse reload vouchers    |  |      | 375,021 |      |  |  | 740,077 | 
|Telephone directory              |  |      | 52,729  |      |  |  |        | 
|Other telecommunication services |  |      | 8,069   |      |  |  | 16,361  | 
|Other                            |  |      | 9,742   |      |  |  | 6,773   | 
|                                 |  |      |         |      |  |  |         | 
|Total                            |  |      | 445,561 |      |  |  | 763,211 | 
|                                 |  |      |         |      |  |  |         | 



|    |                                          
|--- | -----------------------------------------
|21. | ADVANCES FROM CUSTOMERS AND
    SUPPLIERS

Represent security deposits received from
customers related to services and performance guarantee deposits
from suppliers related to procurement contracts.



|    |                      
|--- | ---------------------
|22. | SHORT-TERM BANK LOANS

Short-term bank loans consist of:

|              |  |      |        |      |  |  |        | 
|------------- |  | ---- | ------ | ---- |  |  | ------ | 
|              |  | 2002 |        | 2003
|              |  |      |        |     
|Bank Mandiri  |  |      |       |      |  |  | 37,642 | 
|Citibank N.A. |  |      | 39,205 |      |  |  |       | 
|              |  |      |        |      |  |  |        | 
|Total         |  |      | 39,205 |      |  |  | 37,642 | 
|              |  |      |        |      |  |  |        | 

a. Bank
Mandiri

On August 28, 2001, Napsindo entered into a
loan agreement with Bank Mandiri amounting to US$1,800,000 for a
oneyear term. The loan is secured with the Companys
time deposits (Note 11) with interest rate at 2% above
the pledged time deposits interest rate (i.e., 3% as of
December 31, 2003). On November 11, 2003, the facility
was extended until August 28, 2004. On April 24, 2003,
Napsindo obtained a new loan from Bank Mandiri amounting to
US$2,660,000 for a oneyear term. The loan is secured by
the Companys time deposits and bears interest at 2% above
the pledged time deposits interest rate. The facility can be
extended upon approval by the Company. Subsequently, on
May 4, 2004, this loan facility was extended for another
one-year term and will expire on April 24, 2005. As of
December 31, 2003, principal outstanding under these
facilities amounted to US$4,460,000 (Rp37,642 million).

F-60



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


b. Citibank
N.A.

On July 12, 2002, Telkomsel entered into an
Opening LC and Trust Receipt Loan Facility Agreement with
Citibank, N.A. providing for a total facility of US$40,000,000.

The facility was obtained to finance
Telkomsels capital expenditures in connection with
procurement contracts with three strategic partners and a
strategic supplier. Amounts drawn from the facility bear
interest at the banks cost of funds plus 2.5%. The
facility is available until July 31, 2004 and is not
collateralized.

As of December 31, 2002, the outstanding
balance of the loan amounted to US$4,385,295 (equivalent to
Rp39,205 million). The loan drawn down from the facility in
2003 amounted to US$32,441,455 (equivalent to
Rp275,312 million). As of December 31, 2003, the loan
had been repaid.

23. MATURITIES OF LONG-TERM
LIABILITIES

a. Current
Maturities

|                                             |  |       |    |      |  |      |           |  |  |  |           | 
|-------------------------------------------- |  | ----- | -- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                             |  | Notes |    | 2002 |  | 2003
|                                             |  |       |    |      |  |     
|Two-step loans                               |  |       | 24 |      |  |      | 836,109   |  |  |  | 832,135   | 
|Bank loans                                   |  |       | 26 |      |  |      | 162,077   |  |  |  | 808,793   | 
|Liabilities for acquisitions of subsidiaries |  |       | 27 |      |  |      | 1,385,956 |  |  |  | 1,587,775 | 
|Suppliers credit loans                      |  |       | 28 |      |  |      | 163,072   |  |  |  | 164,958   | 
|Bridging loan                                |  |       | 29 |      |  |      | 42,112    |  |  |  | 49,855    | 
|Other                                        |  |       |    |      |  |      | 901       |  |  |  |          | 
|                                             |  |       |    |      |  |      |           |  |  |  |           | 
|Total                                        |  |       |    |      |  |      | 2,590,227 |  |  |  | 3,443,516 | 
|                                             |  |       |    |      |  |      |           |  |  |  |           | 

b. Long-Term
Portion

|                                             |  |       |    |                         |  |      |          |      |  |      |         |      |  |       |         |  |  |  |         |  |  |  |       |  |  |  |         | 
|-------------------------------------------- |  | ----- | -- | ----------------------- |  | ---- | -------- | ---- |  | ---- | ------- | ---- |  | ----- | ------- |  |  |  | ------- |  |  |  | ----- |  |  |  | ------- | 
|                                             |  | Notes |    | Total                   |  | 2005 |          | 2006 |  | 2007 |         | 2008 |  | Later
|                                             |  |       |    |                         |  |      |          |      |  |      |         |      |  |      
|                                             |  |       |    |                        
|                                             |  |       |    | (In billions of Rupiah)
|Two-step loans                               |  |       | 24 |                         |  |      | 6,858.9  |      |  |      | 843.3   |      |  |       | 748.8   |  |  |  | 660.5   |  |  |  | 578.3 |  |  |  | 4,028.0 | 
|Guaranteed notes                             |  |       | 25 |                         |  |      | 1,121.2  |      |  |      |        |      |  |       |        |  |  |  | 1,121.2 |  |  |  |      |  |  |  |        | 
|Bonds                                        |  |       | 25 |                         |  |      | 981.3    |      |  |      |        |      |  |       |        |  |  |  | 981.3   |  |  |  |      |  |  |  |        | 
|Bank loans                                   |  |       | 26 |                         |  |      | 2,115.8  |      |  |      | 817.4   |      |  |       | 732.2   |  |  |  | 454.2   |  |  |  | 112.0 |  |  |  |        | 
|Liabilities for acquisitions of subsidiaries |  |       | 27 |                         |  |      | 747.0    |      |  |      | 151.4   |      |  |       | 159.4   |  |  |  | 167.8   |  |  |  | 176.6 |  |  |  | 91.8    | 
|Suppliers credit loans                      |  |       | 28 |                         |  |      | 0.7      |      |  |      | 0.7     |      |  |       |        |  |  |  |        |  |  |  |      |  |  |  |        | 
|Bridging loan                                |  |       | 29 |                         |  |      | 0.5      |      |  |      | 0.5     |      |  |       |        |  |  |  |        |  |  |  |      |  |  |  |        | 
|Other long-term debt                         |  |       |    |                         |  |      | 9.1      |      |  |      |        |      |  |       |        |  |  |  |        |  |  |  |      |  |  |  | 9.1     | 
|                                             |  |       |    |                         |  |      |          |      |  |      |         |      |  |       |         |  |  |  |         |  |  |  |       |  |  |  |         | 
|Total                                        |  |       |    |                         |  |      | 11,834.5 |      |  |      | 1,813.3 |      |  |       | 1,640.4 |  |  |  | 3,385.0 |  |  |  | 866.9 |  |  |  | 4,128.9 | 
|                                             |  |       |    |                         |  |      |          |      |  |      |         |      |  |       |         |  |  |  |         |  |  |  |       |  |  |  |         | 

24. TWO-STEP LOANS

Two-step loans are loans, which were obtained by
the Government from overseas banks and a consortium of
contractors, which are then re-loaned to the Company. The loans
entered into up to July 1994 were recorded and are payable in
Rupiah based on the exchange rate at the date of draw-down.

F-61



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Loans entered into after July 1994 are payable in
their original currencies and any resulting foreign exchange
gain or loss is borne by the Company.

The details of the two-step loans are as follows:

|                          |  |               |                |             |  |      |                |      |  |  |           |   |  |  |           |  
|------------------------- |  | ------------- | -------------- | ----------- |  | ---- | -------------- | ---- |  |  | --------- | - |  |  | --------- | -
|                          |  |               |                |            
|                          |  | Interest Rate |                | Outstanding
|                          |  |               |                |            
|Creditors                 |  | 2002          |                | 2003        |  | 2002 |                | 2003
|                          |  |               |                |             |  |      |                |     
|Overseas banks            |  |               | 2.95%  18.41% |             |  |      | 3.10%  14.90% |      |  |  | 8,271,096 |   |  |  | 7,441,076 |  
|Consortium of contractors |  |               | 3.20%  18.41% |             |  |      | 3.20%  14.90% |      |  |  | 299,046   |   |  |  | 249,969   |  
|                          |  |               |                |             |  |      |                |      |  |  |           |   |  |  |           |  
|Total                     |  |               |                |             |  |      |                |      |  |  | 8,570,142 |   |  |  | 7,691,045 |  
|Current maturities        |  |               |                |             |  |      |                |      |  |  | (836,109  | ) |  |  | (832,135  | )
|                          |  |               |                |             |  |      |                |      |  |  |           |   |  |  |           |  
|Long-term portion         |  |               |                |             |  |      |                |      |  |  | 7,734,033 |   |  |  | 6,858,910 |  
|                          |  |               |                |             |  |      |                |      |  |  |           |   |  |  |           |  

Details of two-step loans obtained from overseas
banks as of December 31, 2002 and 2003 are as follows:

|             |  |               |                 |             |  |      |                |      |  |  |           |  |  |  |           | 
|------------ |  | ------------- | --------------- | ----------- |  | ---- | -------------- | ---- |  |  | --------- |  |  |  | --------- | 
|             |  |               |                 |            
|             |  | Interest Rate |                 | Outstanding
|             |  |               |                 |            
|Currencies   |  | 2002          |                 | 2003        |  | 2002 |                | 2003
|             |  |               |                 |             |  |      |                |     
|U.S. Dollars |  |               | 3.85%  8.70%   |             |  |      | 4.00%  7.98%  |      |  |  | 3,500,678 |  |  |  | 2,946,687 | 
|Rupiah       |  |               | 12.00%  18.41% |             |  |      | 9.69%  14.90% |      |  |  | 3,366,297 |  |  |  | 3,050,043 | 
|Japanese Yen |  |               | 2.95%           |             |  |      | 3.10%          |      |  |  | 1,188,369 |  |  |  | 1,244,331 | 
|Euro         |  |               | 7.18%  8.30%   |             |  |      | 7.33%  8.45%  |      |  |  | 215,752   |  |  |  | 200,015   | 
|             |  |               |                 |             |  |      |                |      |  |  |           |  |  |  |           | 
|Total        |  |               |                 |             |  |      |                |      |  |  | 8,271,096 |  |  |  | 7,441,076 | 
|             |  |               |                 |             |  |      |                |      |  |  |           |  |  |  |           | 

The loans are intended for the development of
telecommunications infrastructure and supporting equipment. The
loans are repayable in semi-annual installments and they are due
on various dates until 2025.

Details of two-step loans obtained from a
consortium of contractors as of December 31, 2002 and 2003
are as follows:

|                  |  |               |                 |             |  |      |                 |      |  |  |         |  |  |  |         | 
|----------------- |  | ------------- | --------------- | ----------- |  | ---- | --------------- | ---- |  |  | ------- |  |  |  | ------- | 
|                  |  |               |                 |            
|                  |  | Interest Rate |                 | Outstanding
|                  |  |               |                 |            
|Currencies        |  | 2002          |                 | 2003        |  | 2002 |                 | 2003
|                  |  |               |                 |             |  |      |                 |     
|Rupiah            |  |               | 13.25%  18.41% |             |  |      | 12.66%  14.90% |      |  |  | 143,365 |  |  |  | 116,574 | 
|Japanese Yen      |  |               | 3.20%           |             |  |      | 3.20%           |      |  |  | 155,681 |  |  |  | 133,395 | 
|                  |  |               |                 |             |  |      |                 |      |  |  |         |  |  |  |         | 
|Long-term portion |  |               |                 |             |  |      |                 |      |  |  | 299,046 |  |  |  | 249,969 | 
|                  |  |               |                 |             |  |      |                 |      |  |  |         |  |  |  |         | 

The consortium of contractors consists of
Sumitomo Corporation, PT NEC Nusantara Communications and
PT Humpuss Elektronika (SNH Consortium). The loans
were obtained to finance the second digital telephone exchange
project. The loans are repayable in semi-annual installments and
they are due on various dates until March 15, 2015.

Two-step loans which are payable in Rupiah bear
either a fixed interest rate or a floating rate based upon the
average interest rate on 3-month Certificates of Bank Indonesia
during the six-months preceding the installment due date,
plus 1%. Two-step loans which are payable in foreign
currencies bear either a fixed rate interest or the floating
interest rate offered by the lenders, plus 0.5%.

F-62



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


As of December 31, 2003, the Company has
used all facilities under the two-step loan program and the
draw-down period for the two-step loans has expired.

The Company should maintain financial ratios as
follows:



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. Projected net revenue to projected debt
    service ratio should exceed 1.5:1 and 1.2:1 for two-step loans
    originating from World Bank and Asian Development Bank
    (ADB), respectively.          
|
| | b. Internal financing (earnings before
    depreciation and interest expenses) should exceed 50% and 20%
    compared to capital expenditures for loans originally from World
    Bank and ADB, respectively.

As of December 31, 2003, the Company
complied with the above mentioned ratios.



|    |                           
|--- | --------------------------
|25. | GUARANTEED NOTES AND BONDS

|                 |  |      |           |      |  |  |           | 
|---------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                 |  | 2002 |           | 2003
|                 |  |      |           |     
|Guaranteed Notes |  |      | 1,337,518 |      |  |  | 1,121,224 | 
|Bonds            |  |      | 975,992   |      |  |  | 981,278   | 
|                 |  |      |           |      |  |  |           | 
|                 |  |      | 2,313,510 |      |  |  | 2,102,502 | 
|                 |  |      |           |      |  |  |           | 



|   |                 
|-- | ----------------
|a. | Guaranteed Notes

In April 2002, TSFL, Telkomsels
wholly-owned subsidiary, issued US$150,000,000 Guaranteed Notes
(Notes) which are guaranteed by Telkomsel. The Notes
bear interest at 9.75%, payable semi-annually on April 30
and October 30 of each year and will mature on
April 30, 2007. The trustee of the Notes is Deutsche Bank
Trustees (Hongkong Limited) and the custodian is Deutsche
Bank AG, Hongkong Branch.

On April 23, 2002, TSFL entered into
subscription agreements with UBS AG (UBS) whereby
UBS agreed to subscribe and pay for the Notes at an issue price
equal to 99.709% of the principal amount of the Notes, less any
fees. TSFL has further authorized UBS to have the Notes listed
on the Singapore Exchange Securities Trading Limited (the
Singapore Exchange).

Based on the On-Loan Agreement dated
April 30, 2002, between Telkomsel and TSFL, the proceeds
from the subscription of the Notes were lent to Telkomsel at an
interest rate of 9.765% per annum, payable on the same
terms as above.

On September 8, 2003, the agreement was
amended such that if any Notes are cancelled, the principal
amount of the outstanding loan will be reduced by the principal
amount of the Notes cancelled.

TSFL may, on the interest payment date falling on
or about the third anniversary of the issue date redeem the
Notes, in whole or in part, at 102.50% of the principal amount
of such Notes, together with interest accrued up to the
redemption date. If only parts of the Notes are redeemed, the
principal amount of the Notes outstanding after such redemption
must be at least US$100,000,000.

In 2003, Telkomsel purchased US$17,273,000
(equivalent to Rp145,447 million) of the Notes from
Deutsche Bank.

F-63



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The current rating for the Notes issued by
Standard and Poors is B+ and by Fitch is B+.

As of December 31, 2002 and 2003, the
outstanding principal amount of the Notes and the unamortized
discount are as follows:

|          |  |                  |             |                   |  |                  |           |                   |  |  |             |   |  |  |           |  
|--------- |  | ---------------- | ----------- | ----------------- |  | ---------------- | --------- | ----------------- |  |  | ----------- | - |  |  | --------- | -
|          |  |                  |             |                  
|          |  | 2002             |             | 2003             
|          |  |                  |             |                  
|          |  | Foreign Currency |             | Rupiah Equivalent |  | Foreign Currency |           | Rupiah Equivalent
|          |  |                  |             |                   |  |                  |           |                  
|          |  | US$              |             |                   |  | US$              |           |                  
|Principal |  |                  | 150,000,000 |                   |  |                  | 1,341,000 |                   |  |  | 132,727,000 |   |  |  | 1,123,534 |  
|Discount  |  |                  | (389,468    | )                 |  |                  | (3,482    | )                 |  |  | (272,857    | ) |  |  | (2,310    | )
|          |  |                  |             |                   |  |                  |           |                   |  |  |             |   |  |  |           |  
|Net       |  |                  | 149,610,532 |                   |  |                  | 1,337,518 |                   |  |  | 132,454,143 |   |  |  | 1,121,224 |  
|          |  |                  |             |                   |  |                  |           |                   |  |  |             |   |  |  |           |  



|   |      
|-- | -----
|b. | Bonds

On July 16, 2002, the Company issued bonds
amounting to Rp1,000,000 million. The bonds were issued at
par value and have a term of five years. The bonds bear interest
at a fixed rate of 17% per annum, payable quarterly
beginning October 16, 2002. The bonds are traded on the
Surabaya Stock Exchange and will mature on July 15, 2007.
The trustee of the bonds is PT Bank Negara Indonesia
(Persero) Tbk and the custodian is PT Danareksa Sekuritas.

The current rating for the bonds issued by
Pefindo is AAA and by Standard and Poors is B+.

As of December 31, 2002 and 2003, the
outstanding principal amount of the bonds and the unamortized
discount are as follows:

|          |  |      |           |      |  |  |           |  
|--------- |  | ---- | --------- | ---- |  |  | --------- | -
|          |  | 2002 |           | 2003
|          |  |      |           |     
|Principal |  |      | 1,000,000 |      |  |  | 1,000,000 |  
|Discount  |  |      | (24,008   | )    |  |  | (18,722   | )
|          |  |      |           |      |  |  |           |  
|Net       |  |      | 975,992   |      |  |  | 981,278   |  
|          |  |      |           |      |  |  |           |  

During the period when the bonds are outstanding,
the Company should comply with all covenants or restrictions
including maintaining consolidated financial ratios as follows:



| |    |                                                
| | -- | -----------------------------------------------
| | 1. | Debt service coverage ratio should exceed 1.5:1
|
| | 2. | Debt to equity ratio should not exceed:        



| |    |                                                                 
| | -- | ----------------------------------------------------------------
| | a. | 3:1 for the period of January 1, 2002 to
    December 31, 2002  
|
| | b. | 2.5:1 for the period of January 1, 2003 to
    December 31, 2003



| |    |                                                                              
| | -- | -----------------------------------------------------------------------------
| | c. | 2:1 for the period of January 1, 2004 to the
    redemption date of the bonds



| |    |                                           
| | -- | ------------------------------------------
| | 3. | Debt to EBITDA ratio should not exceed 3:1

As of December 31, 2003, the Company
complied with the covenants.

F-64



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |           
|--- | ----------
|26. | BANK LOANS

The details of long-term bank loans as of
December 31, 2002 and 2003 are as follows:

|                                         |  |          |     |                |  |              |             |             |  |              |       |            |  |  |          |   |  |  |         |  |  |  |           |  
|---------------------------------------- |  | -------- | --- | -------------- |  | ------------ | ----------- | ----------- |  | ------------ | ----- | ---------- |  |  | -------- | - |  |  | ------- |  |  |  | --------- | -
|                                         |  |          |     |                |  |              |             |            
|                                         |  |          |     |                |  | 2002         |             | 2003       
|                                         |  |          |     |                |  |              |             |            
|                                         |  |          |     |                |  |              |             |            
|                                         |  |          |     |                |  | Outstanding  |             | Outstanding
|                                         |  |          |     |                |  |              |             |            
|                                         |  |          |     |                |  | Original     |             |             |  | Original     |       |           
|                                         |  |          |     | Total Facility |  | Currency     |             | Rupiah      |  | Currency     |       | Rupiah    
|Lenders                                  |  | Currency |     | (in million)   |  | (in million) |             | Equivalent  |  | (in million) |       | Equivalent
|                                         |  |          |     |                |  |              |             |             |  |              |       |           
|Group of lenders                         |  |          | US$ |                |  |              | 196.970     |             |  |              |      |            |  |  |         |   |  |  | 172.315 |  |  |  | 1,456,063 |  
|Citibank N.A.                            |  |          | EUR |                |  |              | 73.365      |             |  |              |      |            |  |  |         |   |  |  | 64.890  |  |  |  | 690,646   |  
|                                         |  |          | US$ |                |  |              | 114.883     |             |  |              | 7.690 |            |  |  | 68,911   |   |  |  | 51.340  |  |  |  | 434,059   |  
|Bank Central Asia                        |  |          | Rp  |                |  |              | 173,000.000 |             |  |              |      |            |  |  | 25,903   |   |  |  |        |  |  |  | 139,826   |  
|Deutsche Bank                            |  |          | Rp  |                |  |              | 108,817.710 |             |  |              |      |            |  |  |         |   |  |  |        |  |  |  | 95,418    |  
|Bank Finconesia                          |  |          | Rp  |                |  |              | 31,767.818  |             |  |              |      |            |  |  |         |   |  |  |        |  |  |  | 15,884    |  
|Bank Mandiri                             |  |          | Rp  |                |  |              | 82,425.262  |             |  |              |      |            |  |  |         |   |  |  |        |  |  |  | 42,115    |  
|Syndicated banks                         |  |          | Rp  |                |  |              | 90,000.000  |             |  |              |      |            |  |  | 60,438   |   |  |  |        |  |  |  | 34,263    |  
|                                         |  |          | US$ |                |  |              | 4.000       |             |  |              | 3.288 |            |  |  | 29,460   |   |  |  | 1.864   |  |  |  | 15,751    |  
|Bank Niaga                               |  |          | Rp  |                |  |              | 565.000     |             |  |              |      |            |  |  |         |   |  |  |        |  |  |  | 565       |  
|Japan Bank for International Cooperation |  |          | US$ |                |  |              |            |             |  |              | 7.000 |            |  |  | 62,720   |   |  |  |        |  |  |  |          |  
|                                         |  |          |     |                |  |              |             |             |  |              |       |            |  |  |          |   |  |  |         |  |  |  |           |  
|Total                                    |  |          |     |                |  |              |             |             |  |              |       |            |  |  | 247,432  |   |  |  |         |  |  |  | 2,924,590 |  
|Current maturities of bank loans         |  |          |     |                |  |              |             |             |  |              |       |            |  |  | (162,077 | ) |  |  |         |  |  |  | (808,793  | )
|                                         |  |          |     |                |  |              |             |             |  |              |       |            |  |  |          |   |  |  |         |  |  |  |           |  
|Long-term portion                        |  |          |     |                |  |              |             |             |  |              |       |            |  |  | 85,355   |   |  |  |         |  |  |  | 2,115,797 |  
|                                         |  |          |     |                |  |              |             |             |  |              |       |            |  |  |          |   |  |  |         |  |  |  |           |  



|   |                 
|-- | ----------------
|a. | Group of Lenders

AWI had a loan of US$270,935,729 from a group of
lenders (the lenders) before it was 100% acquired by
the Company on July 31, 2003. Based on the Conditional Sale
and Purchase Agreement related to the acquisition, the Company
assumed the loan by repaying US$73,965,454 and entering into a
credit agreement with the lenders to finance the remaining
outstanding balance of the loan amounting to US$196,970,275,
with JP Morgan Chase Bank, Hong Kong office, as the facility
agent. This loan bears an interest at LIBOR plus 3.5% per
annum (i.e., 4.65% as of December 31, 2003), net of 10%
withholding tax. The Company must pay an annual facility agent
fee of US$75,000. The loan is repayable in 8 semi-annual
installments beginning on December 31, 2003 with the first
through the seventh installment of US$24,655,151 and final
installment of US$24,384,218.



|   |              
|-- | -------------
|b. | Citibank N.A.

1. Hermes
Export Facility

On December 2, 2002, pursuant to the
partnership agreement with Siemens Aktiengesellschaft (AG),
Telkomsel entered into the Hermes Export Facility Agreement
(Facility) with Citibank International plc (as
Arranger and Agent) covering a total
facility of EUR 76,195,313 which is divided into several
tranches.

F-65



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The agreement was subsequently amended on
October 15, 2003, amending the Facility amount to
EUR73,365,093, availability period and the repayment dates.

The interest rate per annum on the Facility is
determined based on the aggregate of the applicable margin,
EURIBOR and mandatory cost, if any (i.e., 2.98% as of
December 31, 2003). Interest is payable semi-annually,
starting on the utilization date of the Facility.

In addition to the interest, in 2003, Telkomsel
was also charged an insurance premium for the insurance
guarantee given by Hermes in favor of Telkomsel for each loan
utilization amounting to EUR 6,089,149, 15% of which was
paid in cash. The remaining balance was settled through
utilization of the Facility.

The total amount drawn down from the Facility in
2003 amounted to EUR72,227,349 (equivalent to
Rp712,389 million). As of December 31, 2003, the
outstanding balance was EUR64,890,840.

The schedule of the principal payments on this
long-term loan as of December 31, 2003 is as follows:

|            |  |             |            |            |  |  |         | 
|----------- |  | ----------- | ---------- | ---------- |  |  | ------- | 
|            |  |            
|            |  | Amount     
|            |  |            
|            |  | EUR         |            | Rupiah    
|Year        |  | Full Amount |            | Equivalent
|            |  |             |            |           
|2004        |  |             | 14,420,187 |            |  |  | 153,477 | 
|2005        |  |             | 14,420,187 |            |  |  | 153,477 | 
|2006  2008 |  |             | 36,050,466 |            |  |  | 383,692 | 



|   |                                                    
|-- | ---------------------------------------------------
|2. | High Performance Backbone (HP
    Backbone) Loans

a. On April 10, 2002, the Company
entered into a Term Loan Agreement HP Backbone Sumatra
Project and Pledge of Right to Deposit with Citibank, N.A.
providing a total facility of US$6,950,000.

The facility was obtained to finance the
construction of the Sumatra High Performance Backbone, in
connection with the Partnership Agreement dated
November 30, 2001, with PT Pirelli Cables Indonesia and PT
Siemens Indonesia for the construction and provision of a high
performance backbone in Sumatra.

Amounts drawn from the facility bear interest at
1% above the interest rate provided by the Bank on the relevant
deposits being pledged to the bank (Note 11). The loans are
payable in eight monthly installments beginning in April 2003.
The Company has drawn down the entire facility of US$6,950,000.

As of December 31, 2002, the outstanding
balance of the loan amounted to US$6,950,000. The loans were
repaid in full by the Company and the loan agreement was
terminated in May 2003.

b. On April 10, 2002, the Company
entered into a Loan Agreement with Citibank
N.A. (arranger) and Citibank International plc
(agent), which was supported by an export credit
guarantee of Hermes Kreditversicherungs AG (lender
and guarantor), providing a total facility of
US$23,400,000.

The facility was obtained to finance up to 85% of
the cost of supplies and services sourced in Germany relating to
the design, manufacture, construction, installation and testing
of high performance backbone networks in Sumatra pursuant to the
Partnership Agreement referred to above.

F-66



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The lender required a fee of 8.4% of the total
facility. This fee is paid twice during the agreement period,
15% of the fee is required to be paid in cash and 85% is
included in the loan balance.

As of December 31, 2002 and 2003, the
outstanding loan was US$740,914 (representing the first
installment of the fee) and US$15,108,176, respectively. The
loan is payable in ten semi-annual installments beginning in
July 2004.

Amounts drawn from the facility bear interest at
LIBOR plus 0.75% (i.e., 1.98% as of December 31, 2003).

c. On April 10, 2002, the Company
entered into a loan agreement with Citibank N.A. (as an
arranger) and Citibank International Plc (as an agent), which
was supported by an export credit guarantee obtained from
Istituto per I Servizi Assicurativi del Commercio Estero
(SACE Italy)providing a total maximum
facility to US$21,000,000. The facility was used to finance up
to 85% of material and services procured in Italy in connection
with the design, manufacture, development, installation and
testing of Sub System VI,as part of HP Backbonenetwork.

This facility was secured by the Companys
property under construction pursuant to the Partnership
Agreement.

Amounts drawn from the facility bear fixed
interest rate of 4.14%. The loans are payable in ten semi-annual
installments beginning December 2003. Total principal
outstanding as of December 31, 2003 was US$16,701,777.

The Company has breached a covenant in the loan
agreement which stipulates that the Company will not make any
loans or grant any credit to or for the benefit of any person.
As of June 9, 2004, the Company has obtained a written
waiver from Citibank International Plc with regard to
entering into the AWI loan (Notes 5c and 26a).

3. EKN-Backed
Facility

On December 2, 2002, pursuant to the
partnership agreement with PT Ericsson Indonesia
(Note 54b), Telkomsel entered into the EKN-Backed Facility
agreement (Facility) with Citibank International plc
(as Arranger and Agent) covering a total
facility amount of US$70,483,426 which is divided into several
tranches.

The agreement was subsequently amended on
October 15, 2003, amending availability period and the
first repayment date.

The interest rate per annum on the Facility is
determined based on the aggregate of the applicable margin, CIRR
(Commercial Interest Reference Rate) and mandatory cost, if any
(i.e., 4.27% as of December 31, 2003). The interest charge
will be paid semi annually, starting on the utilization date of
the Facility.

In addition to the interest, in 2003, Telkomsel
was also charged an insurance premium for the insurance
guarantee given by EKN in favor of Telkomsel for each loan
utilization amounting to US$4,244,793, 15% of which was paid in
cash. The remaining balance was settled through utilization of
the Facility.

The total amount drawn down from the Facility in
2003 amounted to US$21,700,126 (Rp184,834 million). As of
December 31, 2003, the outstanding balance was
US$19,530,113.

F-67



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The schedule of the principal payments of this
long-term loan as of December 31, 2003 is as follows:

|            |  |                  |            |            |  |  |        | 
|----------- |  | ---------------- | ---------- | ---------- |  |  | ------ | 
|            |  |                 
|            |  | Amount          
|            |  |                 
|            |  | US$              |            | Rupiah    
|Year        |  | (in Full Amount) |            | Equivalent
|            |  |                  |            |           
|2004        |  |                  | 4,340,025  |            |  |  | 36,738 | 
|2005        |  |                  | 4,340,025  |            |  |  | 36,738 | 
|2006  2008 |  |                  | 10,850,063 |            |  |  | 91,846 | 

c. Bank
Central Asia

On April 10, 2002, the Company entered into
a Term Loan Agreement HP Backbone Sumatra Project
with Bank Central Asia, providing a total facility of
Rp173,000 million. The facility was obtained to finance the
Rupiah portion of the high performance backbone network in
Sumatra pursuant to the Partnership Agreement.

Amounts drawn from the facility bear interest at
4.35% plus the 3-month time deposit rate (i.e., 11.6% as of
December 31, 2003). The loans are payable in twelve
quarterly installments beginning January 2004. The loan will
mature in October 2006.

Total principal outstanding as of
December 31, 2002 and 2003 were Rp25,903 million and
Rp139,826 million, respectively.

The loan facility from Bank Central Asia is not
collateralized.

The Company has breached a covenant in the loan
agreement which stipulates that the Company will not make any
guarantee or collateralize its assets for an amount exceeding
US$2 million or its equivalent. As of June 23, 2004, the
Company has obtained a written waiver from Bank Central Asia
with regard to the Companys time deposits collateralized
for Napsindos loan (Notes 11b and 22a).

d. Deutsche
Bank AG

On June 28, 2002, the Company entered into a
contract agreement with PT Siemens Indonesia and PT NEC
Nusantara Communications for addition of Central Electronic
Wahler Switching Digital (EWSD) and Nippon Electric
Automatic Exchange (NEAC), respectively, in Division
Regional V. Subsequently, 80% of the contract amounts were
factored by the vendors to Deutsche Bank AG (Facility
Agent). The loans bear fixed interest rate at 19% per
annum and are repayable in two annual installments of
Rp13,400 million beginning in December 2003 for loan ex-PT
NEC Nusantara Communications and Rp41,800 million beginning
in January 2004 for loan ex-PT Siemens Indonesia.

e. Bank
Finconesia

On June 28, 2002, the Company entered into a
contract agreement with PT Olex Cables Indonesia for addition of
installation of Central Lucent in Division Regional V.
Subsequently, 80% of the contract amounts were factored by the
vendor to Bank Finconesia. The loan bears fixed interest rate at
19% per annum and is repayable in two annual installments
of Rp15,884 million beginning in December 2003.

F-68



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


f. Bank
Mandiri

On November 20, 2003, Dayamitra entered into
a loan agreement with Bank Mandiri for a maximum facility of
Rp39,925 million. As of December 31, 2003, the
facility has been fully drawn down. This facility is repayable
on a quarterly basis until the fourth quarter of 2005 and bears
interest at 14.5% per annum, payable on a monthly basis and
subject to change. On December 30, 2003, Bank Mandiri
agreed to decrease the interest rate to 14% per annum
commencing in January 2004.

On December 20, 2003, Dayamitra also
obtained a credit facility from Bank Mandiri for a maximum
facility of Rp40,000 million. The facility is repayable on
a quarterly basis beginning end of the third quarter of 2004
until end of the fourth quarter of 2006 and bears interest at
14% per annum. The loan is obtained to finance the
construction of Fixed Wireless CDMA project pursuant to the
procurement agreement entered between Dayamitra and Samsung
Electronic Co. Ltd.

The above loans are collateralized by
Dayamitras telecommunications equipment/network with CDMA
technology financed by these facilities, and Dayamitras
share in the DKSOR of KSO Unit VI. As of December 31, 2003,
total principal outstanding under these facilities amounted to
Rp39,925 million.

On March 13, 2003, Balebat entered into a
loan agreement with Bank Mandiri for a facility of
Rp2,500 million. This facility bears interest at
15% per annum payable on a monthly basis, is secured by
Balebats operating equipment and will mature in July 2006.
The principal is repayable on a monthly basis. As of
December 31, 2003, principal outstanding under this
facility amounted to Rp2,190 million.

g. Syndicated
Banks (Internet Protocol Backbone (IP Backbone)
Loan)

On February 25, 2002, the Company entered
into a Facility Funding Agreement with Bank DBS
Indonesia (syndicated agent and lender), Bank Bukopin (lender)
and Bank Central Asia (lender), providing a total facility of
US$4,000,000 and Rp90,000 million to fund the IP Backbone
project in 7 (seven) Regional Divisions or KSO regions
divided into 6 (six) batches.

Amounts drawn in U.S. Dollars bear interest
at 2% plus the highest of 1, 2 or 3 month SIBOR divided by
0.87% for the first year and 2% plus the 3 month SIBOR
divided by 0.87% thereafter (i.e., 3.38% as of December 31,
2003). Amounts drawn in Rupiah bear interest at 19% fixed for
the first year and 5% plus the average of BCAs and
Bukopins interest rates (the highest of 1, 3, 6 or
12 month time deposit rate) thereafter (i.e., 12.75% as of
December 31, 2003).

The loans are payable in eleven quarterly
installments beginning in September 2002. The loans will mature
on March 15, 2005.

Total outstanding IP Backbone loans for Rupiah
and U.S. Dollars as of December 31, 2002 and 2003 are
Rp60,438 million and US$3,288,000 (equivalent
Rp29,460 million) and Rp34,263 million and
US$1,864,000 (Rp15,751 million), respectively.

The Company pledged the property under
construction as collateral for the IP Backbone loan pursuant to
Notarial Deed No. 17 dated February 25, 2002 of Notary
Titi Sri Amiretno Diah Wasisti Bagiono, S.H. on Fiduciary
Collateral. The pledge has a maximum amount of
US$14,587,525 and Rp401 million.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Average interest rates for the loans during 2002
and 2003 were as follows:

|            |  |      |               |      |  |  |                | 
|----------- |  | ---- | ------------- | ---- |  |  | -------------- | 
|            |  | 2002 |               | 2003
|            |  |      |               |     
|Rupiah      |  |      | 17.14%   19% |      |  |  | 14.87%  19%   | 
|U.S. Dollar |  |      | 3.5%   4.38% |      |  |  | 3.31%   3.68% | 

Under the Loan Agreements for HP Backbone and IP
Backbone, the Company should maintain quarterly financial ratios
as follows:

1. Debt to equity ratio should not exceed 3:1

2. EBITDA to interest expense should exceed
5:1

As of December 31, 2003, the Company
complied with the above mentioned ratios.

h. Bank
Niaga

On July 18 and December 3, 2003,
Balebat entered into loan agreements with Bank Niaga for
facilities totalling Rp565 million. The facilities bear
interest at 15% per annum and are secured by Balebats
time deposit and vehicles. The principal and interest are
payable on a monthly basis which will end in October 2005 and
December 2005, respectively. As of December 31, 2003,
principal outstanding amounted to Rp565 million.

i. Japan
Bank for International Cooperation (JBIC, Formerly
Export-Import Bank of Japan)

|                         |  |      |         |      |  |  |   | 
|------------------------ |  | ---- | ------- | ---- |  |  | - | 
|                         |  | 2002 |         | 2003
|                         |  |      |         |     
|Total outstanding amount |  |      | 62,720  |      |  |  |  | 
|Current maturities       |  |      | (62,720 | )    |  |  |  | 
|                         |  |      |         |      |  |  |   | 
|Long-term portion        |  |      |        |      |  |  |  | 
|                         |  |      |         |      |  |  |   | 

This loan represented Dayamitras obligation
under a loan facility agreement it entered into with Tomen on
April 27, 1998. The facility had been fully drawn down for
US$35 million, which was repayable in five semi-annual
installments of US$7 million commencing on March 25,
2001. The Company unconditionally guaranteed this loan.

Interest accrues on the outstanding principal at
the rate of LIBOR plus 1% and was repayable semi-annually,
commencing on September 25, 1998. Annual interest rates in
2002 and 2003 ranged from 2.75% to 3.58% and from 2.75% to 2.77%.

On June 21, 1999, an agreement was entered
into between Tomen and JBIC under which the loan and related
security rights were assigned from Tomen to JBIC.

Principal outstanding as of December 31,
2002 of US$7,000,000 was fully paid and the loan agreement was
terminated on March 25, 2003.

F-70



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


27. LIABILITIES FOR ACQUISITIONS OF
SUBSIDIARIES

This amount represents the Companys
obligation under the Promissory Notes issued to the Selling
Stockholders of Dayamitra in respect of the Companys
acquisition of 90.32% of Dayamitra, to the Selling Stockholders
of Pramindo in respect of the Companys acquisition of 100%
of Pramindo, and to the Selling Stockholders of AWI in respect
of the Companys acquisition of 100% of AWI.

|                                    |                                        |      |            |           |   |  |            |          |  
|----------------------------------- | -------------------------------------- | ---- | ---------- | --------- | - |  | ---------- | -------- | -
|                                    |                                        | 2002 |            | 2003     
|                                    |                                        |      |            |          
|Dayamitra transaction(Note 5a)      |                                        |      |            |           |   |  |            |         
|                                    | PT Intidaya Sistelindomitra            |      |            | 99,500    |   |  |            |         |  
|                                    | PT Mitracipta Sarananusa               |      |            | 68,398    |   |  |            |         |  
|                                    | Cable and Wireless plc                 |      |            | 64,260    |   |  |            |         |  
|                                    | Less discount on promissory notes      |      |            | (10,033   | ) |  |            |         |  
|                                    |                                        |      |            |           |   |  |            |         
|                                    |                                        |      | 222,125    |           |   |  |           |         
|                                    |                                        |      |            |           |   |  |            |         
|Pramindo transaction(Note 5b)       |                                        |      |            |           |   |  |            |         
|                                    | France Cables et Radio S.A.            |      |            | 1,224,296 |   |  |            | 646,100  |  
|                                    | PT Astratel Nusantara                  |      |            | 1,071,343 |   |  |            | 565,497  |  
|                                    | Indosat                                |      |            | 397,928   |   |  |            | 210,042  |  
|                                    | Marubeni Corporation                   |      |            | 244,878   |   |  |            | 129,220  |  
|                                    | International Finance Corporation, USA |      |            | 91,829    |   |  |            | 48,457   |  
|                                    | NMP Singapore Pte. Ltd.                |      |            | 30,610    |   |  |            | 16,157   |  
|                                    | Less discount on promissory notes      |      |            | (278,074  | ) |  |            | (80,184  | )
|                                    |                                        |      |            |           |   |  |            |         
|                                    |                                        |      | 2,782,810  |           |   |  | 1,535,289  |         
|                                    |                                        |      |            |           |   |  |            |         
|AriaWest transaction(Note 5c)       |                                        |      |            |           |   |  |            |         
|                                    | PT Aria Infotek                        |      |            |          |   |  |            | 483,955  |  
|                                    | The Asian Infrastructure Fund          |      |            |          |   |  |            | 115,227  |  
|                                    | MediaOne International I B.V.          |      |            |          |   |  |            | 322,636  |  
|                                    | Less discount on promissory notes      |      |            |          |   |  |            | (122,358 | )
|                                    |                                        |      |            |           |   |  |            |         
|                                    |                                        |      |           |           |   |  | 799,460    |         
|                                    |                                        |      |            |           |   |  |            |         
|Total                               |                                        |      | 3,004,935  |           |   |  | 2,334,749  |         
|Current maturity  net of discount  |                                        |      | (1,385,956 | )         |   |  | (1,587,775 | )       
|                                    |                                        |      |            |           |   |  |            |         
|Long-term portion  net of discount |                                        |      | 1,618,979  |           |   |  | 746,974    |         
|                                    |                                        |      |            |           |   |  |            |         

F-71



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                        
|--- | -----------------------
|28. | SUPPLIERS CREDIT LOANS

|                     |  |      |          |      |  |  |          |  
|-------------------- |  | ---- | -------- | ---- |  |  | -------- | -
|                     |  | 2002 |          | 2003
|                     |  |      |          |     
|Tomen Corporation    |  |      | 290,498  |      |  |  | 139,608  |  
|Cable & Wireless plc |  |      | 48,199   |      |  |  | 26,021   |  
|                     |  |      |          |      |  |  |          |  
|Total                |  |      | 338,697  |      |  |  | 165,629  |  
|Current maturities   |  |      | (163,072 | )    |  |  | (164,958 | )
|                     |  |      |          |      |  |  |          |  
|Long-term portion    |  |      | 175,625  |      |  |  | 671      |  
|                     |  |      |          |      |  |  |          |  



|   |                                
|-- | -------------------------------
|a. | Tomen Corporation
    (Tomen)

Dayamitra entered into a Design, Supply,
Construction and Installation Contract dated November 18,
1998 with Tomen, the ultimate holding company of TMC, one of the
former stockholders of Dayamitra. Under the terms of the
contract, Tomen is responsible for the construction of the
minimum new installations required under the KSO VI
Agreement in which Dayamitra is the investor.

In connection with the above agreement, Dayamitra
entered into a Suppliers Credit Agreement
(SCA) with Tomen on November 18, 1998. The
total commitment under the SCA was US$54,000,000 of which
US$50,444,701 had been drawn down before the expiration date of
the available credit on September 30, 1999.

Interest accrues on the amounts drawn down at
LIBOR plus 4.5% per annum, and is payable semiannually in
arrears. Annual interest rates in 2002 and 2003 ranged from
5.92% to 6.48% and from 5.53% to 5.92%, respectively.

The SCA loan is repayable in ten semi-annual
installments commencing on December 15, 2000. The SCA
contains a minimum fixed repayment schedule, however, additional
principal repayments are required on repayment dates in the
event that Dayamitra has excess cash, as defined in the SCA. To
date, Dayamitra has not been required to make additional
principal repayments from excess cash. The SCA loan is secured
on a pro rata basis by the security rights provided under the
C&W plc bridging facility loan (Note 29).



|   |                                       
|-- | --------------------------------------
|b. | Cable and Wireless plc (C&W
    plc)

Dayamitra entered into a Suppliers Credit
Agreement (SCA) with C&W plc on
May 19, 1999.

The SCA loan is repayable in ten semi-annual
installments commencing on December 15, 2000. The loan
contains a minimum fixed repayment schedule, however, additional
principal repayments are required on repayment dates in the
event that Dayamitra has excess cash, as defined in the SCA. To
date, Dayamitra has not been required to make additional
principal repayments from excess cash. Interest on this loan is
at the rate of LIBOR plus 4.5%. Annual interest rates in 2002
and 2003 ranged from 5.92% to 6.48% and from 5.53% to 5.92%,
respectively.

The SCA loan is secured on a pro rata basis by
the security rights provided under the C&W plc bridging
facility loan. In addition, any distributions to stockholders in
the form of dividends or repayments of share capital require the
written consent of Tomen and C&W plc.

F-72



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |              
|--- | -------------
|29. | BRIDGING LOAN

|                         |  |      |         |      |  |  |         |  
|------------------------ |  | ---- | ------- | ---- |  |  | ------- | -
|                         |  | 2002 |         | 2003
|                         |  |      |         |     
|Total outstanding amount |  |      | 95,517  |      |  |  | 50,365  |  
|Current maturities       |  |      | (42,112 | )    |  |  | (49,855 | )
|                         |  |      |         |      |  |  |         |  
|Long-term portion        |  |      | 53,405  |      |  |  | 510     |  
|                         |  |      |         |      |  |  |         |  

This loan is owed by Dayamitra to C&W plc
under a bridging loan facility which was assigned from three
local Indonesian banks. The loan is repayable in ten semi-annual
installments commencing on December 15, 2000. Interest is
payable on a monthly or a quarterly basis, at the option of
Dayamitra, at the rate of LIBOR plus 4% per annum. Annual
interest rates in 2002 and 2003 ranged from 5.42% to 5.98% and
from 5.06% to 5.42%, respectively.

C&W plc has agreed to the repayment of the
bridging loan facility in proportion to the amounts made
available to Dayamitra under this bridging loan facility and the
C&W plc and Tomen Suppliers Credit Loan. The security
provided against the bridging loan facility consists of an
assignment of KSO revenues, an assignment of bank accounts, a
security interest in Dayamitras movable assets, an
assignment of the Tomen construction contract, an assignment of
proceeds from early termination of the KSO license by the
Company, and an assignment of insurance proceeds.

Distributions to stockholders in the form of
dividends or repayment of share capital require the written
consent of C&W plc.



|    |                  
|--- | -----------------
|30. | MINORITY INTEREST

|                                                 |           |      |           |           |  |  |           |           | 
|------------------------------------------------ | --------- | ---- | --------- | --------- |  |  | --------- | --------- | 
|                                                 |           | 2002 |           | 2003     
|                                                 |           |      |           |          
|Minority interest in net assets of subsidiaries: |           |      |           |           |  |  |           |          
|                                                 | Telkomsel |      |           | 2,516,180 |  |  |           | 3,608,874 | 
|                                                 | Infomedia |      |           | 43,744    |  |  |           | 60,353    | 
|                                                 | Dayamitra |      |           | 22,173    |  |  |           | 32,999    | 
|                                                 | Indonusa  |      |           | 13,700    |  |  |           | 1,959     | 
|                                                 | Napsindo  |      |           |          |  |  |           | 2,068     | 
|                                                 | PII       |      |           |          |  |  |           | 1,899     | 
|                                                 | GSD       |      |           | 2         |  |  |           | 3         | 
|                                                 |           |      |           |           |  |  |           |          
|Total                                            |           |      | 2,595,799 |           |  |  | 3,708,155 |          
|                                                 |           |      |           |           |  |  |           |          

F-73



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                            |           |      |         |         |   |      |         |         |   |  |           |           |  
|----------------------------------------------------------- | --------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - |  | --------- | --------- | -
|                                                            |           | 2001 |         | 2002    |   | 2003
|                                                            |           |      |         |         |   |     
|Minority interest in net income (loss) of
    subsidiaries: |           |      |         |         |   |      |         |         |   |  |           |          
|                                                            | Telkomsel |      |         | 455,331 |   |      |         | 782,870 |   |  |           | 1,482,897 |  
|                                                            | Infomedia |      |         | 15,067  |   |      |         | 19,031  |   |  |           | 22,399    |  
|                                                            | Dayamitra |      |         | 6,241   |   |      |         | 15,151  |   |  |           | 11,584    |  
|                                                            | Indonusa  |      |         | (2,034  | ) |      |         | (6,831  | ) |  |           | (2,351    | )
|                                                            | Napsindo  |      |         |        |   |      |         |        |   |  |           | (8,541    | )
|                                                            | PII       |      |         |        |   |      |         |        |   |  |           | (2,511    | )
|                                                            | GSD       |      |         |        |   |      |         | 1       |   |  |           | 1         |  
|                                                            |           |      |         |         |   |      |         |         |   |  |           |          
|Total                                                       |           |      | 474,605 |         |   |      | 810,222 |         |   |  | 1,503,478 |          
|                                                            |           |      |         |         |   |      |         |         |   |  |           |          

31. CAPITAL STOCK

|                        |                                         |                   |                |               |        |         |        |       |   |  |           |           |   | 
|----------------------- | --------------------------------------- | ----------------- | -------------- | ------------- | ------ | ------- | ------ | ----- | - |  | --------- | --------- | - | 
|                        |                                         |                  
|                        |                                         | 2002             
|                        |                                         |                  
|                        |                                         |                   |                | Percentage    |        | Total  
|                        |                                         | Number of         |                | of            |        | Paid-up
|Description             |                                         | Shares            |                | Ownership     |        | Capital
|                        |                                         |                   |                |               |        |        
|                        |                                         |                   |                | %             |        |        
|Series A Dwiwarna share |                                         |                   |                |               |        |         |        |       |   |  |           |          
|                        | Government of the Republic of Indonesia |                   |                | 1             |        |         |        |      |   |  |           |          |  
|Series B shares         |                                         |                   |                |               |        |         |        |       |   |  |           |          
|                        | Government of the Republic of Indonesia |                   |                | 5,160,235,355 |        |         |        | 51.19 |   |  |           | 2,580,118 |  
|                        | JPMCB US Resident (Norbax Inc.)         |                   |                | 879,723,798   |        |         |        | 8.73  |   |  |           | 439,862   |  
|                        | The Bank of New York                    |                   |                | 610,489,548   |        |         |        | 6.06  |   |  |           | 305,245   |  
|                        | Board of Commissioners:                 |                   |                |               |        |         |        |       |   |  |           |           |  
|                        |                                         | Petrus Sartono    |                |               | 8,262  |         |        |       |  |  |           |           | 4 | 
|                        | Board of Directors:                     |                   |                |               |        |         |        |       |   |  |           |           |  
|                        |                                         | Kristiono         |                |               | 12,690 |         |        |       |  |  |           |           | 6 | 
|                        |                                         | Garuda Sugardo    |                |               | 8,262  |         |        |       |  |  |           |           | 4 | 
|                        |                                         | Guntur Siregar    |                |               | 9,990  |         |        |       |  |  |           |           | 5 | 
|                        |                                         | Agus Utoyo        |                |               | 11,826 |         |        |       |  |  |           |           | 6 | 
|                        |                                         | Suryatin Setiawan |                |               | 10,854 |         |        |       |  |  |           |           | 5 | 
|                        | Public (below 5% each)                  |                   |                | 3,429,489,054 |        |         |        | 34.02 |   |  |           | 1,714,745 |  
|                        |                                         |                   |                |               |        |         |        |       |   |  |           |          
|Total                   |                                         |                   | 10,079,999,640 |               |        |         | 100.00 |       |   |  | 5,040,000 |          
|                        |                                         |                   |                |               |        |         |        |       |   |  |           |          

F-74



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                        |                                         |                   |                |               |        |         |        |       |   |  |           |           |   | 
|----------------------- | --------------------------------------- | ----------------- | -------------- | ------------- | ------ | ------- | ------ | ----- | - |  | --------- | --------- | - | 
|                        |                                         |                  
|                        |                                         | 2003             
|                        |                                         |                  
|                        |                                         |                   |                | Percentage    |        | Total  
|                        |                                         | Number of         |                | of            |        | Paid-up
|Description             |                                         | Shares            |                | Ownership     |        | Capital
|                        |                                         |                   |                |               |        |        
|                        |                                         |                   |                | %             |        |        
|Series A Dwiwarna share |                                         |                   |                |               |        |         |        |       |   |  |           |          
|                        | Government of the Republic of Indonesia |                   |                | 1             |        |         |        |      |   |  |           |          |  
|Series B shares         |                                         |                   |                |               |        |         |        |       |   |  |           |          
|                        | Government of the Republic of Indonesia |                   |                | 5,160,235,355 |        |         |        | 51.19 |   |  |           | 2,580,118 |  
|                        | JPMCB US Resident (Norbax Inc.)         |                   |                | 896,045,651   |        |         |        | 8.89  |   |  |           | 448,023   |  
|                        | The Bank of New York                    |                   |                | 657,263,408   |        |         |        | 6.52  |   |  |           | 328,632   |  
|                        | Board of Commissioners:                 |                   |                |               |        |         |        |       |   |  |           |           |  
|                        |                                         | Petrus Sartono    |                |               | 9,558  |         |        |       |  |  |           |           | 5 | 
|                        | Board of Directors:                     |                   |                |               |        |         |        |       |   |  |           |           |  
|                        |                                         | Kristiono         |                |               | 12,690 |         |        |       |  |  |           |           | 6 | 
|                        |                                         | Garuda Sugardo    |                |               | 8,262  |         |        |       |  |  |           |           | 4 | 
|                        |                                         | Guntur Siregar    |                |               | 9,990  |         |        |       |  |  |           |           | 5 | 
|                        |                                         | Agus Utoyo        |                |               | 11,826 |         |        |       |  |  |           |           | 6 | 
|                        |                                         | Suryatin Setiawan |                |               | 10,854 |         |        |       |  |  |           |           | 5 | 
|                        | Public (below 5% each)                  |                   |                | 3,366,392,045 |        |         |        | 33.40 |   |  |           | 1,683,196 |  
|                        |                                         |                   |                |               |        |         |        |       |   |  |           |          
|Total                   |                                         |                   | 10,079,999,640 |               |        |         | 100.00 |       |   |  | 5,040,000 |          
|                        |                                         |                   |                |               |        |         |        |       |   |  |           |          

32. ADDITIONAL PAID-IN CAPITAL

|                                                                                                            |  |      |           |      |  |  |           |  
|----------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | -
|                                                                                                            |  | 2002 |           | 2003
|                                                                                                            |  |      |           |     
|Proceeds from sale of 933,333,000 shares in
    excess of par value through initial public offering in 1995 |  |      | 1,446,666 |      |  |  | 1,446,666 |  
|Capitalization into 746,666,640 series B
    shares in 1999                                                 |  |      | (373,333  | )    |  |  | (373,333  | )
|                                                                                                            |  |      |           |      |  |  |           |  
|Total                                                                                                       |  |      | 1,073,333 |      |  |  | 1,073,333 |  
|                                                                                                            |  |      |           |      |  |  |           |  



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|33. | DIFFERENCE IN VALUE OF RESTRUCTURING
    TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Represents the difference between the
    consideration paid or received and the historical amount of the
    net assets of the investee acquired or carrying amount of the
    investment sold, arising from transactions with entities under
    common control.

F-75



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


34. TELEPHONE REVENUES

|                         |                                        |      |            |           |  |      |            |           |  |  |            |           | 
|------------------------ | -------------------------------------- | ---- | ---------- | --------- |  | ---- | ---------- | --------- |  |  | ---------- | --------- | 
|                         |                                        | 2001 |            | 2002      |  | 2003
|                         |                                        |      |            |           |  |     
|Fixed lines              |                                        |      |            |           |  |      |            |           |  |  |            |          
|                         | Local and domestic long-distance usage |      |            | 5,225,705 |  |      |            | 5,447,925 |  |  |            | 6,561,800 | 
|                         | Monthly subscription charges           |      |            | 997,651   |  |      |            | 1,474,823 |  |  |            | 1,948,830 | 
|                         | Installation charges                   |      |            | 98,017    |  |      |            | 130,234   |  |  |            | 223,130   | 
|                         | Phone cards                            |      |            | 25,455    |  |      |            | 29,265    |  |  |            | 34,371    | 
|                         | Others                                 |      |            | 68,328    |  |      |            | 181,852   |  |  |            | 128,734   | 
|                         |                                        |      |            |           |  |      |            |           |  |  |            |          
|Total                    |                                        |      | 6,415,156  |           |  |      | 7,264,099  |           |  |  | 8,896,865  |          
|                         |                                        |      |            |           |  |      |            |           |  |  |            |          
|Cellular                 |                                        |      |            |           |  |      |            |           |  |  |            |          
|                         | Air time charges                       |      |            | 3,987,738 |  |      |            | 5,453,597 |  |  |            | 7,677,884 | 
|                         | Monthly subscription charges           |      |            | 581,566   |  |      |            | 593,347   |  |  |            | 580,550   | 
|                         | Connection fee charges                 |      |            | 128,543   |  |      |            | 172,302   |  |  |            | 194,053   | 
|                         | Features                               |      |            | 10,151    |  |      |            | 7,555     |  |  |            | 6,343     | 
|                         |                                        |      |            |           |  |      |            |           |  |  |            |          
|Total                    |                                        |      | 4,707,998  |           |  |      | 6,226,801  |           |  |  | 8,458,830  |          
|                         |                                        |      |            |           |  |      |            |           |  |  |            |          
|Total Telephone Revenues |                                        |      | 11,123,154 |           |  |      | 13,490,900 |           |  |  | 17,355,695 |          
|                         |                                        |      |            |           |  |      |            |           |  |  |            |          

35. INTERCONNECTION REVENUES 
NET

|              |  |      |           |      |  |      |           |  |  |  |           | 
|------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|              |  | 2001 |           | 2002 |  | 2003
|              |  |      |           |      |  |     
|Cellular      |  |      | 1,241,603 |      |  |      | 2,383,667 |  |  |  | 3,908,292 | 
|International |  |      | 116,770   |      |  |      | 344,500   |  |  |  | 184,097   | 
|Other         |  |      | 65,313    |      |  |      | 103,167   |  |  |  | 69,759    | 
|              |  |      |           |      |  |      |           |  |  |  |           | 
|Total         |  |      | 1,423,686 |      |  |      | 2,831,334 |  |  |  | 4,162,148 | 
|              |  |      |           |      |  |      |           |  |  |  |           | 

36. REVENUE UNDER JOINT OPERATION
SCHEMES

|                                                                                     |  |      |           |      |  |      |           |  |  |  |           | 
|------------------------------------------------------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                                                     |  | 2001 |           | 2002 |  | 2003
|                                                                                     |  |      |           |      |  |     
|Minimum Telkom Revenues                                                              |  |      | 1,474,200 |      |  |      | 1,319,715 |  |  |  | 899,862   | 
|Share in Distributable KSO Revenues                                                  |  |      | 732,960   |      |  |      | 801,010   |  |  |  | 583,012   | 
|Amortization of unearned initial investor
    payments under Joint Operation Schemes |  |      | 12,426    |      |  |      | 7,420     |  |  |  | 3,433     | 
|                                                                                     |  |      |           |      |  |      |           |  |  |  |           | 
|Total                                                                                |  |      | 2,219,586 |      |  |      | 2,128,145 |  |  |  | 1,486,307 | 
|                                                                                     |  |      |           |      |  |      |           |  |  |  |           | 

Distributable KSO Revenues represent the entire
KSO revenues, less MTR and operational expenses of the KSO
Units. These revenues are shared between the Company and the KSO
Investors based upon agreed percentages (Note 51).

F-76



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


37. DATA AND INTERNET REVENUES

|           |  |      |         |      |  |      |           |  |  |  |           | 
|---------- |  | ---- | ------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|           |  | 2001 |         | 2002 |  | 2003
|           |  |      |         |      |  |     
|SMS        |  |      | 344,600 |      |  |      | 997,249   |  |  |  | 2,205,058 | 
|Multimedia |  |      | 218,300 |      |  |      | 337,796   |  |  |  | 494,747   | 
|VoIP       |  |      | 25,589  |      |  |      | 152,195   |  |  |  | 328,284   | 
|ISDN       |  |      | 84,695  |      |  |      | 64,386    |  |  |  | 80,473    | 
|           |  |      |         |      |  |      |           |  |  |  |           | 
|Total      |  |      | 673,184 |      |  |      | 1,551,626 |  |  |  | 3,108,562 | 
|           |  |      |         |      |  |      |           |  |  |  |           | 

38. NETWORK REVENUES

|                            |  |      |         |      |  |      |         |  |  |  |         | 
|--------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                            |  | 2001 |         | 2002 |  | 2003
|                            |  |      |         |      |  |     
|Satellite transponder lease |  |      | 203,558 |      |  |      | 190,220 |  |  |  | 270,860 | 
|Leased lines                |  |      | 211,371 |      |  |      | 125,878 |  |  |  | 247,005 | 
|                            |  |      |         |      |  |      |         |  |  |  |         | 
|Total                       |  |      | 414,929 |      |  |      | 316,098 |  |  |  | 517,865 | 
|                            |  |      |         |      |  |      |         |  |  |  |         | 

39. REVENUE-SHARING ARRANGEMENT
REVENUES

|                                          |  |      |         |      |  |      |         |  |  |  |         | 
|----------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                          |  | 2001 |         | 2002 |  | 2003
|                                          |  |      |         |      |  |     
|Revenue-Sharing Arrangement revenues      |  |      | 191,478 |      |  |      | 211,483 |  |  |  | 200,085 | 
|Amortization of unearned income (Note 15) |  |      | 72,775  |      |  |      | 52,271  |  |  |  | 58,379  | 
|                                          |  |      |         |      |  |      |         |  |  |  |         | 
|Total                                     |  |      | 264,253 |      |  |      | 263,754 |  |  |  | 258,464 | 
|                                          |  |      |         |      |  |      |         |  |  |  |         | 

40. OPERATING EXPENSES 
PERSONNEL

|                                                        |  |      |           |      |  |      |           |  |  |  |           | 
|------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                        |  | 2001 |           | 2002 |  | 2003
|                                                        |  |      |           |      |  |     
|Salaries and related benefits                           |  |      | 883,409   |      |  |      | 1,410,670 |  |  |  | 1,574,181 | 
|Vacation pay, incentives and other benefits             |  |      | 364,707   |      |  |      | 655,518   |  |  |  | 816,055   | 
|Early retirements                                       |  |      | 140,000   |      |  |      | 717,289   |  |  |  | 355,735   | 
|Net periodic post-retirement benefit cost
    (Note 48) |  |      | 374,510   |      |  |      | 616,512   |  |  |  | 641,435   | 
|Net periodic pension cost (Note 46)                     |  |      | 86,233    |      |  |      | 362,298   |  |  |  | 190,914   | 
|Employee income tax                                     |  |      | 132,855   |      |  |      | 201,468   |  |  |  | 468,805   | 
|Long service awards (Note 47)                           |  |      | 94,540    |      |  |      | 289,922   |  |  |  | 207,126   | 
|Housing                                                 |  |      | 93,315    |      |  |      | 89,495    |  |  |  | 116,858   | 
|Medical                                                 |  |      | 81,698    |      |  |      | 28,209    |  |  |  | 9,682     | 
|Others                                                  |  |      | 29,978    |      |  |      | 16,187    |  |  |  | 59,305    | 
|                                                        |  |      |           |      |  |      |           |  |  |  |           | 
|Total                                                   |  |      | 2,281,245 |      |  |      | 4,387,568 |  |  |  | 4,440,096 | 
|                                                        |  |      |           |      |  |      |           |  |  |  |           | 

F-77



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                                                                                
|--- | -------------------------------------------------------------------------------
|41. | OPERATING EXPENSES  OPERATIONS,
    MAINTENANCE AND TELECOMMUNICATION SERVICES

|                                   |  |      |           |      |  |      |           |  |  |  |           | 
|---------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                   |  | 2001 |           | 2002 |  | 2003
|                                   |  |      |           |      |  |     
|Operations and maintenance         |  |      | 891,435   |      |  |      | 1,042,588 |  |  |  | 1,744,806 | 
|Radio frequency usage charges      |  |      | 101,305   |      |  |      | 292,703   |  |  |  | 371,740   | 
|Electricity, gas and water         |  |      | 157,068   |      |  |      | 219,913   |  |  |  | 300,432   | 
|Cost of phone cards                |  |      | 173,412   |      |  |      | 197,683   |  |  |  | 181,272   | 
|Concession fees                    |  |      | 63,561    |      |  |      | 163,891   |  |  |  | 238,979   | 
|Insurance                          |  |      | 67,783    |      |  |      | 142,932   |  |  |  | 157,075   | 
|Leased lines                       |  |      | 82,880    |      |  |      | 103,643   |  |  |  | 127,021   | 
|Vehicles and supporting facilities |  |      | 38,235    |      |  |      | 79,961    |  |  |  | 115,697   | 
|Travelling                         |  |      | 15,700    |      |  |      | 16,523    |  |  |  | 29,815    | 
|Telephone kiosks commissions      |  |      | 520,947   |      |  |      |          |  |  |  |          | 
|Others                             |  |      | 37,595    |      |  |      | 30,382    |  |  |  | 71,856    | 
|                                   |  |      |           |      |  |      |           |  |  |  |           | 
|Total                              |  |      | 2,149,921 |      |  |      | 2,290,219 |  |  |  | 3,338,693 | 
|                                   |  |      |           |      |  |      |           |  |  |  |           | 

Effective January 1, 2002, telephone kiosks
are charged 70% of basic tariff charged by operators to its
customers on calls placed from kiosk phones. Consequently, the
Company is no longer required to pay commissions.



|    |                                                    
|--- | ---------------------------------------------------
|42. | OPERATING EXPENSES  GENERAL AND
    ADMINISTRATIVE

|                                                               |  |      |           |      |  |      |           |  |  |  |           | 
|-------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                               |  | 2001 |           | 2002 |  | 2003
|                                                               |  |      |           |      |  |     
|Professional fees                                              |  |      | 325,268   |      |  |      | 218,949   |  |  |  | 115,598   | 
|Collection expenses                                            |  |      | 181,925   |      |  |      | 224,782   |  |  |  | 273,767   | 
|Amortization of intangible assets (Note 16)                    |  |      | 55,709    |      |  |      | 187,990   |  |  |  | 730,659   | 
|Training, education and recruitment                            |  |      | 147,312   |      |  |      | 122,045   |  |  |  | 126,927   | 
|Travel                                                         |  |      | 92,828    |      |  |      | 111,427   |  |  |  | 144,677   | 
|Security and screening                                         |  |      | 48,792    |      |  |      | 77,103    |  |  |  | 110,278   | 
|General and social contribution                                |  |      | 36,762    |      |  |      | 69,419    |  |  |  | 113,785   | 
|Printing and stationery                                        |  |      | 37,589    |      |  |      | 43,513    |  |  |  | 50,535    | 
|Meetings                                                       |  |      | 26,498    |      |  |      | 31,719    |  |  |  | 42,813    | 
|Provision for doubtful accounts and inventory
    obsolescence |  |      | 342,900   |      |  |      | 31,103    |  |  |  | 326,419   | 
|Research and development                                       |  |      | 39,523    |      |  |      | 10,483    |  |  |  | 9,111     | 
|Others                                                         |  |      | 8,350     |      |  |      | 17,761    |  |  |  | 34,208    | 
|                                                               |  |      |           |      |  |      |           |  |  |  |           | 
|Total                                                          |  |      | 1,343,456 |      |  |      | 1,146,294 |  |  |  | 2,078,777 | 
|                                                               |  |      |           |      |  |      |           |  |  |  |           | 

The allowance for doubtful accounts in 2001
includes an allowance for the MTR and share in distributable KSO
revenues receivable from KSO III amounting to
Rp155,756 million. This provision was reversed in 2002
following the settlement of the AriaWest dispute (Note 8d).

F-78



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


43. INCOME TAX

|                 |              |                                             |            |      |        |         |           |  |         |         | 
|---------------- | ------------ | ------------------------------------------- | ---------- | ---- | ------ | ------- | --------- |  | ------- | ------- | 
|                 |              | 2002                                        |            | 2003
|                 |              |                                             |            |     
|a. Prepaid taxes |              |                                             |            |      |        |         |           | 
|                 | The Company  |                                             |            |      |        |         |           |  |        
|                 |              | Refundable corporate income tax overpayment |            |      |       |         |           |  | 38,370  |        
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             |           |      |        |         | 38,370    | 
|                 |              |                                             |            |      |        |         |           | 
|                 | Subsidiaries |                                             |            |      |        |         |           |  |        
|                 |              | Corporate income tax                        |            |      | 265    |         |           |  | 2,443   |        
|                 |              | Value added tax                             |            |      | 84,409 |         |           |  | 171,469 |        
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             | 84,674     |      |        |         | 173,912   | 
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             | 84,674     |      |        |         | 212,282   | 
|                 |              |                                             |            |      |        |         |           | 
|b. Taxes payable |              |                                             |            |      |        |         |           | 
|                 | The Company  |                                             |            |      |        |         |           |  |        
|                 |              | Income tax                                  |            |      |        |         |           |  |         |        
|                 |              |                                             | Article 21 |      |        | 10,959  |           |  |         | 91,229  | 
|                 |              |                                             | Article 22 |      |        | 2,189   |           |  |         | 2,577   | 
|                 |              |                                             | Article 23 |      |        | 25,325  |           |  |         | 19,131  | 
|                 |              |                                             | Article 25 |      |        | 3,450   |           |  |         | 87,219  | 
|                 |              |                                             | Article 26 |      |        | 1,892   |           |  |         | 7,045   | 
|                 |              |                                             | Article 29 |      |        | 631,124 |           |  |         | 363,566 | 
|                 |              | Value added tax                             |            |      | 34,487 |         |           |  | 120,206 |        
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             | 709,426    |      |        |         | 690,973   | 
|                 |              |                                             |            |      |        |         |           | 
|                 | Subsidiaries |                                             |            |      |        |         |           |  |        
|                 |              | Income tax                                  |            |      |        |         |           |  |         |        
|                 |              |                                             | Article 4  |      |        |        |           |  |         | 4,012   | 
|                 |              |                                             | Article 21 |      |        | 16,613  |           |  |         | 47,265  | 
|                 |              |                                             | Article 22 |      |        | 187     |           |  |         | 765     | 
|                 |              |                                             | Article 23 |      |        | 26,408  |           |  |         | 66,793  | 
|                 |              |                                             | Article 25 |      |        | 77,881  |           |  |         | 66,289  | 
|                 |              |                                             | Article 26 |      |        | 4,931   |           |  |         | 39,488  | 
|                 |              |                                             | Article 29 |      |        | 220,377 |           |  |         | 498,826 | 
|                 |              | Value added tax                             |            |      | 53,809 |         |           |  | 98,627  |        
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             | 400,206    |      |        |         | 822,065   | 
|                 |              |                                             |            |      |        |         |           | 
|                 |              |                                             | 1,109,632  |      |        |         | 1,513,038 | 
|                 |              |                                             |            |      |        |         |           | 

F-79



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


c. The components of income tax expense
(benefit) are as follows:

|         |              |      |           |           |   |      |           |           |   |  |           |           |  
|-------- | ------------ | ---- | --------- | --------- | - | ---- | --------- | --------- | - |  | --------- | --------- | -
|         |              | 2001 |           | 2002      |   | 2003
|         |              |      |           |           |   |     
|Current  |              |      |           |           |   |      |           |           |   |  |           |          
|         | The Company  |      |           | 1,291,206 |   |      |           | 1,671,104 |   |  |           | 1,886,283 |  
|         | Subsidiaries |      |           | 886,160   |   |      |           | 1,076,658 |   |  |           | 1,904,997 |  
|         |              |      |           |           |   |      |           |           |   |  |           |          
|         |              |      | 2,177,366 |           |   |      | 2,747,762 |           |   |  | 3,791,280 |          
|         |              |      |           |           |   |      |           |           |   |  |           |          
|Deferred |              |      |           |           |   |      |           |           |   |  |           |          
|         | The Company  |      |           | (168,815  | ) |      |           | (153,019  | ) |  |           | 142,089   |  
|         | Subsidiaries |      |           | (1,656    | ) |      |           | 304,228   |   |  |           | (72,279   | )
|         |              |      |           |           |   |      |           |           |   |  |           |          
|         |              |      | (170,471  | )         |   |      | 151,209   |           |   |  | 69,810    |          
|         |              |      |           |           |   |      |           |           |   |  |           |          
|         |              |      | 2,006,895 |           |   |      | 2,898,971 |           |   |  | 3,861,090 |          
|         |              |      |           |           |   |      |           |           |   |  |           |          

d. Corporate income tax is computed for each
individual company as a separate legal entity (consolidated
financial statements are not applicable for computing corporate
income tax).

The reconciliation of consolidated income before
tax to income before tax attributable to the Company and the
consolidated income tax expense is as follows:

|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  |  | ---------- | -
|                                                                                                             |  | 2001 |            | 2002 |  | 2003
|                                                                                                             |  |      |            |      |  |     
|Consolidated income before tax                                                                               |  |      | 6,549,891  |      |  |      | 11,748,902 |   |  |  | 11,451,795 |  
|Add back consolidation eliminations                                                                          |  |      | 1,926,439  |      |  |      | 2,554,407  |   |  |  | 3,332,176  |  
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|Consolidated income before tax and eliminations                                                              |  |      | 8,476,330  |      |  |      | 14,303,309 |   |  |  | 14,783,971 |  
|Deduct income before tax of the subsidiaries                                                                 |  |      | (3,285,548 | )    |  |      | (4,745,515 | ) |  |  | (7,009,179 | )
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|Income before tax attributable to the Company                                                                |  |      | 5,190,782  |      |  |      | 9,557,794  |   |  |  | 7,774,792  |  
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|Tax calculated at progressive rates                                                                          |  |      | 1,557,218  |      |  |      | 2,867,321  |   |  |  | 2,332,420  |  
|Income not subject to tax                                                                                    |  |      | (665,007   | )    |  |      | (1,785,208 | ) |  |  | (1,044,835 | )
|Non-deductible expenses                                                                                      |  |      | 230,180    |      |  |      | 469,464    |   |  |  | 669,643    |  
|Deferred tax (assets) liabilities
    originating from previously unrecognized temporary difference,
    net |  |      |           |      |  |      | (40,252    | ) |  |  | 71,144     |  
|Deferred tax assets that cannot be utilized                                                                  |  |      |           |      |  |      | 6,760      |   |  |  |           |  
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|Income tax expense of the Company                                                                            |  |      | 1,122,391  |      |  |      | 1,518,085  |   |  |  | 2,028,372  |  
|Income tax expense of the subsidiaries                                                                       |  |      | 884,504    |      |  |      | 1,380,886  |   |  |  | 1,832,718  |  
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  
|Total consolidated income tax expense                                                                        |  |      | 2,006,895  |      |  |      | 2,898,971  |   |  |  | 3,861,090  |  
|                                                                                                             |  |      |            |      |  |      |            |   |  |  |            |  

F-80



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The reconciliation between income before tax and
the estimated taxable income for the years ended
December 31, 2001, 2002 and 2003 is as follows:

|                                              |                                                                                               |      |           |            |   |      |           |            |   |  |           |            |  
|--------------------------------------------- | --------------------------------------------------------------------------------------------- | ---- | --------- | ---------- | - | ---- | --------- | ---------- | - |  | --------- | ---------- | -
|                                              |                                                                                               | 2001 |           | 2002       |   | 2003
|                                              |                                                                                               |      |           |            |   |     
|Income before tax attributable to the Company |                                                                                               |      | 5,190,782 |            |   |      | 9,557,794 |            |   |  | 7,774,792 |           
|                                              |                                                                                               |      |           |            |   |      |           |            |   |  |           |           
|Temporary differences:                        |                                                                                               |      |           |            |   |      |           |            |   |  |           |           
|                                              | Depreciation of property, plant and equipment                                                 |      |           | 165,239    |   |      |           | (170,134   | ) |  |           | 442,029    |  
|                                              | Gain on sale of property, plant and equipment                                                 |      |           | (21,759    | ) |      |           | 14,774     |   |  |           | (25,495    | )
|                                              | Allowance/(write back) for doubtful accounts                                                  |      |           | 226,514    |   |      |           | (156,223   | ) |  |           | 166,341    |  
|                                              | Accounts receivable written-off                                                               |      |           | (44,423    | ) |      |           | (82,474    | ) |  |           | (79,728    | )
|                                              | Allowance for inventory obsolescence                                                          |      |           | 74,059     |   |      |           | 10,099     |   |  |           | 5,543      |  
|                                              | Inventory written-off                                                                         |      |           | (3,013     | ) |      |           | (15,223    | ) |  |           | (693       | )
|                                              | Provision for early retirement benefits                                                       |      |           | 140,000    |   |      |           | 670,981    |   |  |           | 293,626    |  
|                                              | Payment of early retirement benefits                                                          |      |           |           |   |      |           | (140,000   | ) |  |           | (831,796   | )
|                                              | Provision for bonus                                                                           |      |           |           |   |      |           |           |   |  |           | 262,082    |  
|                                              | Net periodic pension cost                                                                     |      |           | (46,852    | ) |      |           | 58,226     |   |  |           | (271,503   | )
|                                              | Long service awards                                                                           |      |           | 65,675     |   |      |           | 213,397    |   |  |           | (15,617    | )
|                                              | Amortization of deferred stock issuance costs                                                 |      |           | (5,981     | ) |      |           | (17,942    | ) |  |           |           |  
|                                              | Amortization of landrights                                                                    |      |           | 5,839      |   |      |           | (1,524     | ) |  |           | (2,356     | )
|                                              | Provision for impairment of property, plant and
    equipment                                 |      |           |           |   |      |           | 6,401      |   |  |           | (6,401     | )
|                                              | Decline in value of investments                                                               |      |           | (90,000    | ) |      |           |           |   |  |           |           |  
|                                              | Gain on sale of long-term investments                                                         |      |           |           |   |      |           |           |   |  |           | (171,334   | )
|                                              | Temporary differences of KSO units                                                            |      |           | 10,694     |   |      |           | 6,317      |   |  |           | 4,782      |  
|                                              | Depreciation of property, plant and equipment
    under revenue sharing arrangements          |      |           | 53,884     |   |      |           | 11,576     |   |  |           | 63,424     |  
|                                              | Amortization of unearned income under
    revenue-sharing arrangements                        |      |           | (15,380    | ) |      |           | (7,998     | ) |  |           | (58,379    | )
|                                              | Revenue from transfer of property, plant and
    equipment under revenue-sharing arrangements |      |           |           |   |      |           | 765        |   |  |           | 34,828     |  
|                                              | Interest income/receivable                                                                    |      |           |           |   |      |           |           |   |  |           | (45,835    | )
|                                              | Equity in net loss of associated companies                                                    |      |           |           |   |      |           | 41,178     |   |  |           |           |  
|                                              |                                                                                               |      |           |            |   |      |           |            |   |  |           |           
|                                              |                                                                                               |      | 514,496   |            |   |      | 442,196   |            |   |  | (236,482  | )         
|                                              |                                                                                               |      |           |            |   |      |           |            |   |  |           |           
|Permanent differences:                        |                                                                                               |      |           |            |   |      |           |            |   |  |           |           
|                                              | Net periodic post-retirement benefit cost                                                     |      |           | 373,074    |   |      |           | 611,992    |   |  |           | 634,385    |  
|                                              | Amortization of goodwill and intangible assets                                                |      |           | 55,709     |   |      |           | 187,990    |   |  |           | 773,197    |  
|                                              | Amortization of discount on promissory notes and
    interest expense                         |      |           | 79,899     |   |      |           | 173,794    |   |  |           | 224,931    |  
|                                              | Tax penalties                                                                                 |      |           |           |   |      |           | 216,198    |   |  |           |           |  
|                                              | Equity in net income of associates and
    subsidiaries                                       |      |           | (1,307,404 | ) |      |           | (2,238,300 | ) |  |           | (3,313,831 | )
|                                              | Gain on sale of long-term investments                                                         |      |           |           |   |      |           | (3,166,086 | ) |  |           | (38,425    | )
|                                              | Interest income                                                                               |      |           | (494,332   | ) |      |           | (359,049   | ) |  |           | (279,142   | )

F-81



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |         |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---- | ---------- | -------- | - | ---- | ---------- | ------- | - |  | ---------- | ------- | -
|                                               |                                                                                                       | 2001 |            | 2002     |   | 2003
|                                               |                                                                                                       |      |            |          |   |     
|                                               | Amortization of unearned income under
    revenue-sharing arrangements                                |      |            | (57,395  | ) |      |            | (44,273 | ) |  |            |        |  
|                                               | Adjustment of equity in net income of Telkomsel
    as a result of the recast of financial statements |      |            | (241,725 | ) |      |            |        |   |  |            |        |  
|                                               | Income from land/building rental                                                                      |      |            | (116,831 | ) |      |            | (65,175 | ) |  |            | (40,380 | )
|                                               | Others                                                                                                |      |            | 307,813  |   |      |            | 253,322 |   |  |            | 599,631 |  
|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |        
|Total                                          |                                                                                                       |      | (1,401,192 | )        |   |      | (4,429,587 | )       |   |  | (1,439,634 | )      
|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |        
|Total taxable income of the Company            |                                                                                                       |      | 4,304,086  |          |   |      | 5,570,403  |         |   |  | 6,098,676  |        
|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |        
|Current income tax expense of the Company      |                                                                                                       |      | 1,291,206  |          |   |      | 1,671,104  |         |   |  | 1,886,283  |        
|Current income tax expense of the subsidiaries |                                                                                                       |      | 886,160    |          |   |      | 1,076,658  |         |   |  | 1,904,997  |        
|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |        
|Total                                          |                                                                                                       |      | 2,177,366  |          |   |      | 2,747,762  |         |   |  | 3,791,280  |        
|                                               |                                                                                                       |      |            |          |   |      |            |         |   |  |            |        

In 2002, the Company received an Underpayment Tax
Assessment Letter (SKPKB) from the Tax Service Office for its
corporate income tax for fiscal years 2000 and 2001 amounting to
Rp34,489 million and Rp19,568 million, respectively.
The additional tax due was settled in December 2002 and the
difference between the recorded amount of tax
liabilities/prepayments and the amount assessed by the Tax
Service Office was charged to the 2002 statement of income.

In 2003, Telkomsel received tax assessment
letters (SKPKB) for all taxes covering the fiscal years 2000 and
2001. Telkomsel filed an objection on the SKPKB for fiscal year
2001 which was partly approved by Director General of Taxes. As
a result, Telkomsel charged tax underpayments to expense in 2003
amounting to Rp32,283 million.

e. Deferred tax assets and liabilities.

The details of the Companys and
subsidiaries deferred tax assets and liabilities are as
follows:

|                     |                                         |              |  |             |  |             |  |              |   |  |  |   |  |  |  |         | 
|-------------------- | --------------------------------------- | ------------ |  | ----------- |  | ----------- |  | ------------ | - |  |  | - |  |  |  | ------- | 
|                     |                                         |              |  | (Charged)/  |  |             |  |             
|                     |                                         |              |  | Credited to |  | Acquisition |  |             
|                     |                                         | December 31, |  | Statements  |  | of          |  | December 31,
|                     |                                         | 2001         |  | of Income   |  | Pramindo    |  | 2002        
|                     |                                         |              |  |             |  |             |  |             
|The Company          |                                         |              |  |             |  |             |  |              |   |  |  |   |  |  |  |        
|Deferred tax assets: |                                         |              |  |             |  |             |  |              |   |  |  |   |  |  |  |        
|                     | Allowance for doubtful accounts         |              |  | 170,419     |  |             |  | (69,030      | ) |  |  |  |  |  |  | 101,389 | 
|                     | Allowance for inventory obsolescence    |              |  | 11,911      |  |             |  | (1,404       | ) |  |  |  |  |  |  | 10,507  | 
|                     | Provision for early retirement benefits |              |  | 42,000      |  |             |  | 159,294      |   |  |  |  |  |  |  | 201,294 | 
|                     | Decline in value of investments         |              |  | 5,656       |  |             |  | (5,656       | ) |  |  |  |  |  |  |        | 

F-82



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |            |  
|------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------ | ---------- | ----------- | - | ----------- | -------- | ------------ | - |  | ---------- | - |  |  | ---------- | ---------- | -
|                                                  |                                                                                    |              |            | (Charged)/  |   |             |          |             
|                                                  |                                                                                    |              |            | Credited to |   | Acquisition |          |             
|                                                  |                                                                                    | December 31, |            | Statements  |   | of          |          | December 31,
|                                                  |                                                                                    | 2001         |            | of Income   |   | Pramindo    |          | 2002        
|                                                  |                                                                                    |              |            |             |   |             |          |             
|                                                  | Deferred stock issuance costs                                                      |              |            | 5,382       |   |             |          | (5,382       | ) |  |            |  |  |  |            |           |  
|                                                  | Landrights                                                                         |              |            | 618         |   |             |          | (457         | ) |  |            |  |  |  |            | 161        |  
|                                                  | Long-term investments                                                              |              |            |            |   |             |          | 52,605       |   |  |            |  |  |  |            | 52,605     |  
|                                                  | Provision for long service awards                                                  |              |            | 82,751      |   |             |          | 64,018       |   |  |            |  |  |  |            | 146,769    |  
|                                                  | Provision for impairment of property, plant and
    equipment                      |              |            |            |   |             |          | 1,920        |   |  |            |  |  |  |            | 1,920      |  
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Total deferred tax assets                         |                                                                                    |              | 318,737    |             |   |             | 195,908  |              |   |  |           |   |  |  | 514,645    |           
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Deferred tax liabilities:                         |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|                                                  | Difference between book and tax property, plant
    and equipments net book value |              |            | (1,451,655  | ) |             |          | (61,352      | ) |  |            |  |  |  |            | (1,513,007 | )
|                                                  | Revenue-sharing arrangements                                                       |              |            | (19,417     | ) |             |          | 1,298        |   |  |            |  |  |  |            | (18,119    | )
|                                                  | Net periodic pension cost                                                          |              |            | (25,153     | ) |             |          | 17,165       |   |  |            |  |  |  |            | (7,988     | )
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Total deferred tax liabilities                    |                                                                                    |              | (1,496,225 | )           |   |             | (42,889  | )            |   |  |           |   |  |  | (1,539,114 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Deferred tax liabilities of the Company, net      |                                                                                    |              | (1,177,488 | )           |   |             | 153,019  |              |   |  |           |   |  |  | (1,024,469 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Deferred tax liabilities of the subsidiaries, net |                                                                                    |              | (638,824   | )(*)        |   |             | (304,228 | )            |   |  | (1,115,645 | ) |  |  | (2,058,697 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           
|Total deferred tax liabilities, net               |                                                                                    |              | (1,816,312 | )           |   |             |          |              |   |  |            |   |  |  | (3,083,166 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |            |   |  |  |            |           



---



|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Including deferred tax asset of PT Infomedia
    Nusantara, a subsidiary, of Rp1,924 million presented
    separately in the Advances and other non-current
    assets as at 31 December 2001.

|                          |                                                               |              |         |             |  |             |          |              |   |  |   |   |  |  |         |         |  
|------------------------- | ------------------------------------------------------------- | ------------ | ------- | ----------- |  | ----------- | -------- | ------------ | - |  | - | - |  |  | ------- | ------- | -
|                          |                                                               |              |         | (Charged)/  |  |             |          |             
|                          |                                                               |              |         | Credited to |  |             |          |             
|                          |                                                               | December 31, |         | Statements  |  | Acquisition |          | December 31,
|                          |                                                               | 2002         |         | of Income   |  | of AWI      |          | 2003        
|                          |                                                               |              |         |             |  |             |          |             
|The Company               |                                                               |              |         |             |  |             |          |              |   |  |   |   |  |  |         |        
|Deferred tax assets:      |                                                               |              |         |             |  |             |          |              |   |  |   |   |  |  |         |        
|                          | Allowance for doubtful accounts                               |              |         | 101,389     |  |             |          | 17,456       |   |  |   |  |  |  |         | 118,845 |  
|                          | Allowance for inventory obsolescence                          |              |         | 10,507      |  |             |          | 1,020        |   |  |   |  |  |  |         | 11,527  |  
|                          | Provision for early retirement benefits                       |              |         | 201,294     |  |             |          | (161,451     | ) |  |   |  |  |  |         | 39,843  |  
|                          | Landrights                                                    |              |         | 161         |  |             |          | (707         | ) |  |   |  |  |  |         | (546    | )
|                          | Long-term investments                                         |              |         | 52,605      |  |             |          | (52,605      | ) |  |   |  |  |  |         |        |  
|                          | Provision for employee bonuses                                |              |         |            |  |             |          | 84,385       |   |  |   |  |  |  |         | 84,385  |  
|                          | Provision for long service awards                             |              |         | 146,769     |  |             |          | (4,685       | ) |  |   |  |  |  |         | 142,084 |  
|                          | Provision for impairment of property, plant and
    equipment |              |         | 1,920       |  |             |          | (1,920       | ) |  |   |  |  |  |         |        |  
|                          |                                                               |              |         |             |  |             |          |              |   |  |   |   |  |  |         |        
|Total deferred tax assets |                                                               |              | 514,645 |             |  |             | (118,507 | )            |   |  |  |   |  |  | 396,138 |        
|                          |                                                               |              |         |             |  |             |          |              |   |  |   |   |  |  |         |        

F-83



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |            |  
|------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------ | ---------- | ----------- | - | ----------- | -------- | ------------ | - |  | -------- | - |  |  | ---------- | ---------- | -
|                                                  |                                                                                    |              |            | (Charged)/  |   |             |          |             
|                                                  |                                                                                    |              |            | Credited to |   |             |          |             
|                                                  |                                                                                    | December 31, |            | Statements  |   | Acquisition |          | December 31,
|                                                  |                                                                                    | 2002         |            | of Income   |   | of AWI      |          | 2003        
|                                                  |                                                                                    |              |            |             |   |             |          |             
|Deferred tax liabilities:                         |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           
|                                                  | Difference between book and tax property, plant
    and equipments net book value |              |            | (1,513,007  | ) |             |          | 125,567      |   |  |          |  |  |  |            | (1,387,440 | )
|                                                  | Interest receivables                                                               |              |            |            |   |             |          | (13,750      | ) |  |          |  |  |  |            | (13,750    | )
|                                                  | Long-term investments                                                              |              |            |            |   |             |          | (14,138      | ) |  |          |  |  |  |            | (14,138    | )
|                                                  | Revenue sharing arrangements                                                       |              |            | (18,119     | ) |             |          | (40,334      | ) |  |          |  |  |  |            | (58,453    | )
|                                                  | Net periodic pension cost                                                          |              |            | (7,988      | ) |             |          | (80,927      | ) |  |          |  |  |  |            | (88,915    | )
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           
|Total deferred tax liabilities                    |                                                                                    |              | (1,539,114 | )           |   |             | (23,582  | )            |   |  |         |   |  |  | (1,562,696 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           
|Deferred tax liabilities of the Company, net      |                                                                                    |              | (1,024,469 | )           |   |             | (142,089 | )            |   |  |         |   |  |  | (1,166,558 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           
|Deferred tax liabilities of the subsidiaries, net |                                                                                    |              | (2,058,697 | )           |   |             | 72,279   |              |   |  | (393,794 | ) |  |  | (2,380,212 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           
|Total deferred tax liabilities, net               |                                                                                    |              | (3,083,166 | )           |   |             |          |              |   |  |          |   |  |  | (3,546,770 | )         
|                                                  |                                                                                    |              |            |             |   |             |          |              |   |  |          |   |  |  |            |           

As of December 31, 2003, AWI had tax loss
carryforwards of approximately Rp952,854 million, which
will expire from 2005 through 2006.

f. Administration

Under taxation laws of Indonesia, the Company
submits tax returns on the basis of self-assessment. The tax
authorities may assess or amend taxes within ten years from the
date the tax became payable.

The Company and its subsidiaries are being
audited by the tax authorities for various fiscal years. These
tax audits are not finalized at the date of these financial
statements; however, management believes that the outcome of
these tax audits will not be significant.

44. BASIC EARNINGS PER SHARE

Net income per share is computed by dividing net
income by the weighted average number of shares outstanding
during the year, totaling 10,079,999,640 shares in 2001,
2002 and 2003.

The Company does not have potentially dilutive
ordinary shares.

45. CASH DIVIDENDS AND GENERAL
RESERVE

Pursuant to the Annual General Meeting of
Shareholders as stated in notarial deed No. 17 dated
May 10, 2001 of A. Partomuan Pohan, S.H., LL.M., the
stockholders approved the distribution of cash dividends for
2000 amounting to Rp888,654 million or Rp88.16 per
share, and appropriation of Rp126,950 million for general
reserve.

Pursuant to the Annual General Meeting of
Shareholders as stated in notarial deed No. 36 dated
June 21, 2002 of A. Partomuan Pohan, S.H., LL.M., the
stockholders approved the distribution of cash dividends for
2001 amounting to Rp2,125,055 million or Rp210.82 per
share, and appropriation of Rp425,012 million for general
reserve.

F-84



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Pursuant to the Annual General Meeting of
Shareholders as stated in notarial deed No. 17/V/2003 dated
May 9, 2003 of A. Partomuan Pohan, S.H., LL.M., the
stockholders approved the distribution of cash dividends for
2002 amounting to Rp3,338,109 million or Rp331.16 per
share, and appropriation of Rp813,664 million for general
reserve.

46. PENSION PLAN

a. The
Company

The Company provides a defined benefit pension
plan for employees hired with permanent status prior to
July 1, 2002. The pension benefits are paid based on the
participating employees latest basic salary at retirement
and years of service. The plan is managed by Dana Pensiun
Telkom. The participating employees contribute 18% (before March
2003: 8.4%) of their basic salaries to the plan. The
Companys contributions to the pension fund for the years
ended December 31, 2001, 2002 and 2003 amounted to
Rp129,252 million, Rp297,352 million and
Rp460,576 million, respectively. In addition, the pension
contribution of KSO Units during 2003 amounted to the
Rp20,709 million.

In 2002, the Company added double pension
benefits for participating employees above 56 years of age,
beneficiaries of deceased participating employees or employees
with physical disabilities. The increase applies to
participating employees who retired on or after July 1,
2002. The Company also increased pension benefits for employees
who retired prior to August 1, 2000 by 50%, effective
January 1, 2003.

The following table presents the change in
benefit obligation, the change in plan assets, funded status of
the plan and the net amount recognized in the Companys
balance sheets as of December 31, 2002 and 2003:

|                                               |  |      |           |      |  |  |           |  
|---------------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | -
|                                               |  | 2002 |           | 2003
|                                               |  |      |           |     
|Change in benefit obligation                   |  |      |           |      |  |  |           |  
|Benefit obligation at beginning of year        |  |      | 2,289,134 |      |  |  | 4,248,110 |  
|Service cost                                   |  |      | 90,869    |      |  |  | 119,089   |  
|Interest cost                                  |  |      | 418,044   |      |  |  | 537,797   |  
|Employee contributions                         |  |      | 31,939    |      |  |  | 40,530    |  
|Benefits paid                                  |  |      | (186,805  | )    |  |  | (222,421  | )
|Plan amendment                                 |  |      | 1,676,601 |      |  |  |          |  
|Actuarial (gain) loss                          |  |      | (71,672   | )    |  |  | 2,129,818 |  
|                                               |  |      |           |      |  |  |           |  
|Benefit obligation at end of year              |  |      | 4,248,110 |      |  |  | 6,852,923 |  
|                                               |  |      |           |      |  |  |           |  
|Change in plan assets                          |  |      |           |      |  |  |           |  
|Fair value of plan assets at beginning of year |  |      | 2,571,714 |      |  |  | 3,099,648 |  
|Employer contributions                         |  |      | 359,725   |      |  |  | 521,816   |  
|Actual return on plan assets                   |  |      | 343,121   |      |  |  | 421,706   |  

F-85



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                                                               |  |      |            |      |  |  |            |  
|---------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                                                                               |  | 2002 |            | 2003
|                                                                                               |  |      |            |     
|Benefits paid                                                                                  |  |      | (186,805   | )    |  |  | (222,421   | )
|Actuarial gain (loss)                                                                          |  |      | 11,893     |      |  |  | (149,440   | )
|                                                                                               |  |      |            |      |  |  |            |  
|Fair value of plan assets at end of year                                                       |  |      | 3,099,648  |      |  |  | 3,671,309  |  
|                                                                                               |  |      |            |      |  |  |            |  
|Funded status                                                                                  |  |      | (1,148,462 | )    |  |  | (3,181,614 | )
|Unamortized net amount resulting from changes in
    plan experience and actuarial assumptions |  |      | (820,394   | )    |  |  | 1,663,963  |  
|Unamortized prior service cost                                                                 |  |      | 1,812,198  |      |  |  | 1,655,412  |  
|Unrecognized net obligation at the date of
    initial application of PSAK No. 24              |  |      | 177,525    |      |  |  | 148,891    |  
|                                                                                               |  |      |            |      |  |  |            |  
|Prepaid pension cost                                                                           |  |      | 20,867     |      |  |  | 286,652    |  
|                                                                                               |  |      |            |      |  |  |            |  

Plan assets consist mainly of Rupiah time
deposits.

The unrecognized net obligation at the date of
initial application of PSAK No. 24 is amortized over the
expected average remaining working lives of active employees,
i.e., 17.2 years, starting from January 1, 1992.

The actuarial valuations for the pension plan
performed based on measurement date of December 31 for each
of the years were prepared on February 4, 2002,
February 28, 2003 and May 21, 2004, respectively, by
Watson Wyatt Purbajaga, an independent actuary in association
with Watson Wyatt Worldwide. The principal actuarial assumptions
used by the independent actuary as of December 31, 2001,
2002 and 2003 are as follows:

|                                         |  |      |    |      |  |      |    |  |  |  |    | 
|---------------------------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  |  | -- | 
|                                         |  | 2001 |    | 2002 |  | 2003
|                                         |  |      |    |      |  |     
|                                         |  | %    |    | %    |  | %   
|Discount rate                            |  |      | 13 |      |  |      | 13 |  |  |  | 11 | 
|Expected long-term return on plan assets |  |      | 13 |      |  |      | 13 |  |  |  | 11 | 
|Salary growth rate                       |  |      | 6  |      |  |      | 6  |  |  |  | 8  | 

The components of net periodic pension cost
recognized are as follows:

|                                               |  |      |          |      |  |      |          |   |  |  |          |  
|---------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                               |  | 2001 |          | 2002 |  | 2003
|                                               |  |      |          |      |  |     
|Service cost                                   |  |      | 32,441   |      |  |      | 65,661   |   |  |  | 89,193   |  
|Interest cost                                  |  |      | 277,077  |      |  |      | 418,044  |   |  |  | 537,797  |  
|Expected return on plan assets                 |  |      | (266,324 | )    |  |      | (343,121 | ) |  |  | (421,706 | )
|Net amortization and deferral                  |  |      | 17,624   |      |  |      | 132,928  |   |  |  | (176,465 | )
|Increase in amortization of prior service cost |  |      | 23,806   |      |  |      | 88,786   |   |  |  | 156,784  |  
|                                               |  |      |          |      |  |      |          |   |  |  |          |  
|Net periodic pension cost (Note 40)            |  |      | 84,624   |      |  |      | 362,298  |   |  |  | 185,603  |  
|                                               |  |      |          |      |  |      |          |   |  |  |          |  

In addition, the pension cost charged to the KSO
Units amounted to Rp27,188 million, Rp25,207 million
and Rp29,896 million in 2001, 2002 and 2003, respectively.

F-86



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


b. Telkomsel

Telkomsel provides a defined benefit pension plan
to its employees under which pension benefits to be paid are
based on the employees latest basic salary and number of
years of service. PT Asuransi Jiwasraya, a state-owned life
insurance company, manages the plan. The employees contribute 5%
of their final monthly basic salaries to the plan and Telkomsel
contributes any remaining amount required to fund the plan.

Telkomsels contributions to Jiwasraya
amounted to Rp3,080 million, Rp5,163 million and
Rp3,081 million for the years ended 2001, 2002 and 2003,
respectively.

The components of the net periodic pension cost
are as follows:

|                              |  |      |       |      |  |      |       |   |  |  |       | 
|----------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | 
|                              |  | 2001 |       | 2002 |  | 2003
|                              |  |      |       |      |  |     
|Service cost                  |  |      | 2,247 |      |  |      | 2,651 |   |  |  | 3,068 | 
|Net amortization and deferral |  |      | (943  | )    |  |      | (533  | ) |  |  | 2,243 | 
|                              |  |      |       |      |  |      |       |   |  |  |       | 
|Net periodic pension cost     |  |      | 1,304 |      |  |      | 2,118 |   |  |  | 5,311 | 
|                              |  |      |       |      |  |      |       |   |  |  |       | 

The net periodic pension cost for the pension
plan is calculated based on the actuarial calculation prepared
by PT Watson Wyatt Purbajaga, an independent actuary in
association with Watson Wyatt Worldwide. The principal actuarial
assumptions used by the independent actuary performed based on
measurement date of December 31 for each of the years as of
December 31, 2002 and 2003 are as follows:

|                                         |  |      |     |      |  |      |     |  |  |  |      | 
|---------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | ---- | 
|                                         |  | 2001 |     | 2002 |  | 2003
|                                         |  |      |     |      |  |     
|Discount rate                            |  |      | 12% |      |  |      | 12% |  |  |  | 11%  | 
|Expected long-term return on plan assets |  |      | 12% |      |  |      | 12% |  |  |  | 7.5% | 
|Salary growth rate                       |  |      | 10% |      |  |      | 10% |  |  |  | 9%   | 

The funded status of the plan as of
December 31, 2002 and 2003 is as follows:

|                                                                        |  |      |        |      |  |  |         |  
|----------------------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------- | -
|                                                                        |  | 2002 |        | 2003
|                                                                        |  |      |        |     
|Projected benefit obligation                                            |  |      | 20,927 |      |  |  | 35,502  |  
|Plan assets at fair value                                               |  |      | 27,919 |      |  |  | 8,504   |  
|                                                                        |  |      |        |      |  |  |         |  
|Excess (shortages) of plan assets over
    projected benefit obligation |  |      | 6,992  |      |  |  | (26,998 | )
|Unrecognized past service cost                                          |  |      | 3,135  |      |  |  | 1,443   |  
|Unrecognized experience adjustment                                      |  |      | (2,813 | )    |  |  | 23,718  |  
|                                                                        |  |      |        |      |  |  |         |  
|Prepaid (unfunded) pension cost                                         |  |      | 7,314  |      |  |  | (1,837  | )
|                                                                        |  |      |        |      |  |  |         |  

The unrecognized net obligation at the date of
initial application of PSAK No. 24 is amortized over the
expected average remaining service period of active employees,
i.e., 18.87 years, as of June 1, 1999.

F-87



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


c. Other
Subsidiaries



| |          
| | ---------
| | Infomedia

Infomedia provides a defined benefit pension
plans to their employees. The funding status of the plan as of
December 31, 2003 is as follows:

|                                                         |  |      |        |  
|-------------------------------------------------------- |  | ---- | ------ | -
|                                                         |  | 2003
|                                                         |  |     
|Projected benefit obligation                             |  |      | (3,774 | )
|Fair value of plan assets                                |  |      | 4,432  |  
|                                                         |  |      |        |  
|Funded status                                            |  |      | 658    |  
|Unamortized past service cost                            |  |      | 1,259  |  
|Unamortized experience adjustments                       |  |      | (497   | )
|Unamortized changes in actuarial assumptions             |  |      | 150    |  
|                                                         |  |      |        |  
|Prepaid pension cost recognized in the balance
    sheet |  |      | 1,570  |  
|                                                         |  |      |        |  



| |      
| | -----
| | Other

In other subsidiaries that no pension plans are
provided, the obligation for pension benefits is calculated
based on Law No. 13 of 2003 concerning labor regulation.
Total obligation recognized as of December 31, 2003 was
Rp576 million.

47. LONG SERVICE AWARDS

The Company provides certain cash awards to
employees who meet certain length of service requirement. The
benefits, which are either paid during active employment, upon
resignation, retirement or termination, are as follows:

Awards paid during active employment:



| |                                  
| | ---------------------------------
| | i. Karya Bhakti  long term award
|
| | ii. Long leave allowance         

Awards payable upon resignation, retirement or
termination:



| |                                          
| | -----------------------------------------
| | i. Purnabhakti award and Pengabdian award
|
| | ii. Last housing allowance               
|
| | iii. Last transportation allowance       

The actuarial valuations for the long service
awards performed based on measurement date of December 31
for the year 2001 and 2002 were prepared on January 15,
2004, while the actuarial valuations as of December 31,
2003 was prepared on May 21, 2004 by PT Watson Wyatt
Purbajaga, an independent actuary in association with Watson
Wyatt Worldwide, using the Projected Unit Credit

F-88



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Method. The principal actuarial assumptions used
by the independent actuary as of December 31, 2001, 2002
and 2003 are as follows:

|                   |  |      |    |      |  |      |    |   |  |  |    |  
|------------------ |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                   |  | 2001 |    | 2002 |  | 2003
|                   |  |      |    |      |  |     
|Discount rate      |  |      | 13 | %    |  |      | 13 | % |  |  | 11 | %
|Salary growth rate |  |      | 8  | %    |  |      | 8  | % |  |  | 8  | %

The movement of the long service awards during
the years ended December 31, 2001, 2002 and 2003 is as
follows:

|                                    |  |      |         |      |  |      |         |   |  |  |          |  
|----------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | -------- | -
|                                    |  | 2001 |         | 2002 |  | 2003
|                                    |  |      |         |      |  |     
|Liability at beginning of year      |  |      | 210,159 |      |  |      | 275,834 |   |  |  | 489,231  |  
|Net periodic benefit cost (Note 40) |  |      | 94,540  |      |  |      | 289,922 |   |  |  | 207,126  |  
|Benefits paid                       |  |      | (28,865 | )    |  |      | (76,525 | ) |  |  | (222,743 | )
|                                    |  |      |         |      |  |      |         |   |  |  |          |  
|Liability at end of year            |  |      | 275,834 |      |  |      | 489,231 |   |  |  | 473,614  |  
|                                    |  |      |         |      |  |      |         |   |  |  |          |  

48. POST-RETIREMENT BENEFITS

The Company provides a post-retirement health
care plan for all of its employees hired before November 1,
1995 who have worked for the Company for 20 years or more
when they retire, and to their eligible dependents. The
requirement of working for over 20 or more years does not apply
to employees who retired prior to June 3, 1995. However,
the employees hired by the Company starting from
November 1, 1995 will no longer be entitled to this plan.
The plan is managed by Yayasan Kesehatan Pegawai Telkom
(YKPT).

The components of net periodic post-retirement
benefit cost are as follows:

|                                                        |  |      |         |      |  |      |         |   |  |  |         |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                        |  | 2001 |         | 2002 |  | 2003
|                                                        |  |      |         |      |  |     
|Service cost                                            |  |      | 46,689  |      |  |      | 69,345  |   |  |  | 80,599  |  
|Interest cost                                           |  |      | 298,541 |      |  |      | 424,834 |   |  |  | 493,596 |  
|Expected return on plan assets                          |  |      | (49,011 | )    |  |      | (33,744 | ) |  |  | (56,004 | )
|Amortization of unrecognized transition obligation      |  |      | 26,213  |      |  |      | 26,213  |   |  |  | 24,325  |  
|Amortization of prior service cost                      |  |      | (395    | )    |  |      | (395    | ) |  |  | (368    | )
|Amortization of gain/losses                             |  |      | 52,473  |      |  |      | 80,683  |   |  |  | 99,287  |  
|Net curtailment gain/loss                               |  |      |        |      |  |      | 49,576  |   |  |  |        |  
|                                                        |  |      |         |      |  |      |         |   |  |  |         |  
|Net periodic post-retirement benefit cost
    (Note 40) |  |      | 374,510 |      |  |      | 616,512 |   |  |  | 641,435 |  
|                                                        |  |      |         |      |  |      |         |   |  |  |         |  

In addition, the cost of post-retirement benefits
charged to the KSO Units amounted to Rp16,212 million,
Rp14,611 million and Rp7,795 million in 2001, 2002 and
2003, respectively.

The actuarial valuations for the post-retirement
benefit plan performed based on measurement date of
December 31 for each of the years were prepared on
January 15, 2004, while the valuation for the
post-retirement benefits as of December 31, 2003 was
prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide.

F-89



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The principal actuarial assumptions used by the
independent actuary as of December 31, 2001, 2002 and 2003
are as follows:

|                                                   |  |      |      |      |  |      |      |  |  |  |      | 
|-------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                   |  | 2001 |      | 2002 |  | 2003
|                                                   |  |      |      |      |  |     
|Discount rate                                      |  |      | 13%  |      |  |      | 13%  |  |  |  | 11%  | 
|Expected return on plan assets                     |  |      | 13%  |      |  |      | 13%  |  |  |  | 11%  | 
|Health care cost trend rate assumed for next year  |  |      | 16%  |      |  |      | 14%  |  |  |  | 12%  | 
|The ultimate trend rate                            |  |      | 10%  |      |  |      | 10%  |  |  |  | 8%   | 
|Year that the rate reaches the ultimate trend rate |  |      | 2005 |      |  |      | 2005 |  |  |  | 2006 | 

The following table presents the change in
benefit obligation, the change in plan assets, funded status of
the plan and the net amount recognized in the Companys
balance sheets as of December 31, 2002 and 2003:

|                                               |  |      |            |      |  |  |            |  
|---------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                               |  | 2002 |            | 2003
|                                               |  |      |            |     
|Change in benefit obligation                   |  |      |            |      |  |  |            |  
|Benefit obligation at beginning of year        |  |      | 3,286,991  |      |  |  | 3,812,781  |  
|Service cost                                   |  |      | 69,345     |      |  |  | 80,599     |  
|Interest cost                                  |  |      | 424,834    |      |  |  | 493,596    |  
|Benefits paid                                  |  |      | (70,491    | )    |  |  | (93,420    | )
|Actuarial (gain) loss                          |  |      | 102,102    |      |  |  | (544,785   | )
|                                               |  |      |            |      |  |  |            |  
|Benefit obligation at end of year              |  |      | 3,812,781  |      |  |  | 3,748,771  |  
|                                               |  |      |            |      |  |  |            |  
|Change in plan assets                          |  |      |            |      |  |  |            |  
|Fair value of plan assets at beginning of year |  |      | 330,461    |      |  |  | 343,896    |  
|Employer contributions                         |  |      | 59,543     |      |  |  | 180,580    |  
|Actual return on plan assets                   |  |      | 53,287     |      |  |  | 56,004     |  
|Benefits paid                                  |  |      | (79,851    | )    |  |  | (98,612    | )
|Actuarial gain (loss)                          |  |      | (19,544    | )    |  |  | (14,972    | )
|                                               |  |      |            |      |  |  |            |  
|Fair value of plan assets at end of year       |  |      | 343,896    |      |  |  | 466,896    |  
|                                               |  |      |            |      |  |  |            |  
|Funded status                                  |  |      | (3,468,885 | )    |  |  | (3,281,875 | )
|Unrecognized net transition obligation         |  |      | 291,899    |      |  |  | 267,574    |  
|Unrecognized prior service gain                |  |      | (2,301     | )    |  |  | (1,934     | )
|Unrecognized net losses                        |  |      | 1,576,793  |      |  |  | 952,885    |  
|                                               |  |      |            |      |  |  |            |  
|Accrued post-retirement benefit cost           |  |      | (1,602,494 | )    |  |  | (2,063,350 | )
|                                               |  |      |            |      |  |  |            |  

The transition obligation at the date of initial
application of Rp524,250 million is amortized over
20 years, beginning on January 1, 1995.

A 1% increase in the cost trend rate would result
in service cost and interest cost, and accumulated
post-retirement benefit obligation as of December 31, 2001,
2002 and 2003 as follows:

|                                               |  |      |           |       |  |      |           |  |  |  |           | 
|---------------------------------------------- |  | ---- | --------- | ----- |  | ---- | --------- |  |  |  | --------- | 
|                                               |  | 2001 |           | 2002* |  | 2003
|                                               |  |      |           |       |  |     
|Service cost and interest cost                 |  |      | 623,715   |       |  |      | 664,741   |  |  |  | 594,958   | 
|Accumulated post-retirement benefit obligation |  |      | 3,981,842 |       |  |      | 4,473,675 |  |  |  | 4,545,961 | 



---



|  |                   
|- | ------------------
|* | before curtailment

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


49. RELATED PARTY INFORMATION

In the normal course of business, the Company and
its subsidiaries entered into transactions with related parties.
It is the Companys policy that, the pricing of these
transactions be the same as those of arms-length transactions.

The following are significant
agreements/transactions with related parties:

a. Government
of the Republic of Indonesia



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. The Company obtained two-step
    loans from the Government of the Republic of Indonesia,
    the Companys majority stockholder.                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Interest expense for two-step loans amounted to
    Rp960,424 million, Rp968,973 million and
    Rp755,517 million in 2001, 2002 and 2003 respectively.
    Interest expense for two-step loan reflected 72.23%, 61.22% and
    54.61% of total interest expenses in 2001, 2002 and 2003,
    respectively.                                                                                                                                                                                                                                             
|
| | ii. The Company and its subsidiary pay
    concession fees for telecommunications services provided and
    radio frequency usage charges to the Ministry of Communications
    (formerly, Ministry of Tourism, Post and Telecommunications) of
    the Republic of Indonesia.                                                                                                                                                                                                                                                                          
|
| | Concession fees amounted to
    Rp63,561 million, Rp163,891 million and
    Rp238,979 million in 2001, 2002 and 2003, respectively.
    Concession fees reflected 0.7%, 1.4% and 1.6% of total operating
    expenses in 2001, 2002 and 2003, respectively. Radio frequency
    usage charges amounted to Rp101,305 million,
    Rp292,703 million and Rp371,740 million in 2001, 2002
    and 2003, respectively. Radio frequency usage charges reflected
    1.1%, 2.5% and 2.5% of total operating expenses in 2001, 2002
    and 2003, respectively.

b. Commissioners
and Directors Remuneration



| |                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. The Company and its subsidiaries provide
    honorarium and facilities to support the operational duties of
    the Board of Commissioners. The total of such benefits amounted
    to Rp7,189 million, Rp8,706 million and
    Rp14,047 million in 2001, 2002 and 2003, respectively,
    which reflected 0.1%, 0.1% and 0.1% of total operating expenses
    in 2001, 2002 and 2003, respectively.
|
| | ii. The Company and its subsidiaries provide
    salaries and facilities to support the operational duties of the
    Board of Directors. The total of such benefits amounted to
    Rp30,329 million, Rp35,106 million, and
    Rp45,586 million in 2001, 2002 and 2003, respectively,
    which reflected 0.3%, 0.3% and 0.3% of total operating expenses
    in 2001, 2002 and 2003, respectively.  

c. Indosat,
including Satelindo

The Company has an agreement with Indosat for the
provision of international telecommunications services to the
public.

The principal matters covered by the agreement
are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. The Company provides a local network for
    customers to make or receive international calls. Indosat
    provides the international network for the customers, except for
    certain border towns, as determined by the Director General of
    Post and Telecommunications of the Republic of Indonesia. The
    international telecommunications services include telephone,
    telex, telegram, package

F-91



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | switched data network, television, teleprinter,
    Alternate Voice/ Data Telecommunications (AVD),
    hotline and teleconferencing.                                                                            
|
| | ii. The Company and Indosat are responsible
    for their respective telecommunications facilities.                                                                                                                
|
| | iii. Customer billing and collection, except
    for leased lines and public phones located at the international
    gateways, are handled by the Company.                                                         
|
| | iv. The Company receives compensation for
    the services provided in the first item above, based on the
    interconnection tariff determined by the Minister of
    Communications of the Republic of Indonesia.

The Company has also entered into an
interconnection agreement between the Companys fixed-line
network and Indosats cellular network in connection with
the implementation of Indosat Multimedia Mobile services and the
settlement of the related interconnection rights and obligations.

Pursuant to the Ministry of Communications Decree
regarding the transfer of the license for Indosats mobile
cellular network operation from Indosat to PT Indosat Multimedia
Mobile (IM3), the Company agreed to transfer all
interconnection rights and obligations to IM3 based on
Interconnection Cooperation Agreement, as regulated in the
Amendment of Agreement in the side letter No. 656 dated
March 18, 2002.

The Companys compensation relating to
leased lines/channel services, such as International
Broadcasting System (IBS), AVD and bill printing is
calculated at 15% of Indosats revenues from such services.

Indosat also leases circuits from the Company to
link Jakarta, Medan and Surabaya.

The Company has been handling customer billings
and collections for Indosat. Indosat is gradually taking over
the activities and performing its own direct billing and
collection. The Company receives compensation from Indosat
computed at 1% of the collections made by the Company beginning
January 1, 1995, plus the billing process expenses which
are fixed at a certain amount per record.

Telkomsel also entered into an agreement with
Indosat for the provision of international telecommunications
services to GSM mobile cellular customers. The principal matters
covered by the agreement are as follows:



| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Telkomsels GSM mobile cellular
    telecommunications network is connected to Indosats
    international gateway exchanges to make outgoing or receive
    incoming international calls through Indosats
    international gateway exchanges.                                    
|
| | ii. Telkomsels GSM mobile cellular
    telecommunications network is connected to Indosats mobile
    cellular telecommunications network, enabling Telkomsels
    cellular subscribers to make outgoing calls to or receive
    incoming calls from Indosats cellular subscribers.
|
| | iii. Telkomsel receives as compensation for
    the interconnection, a specific percentage of Indosats
    revenues from the related services which are made through
    Indosats international gateway exchanges and mobile
    cellular telecommunications network.                

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | iv. Billings for calls made by
    Telkomsels customers are handled by Telkomsel. Telkomsel
    is obliged to pay Indosats share of revenue regardless
    whether billings to customers have been collected.                                                                                                                                                                                                   
|
| | v. The provision and installation of the
    necessary interconnection equipment is Telkomsels
    responsibility. Interconnection equipment installed by one of
    the parties in another partys locations shall remain the
    property of the party installing such equipment. Expenses
    incurred in connection with the provision of equipment,
    installation and maintenance are borne by Telkomsel.

Telkomsel also has an agreement with Indosat on
the usage of Indosats telecommunications facilities. The
agreement, which was made in 1997 and is valid for eleven years,
is subject to change based on an annual review and mutual
agreement by both parties. The charges for the usage of the
facilities amounted to Rp13,372 million,
Rp12,703 million and Rp17,933 million in 2001, 2002
and 2003, respectively, reflecting 0.2%, 0.1% and 0.1% of total
operating expenses in 2001, 2002 and 2003, respectively. Other
agreements between Telkomsel and Indosat are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Agreement on Construction and Maintenance
    for Jakarta-Surabaya Cable System (J  S Cable
    System).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | On October 10, 1996, Telkomsel, Lintasarta,
    Satelindo and Indosat (the Parties) entered into an
    agreement on the construction and maintenance of the J-S Cable
    System. The parties have formed a management committee which
    consists of a chairman and one representative of each of the
    parties to direct the construction and operation of the cable
    system. The construction of the cable system was completed in
    1998. In accordance with the agreement, Telkomsel shared 19.325%
    of the total construction cost. Telkomsel shares in the
    operating and maintenance costs based on an agreed formula.
|
| | The cost of operation and maintenance shared
    amounted to Rp1,359 million, Rp956 million and
    Rp1,393 million for the years 2001, 2002 and 2003,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | ii. Indefeasible Right of Use Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | On September 21, 2000, Telkomsel entered
    into agreement with Indosat on the use of SEA 
    ME  WE 3 and tail link in Jakarta and Medan. In
    accordance with the agreement, Telkomsel was granted an
    indefeasible right to use certain capacity of the Link starting
    from September 21, 2000 until September 20, 2015 in
    return for an upfront payment of US$2,727,273. In addition to
    the upfront payment, Telkomsel is also charged annual operation
    and maintenance costs amounting to US$136,364.                                                                                                             
|
| | As of April 8, 2004, in connection with
    merger of Indosat, amendment to the agreements with Indosat,
    including extension of period, is still in process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

The Company and its subsidiary earned net
interconnection revenues from Indosat (including IM3 and
Satelindo in 2003) of Rp54,024 million,
Rp274,706 million and Rp235,655 million in 2001, 2002
and 2003, respectively, reflecting 0.3%, 1.3% and 0.9% of total
operating revenues in 2001, 2002 and 2003, respectively.

The Company and its subsidiary earned net
interconnection revenue from IM3 in 2001 and 2002 amounted to
Rp157 million and Rp50,880 million, respectively.

F-93



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The Company leases international circuits from
Indosat, subsequent to the merger of Satelindo to Indosat in
2003. Payments made in relation to the lease expense amounted to
Rp30,239 million in 2003, which reflected 0.2% of total
operating expenses for 2003.

The Company has an agreement with Satelindo, an
Indosat subsidiary, whereby both parties agreed, among other
matters, on the following:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Interconnection of the Companys
    fixed-line network (PSTN) with Satelindos
    international gateway exchange, enabling the Companys
    customers to make outgoing or receive incoming international
    calls through Satelindos international gateway exchange.
|
| | ii. Billings for the international
    telecommunications services used by domestic customers through
    Satelindos international gateway exchange will be handled
    by the Company.                                                                                      

The Company also has an agreement with Satelindo
for the interconnection of Satelindos GSM mobile cellular
telecommunications network with the Companys PSTN,
enabling the Companys customers to make outgoing calls to
or receive incoming calls from Satelindos customers.

Interconnection revenues earned from Satelindo
were Rp293,726 million and Rp625,101 million in 2001
and 2002, respectively, which reflected 1.8% and 3.0% of total
operating revenues for 2001 and 2002, respectively.

The Company leases international circuits from
Satelindo. Payments made in relation to the lease expense
amounted to Rp28,111 million and Rp32,885 million in
2001 and 2002, respectively, which reflected 0.3% and 0.3% of
total operating expenses for 2001 and 2002, respectively.

In 1994, the Company transferred to Satelindo the
right to use a parcel of Company-owned land located in Jakarta
which had been previously leased to Telekomindo, an associated
company. Based on the transfer agreement, Satelindo is given the
right to use the land for 30 years and can apply for the
right to build properties thereon. The ownership of the land is
retained by the Company. Satelindo agreed to pay
Rp43,023 million to the Company for the thirty-year right.
Satelindo paid Rp17,210 million in 1994 and the remaining
Rp25,813 million was not paid because the Utilization Right
(Hak Pengelolaan Lahan) on the land could not be
delivered as provided in the transfer agreement. In 2000, the
Company and Satelindo agreed on an alternative solution
resulting in which the payment is treated as a lease expense up
to 2006. In 2001, Satelindo paid the remaining amount of
Rp59,860 million as lease expense up to 2024. As of
December 31, 2003, the prepaid portion is shown in the
consolidated balance sheets as Advances from customers and
suppliers.

The Company provides leased lines to Satelindo.
The leased lines can be used by Satelindo for telephone,
telegraph, data, telex, facsimile or other telecommunication
services. Revenue earned from these transactions amounted to
Rp21,475 million in 2003 which reflected 0.1% of total
operating revenue in 2003.

Following the merger of Indosat, IM3, Satelindo
and PT Bimagraha Telekomindo on November 20, 2003, all
right and obligations arising from the agreements entered by the
Company with IM3 and Satelindo were transferred to Indosat.



| |    |                                                                            
| | -- | ---------------------------------------------------------------------------
| | d. | The Company provides telecommunication services
    to Government agencies.



| |    |                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e. | The Company has entered into agreements with
    Government agencies and associated companies, Lintasarta, CSM
    and Patrakomindo, for utilization of the Companys Palapa
    B4 and Telkom-1

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |  |                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | satellite transponders or frequency channels.
    Revenues earned from these transactions amounted to
    Rp89,469 million, Rp44,109 million and
    Rp96,877 million in 2001, 2002 and 2003, respectively,
    which reflected 0.5%, 0.2% and 0.4% of total operating revenues
    in 2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | f. | The Company provides leased lines to associated
    companies and Indosats subsidiaries i.e., CSM, Lintasarta,
    Satelindo, Komselindo, Mobisel, Metrosel and PSN (2003: Exclude
    Satelindo, Komselindo and Metrosel). The leased lines can be
    used by the associated companies for telephone, telegraph, data,
    telex, facsimile or other telecommunications services. Revenue
    earned from these transactions amounted to
    Rp19,764 million, Rp75,704 million and
    Rp69,386 million in 2001, 2002 and 2003, respectively,
    reflecting 0.1%, 0.4%, and 0.3% of total operating revenues in
    2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | The Company provides a data communication network
    system for Lintasarta, an Indosat subsidiary, and operates a
    telemetry tracking and command station for PSN, an associated
    company. Revenues earned by the Company from these transactions
    amounted to Rp27,963 million, RpNil and RpNil in 2001, 2002
    and 2003, respectively, reflecting 0.2%, 0% and 0% of total
    operating revenues in 2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | h. | The Company purchases property and equipment
    including construction and installation services from a number
    of related parties. These related parties include
    PT Industri Telekomunikasi Indonesia
    (PT INTI), Lembaga Elektronika Nasional,
    PT Adhi Karya, PT Pembangunan Perumahan,
    PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya
    Karya, PT Waskita Karya, PT Gratika, Telekomindo,
    Bangtelindo, Telesera and Koperasi Pegawai Telekomunikasi. Total
    purchases made from these related parties amounted to
    Rp100,459 million, Rp154,808 million and
    Rp126,965 million in 2001, 2002 and 2003, respectively,
    reflecting 2.4%, 2.1%, and 1.1% of total fixed assets purchases
    in 2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. | PT INTI is also a major contractor and supplier
    for providing equipment, including construction and installation
    services for Telkomsel. Total purchases from PT INTI in
    2001, 2002 and 2003 amounted to Rp663,587 million,
    Rp34,717 million and Rp52,346 million, respectively,
    reflecting 15.7%, 0.5% and 0.5% of total fixed assets purchased
    in 2001, 2002 and 2003, respectively.                                                                                                                                                                             
|
| | j. | The Company and its subsidiaries carry insurance
    (on their property, plant and equipment against property losses,
    inventory and on employees social security) obtained from
    PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and
    PT Persero Asuransi Jiwasraya, which are state-owned
    insurance companies. Insurance premiums charged amounted to
    Rp83,945 million, Rp131,445 million and
    Rp159,517 million in 2001, 2002 and 2003, respectively,
    reflecting 0.9%, 1.1% and 1.1% of total operating expenses in
    2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | k. | The Company and its subsidiaries maintain current
    accounts and time deposits in several state-owned banks. In
    addition, some of those banks are appointed as collecting agents
    for the Company. Total placements in form of current accounts
    and time deposits in state-owned banks and mutual funds amounted
    to Rp6,161,244 million and Rp3,130,375 million as of
    December 31, 2002 and 2003, respectively, reflecting 13.9%
    and 6.2% of total assets as of December 31, 2002 and 2003,
    respectively. Interest income recognized during 2003 was
    Rp273,986 million, reflecting 74.85% of total interest
    income.

F-95



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | l. | The Company leases buildings, purchases materials
    and construction services, and utilizes maintenance and cleaning
    services from Dana Pensiun Telkom and PT Sandhy Putra Makmur, a
    subsidiary of Yayasan Sandikara Putra Telkom  a
    foundation managed by Dharma Wanita Telkom. Total charges from
    these transactions amounted to Rp18,680 million,
    Rp14,570 million and Rp32,785 million in 2001, 2002
    and 2003, respectively, reflecting 0.2%, 0.1% and 0.2% of total
    operating expenses in 2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | m. | The Company purchased encoded phone cards from
    Perusahaan Umum Percetakan Uang Republik Indonesia
    (Peruri), a state-owned company. The cost of the
    phone cards amounted to Rp1,781 million,
    Rp1,377 million and Rp7,730 million in 2001, 2002 and
    2003, respectively, which reflect 0.02%, 0.01% and 0.05% of
    total operating expenses for 2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | n. | In 1991, the Company granted loans to Koperasi
    Telekomunikasi (Koptel) amounting to
    Rp1,000 million to support Koptels activities in
    providing housing loans to the Companys employees. The
    balance of the loans amounted to Rp100 million and RpNil in
    2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o. | The Company and its subsidiary earned
    interconnection revenues from Komselindo, Metrosel, Mobisel, BBT
    and PSN (2003: excluding Komselindo and Metrosel), with a total
    of Rp345,284 million, Rp77,984 million and
    Rp20,997 million in 2001, 2002 and 2003, respectively,
    which reflect 2.1%, 0.4% and 0.1% of total operating revenues in
    2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | p. | In addition to revenues earned under the KSO
    Agreement (Note 51), the Company also earned income from
    building rental, repairs and maintenance services and training
    services provided to the KSO Units, amounting to
    Rp114,200 million, Rp73,679 million and
    Rp23,147 million in 2001, 2002 and 2003, respectively,
    which reflect 0.7%, 0.4% and 0.1% of total operating revenues in
    2001, 2002 and 2003, respectively.



| |    |                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | q. | The Company has also seconded a number of its
    employees to related parties to assist them in operating their
    business. In addition, the Company provided certain of its
    related parties with the right to use its buildings free of
    charge.

F-96



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Presented below are balances of accounts with
related parties:

|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|-- |  | --------------------------------------- |  | ---- | --------- | ------------ |  | -- | ----- | ------------ |  |  | --------- |  |  |  | ---- | 
|   |  |                                         |  |      |           |             
|   |  |                                         |  | 2002 |           | 2003        
|   |  |                                         |  |      |           |             
|   |  |                                         |  |      |           | % of         |  |    |       | % of        
|   |  |                                         |  | Rp   |           | Total Assets |  | Rp |       | Total Assets
|   |  |                                         |  |      |           |              |  |    |       |             
|a. |  | Cash and cash equivalents (Note 6)      |  |      | 5,081,632 |              |  |    | 11.47 |              |  |  | 3,057,388 |  |  |  | 6.08 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|b. |  | Temporary investments (Note 7)          |  |      | 523,000   |              |  |    | 1.18  |              |  |  |          |  |  |  |     | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|c. |  | Trade accounts receivable, net (Note 8) |  |      | 886,763   |              |  |    | 2.00  |              |  |  | 410,923   |  |  |  | 0.82 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|d. |  | Other accounts receivable               |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|   |  | KSO Units                               |  |      | 48,221    |              |  |    | 0.11  |              |  |  | 26,969    |  |  |  | 0.05 | 
|   |  | State-owned banks (interest)            |  |      | 12,523    |              |  |    | 0.03  |              |  |  | 9,453     |  |  |  | 0.02 | 
|   |  | Government agencies                     |  |      | 4,122     |              |  |    | 0.01  |              |  |  | 2,683     |  |  |  | 0.01 | 
|   |  | Other                                   |  |      | 58,411    |              |  |    | 0.13  |              |  |  | 81,603    |  |  |  | 0.16 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|   |  | Total                                   |  |      | 123,277   |              |  |    | 0.28  |              |  |  | 120,708   |  |  |  | 0.24 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|e. |  | Prepaid expenses (Note 10)              |  |      | 20,867    |              |  |    | 0.05  |              |  |  | 17,074    |  |  |  | 0.03 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|f. |  | Other current assets (Note 11)          |  |      | 540,520   |              |  |    | 1.22  |              |  |  | 45,083    |  |  |  | 0.09 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|g. |  | Advances and other non-current assets   |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|   |  | Bank Mandiri                            |  |      | 16,128    |              |  |    | 0.04  |              |  |  | 27,904    |  |  |  | 0.06 | 
|   |  | Peruri                                  |  |      |          |              |  |    |      |              |  |  | 813       |  |  |  | 0.00 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 
|   |  |                                         |  |      | 16,128    |              |  |    | 0.04  |              |  |  | 28,717    |  |  |  | 0.06 | 
|   |  |                                         |  |      |           |              |  |    |       |              |  |  |           |  |  |  |      | 

|   |  |                                  |  |      |         |                   |  |    |      |                   |  |  |         |  |  |  |      | 
|-- |  | -------------------------------- |  | ---- | ------- | ----------------- |  | -- | ---- | ----------------- |  |  | ------- |  |  |  | ---- | 
|   |  |                                  |  |      |         |                  
|   |  |                                  |  | 2002 |         | 2003             
|   |  |                                  |  |      |         |                  
|   |  |                                  |  |      |         | % of              |  |    |      | % of             
|   |  |                                  |  | Rp   |         | Total Liabilities |  | Rp |      | Total Liabilities
|   |  |                                  |  |      |         |                   |  |    |      |                  
|h. |  | Trade accounts payable (Note 18) |  |      |         |                   |  |    |      |                   |  |  |         |  |  |  |      | 
|   |  | Government agencies              |  |      | 359,211 |                   |  |    | 1.33 |                   |  |  | 224,370 |  |  |  | 0.77 | 
|   |  | KSO Units                        |  |      | 114,717 |                   |  |    | 0.42 |                   |  |  | 78,664  |  |  |  | 0.27 | 
|   |  | Indosat (Including Satelindo)    |  |      | 220,637 |                   |  |    | 0.81 |                   |  |  | 224,611 |  |  |  | 0.77 | 
|   |  | Koperasi Pegawai Telkom          |  |      | 14,279  |                   |  |    | 0.05 |                   |  |  | 11,512  |  |  |  | 0.04 | 
|   |  | PSN                              |  |      | 5,183   |                   |  |    | 0.02 |                   |  |  | 1,035   |  |  |  | 0.00 | 
|   |  | PT INTI                          |  |      | 1,420   |                   |  |    | 0.01 |                   |  |  | 94,190  |  |  |  | 0.32 | 
|   |  | Others                           |  |      | 74,780  |                   |  |    | 0.28 |                   |  |  | 23,096  |  |  |  | 0.08 | 
|   |  |                                  |  |      |         |                   |  |    |      |                   |  |  |         |  |  |  |      | 
|   |  | Total                            |  |      | 790,227 |                   |  |    | 2.92 |                   |  |  | 657,478 |  |  |  | 2.25 | 
|   |  |                                  |  |      |         |                   |  |    |      |                   |  |  |         |  |  |  |      | 

F-97



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|-- |  | ----------------------------------------------------- |  | ---- | --------- | ----------- |  | -- | ----- | ----------- |  |  | --------- |  |  |  | ----- | 
|   |  |                                                       |  |      |           |            
|   |  |                                                       |  | 2002 |           | 2003       
|   |  |                                                       |  |      |           |            
|   |  |                                                       |  |      |           | % of        |  |    |       | % of       
|   |  |                                                       |  |      |           | Total       |  |    |       | Total      
|   |  |                                                       |  | Rp   |           | Liabilities |  | Rp |       | Liabilities
|   |  |                                                       |  |      |           |             |  |    |       |            
|i. |  | Accrued expenses (Note 19)                            |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|   |  | Government Agencies and
    State-owned  banks        |  |      | 298,840   |             |  |    | 1.10  |             |  |  | 176,272   |  |  |  | 0.60  | 
|   |  | Employees                                             |  |      | 1,082,720 |             |  |    | 4.00  |             |  |  | 606,257   |  |  |  | 2.07  | 
|   |  | PT Asuransi Jasa Indonesia                            |  |      | 7,665     |             |  |    | 0.03  |             |  |  | 13,713    |  |  |  | 0.05  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|   |  | Total                                                 |  |      | 1,389,225 |             |  |    | 5.13  |             |  |  | 796,242   |  |  |  | 2.72  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|j. |  | Short-term bank loans (Note 22)                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|   |  | Bank Mandiri                                          |  |      |          |             |  |    |      |             |  |  | 37,642    |  |  |  | 0.13  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|k. |  | Two-step loans (Note 23 and 24)                       |  |      | 8,570,142 |             |  |    | 31.63 |             |  |  | 7,691,045 |  |  |  | 26.28 | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|l. |  | Provision for long service
    awards (Note 47)       |  |      | 489,231   |             |  |    | 1.81  |             |  |  | 473,614   |  |  |  | 1.62  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|m. |  | Provision for
    post-retirement  benefits (Note 48) |  |      | 1,602,494 |             |  |    | 5.91  |             |  |  | 2,063,350 |  |  |  | 7.05  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|n. |  | Long-term bank loans (Note 26)                        |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 
|   |  | Bank Mandiri                                          |  |      |          |             |  |    |      |             |  |  | 42,115    |  |  |  | 0.14  | 
|   |  |                                                       |  |      |           |             |  |    |       |             |  |  |           |  |  |  |       | 

50. SEGMENT INFORMATION

The Company and its subsidiaries have two main
business segments: fixed line and cellular. The fixed line
segment provides local and domestic long distance telephone
services and other telecommunications services (including among
others, leased lines, telex, transponder, satellite and Very
Small Aperture Terminal-VSAT) as well as ancillary services. The
cellular segment provides basic telecommunication services,
particularly mobile cellular telecommunication services.
Operating segments that do not individually represent more than
10% of the Companys revenues are presented as
Other comprising the telephone directories and
building management businesses.

Segment revenues and expenses include
transactions between business segments and are accounted for at
prices that represent market prices.

F-98



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|------------------------------------------------------- |  | ----- | ----------- | -------- |  | ------ | ---------- | ----------- |  | ----------- | -------- | ------------ |  |  | ----------- | - |  |  | ---------- | - |  |  | ----------- | -
|                                                        |  |      
|                                                        |  | 2001 
|                                                        |  |      
|                                                        |  |       |             | Total    |  |       
|                                                        |  | Fixed |             |          |  | Before |            |             |  | Total      
|                                                        |  | Line  |             | Cellular |  | Other  |            | Elimination |  | Elimination |          | Consolidated
|                                                        |  |       |             |          |  |        |            |             |  |             |          |             
|Segment results                                         |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating revenues                                      |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|External operating revenues                             |  |       | 10,549,644  |          |  |        | 5,590,108  |             |  |             | 144,055  |              |  |  | 16,283,807  |   |  |  |           |   |  |  | 16,283,807  |  
|Intersegment operating revenues                         |  |       | 1,174,993   |          |  |        | (671,884   | )           |  |             |         |              |  |  | 503,109     |   |  |  | (503,109   | ) |  |  |            |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total operating revenues                                |  |       | 11,724,637  |          |  |        | 4,918,224  |             |  |             | 144,055  |              |  |  | 16,786,916  |   |  |  | (503,109   | ) |  |  | 16,283,807  |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating expenses                                      |  |       | (6,966,606  | )        |  |        | (1,932,919 | )           |  |             | (121,780 | )            |  |  | (9,021,305  | ) |  |  | 156,905    |   |  |  | (8,864,400  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating income                                        |  |       | 4,758,031   |          |  |        | 2,985,305  |             |  |             | 22,275   |              |  |  | 7,765,611   |   |  |  | (346,204   | ) |  |  | 7,419,407   |  
|Interest expense                                        |  |       | (1,302,452  | )        |  |        | (27,190    | )           |  |             |         |              |  |  | (1,329,642  | ) |  |  |           |   |  |  | (1,329,642  | )
|Interest income                                         |  |       | 506,464     |          |  |        | 57,220     |             |  |             | 7,902    |              |  |  | 571,586     |   |  |  |           |   |  |  | 571,586     |  
|Loss on foreign exchange  net                          |  |       | (322,511    | )        |  |        | (53,946    | )           |  |             | (2,263   | )            |  |  | (378,720    | ) |  |  |           |   |  |  | (378,720    | )
|Other income (charges)  net                            |  |       | 644,492     |          |  |        | (35,513    | )           |  |             | 12,514   |              |  |  | 621,493     |   |  |  | (268,547   | ) |  |  | 352,946     |  
|Equity in net income (loss) of associated
    companies |  |       | 1,334,083   |          |  |        |           |             |  |             |         |              |  |  | 1,334,083   |   |  |  | (1,419,769 | ) |  |  | (85,686     | )
|Tax expense                                             |  |       | (1,114,574  | )        |  |        | (881,867   | )           |  |             | (10,454  | )            |  |  | (2,006,895  | ) |  |  |           |   |  |  | (2,006,895  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Income before minority interest                         |  |       | 4,503,533   |          |  |        | 2,044,009  |             |  |             | 29,974   |              |  |  | 6,577,516   |   |  |  | (2,034,520 | ) |  |  | 4,542,996   |  
|Unallocated minority interest                           |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |           |   |  |  | (474,605    | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net income                                              |  |       | 4,503,533   |          |  |        | 2,044,009  |             |  |             | 29,974   |              |  |  | 6,577,516   |   |  |  | (2,034,520 | ) |  |  | 4,068,391   |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Other information                                       |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Segment assets                                          |  |       | 29,678,357  |          |  |        | 7,363,322  |             |  |             | 253,153  |              |  |  | 37,294,832  |   |  |  | (4,449,250 | ) |  |  | 32,845,582  |  
|Investments in associates                               |  |       | 190,488     |          |  |        |           |             |  |             |         |              |  |  | 190,488     |   |  |  |           |   |  |  | 190,488     |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total consolidated assets                               |  |       | 29,868,845  |          |  |        | 7,363,322  |             |  |             | 253,153  |              |  |  | 37,485,320  |   |  |  | (4,449,250 | ) |  |  | 33,036,070  |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total consolidated liabilities                          |  |       | (20,583,335 | )        |  |        | (2,143,805 | )           |  |             | (146,137 | )            |  |  | (22,873,277 | ) |  |  | 153,502    |   |  |  | (22,719,775 | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Minority interest                                       |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |           |   |  |  | 1,235,334   |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Capital expenditures                                    |  |       | (2,903,486  | )        |  |        | (2,780,366 | )           |  |             | (14,416  | )            |  |  | (5,698,268  | ) |  |  |           |   |  |  | (5,698,268  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Depreciation                                            |  |       | (2,346,535  | )        |  |        | (513,065   | )           |  |             | (10,172  | )            |  |  | (2,869,772  | ) |  |  |           |   |  |  | (2,869,772  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Amortization of intangible assets                       |  |       | (55,709     | )        |  |        |           |             |  |             |         |              |  |  | (55,709     | ) |  |  |           |   |  |  | (55,709     | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Other non-cash expenses                                 |  |       | (305,698    | )        |  |        | (35,307    | )           |  |             | (1,895   | )            |  |  | (342,900    | ) |  |  |           |   |  |  | (342,900    | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash provided by operating activities               |  |       | 4,215,969   |          |  |        | 2,759,528  |             |  |             | 37,092   |              |  |  | 7,012,589   |   |  |  |           |   |  |  | 7,012,589   |  
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash used in investing activities                   |  |       | (3,064,442  | )        |  |        | (2,629,620 | )           |  |             | (18,539  | )            |  |  | (5,712,601  | ) |  |  | (403,195   | ) |  |  | (6,115,796  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash (used in) provided by financing
    activities |  |       | (2,291,844  | )        |  |        | 218,808    |             |  |             | 7,030    |              |  |  | (2,066,006  | ) |  |  | 403,195    |   |  |  | (1,662,811  | )
|                                                        |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  

F-99



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|------------------------------------------------- |  | ----- | ----------- | -------- |  | ------ | ---------- | ----------- |  | ----------- | -------- | ------------ |  |  | ----------- | - |  |  | ---------- | - |  |  | ----------- | -
|                                                  |  |      
|                                                  |  | 2002 
|                                                  |  |      
|                                                  |  |       |             | Total    |  |       
|                                                  |  | Fixed |             |          |  | Before |            |             |  | Total      
|                                                  |  | Line  |             | Cellular |  | Other  |            | Elimination |  | Elimination |          | Consolidated
|                                                  |  |       |             |          |  |        |            |             |  |             |          |             
|Segment results                                   |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating revenues                                |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|External operating revenues                       |  |       | 13,245,303  |          |  |        | 7,315,028  |             |  |             | 242,487  |              |  |  | 20,802,818  |   |  |  |           |   |  |  | 20,802,818  |  
|Intersegment operating revenues                   |  |       | 155,105     |          |  |        | 245,970    |             |  |             | 8,624    |              |  |  | 409,699     |   |  |  | (409,699   | ) |  |  |            |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total operating revenues                          |  |       | 13,400,408  |          |  |        | 7,560,998  |             |  |             | 251,111  |              |  |  | 21,212,517  |   |  |  | (409,699   | ) |  |  | 20,802,818  |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating expenses                                |  |       | (8,525,232  | )        |  |        | (3,446,755 | )           |  |             | (205,835 | )            |  |  | (12,177,822 | ) |  |  | 505,219    |   |  |  | (11,672,603 | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Operating income                                  |  |       | 4,875,176   |          |  |        | 4,114,243  |             |  |             | 45,276   |              |  |  | 9,034,695   |   |  |  | 95,520     |   |  |  | 9,130,215   |  
|Interest expense                                  |  |       | (1,405,409  | )        |  |        | (177,341   | )           |  |             |         |              |  |  | (1,582,750  | ) |  |  |           |   |  |  | (1,582,750  | )
|Interest income                                   |  |       | 367,725     |          |  |        | 102,176    |             |  |             | 9,901    |              |  |  | 479,802     |   |  |  |           |   |  |  | 479,802     |  
|Gain (loss) on foreign exchange  net             |  |       | 554,741     |          |  |        | 2,311      |             |  |             | (439     | )            |  |  | 556,613     |   |  |  |           |   |  |  | 556,613     |  
|Other income (charges)  net                      |  |       | 82,327      |          |  |        | (27,257    | )           |  |             | 4,494    |              |  |  | 59,564      |   |  |  | (95,520    | ) |  |  | (35,956     | )
|Tax expense                                       |  |       | (1,659,363  | )        |  |        | (1,226,958 | )           |  |             | (12,650  | )            |  |  | (2,898,971  | ) |  |  |           |   |  |  | (2,898,971  | )
|Equity in net income of associated companies      |  |       | 2,066,277   |          |  |        |           |             |  |             |         |              |  |  | 2,066,277   |   |  |  | (2,061,679 | ) |  |  | 4,598       |  
|Gain on sale of long-term investment in Telkomsel |  |       | 3,196,380   |          |  |        |           |             |  |             |         |              |  |  | 3,196,380   |   |  |  |           |   |  |  | 3,196,380   |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Income before minority interest                   |  |       | 8,077,854   |          |  |        | 2,787,174  |             |  |             | 46,582   |              |  |  | 10,911,610  |   |  |  | (2,061,679 | ) |  |  | 8,849,931   |  
|Unallocated minority interest                     |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |           |   |  |  | (810,222    | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net income                                        |  |       | 8,077,854   |          |  |        | 2,787,174  |             |  |             | 46,582   |              |  |  | 10,911,610  |   |  |  | (2,061,679 | ) |  |  | 8,039,709   |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Other information                                 |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Segment assets                                    |  |       | 34,177,425  |          |  |        | 11,255,500 |             |  |             | 310,828  |              |  |  | 45,743,753  |   |  |  | (1,561,340 | ) |  |  | 44,182,413  |  
|Investments in associates                         |  |       | 124,683     |          |  |        |           |             |  |             |         |              |  |  | 124,683     |   |  |  |           |   |  |  | 124,683     |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total consolidated assets                         |  |       | 34,302,108  |          |  |        | 11,255,500 |             |  |             | 310,828  |              |  |  | 45,868,436  |   |  |  | (1,561,340 | ) |  |  | 44,307,096  |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Total consolidated liabilities                    |  |       | (24,348,322 | )        |  |        | (4,066,412 | )           |  |             | (198,756 | )            |  |  | (28,613,490 | ) |  |  | 1,515,810  |   |  |  | (27,097,680 | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Minority interest                                 |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |           |   |  |  | (2,595,799  | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Capital expenditures                              |  |       | (6,266,859  | )        |  |        | (2,730,028 | )           |  |             | (35,531  | )            |  |  | (9,032,418  | ) |  |  |           |   |  |  | (9,032,418  | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Depreciation and amortization                     |  |       | (2,576,073  | )        |  |        | (984,039   | )           |  |             | (7,256   | )            |  |  | (3,567,368  | ) |  |  | 4,675      |   |  |  | (3,562,693  | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Amortization of intangible assets                 |  |       | (187,990    | )        |  |        |           |             |  |             |         |              |  |  | (187,990    | ) |  |  |           |   |  |  | (187,990    | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Other non-cash expenses                           |  |       | 106,329     |          |  |        | (139,214   | )           |  |             | (3,047   | )            |  |  | (35,932     | ) |  |  |           |   |  |  | (35,932     | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash provided by operating activities         |  |       | 6,237,405   |          |  |        | 4,557,442  |             |  |             | 69,626   |              |  |  | 10,864,473  |   |  |  |           |   |  |  | 10,864,473  |  
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash used in investing activities             |  |       | (1,492,286  | )        |  |        | (4,531,036 | )           |  |             | (26,653  | )            |  |  | (6,049,975  | ) |  |  |           |   |  |  | (6,049,975  | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  
|Net cash used in financing activities             |  |       | (2,482,408  | )        |  |        | (146,819   | )           |  |             | (40,989  | )            |  |  | (2,670,216  | ) |  |  |           |   |  |  | (2,670,216  | )
|                                                  |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |            |   |  |  |             |  

F-100



---



##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|-------------------------------------------- |  | ----- | ----------- | -------- |  | ------ | ---------- | ----------- |  | ----------- | -------- | ------------ |  |  | ----------- | - |  |  | ----------- | - |  |  | ----------- | -
|                                             |  |      
|                                             |  | 2003 
|                                             |  |      
|                                             |  |       |             | Total    |  |       
|                                             |  | Fixed |             |          |  | Before |            |             |  | Total      
|                                             |  | Line  |             | Cellular |  | Other  |            | Elimination |  | Elimination |          | Consolidated
|                                             |  |       |             |          |  |        |            |             |  |             |          |             
|Segment results                              |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Operating revenues                           |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|External operating revenues                  |  |       | 16,068,496  |          |  |        | 10,797,555 |             |  |             | 249,872  |              |  |  | 27,115,923  |   |  |  |            |   |  |  | 27,115,923  |  
|Intersegment operating revenues              |  |       | 122,653     |          |  |        | 337,100    |             |  |             | 30,824   |              |  |  | 490,577     |   |  |  | (490,577    | ) |  |  |            |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Total operating revenues                     |  |       | 16,191,149  |          |  |        | 11,134,655 |             |  |             | 280,696  |              |  |  | 27,606,500  |   |  |  | (490,577    | ) |  |  | 27,115,923  |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Operating expenses                           |  |       | (10,596,851 | )        |  |        | (4,802,283 | )           |  |             | (275,499 | )            |  |  | (15,674,633 | ) |  |  | 534,649     |   |  |  | (15,139,984 | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Operating income                             |  |       | 5,594,298   |          |  |        | 6,332,372  |             |  |             | 5,197    |              |  |  | 11,931,867  |   |  |  | 44,072      |   |  |  | 11,975,939  |  
|Interest expense                             |  |       | (1,249,795  | )        |  |        | (179,486   | )           |  |             |         |              |  |  | (1,429,281  | ) |  |  | 45,835      |   |  |  | (1,383,446  | )
|Interest income                              |  |       | 342,980     |          |  |        | 60,407     |             |  |             | 8,472    |              |  |  | 411,859     |   |  |  | (45,835     | ) |  |  | 366,024     |  
|Gain (loss) on foreign exchange  net        |  |       | 198,803     |          |  |        | (73,017    | )           |  |             | 335      |              |  |  | 126,121     |   |  |  |            |   |  |  | 126,121     |  
|Other income (charges)  net                 |  |       | 358,191     |          |  |        | (10,605    | )           |  |             | 81,988   |              |  |  | 429,574     |   |  |  | (65,236     | ) |  |  | 364,338     |  
|Tax expense                                  |  |       | (1,942,070  | )        |  |        | (1,892,821 | )           |  |             | (26,199  | )            |  |  | (3,861,090  | ) |  |  |            |   |  |  | (3,861,090  | )
|Equity in net income of associated companies |  |       | 3,313,831   |          |  |        |           |             |  |             |         |              |  |  | 3,313,831   |   |  |  | (3,311,012  | ) |  |  | 2,819       |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Income before minority interest              |  |       | 6,616,238   |          |  |        | 4,236,850  |             |  |             | 69,793   |              |  |  | 10,922,881  |   |  |  | (3,332,176  | ) |  |  | 7,590,705   |  
|Unallocated minority interest                |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |            |   |  |  | (1,503,478  | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Net income                                   |  |       | 6,616,238   |          |  |        | 4,236,850  |             |  |             | 69,793   |              |  |  | 10,922,881  |   |  |  | (3,332,176  | ) |  |  | 6,087,227   |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Other information                            |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Segment assets                               |  |       | 46,884,985  |          |  |        | 15,386,289 |             |  |             | 317,398  |              |  |  | 62,588,672  |   |  |  | (12,370,071 | ) |  |  | 50,218,601  |  
|Investments in associates                    |  |       | 64,648      |          |  |        |           |             |  |             |         |              |  |  | 64,648      |   |  |  |            |   |  |  | 64,648      |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Total consolidated assets                    |  |       | 46,949,633  |          |  |        | 15,386,289 |             |  |             | 317,398  |              |  |  | 62,653,320  |   |  |  | (12,370,071 | ) |  |  | 50,283,249  |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Total consolidated liabilities               |  |       | (28,020,867 | )        |  |        | (5,075,222 | )           |  |             | (166,119 | )            |  |  | (33,262,208 | ) |  |  | 3,999,991   |   |  |  | (29,262,217 | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Minority interest                            |  |       |            |          |  |        |           |             |  |             |         |              |  |  |            |   |  |  |            |   |  |  | (3,708,155  | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Capital expenditures                         |  |       | (5,698,401  | )        |  |        | (5,348,783 | )           |  |             | (61,672  | )            |  |  | (11,108,856 | ) |  |  |            |   |  |  | (11,108,856 | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Depreciation and amortization                |  |       | (3,126,223  | )        |  |        | (1,680,554 | )           |  |             | (9,824   | )            |  |  | (4,816,601  | ) |  |  | 11,916      |   |  |  | (4,804,685  | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Amortization of intangible assets            |  |       | (730,659    | )        |  |        |           |             |  |             |         |              |  |  | (730,659    | ) |  |  |            |   |  |  | (730,659    | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Other non-cash expenses                      |  |       | (210,646    | )        |  |        | (113,904   | )           |  |             | (4,308   | )            |  |  | (328,858    | ) |  |  |            |   |  |  | (328,858    | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Net cash provided by operating activities    |  |       | 6,028,485   |          |  |        | 6,753,253  |             |  |             | 70,794   |              |  |  | 12,852,532  |   |  |  |            |   |  |  | 12,852,532  |  
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Net cash used in investing activities        |  |       | (1,955,079  | )        |  |        | (5,310,509 | )           |  |             | (40,274  | )            |  |  | (7,305,862  | ) |  |  |            |   |  |  | (7,305,862  | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  
|Net cash used in financing activities        |  |       | (5,425,189  | )        |  |        | (727,880   | )           |  |             | (24,347  | )            |  |  | (6,177,416  | ) |  |  |            |   |  |  | (6,177,416  | )
|                                             |  |       |             |          |  |        |            |             |  |             |          |              |  |  |             |   |  |  |             |   |  |  |             |  

F-101



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


51. JOINT OPERATION SCHEMES
(KSO)

In 1995, the Company and five investors (PT
Pramindo Ikat Nusantara, PT AriaWest International, PT Mitra
Global Telekomunikasi Indonesia, PT Dayamitra Telekomunikasi and
PT Bukaka Singtel International) entered into agreements for
Joint Operation Schemes (KSO) and KSO construction
agreements for the provision of telecommunication facilities and
services for the Sixth Five-Year Development Plan
(Repelita VI) of the Republic of Indonesia. The five
investors undertook the development and operation of the basic
fixed telecommunications facilities and services in five of the
Companys seven regional divisions.

Under the Joint Operation Scheme, the KSO Unit is
required to make payments to the Company consisting of the
following:



| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Minimum Telkom Revenue (MTR) 
     Represents the amount guaranteed by the KSO investor to be paid
    to the Company in accordance with the KSO agreement.                                                                                                                                     
|
| |  | Distributable KSO Revenues (DKSOR)
    
     DKSOR are the entire KSO revenues, less the MTR and the
    operational expenses of the KSO Units, as provided in the KSO
    agreements. These revenues are shared between the Company and
    the KSO Investors based on agreed upon percentages.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The DKSOR from fixed wireless revenues
    (Telkom Flexi Revenues) are shared between the
    Company and KSO Investor based on a ratio of 95% and 5%,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The DKSOR from non-Telkom Flexi Revenues are
    shared between the Company and KSO Investor based on a ratio of
    30% and 70%, respectively, except for KSO VII. For KSO VII, the
    DKSOR from non-Telkom Flexi Revenues are shared between the
    Company and KSO Investor at a ratio of 35% and 65%,
    respectively. Effective on 31 July 2003, the ratio for
    distribution of DKSOR from non-Telkom Flexi Revenue in
    KSO III was changed to 5% and 95% for the Company and KSO
    Investor, respectively, from the date thereof until
    31 December 2005, and to 30% and 70%, respectively,
    thereafter.

At the end of the KSO period, all rights, title
and interests of the KSO Investor in existing installations and
all work in progress, inventories, equipment, materials, plans
and data relating to any approved additional new installation
projects then uncompleted or in respect of which the tests have
not been successfully completed, shall be sold and transferred
to the Company without requiring any further action by any
party, upon payment by the Company to the KSO Investor of one
hundred Rupiah, plus:



| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. the net present value, if any, of the KSO
    Investors projected share in DKSOR from the additional new
    installations forming part of the KSO system on the termination
    date over the balance of the applicable payback periods, and
|
| | ii. an amount to be agreed upon between the
    Company and the KSO Investor as a fair compensation in respect
    of any uncompleted or untested additional new installations
    transferred.                                                  

The depreciation of the Rupiah against the
U.S. Dollars, which started in the second half of 1997, has
impacted the financial condition of the KSO Investors. In
response to economic conditions, on

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


June 5, 1998, all KSO Investors and the
Company signed a Memorandum of Understanding (MoU)
to amend certain provisions of the KSO agreements. Among the
amendments are as follows:



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. The percentage of sharing of the
    distributable KSO revenues for 1998 and 1999 was 10% and 90% for
    the Company and the KSO Investors, respectively.                                                                                              
|
| | ii. The minimum number of access line units
    to be installed by the KSO Investors up to March 31, 1999
    was 1,268,000 lines.                                                                                                                         
|
| | iii. The incremental rate of the MTR would
    not exceed 1% in 1998 and 1.5% in 1999 for the KSO agreements
    with the Investors that have MTR incremental factors.                                                                                     
|
| | iv. Operating Capital
    Expenditures in each of the KSO Units will be shared
    between the Company and the respective KSO Investors in
    proportion to the previous years share in the annual net
    income of the KSO Units, starting from 1999.
|
| | v. The cancellation of the requirement to
    maintain a bank guarantee in respect of MTR.                                                                                                                                                                 

In 1998 and 1999, the Company adopted the
provisions of the MoU. Beginning November 1999, the Company and
the KSO Investors had begun to renegotiate the terms of the KSO
agreements in conjunction with the changing environment and the
expiration of certain terms in the MoU. Among others, it was
agreed to return to most of the provisions of the original KSO
agreements beginning January 1, 2000.

KSO
I

In 2002, the Company and the stockholders of
Pramindo (KSO Investor) reached an agreement in which the
Company acquired 100% of Pramindo and gained control over the
operation of KSO Unit I (Note 5b).

KSO III

Effective on July 31, 2003, the Company and
the stockholders of AWI (KSO Investor) reached an agreement in
which the Company acquired 100% of AWI and gained control over
the operation of KSO Unit III (Note 5c).

KSO
IV

The sale of KSO IV to Indosat, which was placed
under the cross-ownership transactions (Note 4), was
cancelled. The Company has, however, entered into an amendment
to the KSO agreement (Note 57b).

KSO
VI

In 2001, the Company and the stockholders of
Dayamitra (KSO Investor) reached an agreement in which the
Company acquired 90.32% of Dayamitra and gained control over the
operation of KSO Unit VI. In addition, the Company entered into
a put and call option arrangement for the remaining 9.68% of the
issued and paid up capital of Dayamitra (Note 5a).

F-103



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


KSO
VII

The Company and PT Bukaka Singtel International
intend to continue the KSO schemes in accordance with original
agreements with some additional projects.

The gross MTR and DKSOR of the unconsolidated
KSOs for the years ended December 31, 2001, 2002 and 2003
were Rp3,771,000 million, Rp3,586,000 million and
Rp2,769,530 million, respectively.

52. REVENUE-SHARING
ARRANGEMENTS

The Company has entered into separate agreements
with several investors under Revenue-Sharing Arrangements
(RSA) to develop fixed lines, analog mobile cellular
lines, public card-phone booths (including their maintenance)
and related supporting telecommunications facilities.

As of December 31, 2003, the Company has
27 RSA with 21 partners. The RSA were located mostly
in Palembang, Pekanbaru, Jakarta and Surabaya with concession
period ranging from 24 to 172 months.

Under the RSA, the investors finance the costs
incurred in developing telecommunications facilities. Upon
completion of the construction, the Company manages and operates
the facilities and bears the cost of repairs and maintenance
during the revenue-sharing period. The investors legally retain
the rights to the property, plant and equipment constructed by
them during the revenue-sharing periods. At the end of each
revenue-sharing period, the investors transfer the ownership of
the facilities to the Company.

The revenues earned from the customers in the
form of line installation charges are allocated in full to the
investors. The revenues from outgoing telephone pulses and
monthly subscription charges are shared between the investors
and the Company based on certain agreed ratio. Certain
additional arrangements are made for revenues earned from analog
mobile cellular, whereby revenues from international outgoing
pulses are allocated in full to the Company. Revenues earned
from pay phone cards during the revenue-sharing period are
shared 60:40 (in favor of the investors) based on the recorded
usage of pulses.

The net book value of property, plant and
equipment under RSA which have been transferred to property,
plant and equipment amounted to Rp726 million and
Rp34,828 million in 2002 and 2003, respectively
(Note 15).

The investors share of revenues amounted to
Rp546,701 million, Rp636,985 million and
Rp442,633 million in 2001, 2002 and 2003, respectively.

53. TELECOMMUNICATIONS SERVICES
TARIFFS

Under Law No. 36 year 1999 and
Government Regulation No. 52 year 2000, tariffs
for the use of telecommunications network and telecommunication
services are determined by providers based on the tariffs
category, structure and with respect to fixed line
telecommunication services price cap formula set by the
Government.

Fixed Line
Telephone Tariffs

Fixed line telephone tariffs are imposed for
network access and usage. Access charges consist of a one-time
installation charge and a monthly subscription charge. Usage
charges are measured in pulses

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


and classified as either local or domestic
long-distance. The tariffs depend on call distance, call
duration, the time of day, the day of the week and holidays.

Tariffs for fixed line telephone are regulated
under Minister of Communications Decree No. KM.12 year
2002 dated January 29, 2002 concerning the addendum of the
decree of Minister of Tourism, Post and Telecommunication
(MTPT) No. 79 year 1995, concerning the
Method for Basic Tariff Adjustment on Domestic Fixed Line
Telecommunication Services. Furthermore, the Minister of
Communications issued Letter No. PK 304/1/3 PHB-2002 dated
January 29, 2002 concerning increase in tariffs for fixed
line telecommunications services. According to the letter,
tariffs for fixed line domestic calls would increase by 45.49%
over three years. The average increase in 2002 was 15%. This
increase was effective on February 1, 2002.

To follow up the previous Letter, the Ministry of
Communications issued Letter No. PR.304/2/4/ PHB-2002 dated
December 17, 2002 regarding tariff adjustments for domestic
fixed line telecommunications services effective on
January 1, 2003. Considering the fact that the Independent
Regulatory Body, a precondition for the tariff adjustment, had
not been established, The Minister of Communications postponed
the implementation of tariffs adjustments by issuing Ministerial
Letter No. PR.304/1/1/ PHB-2003, dated January 16,
2003.

Mobile
Cellular Telephone Tariffs

Tariff for cellular providers are set on the
basis of the MTPT Decree No. KM. 27/PR.301/MPPT-98 dated
February 23, 1998. Under the regulation, the cellular
tariffs consist of activation fees, monthly charges and usage
charges.

The maximum tariff for the activation fee is
Rp200,000 per new subscriber number. The maximum tariff for
the monthly charges is Rp65,000. Usage charges consist of the
following:

a. Air time

The maximum basic airtime tariff charged to the
originating cellular subscriber is Rp325/minute. Charges to the
originating cellular subscriber are calculated as follows:

|                           |  |                                         
|-------------------------- |  | ----------------------------------------
|1. Cellular to cellular:   |  | 2 times airtime rate                    
|2. Cellular to PSTN:       |  | 1 times airtime rate                    
|3. PSTN to cellular:       |  | 1 times airtime rate                    
|4. Card phone to cellular: |  | 1 times airtime rate plus 41% surcharges



| |    |              
| | -- | -------------
| | b. | Usage Tariffs



| |                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Usage tariffs charged to a cellular
    subscriber who makes a call to a fixed line (PSTN)
    subscriber are the same as the usage tariffs applied to PSTN
    subscribers. For the use of local PSTN network, the tariffs are
    computed at 50% of the prevailing local PSTN tariffs.
|
| | 2. The long-distance usage tariffs between
    two different service areas are the same as the prevailing
    tariffs for domestic long-distance call (SLJJ)
    applied to PSTN subscribers.                                                                                               

Based on the Decree No. KM. 79 year
1998 of the Ministry of Communications, the maximum tariff for
prepaid customers may not exceed 140% of the peak time tariffs
for post-paid subscribers.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Interconnection
Tariffs

Interconnection tariffs regulate the sharing of
interconnection calls between the Company and other cellular
operators.

The current interconnection tariff is governed
under MTPT Decree No. KM.46/ PR.301/ MPPT-98
(KM. 46 year 1998) dated February 27, 1998
which came into effect on April 1, 1998 and was further
revised by the Minister of Communications Decree No. KM.37
year 1999 dated June 11, 1999 (KM. 37 year
1999).



| |    |                                                                                    
| | -- | -----------------------------------------------------------------------------------
| | i. | International interconnection with PSTN and
    cellular telecommunications network



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based on KM. 37 year 1999, effective
    December 1, 1998, the international interconnection tariffs
    are calculated by applying the following charges to successful
    incoming and outgoing calls to the Companys network:

|                                   |  |       |                       | 
|---------------------------------- |  | ----- | --------------------- | 
|                                   |  | Tarif
|                                   |  |      
|Access charge                      |  |       | Rp850 per call        | 
|Usage charge                       |  |       | Rp550 per paid minute | 
|Universal Service Obligation (USO) |  |       | Rp750 per call        | 



| |     |                                                            
| | --- | -----------------------------------------------------------
| | ii. | Mobile and fixed cellular interconnection with
    the PSTN



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Based on KM. 46 year 1998, cellular
    interconnection tariffs with PSTN are as follows:

1. Local Calls



| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For local calls from a mobile cellular network to
    PSTN, the cellular operator pays the Company 50% of the
    prevailing tariffs for local calls. For local calls from PSTN to
    a cellular network, the Company charges its subscribers the
    applicable local call tariff plus an airtime charge, and pays
    the cellular operator the airtime charge.

2. Domestic Long-distance Calls



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | KM. 46 year 1998 provides tariffs which vary
    among long-distance carriers depending upon the routes and the
    long-distance network used. Pursuant to this decree, for
    long-distance calls which originate from the PSTN, the Company
    is entitled to retain a portion of the prevailing long-distance
    tariffs, which portion ranges from 40% of the tariffs, in cases
    where the entire long-distance traffic is carried by cellular
    operators network and delivered to another, and up to 85%
    of the tariffs, in cases where the entire long-distance traffic
    is carried by the PSTN.

For long-distance calls which originate from a
cellular operator, the Company is entitled to retain a portion
of the prevailing long-distance tariffs, which portion ranges
from 25% of the tariff, in cases where the entire long-distance
traffic is carried by cellular operators network and the
call is delivered to a cellular subscriber, and up to 85% of the
tariff, in cases where the entire long-distance traffic is
carried by the PSTN and the call is delivered to a PSTN
subscriber.

Interconnection tariffs with mobile satellite
networks (STBSAT) are established based on Joint
Operation Agreements between the Company and STBSAT providers
pursuant to Minister of Communications Decree No. KM.
30 year 2000 concerning Global Mobile Personal
Telecommunication Service

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Tariffs by Garuda Satellite dated March 29,
2000. Flat interconnection tariffs per minute apply for those
companies.

Interconnection tariffs with mobile cellular
networks, including USO, are determined based on the duration of
the call. Access and usage charges for international
telecommunications traffic interconnection with
telecommunications networks of more than one domestic carrier
are to be shared proportionately with each carrier involved,
which proportion is determined by the MTPT.

Interconnection tariffs between a fixed wireless
network and PSTN, and amongst PSTN, are regulated under MTPT
letter No. KU.506/1/1/ MPPT-97 dated January 2, 1997
and letter No. KU.506/4/6/ MPPT-97 dated July 21,
1997. Currently, Ratelindo is the only operator of a fixed
wireless network and apart from the Company, PT Batam Bintan
Telekomunikasi (BBT) is the only operator of PSTN.
For fixed wireless interconnection with the PSTN and BBT with
the PSTN, the sender-keeps-all basis for local calls
is applied and for domestic long-distance calls that originate
from Ratelindos network and transit to the PSTN, the
Company receives 35% of Ratelindos revenue for such calls.
For domestic long-distance calls that originate from the PSTN,
the Company retains 65% as its revenue for such calls. For long
distance calls from and to BBT, the Company retains 75% of the
revenue while BBT receives the remaining 25%.



| |                                                                              
| | -----------------------------------------------------------------------------
| | iii. Mobile cellular interconnection with
    other mobile cellular providers



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Based on KM. 46 year 1998, the mobile
    cellular interconnection tariffs with other mobile cellular
    providers are as follows:

1. Local Calls



| |                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For local calls from one cellular
    telecommunications network to another, the originating cellular
    operator pays the airtime to the destination cellular operator.
    If the call is carried by the PSTN, the cellular operator pays
    the PSTN operator 50% of the prevailing tariffs for local calls.

2. Domestic Long-distance Calls



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For long-distance calls which are originated from
    a cellular telecommunications network, the cellular operator is
    entitled to retain a portion of the prevailing long-distance
    tariffs, which portion ranges from 15% of the tariff in cases
    where the entire long-distance traffic is not carried by the
    cellular operator, up to 60% of the tariff in cases where the
    entire long-distance portion is carried by the cellular operator
    and the call is delivered to another cellular operator, or up to
    75% if the call is delivered to the same cellular operator.

In connection with the issuance of Law
No. 36 year 1999 and Government
Regulation No. 52 year 2000, the Minister of
Communications, on May 31, 2001, issued Decree
No. KM. 20 year 2001, concerning Operations of
Telecommunications Network and KM. 21 year 2001,
concerning Operations of Telecommunications Services, which
became effective from the date of the decree. Subsequently, the
Minister of Communications issued Decree No. KM.
84 year 2002 concerning Telecommunication Traffic Clearing
Process.

F-107



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Public Phone
Kiosk (Wartel) Tariff

The Company is entitled to retain 70% of the
telephone tariff based on Director of Operational and Marketing
Decree No. KD 01/ HK220/ OPSAR-33/2002 dated
January 16, 2002, which came into effect on
February 16, 2002. This governs the transition of the
business arrangement between Telkom and Wartel providers, from a
commission-based revenue sharing into agreed usage charges
(pulses).

On August 7, 2002, the Minister of
Communications issued Decree No. KM. 46 year 2002
regarding the operation of phone kiosks. The decree provides
that the Company is entitled to retain a maximum of 70% of the
phone kiosk basic tariffs for domestic calls and up to 92% of
phone kiosk basic tariffs for international calls.

54. COMMITMENTS

a. Capital
Expenditures

As of December 31, 2003, the amount of
capital expenditures committed under contractual arrangements,
principally relating to procurement and installation of
switching equipment, transmission equipment and cable network,
are as follows:

|                 |  |                    |         |            |  |  |            | 
|---------------- |  | ------------------ | ------- | ---------- |  |  | ---------- | 
|                 |  | Amounts in         |         |           
|                 |  | Foreign Currencies |         | Equivalent
|Currencies       |  | (in thousands)     |         | in Rupiah 
|                 |  |                    |         |           
|Rupiah           |  |                    |        |            |  |  | 9,370,973  | 
|U.S. Dollars     |  |                    | 310,056 |            |  |  | 2,622,237  | 
|Euro             |  |                    | 72,913  |            |  |  | 776,024    | 
|Japanese Yen     |  |                    | 116,276 |            |  |  | 9,206      | 
|Singapore Dollar |  |                    | 3,881   |            |  |  | 19,316     | 
|                 |  |                    |         |            |  |  |            | 
|Total            |  |                    |         |            |  |  | 12,797,756 | 
|                 |  |                    |         |            |  |  |            | 

The above balance includes the following
significant agreements:

(i) Procurement
Agreements

In September 2001, Telkomsel entered into
agreements with its three suppliers called Strategic
Partners, namely Motorola, Inc., Ericsson Radio A.B., and
Siemens Aktiengesellschaft (AG) and one Strategic Supplier
(Nokia Oyj.); which was subsequently also called Strategic
Partner for the procurement of equipment and related
services. In accordance with the agreements with these
suppliers, the procurement will be made based on the
Notification to Proceed (NTP), the agreed
procurement planning between Telkomsel and its suppliers for the
coming 18 months divided into 6-quarterly periods, which
are confirmed with the issuance of Execution Orders
(EO) on a quarterly basis. The total amount in the
EO could be higher or lower but not less than 75% of the amount
in the NTP.

The agreements are valid and effective as of the
execution date by the respective parties for a period of three
years and extendable upon mutual agreement of both parties to a
maximum of two additional years.

F-108



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Telkomsels procurement (import) under the
agreements with Motorola and Nokia Oyj were made through the
Letter of Credit Facilities from Citibank N.A. and Deutsche Bank
(which expired in 2003). Telkomsels procurement under the
agreements with PT Ericsson Indonesia and Siemens AG will be
made through the credit facilities from Citibank International
plc (Note 26b).

Telkomsel has not collateralized any of its
borrowings, loans Guaranteed Notes or other credit facilities.

The terms of the various agreements with
Telkomsels lenders and financiers include a number of
pledges and negative pledges as well as financial and other
covenants which must be complied with including, inter alia,
certain restrictions on dividend and other profit distributions.
The terms of the relevant agreements also contain default and
cross default clauses. Management is not aware of any breaches
of the terms of these agreements and does not foresee any such
breaches occurring in the future.

(ii) Procurement
of TELKOM-2 Satellite

In accordance with Agreement No.K.TEL.191/
HK.810/ UTA-00/2002 dated October 24, 2002, which is
amended on December 15, 2003, the Company and Orbital
Sciences Corporation (Contractor) agreed on the
procurement of the TELKOM-2 satellite. The total price of
US$73,140,322 is expected to be fully paid in January 2005. The
agreement also includes a refund provision of US$4,338,292 for
any transponder that has its communication capabilities reduced
below 3dB and which cannot be corrected by switching to a
redundant transponder.

(iii) Launching
of TELKOM-2 Satellite

On November 8, 2002, the Company and
ARIANESPACE S.A. agreed on the launching of TELKOM-2 Satellite
between November 1, 2004 and January 31, 2005.
Payments totaling US$62,880,000 will be made between January
2004 and September 2004.

(iv) PSTN
Excellence Regional Junction DIVRE II Project

On February 8, 2002, the Company entered
into an agreement with Consortium Olex-Lucent-Brimbun
(Consortium) for the procurement of in SDH
Transmission System, Optical Fiber, Network Management System
(NMS) and other services with a value of
approximately US$28,807,460 and Rp102,829 million. The
agreement was amended several times with the latest amendment on
December 4, 2003 whereby the total cost of services and
equipment became approximately US$28,880,957 and
Rp123,240 million (inclusive of value-added tax),
respectively. The amount was settled in February 2004.

(v) CDMA
Procurement Agreement with Samsung Consortium

On October 9, 2002, the Company signed an
Initial Purchase Order Contract for CDMA 2000-IX with Samsung
Consortium for Base Station Subsystem (BSS)
procurement in Regional Division II, and on
December 23, 2002, the Company signed a Master Procurement
Partnership Agreement (MPPA). The MPPA provides for
planning, manufacturing, delivery, and construction of
1.6 million lines as well as service level agreement. The
MPPA between the Company and Samsung consists of construction of
1,656,300 lines of Network and Switching Subsystem
(NSS) for nationwide and

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


802,000 lines of BSS for Regional
Division III, IV, V, VI and VII for US$116 per
line for BSS and US$34 per line for NSS. This project will
be partly financed by The Export-Import Bank of Korea as
contemplated in the Loan Agreement dated August 27,
2003. The total facility amounts to US$123,965,000 and will be
available from the execution of the agreement until April 2006
(Note 54i).

(vi) CDMA
Procurement Agreement with Ericsson CDMA Consortium

The Company and Ericsson CDMA Consortium have
also entered into a Master Procurement Partnership Agreement
(MPPA) on December 23, 2002. The MPPA consists
of construction of 631,800 lines of BSS for US$116 per
line. This MPPA is part of the planning, manufacturing, delivery
and construction of total 1.6 million CDMA lines as well as
service level agreement.

Under the MPPA, the work related to network
deployment shall be carried out and completed within
42 months (six months after end of fiscal year 2005).



|      |                                                                                                      
|----- | -----------------------------------------------------------------------------------------------------
|(vii) | Partnership Agreement for the Construction and
    Provision of High Performance Backbone in Sumatera

On November 30, 2001, the Company signed a
partnership agreement with a consortium consisting of PT Pirelli
Cables Indonesia and PT Siemens Indonesia for the construction
and provision of a high performance backbone network in
Sumatera. The agreement became effective as of June 10,
2002. The scope of work includes the provision of an optical
fiber cable, together with transmission equipment and network
management systems. The Company is obliged to pay approximately
US$46,322,629 and Rp172,690 million as consideration. On
June 12, 2003, the parties agreed to amend this agreement
to reflect additional work being carried out by the consortium
in consideration for a lump-sum additional US$2,830,086 and
Rp1,699 million. The amount was fully settled in April 2004.



|       |                                                                                                                  
|------ | -----------------------------------------------------------------------------------------------------------------
|(viii) | Partnership Agreement for the Development of a
    PSTN Regional Junction for Regional Division V (East
    Java)

On December 5, 2001, the Company entered
into a partnership agreement with a consortium consisting of
Sumitomo Corporation, NEC Corporation and PT Nasio Karya Pratama
for the development of a high quality PSTN Regional Junction for
Regional Division V (East Java). The scope of work includes the
development of a SDH transmission system, as well as the
provision of ancillary fiber optic and other related equipment.
The Company is obliged to pay approximately
JP¥3,670,938,358 and Rp125,464 million which is
inclusive of value-added tax. The parties agreed to add another
partner to the consortium, PT Communication Cable Systems
Indonesia, on September 27, 2002. In accordance with the
amendment of the partnership agreement on December 11,
2003, the parties agreed to amend the contract value to
JP¥1,258,833,916 and Rp188,788 million (exclusive of
value-added tax). The amounts will be paid in the third quarter
of 2004.

(ix) Supply
Contract for Thailand-Indonesia-Singapore (TIS) Cable
Network

On November 27, 2002, the Company entered
into a supply contract with NEC Corporation, the Communications
Authority of Thailand (the CAT) and Singapore
Telecommunications Limited (SingTel) whereby NEC
Corporation has agreed to construct a submarine fiber optic
network linking Thailand, Indonesia and Singapore. Under the
terms of this agreement, the Company, SingTel and the

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PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


CAT will contribute equally to a payment of
US$32,680,000 (inclusive of value-added tax). The amount will be
fully settled in the last quarter of 2004.

b. Agreements
on Derivative Transactions

Telkomsel is exposed to market risks, primarily
changes in foreign exchange, and uses derivative instruments in
connection with its risk management activities. Telkomsel
entered into derivative transactions for the purpose of hedging
and not for trading purposes. However, the existing
documentation does not fulfill the criteria contained in PSAK 55
to qualify as hedges. Therefore, changes in the fair values of
the derivative financial instruments are recognized in the
consolidated statements of income.

Telkomsel purchases equipment from several
countries and, as a result, is exposed to movements in foreign
currency exchange rates. In 2003, Telkomsel entered into forward
foreign exchange contracts with Deutsche Bank (DB) and
Standard Chartered Bank (SCB) to protect against foreign
exchange risks relating to its foreign currency denominated
purchases. The primary purpose of Telkomsels foreign
currency hedging activities is to protect against the volatility
associated with foreign currency purchases of equipment and
other assets in the normal course of business.

The following table presents the aggregate
notional amounts of Telkomsels foreign exchange forward
contracts entered into in 2003:

|      |  |               |            |               |  |  |            | 
|----- |  | ------------- | ---------- | ------------- |  |  | ---------- | 
|      |  | US$           |            | EUR          
|      |  | (full amount) |            | (full amount)
|      |  |               |            |              
|DB    |  |               | 80,000,000 |               |  |  | 6,000,000  | 
|SCB   |  |               | 12,000,000 |               |  |  | 18,000,000 | 
|      |  |               |            |               |  |  |            | 
|Total |  |               | 92,000,000 |               |  |  | 24,000,000 | 
|      |  |               |            |               |  |  |            | 

As of December 31, 2003, all of the forward
contracts with SCB had been settled. The outstanding contract
with DB amounted to EUR 1 million. A receivable to
reflect the gain on the difference between the contract rate and
month-end rate amounting to Rp941,000,000 is reported in the
balance sheet, as part of accrued income.

In 2002, the Company entered into two derivative
facility agreements with Bank Mandiri and HSBC with the
intention of hedging the Companys liabilities in foreign
currency and for the Companys liability under the
cross-ownership transaction amounting to US$120,000,000 and
US$1,000,000, respectively. The facility agreement with Bank
Mandiri was extended until April 4, 2004, whilst the
facility agreement with HSBC was extended until August 31,
2004. The Company has not used these derivative facilities.

c. MPPA
with PT INTI

The Company and PT INTI signed an MPPA on
August 26, 2003 whereby PT INTI is appointed to construct a
CDMA fixed wireless access network and integrate such network
with the Companys existing network and all ancillary
services relating thereto in West Java and Banten. Under the
terms of this Agreement, PT INTI must deliver the CDMA 2000 IX
system within thirty-four months after August 26, 2003 for
a total of approximately US$22,856,791 and Rp61,408 million
(inclusive of valued-

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


added tax). PT INTI will service and maintain the
CDMA 2000 IX system pursuant to a Service Level Agreement dated
the same date in return for an annual consideration of
US$2,305,000.



| |                      
| | ---------------------
| | d. MPPA with Motorola

On March 24, 2003, the Company signed an
MPPA with Motorola, Inc. Under the MPPA, Motorola is obliged to
undertake and be jointly responsible for the demand forecast and
solely responsible for the survey, design, development,
manufacture, delivery, supply, installation, integration and
commissioning of the network, including all project management,
training and other related services in relation to the
establishment of the T-21 Program.

The MPPA consists of 222,500 lines of BSS (radio
system) for Regional Division I Sumatera for a total of
approximately US$20,686,855 and Rp61,268 million. The
agreed price does not include the service level agreement,
training for technical staff and documentation. The network will
use Samsungs NSS as already contracted on
December 23, 2002 (Note 54a(v)). The agreement is
valid until mid of 2006.



| |                                                     
| | ----------------------------------------------------
| | e. Partnership Agreement with Siemens
    Consortium

The Company entered into a Partnership Agreement
with a consortium led by Siemens AG on September 24, 2003
for the development, procurement and construction of a fiber
optic backbone transmission network in Kalimantan and Sulawesi,
a related work management system and the provision of
maintenance services in connection with this network. Other
members of the consortium include PT Siemens Indonesia, PT
Lembaga Elektronik Indonesia and Corning Cable System
GmbH & Co.KG. The consideration payable by the Company
for the fiber optic networks is approximately US$3,776,269 plus
Rp74,021 million for the network located within Kalimantan
and approximately US$3,815,295 plus Rp70,733 million for
the network located within Sulawesi.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | f. Metro Junction and Optical Network
    Access Agreement for Regional Division III with PT
    INTI

On November 12, 2003, the Company entered
into an agreement with PT INTI for the construction and
procurement of an optical network, as well as a network
management system and other related services and equipment, with
respect to Regional Division III (West Java). Under this
agreement, the Company is obliged to pay PT INTI a total
consideration of approximately US$6,479,992 and
Rp112,427 million.



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | g. Agreement for the Procurement of
    Softswitch System Class 4 with a Consortium Led by
    Santera-Olex

On December 18, 2003, the Company entered
into an agreement with a consortium led by Santera-Olex for the
construction and procurement of a softswitch system
(class 4) and the improvement of switching capacity in
the existing switching system in Jakarta, Bandung and Surabaya.
Pursuant to the terms of this agreement, the Company will pay in
third quarter of 2004 approximately US$4,050,510 and
Rp2,457 million.

h. Loan
Agreement with Bukopin for Regional Division V Junction
Project

On June 21, 2002, the Company entered into a
loan agreement with a consortium of banks amounting to
Rp400,000 million for financing the Regional Division V
Junction Project. Bukopin acting

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PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


as facility agent, charged the interest for the
first year on the signing date, of 19.5% and then the
average 3 month deposit rate plus 4% for the remaining
year. The disbursement period is 19 months from the signing
of the loan agreement with the repayment period 14 times
quarterly starting from April 2004. The loan facility is secured
by the project equipment, with a value of not less than
Rp500,000 million.

Subsequently, based on an Addendum to the loan
agreement dated April 4, 2003, the loan facility was
reduced to Rp150,000 million. The disbursement period
changed to 18 months from the signing of the Addendum. The
repayment schedule in 14 quarterly installments starting from
May 21, 2004 and ending on June 21, 2007.

As of December 31, 2003, the Company has not
used this facility.

i. Loan
Agreement with The Export-Import Bank of Korea

On August 27, 2003, the Company entered into
a loan agreement with the Export-Import Bank of Korea in the
amount of US$123,965,000. The loan will be used to finance the
CDMA procurement with Samsung Consortium (Note 54a(v)) up
to US$123,965,000 and will be available until April 2006.

The loan and interest is payable in 10
semi-annual installments on June 30 and December 30 in
each year.

j. In December 2003, Napsindo entered into
an agreement with Indosat with regards to an installation of
fiber optic international link cable from Jakarta to Hongkong.
Napsindo shall pay fixed revenue of US$100,000 and 30% of income
to Indosat. Napsindo also entered into a sales VSAT contract
with PT Pundi Karya Abadi amounting to US$120,000 (inclusive of
value-added tax).

55. CONTINGENCIES

a. The SEC requires that the Companys
Annual Report on Form 20-F be filed within six months after
the reported balance sheet date. In this respect, the Company
published its previous 2002 consolidated financial statements in
March 31, 2003 and submitted the Annual Report on
Form 20-F to the SEC on April 17, 2003.

In May 2003, however, the SEC informed the
Company that it considered that the submitted 2002 consolidated
financial statements were un-audited as the audit firm that was
originally appointed to perform the 2002 audit was not qualified
for SEC purposes. Due to the time consumed in selecting an SEC
qualified auditor, KAP Drs. Haryanto Sahari &
Rekan (formerly called KAP Drs. Hadi Sutanto &
Rekan), the member firm of PricewaterhouseCoopers in Indonesia,
began their work in July 2003. As a result, the Company was not
able to meet its June 30, 2003 deadline to file a fully
compliant Annual Report on Form 20-F with the SEC.

Because of the foregoing and the fact that Annual
Report was filed after the June 30, 2003 deadline, the
Company may face an SEC enforcement action under
U.S. securities law and other legal liability and adverse
consequences such as delisting of its ADSs from the New York
Stock Exchange. In addition, the staff of the SEC has described
a press release that the Company issued and furnished to the SEC
on Form 6-K in May 2003 as grossly understating the
nature and severity of the staffs concerns regarding
matters related to the Companys filing of a non-compliant
Annual Report. Such press release could also form the basis of
an SEC enforcement action and other legal liability. The

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PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Company cannot at this time predict the
likelihood or severity of an SEC enforcement action or any other
legal liability or adverse consequences.

b. In the ordinary course of business, the
Company has been named as a defendant in various legal actions.
Based on Managements estimate of the outcome of these
matters, the Company accrued Rp35,809 million at
December 31, 2003.

c. In connection with the re-audit of the
Companys 2002 consolidated financial statements, the
former auditor KAP Eddy Pianto filed lawsuits in the South
Jakarta District Court against KAP Drs. Haryanto
Sahari & Rekan (formerly called KAP Drs. Hadi
Sutanto & Rekan) (the Companys auditor for the
re-audit of the 2002 consolidated financial statements), the
Company, KAP Hans Tuanakotta Mustofa & Halim (formerly
KAP Hans Tuanakotta & Mustofa) (the Companys 2001
auditor) and the Capital Market Supervisory Agency
BAPEPAM (collectively, Defendants),
alleging that the Defendants, through the reaudit of the
Companys 2002 consolidated financial statements, had
conspired to engage in an illegal action against KAP Eddy
Pianto, tarnishing the reputation of KAP Eddy Pianto in the
public accounting profession. KAP Eddy Pianto seeks to recover
approximately Rp7,840 billion in damages from the Company
and its co-defendants. The mediation process to resolve the
dispute amicably did not succeed and the Company is scheduled to
formally submit its response to the claim soon. The resolution
of this issue at present time cannot be determined.

d. The Company is being inquired by
Commissions for Business Competition Watch (Komisi Pengawas
Persaingan Usaha) related to alleged unfair business practice in
providing international telecommunications services, which, if
proven, breaches articles 15, 19 and 25 of Law of the
Republic of Indonesia No. 5/1999 on Anti Monopolistic
Practices and Unfair Business Competition (Competition
Law). A breach of this regulation may result in a penalty
at a minimum of Rp5,000 million and at a maximum of
Rp100,000 million. The Company has not accrued any amount
as of December 31, 2003 because the Company is unable to
estimate the likelihood of the outcome.

e. The Company has breached a covenant in
the loan agreement with Citibank N.A. and Citibank
International Plc which stipulates that the Company will
not make any loans or grant any credit to or for the benefit of
any person. As of June 9, 2004, the Company has obtained a
written waiver from Citibank International Plc with regard
to entering into the AWI loan (Notes 5c, 26a and 26c). The
Company has also breached a covenant in the loan agreement with
Bank Central Asia which stipulates that the Company will not
make any guarantee or collateralize its assets for an amount
exceeding US$2 million or its equivalent. As of
June 23, 2004, the Company has obtained a written waiver
from Bank Central Asia with regard to the Companys time
deposits collateralized for Napsindo loan (Notes 11b, 22a
and 26c).

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


56. ASSETS AND LIABILITIES DENOMINATED IN
FOREIGN CURRENCIES

The balances of monetary assets and liabilities
denominated in foreign currencies are as follows:

|                                      |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |           |         | 
|------------------------------------- | ------------------ | ---------------------------- |  | ---------- | ------ | -------------- | --------- | ---------- | ------- |  |  | ------- | ------- |  | --------- | --------- | ------- | 
|                                      |                    |                              |  |           
|                                      |                    | 2002                         |  | 2003      
|                                      |                    |                              |  |           
|                                      |                    | Foreign                      |  |            |        | Foreign        |           |           
|                                      |                    | Currencies                   |  | Rupiah     |        | Currencies     |           | Rupiah    
|                                      |                    | (in thousands)               |  | Equivalent |        | (in thousands) |           | Equivalent
|                                      |                    |                              |  |            |        |                |           |           
|Assets                                |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|Cash and cash equivalents             |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | U.S. Dollars       |                              |  | 349,800    |        |                |           | 3,127,211  |         |  |  | 123,536 |         |  |           | 1,043,400 |        
|                                      | Euro               |                              |  | 18,148     |        |                |           | 170,040    |         |  |  | 39,583  |         |  |           | 421,288   |        
|                                      | Japanese Yen       |                              |  | 36         |        |                |           | 3          |         |  |  | 454     |         |  |           | 35        |        
|Trade accounts receivable             |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | Related parties    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |           |        
|                                      |                    | U.S. Dollars                 |  |            | 7,984  |                |           |            | 71,374  |  |  |         | 9,224   |  |           |           | 77,925  | 
|                                      | Third parties      |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |           |        
|                                      |                    | U.S. Dollars                 |  |            | 8,503  |                |           |            | 76,018  |  |  |         | 4,108   |  |           |           | 34,634  | 
|Other accounts receivable             |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | U.S. Dollars       |                              |  | 202        |        |                |           | 1,808      |         |  |  | 12,605  |         |  |           | 106,258   |        
|                                      | Japanese Yen       |                              |  |           |        |                |           |           |         |  |  | 5,441   |         |  |           | 429       |        
|                                      | French Franc       |                              |  |           |        |                |           |           |         |  |  | 4,805   |         |  |           | 5,447     |        
|                                      | Netherland Guilder |                              |  |           |        |                |           |           |         |  |  | 814     |         |  |           | 2,745     |        
|                                      | Euro               |                              |  |           |        |                |           |           |         |  |  | 21      |         |  |           | 224       |        
|Other current assets                  |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | U.S. Dollars       |                              |  | 16,922     |        |                |           | 151,282    |         |  |  | 4,658   |         |  |           | 39,269    |        
|Advances and other non-current assets |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | U.S. Dollars       |                              |  | 2,429      |        |                |           | 21,711     |         |  |  | 12,290  |         |  |           | 103,651   |        
|Escrow accounts                       |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | U.S. Dollars       |                              |  | 33,325     |        |                |           | 297,928    |         |  |  | 61,302  |         |  |           | 516,128   |        
|                                      |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|Total Assets                          |                    |                              |  |            |        |                | 3,917,375 |            |         |  |  |         |         |  | 2,351,433 |          
|                                      |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|Liabilities                           |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|Trade accounts payable                |                    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |          
|                                      | Related parties    |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |           |        
|                                      |                    | U.S. Dollars                 |  |            | 54,433 |                |           |            | 487,715 |  |  |         | 13,867  |  |           |           | 117,281 | 
|                                      |                    | Euro                         |  |            | 2,027  |                |           |            | 19,007  |  |  |         | 2,720   |  |           |           | 28,947  | 
|                                      | Third parties      |                              |  |            |        |                |           |            |         |  |  |         |         |  |           |           |        
|                                      |                    | U.S. Dollars                 |  |            | 38,342 |                |           |            | 343,543 |  |  |         | 92,677  |  |           |           | 783,127 | 
|                                      |                    | Euro                         |  |            | 26,228 |                |           |            | 245,952 |  |  |         | 48      |  |           |           | 516     | 
|                                      |                    | Great Britain Pound Sterling |  |            | 319    |                |           |            | 4,598   |  |  |         | 61      |  |           |           | 916     | 
|                                      |                    | Japanese Yen                 |  |            | 3,039  |                |           |            | 229     |  |  |         | 126,925 |  |           |           | 10,033  | 
|                                      |                    | Singapore Dollars            |  |            | 1      |                |           |            | 3       |  |  |         | 144     |  |           |           | 717     | 

F-115



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                            |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |           |        | 
|------------------------------------------- | ---------------------------- | -------------- |  | ---------- | ----- | -------------- | ---------- | ---------- | ------ |  |  | ---------- | ----- |  | ----------- | --------- | ------ | 
|                                            |                              |                |  |           
|                                            |                              | 2002           |  | 2003      
|                                            |                              |                |  |           
|                                            |                              | Foreign        |  |            |       | Foreign        |            |           
|                                            |                              | Currencies     |  | Rupiah     |       | Currencies     |            | Rupiah    
|                                            |                              | (in thousands) |  | Equivalent |       | (in thousands) |            | Equivalent
|                                            |                              |                |  |            |       |                |            |           
|Other accounts payable                      |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | U.S. Dollars                 |                |  | 9          |       |                |            | 77         |        |  |  |           |       |  |             |          |       
|Accrued expenses                            |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | U.S. Dollars                 |                |  | 17,981     |       |                |            | 161,116    |        |  |  | 28,946     |       |  |             | 244,925   |       
|                                            | Japanese Yen                 |                |  | 252,604    |       |                |            | 19,069     |        |  |  | 14,135     |       |  |             | 1,117     |       
|                                            | Singapore Dollars            |                |  |           |       |                |            |           |        |  |  | 189        |       |  |             | 940       |       
|                                            | Great Britain Pound Sterling |                |  |           |       |                |            |           |        |  |  | 46         |       |  |             | 689       |       
|                                            | French Franc                 |                |  |           |       |                |            |           |        |  |  | 710        |       |  |             | 808       |       
|                                            | Netherland Guilder           |                |  |           |       |                |            |           |        |  |  | 482        |       |  |             | 1,631     |       
|                                            | Euro                         |                |  | 9,633      |       |                |            | 90,336     |        |  |  | 40,698     |       |  |             | 433,155   |       
|Short-term bank loans                       |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | Third parties                |                |  |            |       |                |            |            |        |  |  |            |       |  |             |           |       
|                                            |                              | U.S. Dollars   |  |            | 4,385 |                |            |            | 39,205 |  |  |            | 4,460 |  |             |           | 37,642 | 
|Advances from customers and suppliers       |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | U.S. Dollars                 |                |  | 1,555      |       |                |            | 13,935     |        |  |  | 3,041      |       |  |             | 25,701    |       
|                                            | Great Britain Pound Sterling |                |  |           |       |                |            |           |        |  |  | 1          |       |  |             | 7         |       
|                                            | Japanese Yen                 |                |  |           |       |                |            |           |        |  |  | 23,940     |       |  |             | 1,892     |       
|Current maturities of long-term liabilities |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | U.S. Dollars                 |                |  | 249,823    |       |                |            | 2,238,421  |        |  |  | 332,921    |       |  |             | 2,813,246 |       
|                                            | Euro                         |                |  | 3,781      |       |                |            | 35,455     |        |  |  | 18,671     |       |  |             | 198,810   |       
|                                            | Japanese Yen                 |                |  | 374,909    |       |                |            | 28,306     |        |  |  | 699,163    |       |  |             | 55,266    |       
|Long-term liabilities                       |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|                                            | U.S. Dollars                 |                |  | 724,193    |       |                |            | 6,488,764  |        |  |  | 699,605    |       |  |             | 5,913,824 |       
|                                            | Euro                         |                |  | 19,226     |       |                |            | 180,297    |        |  |  | 64,976     |       |  |             | 691,850   |       
|                                            | Japanese Yen                 |                |  | 17,626,220 |       |                |            | 1,330,614  |        |  |  | 16,730,301 |       |  |             | 1,322,460 |       
|                                            |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|Total liabilities                           |                              |                |  |            |       |                | 11,726,642 |            |        |  |  |            |       |  | 12,685,500  |          
|                                            |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          
|Net liabilities                             |                              |                |  |            |       |                | (7,809,267 | )          |        |  |  |            |       |  | (10,334,067 | )        
|                                            |                              |                |  |            |       |                |            |            |        |  |  |            |       |  |             |          

57. SUBSEQUENT EVENTS

a. Extraordinary
General Meeting of Shareholders

In connection with the restatement of the
consolidated financial statements for the three years ended
December 31, 2002, the stockholders ratified the previous
declaration of dividends in the Extraordinary General Meeting of
Stockholders as stated in notarial deed No. 4 dated
March 10, 2004 of Notary A. Partomuan Pohan, S.H.,
LLM., as follows:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dividends for 2002 amounting to
    Rp3,338,109 million or Rp331.16 per share, social
    contribution fund (Dana Bina Lingkungan) of
    Rp20,863 million and appropriated Rp813,664 million
    for general reserves.
|
| |  | Dividends for 2001 amounting to
    Rp2,125,055 million or Rp210.81 per share, and
    appropriated Rp425,011 million for general reserves.                                                                              

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | Dividends for 2000 amounting to
    Rp888,654 million or Rp88.16 per share, and
    appropriated Rp126.951 million for general reserves.

b. Amendment
of KSO IV Agreement with PT Mitra Global Telekomunikasi
Indonesia (MGTI)

On January 20, 2004, the Company and MGTI
entered into an agreement to amend and restate the KSO Agreement
with respect to Regional Division IV. Under the amended KSO
Agreement, for the remaining KSO period, the Company will be
entitled at its sole discretion and expense to construct new
telecommunication facilities in Divre IV. The Company also
obtains the right to manage KSO Unit IV and assume the risk
and rewards of the KSO Unit IV operation. MGTI will receive
a fixed monthly payment regardless of the performance of KSO
Unit IV.

c. Loan
Agreement with ABN-AMRO and Settlement of Payment for Pramindo
Transaction

On January 28, 2004, the Company signed a
short-term loan agreement with ABN-AMRO Bank NV Jakarta Branch
(ABN-AMRO) in the amount of approximately
US$130,000,000. The loan will be used to re-purchase the
outstanding promissory notes on March 15, 2004 which were
issued for the acquisition of the Pramindo (Note 5b). The
loan and interest is payable to ABN-AMRO in 10 monthly
installments from March 2004 to December 2004. The loan bears
floating interest rate of LIBOR + 2.75%.

On March 15, 2004, the Company and Selling
shareholders of Pramindo entered into the termination agreement
related to acquisition of Pramindo and settled the payment of
the remaining liabilities.

d. Implementation
of the Restructuring in Telecommunication Sector

On March 30, 2004 the Minister of
Communication issued Announcement No. PM.2 of 2004 regarding the
Implementation of Restructuring in the Telecommunication Sector
which, among others, conveys the following matters:

1. Compensation for early termination of
exclusive rights

The Government shall pay to TELKOM (including its
KSO Partners) an amount of Rp478 billion after tax and
Indosat shall pay to the Government an amount of
Rp178 billion after tax. The payment of compensation shall
be made gradually from the on top (above allocated
ceiling) fund of the State Budget for the Ministry of
Communications after approval by Parliament.

2. Supporting Regulations

Amendments
to regulations restricting competition



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Domestic Long Distance (DLD) and
    International Direct Dialing (IDD) access codes are
    distinctive features of the network as well as distinctive
    features of basic telephone services. All DLD and IDD operators
    use a 3 (three)-digits access code (prefix) for all parts
    of Indonesian territory;
|
| | 2. Every customer can freely select (have
    free selection of) DLD and IDD operators as he/she desires in an
    automatic manner (normally opened) for each call he/she wishes
    to make.                                                                                                                           

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. DLD and IDD fixed telecommunication
    network operators may provide DLD and IDD basic telephony
    services;                               
|
| | 4. Furthermore, DLD and IDD operators shall
    be entitled to determine retail rates for customers and provide
    services for their customers.

Regulations
on Interconnection



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cost-based interconnection fees shall be
    applicable as from January 1, 2005. Preparation shall be
    made within the period commencing on January 1, 2004 and
    ending on December 31, 2004 for the adjustment of
    interconnection arrangements with the assistance of consultants,
    which shall include: the amount of interconnection fees, cost
    accounting standards, reference interconnection offer
    (RIO) and interconnection dispute resolutions.

Supervision
on competition



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prohibition of the abuse of position as dominant
    operator (dumping, cross subsidy, blocking, hampering
    interconnection, tied sales), as well as prohibition for
    dominant operator from conducting anti-competition transfer
    pricing.

3. Establishment of Indonesian
Telecommunication Regulatory Body (BRTI) and
Telecommunication Traffic Clearing System (SKTT).

4. Rebalancing Tariff

a. With the elimination of cross subsidy of
Long-distance Tariff by Local Tariff through the implementation
of tariff rebalancing, operators are given freedom to set the
local tariff and monthly subscription in accordance to market
mechanism, with a minimum decrease of Domestic Long Distance
Tariff of 10%.

b. Accordingly, the Company has adjusted the
amount of tariff with the following rebalancing structure:



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Local charges increased by an average of
    28%                                                                                                                                                    
|
| | 2. Domestic Long Distance charges decreased
    by an average of 20% for the 07.00  20.00 time band,
    while other time band are not increased, therefore the decrease
    of all DLD charges is 10%
|
| | 3. Monthly subscription charges increased by
    an average of 12%  25%, depending upon its customer
    segment.                                                                                     

c. In addition, the Government requires
operator to build a minimum of 1.4 million installed lines
in 2004 up to 10.7 million installed lines in 2008.

5. Universal Service Obligation

Funds for USO development are taken from
contributions given by telecommunication operators in the amount
of 0.75% of their gross revenue with due observance of bad debts
and interconnection charges;

6. Fixed Wireless

a. FWA is included in the provision for
local fixed network services;

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


b. FWA technology has limited mobility and
is operated based on local fixed network operation permit
without any automated facilities.

7. License synchronization for the Company
and Indosat

The Company was given the right to use access
code of 007 for operating international telephone network and
Indosat was given the right to access code of 011 for operating
long-distance fixed telephone network.

e. Guaranteed
Notes

As part of Telkomsels plan to minimize
foreign exchange exposures and to reduce interest charge,
subsequent to December 31, 2003, Telkomsel bought back
TSFLs Guaranteed Notes from Deutsche Bank with a total
face value of US$51,960,000.

f. Telkomsels
interim agreement with Indosat

Pursuant to the expiration of the agreement
between Telkomsel and Indosat with regards of the provision of
international telecommunication services to GSM mobile cellular
customers, in April 2004 Telkomsel and Indosat have entered into
an interim agreement. Under the terms of the interim agreement,
Telkomsel will receive 27% of the applicable tariff for outgoing
international calls from Telkomsel subscribers and Rp800 per
minute for incoming international calls to Telkomsel
subscribers. The interim agreement will be effective from
March 1, 2004 until such date that Telkomsel and Indosat
enter into a new agreement.



|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|58. | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN
    ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND
    ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF
    AMERICA

The consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in Indonesia (Indonesian GAAP), which
differ in certain significant respects with accounting
principles generally accepted in the United States of America
(U.S. GAAP). A description of the differences
and their effects on net income and stockholders equity
are set forth below.

(1) Description of Differences Between
Indonesian GAAP and U.S. GAAP

a. Termination
Benefits

Under Indonesian GAAP, termination benefits are
recognized as liabilities when certain criteria are met
(e.g. the enterprise is demonstratively committed to
provide termination benefits as a result of an offer made in
order to encourage early retirement).

Under U.S. GAAP, termination benefits are
recognized as liabilities when the employees accept the offer
and the amount can be reasonably estimated.

b. Foreign
Exchange Differences Capitalized to Property under
Construction

Under Indonesian GAAP, foreign exchange
differences resulting from borrowings used to finance property
under construction are capitalized. Capitalization of foreign
exchange differences cease when

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PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


the construction of the qualifying asset is
substantially completed and the constructed property is ready
for its intended use.

Under U.S. GAAP, foreign exchange
differences are charged to current operations.

c. Interest
Capitalized on Property under Construction

Under Indonesian GAAP, qualifying assets, to
which interest cost can be capitalized, should be those that
take a substantial period of time to get ready for its intended
use or sale, i.e. minimum 12 months. To the extent that
funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of interest cost eligible for
capitalization on that asset should be determined based on the
actual interest cost incurred on that borrowing during the
period of construction less any investment income on the
temporary investment of those borrowings.

Under U.S. GAAP, there is no limit on the
length of the construction period in which the interest cost
could be capitalized. The interest income arising from any
unused borrowings is recognized directly to current operations.

d. Revenue-sharing
Arrangements

Under Indonesian GAAP, property, plant and
equipment built by an investor under revenue-sharing
arrangements are recognized as property, plant and equipment
under revenue-sharing arrangements in the books of the party to
whom ownership in such properties will be transferred at the end
of the revenue-sharing period, with a corresponding initial
credit to unearned income. The property, plant and equipment are
depreciated over their useful lives, while the unearned income
is amortized over the revenue-sharing period. The Company
records its share of the revenues earned net of amounts due to
the investors.

Under U.S. GAAP, the assets under
revenue-sharing arrangements are recorded and, correspondingly,
an obligation under revenue-sharing arrangements is recorded. A
portion of the investors share in revenue is recorded as
interest expense based on the implicit rate of return and the
balance is treated as a reduction of the obligation. Revenues
are recorded on a gross basis.

e. Revaluation
of Property, Plant and Equipment

While Indonesian GAAP does not generally allow
companies to recognize increases in the value of property, plant
and equipment that occur subsequent to acquisition, an exception
is provided for revaluations made in accordance with Government
regulations. The Company revalued its property, plant and
equipment that were used in operations as of January 1,
1979 and January 1, 1987.

Under U.S. GAAP, asset revaluations are not
permitted. The effects of the previous revaluations have been
fully depreciated in 2002, such that there is no difference in
equity as of December 31, 2002.

f. Pension

In 1994 and 1998, the Company provided increases
in pension benefits for pensioners. Under Indonesian GAAP, the
prior service costs attributable to the increases in pension
benefits for pensioners were directly charged to expense in
those years. Under U.S. GAAP, because the majority of plan

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PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


participants are still active, such prior service
costs are deferred and amortized systematically over the
estimated remaining service period for active employees.

Under Indonesian GAAP, the Company amortizes the
cumulative unrecognized actuarial gain or loss over four years.
Under U.S. GAAP, any cumulative unrecognized actuarial gain
or loss exceeding 10% of the greater of the projected benefit
obligation or the fair value of plan assets is recognized in the
statement of income on a straight-line basis over the expected
average remaining service period.

Under U.S. GAAP, the Company would be
required to recognize an additional minimum liability when the
accumulated benefit obligation exceeds the fair value of the
plan assets, and an equal amount would be recognized as an
intangible asset, provided that the asset recognized does not
exceed the amount of unrecognized prior service cost.

g. Equity
in Net Income or Loss of Associated Companies

The Company records its equity in net income or
loss of associated companies based on the associates
financial statements that have been prepared under Indonesian
GAAP.

For U.S. GAAP reporting purposes, the
Company recognized the effect of the differences of
U.S. GAAP and Indonesian GAAP in the investment accounts
and its share of the net income or loss of those associates.

h. Land
Rights

In Indonesia, the title of land rests with the
State under the Basic Agrarian Law No. 5 of 1960. Land use
is accomplished through land rights whereby the holder of the
right enjoys the full use of the land for a stated period of
time, subject to extensions. The land rights generally are
freely tradeable and may be pledged as security under borrowing
agreements. Under Indonesian GAAP, land ownership is not
depreciated unless it can be foreseen that the possibility for
the holder to obtain an extension or renewal of the rights is
remote.

Under U.S. GAAP, the cost of acquired land
rights is amortized over the period the holder is expected to
retain the land rights.

i. Equipment
to be Installed

Under Indonesian GAAP, temporarily idle equipment
or equipment that is awaiting installation is not depreciated.

Under U.S. GAAP, temporarily idle equipment
should continue to be depreciated. In 2002, prior year equipment
to be installed was fully installed and their carrying values
have been reclassified to property, plant and equipment.

j. Revenue
Recognition

Under Indonesian GAAP, revenues from cellular and
fixed wireless services connection fees are recognized as income
when the connection takes place (for postpaid service) or at the
time of delivery of starter packs to distributors, dealers or
customers (for prepaid service). Installation fees for wire line
services are recognized at the time of installation. The revenue
from calling cards (Kartu Telepon) is also
recognized when the Company sells the card.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Under U.S. GAAP, revenue from front-end fees
are deferred and recognized over the expected term of the
customer relationship. Direct incremental costs were not
significant. Revenues from calling cards are recognized upon
usage or expiration.

k. Goodwill

Under Indonesian GAAP, goodwill is amortized over
a period, not exceeding 20 years, that it is expected to
benefit the Company.

Under U.S. GAAP, effective January 1,
2002, goodwill is no longer amortized but rather subjected to a
test for impairment.

l. Capital
Leases

Under Indonesian GAAP, a leased asset is
capitalized only if all of the following criteria are met:
(a) the lessee has an option to purchase the leased asset
at the end of the lease period at a price agreed upon at the
inception of the lease agreement, and (b) the sum of
periodic lease payments, plus the residual value, will cover the
acquisition price of the leased asset and related interest, and
(c) there is a minimum lease period of 2 years.

Under U.S. GAAP, a leased asset is
capitalized if one of the following criteria is met:
(a) there is an automatic transfer of ownership at the end
of the lease term; or (b) the lease contains a bargain
purchase option; or (c) the lease term is for 75% or more
of the economic life of the asset; or (d) the lease
payments are at least 90% of the fair value of the asset.
Certain leased assets that are accounted for as operating leases
under Indonesian GAAP are accounted for as capital leases under
U.S. GAAP.

m. Acquisition
of Dayamitra

The Company acquired a 90.32% interest in
Dayamitra and contemporaneously acquired a call option to buy
the other 9.68% at a fixed price at a stated future date, and
provided to the minority interest holder a put option to sell
the other 9.68% to the Company under those same terms; meaning
that the fixed price of the call is equal to the fixed price of
the put option. Under U.S. GAAP, the Company should account
for the option contracts on a combined basis with the minority
interest and account for it as a financing of the purchase of
the remaining 9.68% minority interest. As such, under
U.S. GAAP, the Company has consolidated 100% of Dayamitra
and attributed the stated yield earned under the combined
derivative and minority interest position to interest expense.

Under Indonesian GAAP, the Company accounts for
the remaining 9.68% of Dayamitra as minority interest. In
addition, the option price that has been paid by the Company is
presented as Advance payments for investments in shares of
stock.

n. Reversal
of Difference Due to Change of Equity in Associated
Companies

Under Indonesian GAAP, differences previously
credited directly to equity as a result of equity transactions
in associated companies are released to the statement of income
upon the sale of an interest in the associate in proportion with
the percentage of the interest sold.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Under U.S. GAAP, it is the Companys
policy to include differences resulting from equity transactions
in associated companies in equity. Such amounts can not be
released to the statement of income and consequently remain in
equity indefinitely.

o. Asset
Retirement Obligations

Under Indonesian GAAP, legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the
normal operation of a long-lived assets are charged to current
operations as incurred.

Under U.S. GAAP, the obligations are
capitalized to the related long-lived assets and depreciated
over the useful life of the assets.

p. Deferred
Income Taxes

Under Indonesian GAAP, the Company does not
recognize deferred taxes on differences between the financial
statement carrying amounts and tax bases of equity method
investments when it is not probable that these differences will
be reversed in the foreseeable future.

Under U.S. GAAP, deferred taxes are recognized in
full on differences between the financial statement carrying
amounts and tax bases of equity method investments.

q. Impairment
of Assets

Under Indonesian GAAP, an impairment loss is
recognized whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. The
recoverable amount of fixed assets is the greater of its net
selling price or value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. An impairment loss can be reversed if there has been
a change in the estimates used to determine the recoverable
amount. An impairment loss is only reversed to the extent that
the assets carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation, if
no impairment loss had been recognized.

Under U.S. GAAP, an impairment loss is recognized
whenever the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount
of the asset. An impaired asset is written down to its estimated
fair value based on quoted market prices in active markets or
discounting estimated future cash flows. Reversals of previously
recognized impairment losses is prohibited.

There were no impairment charges recognized by
the Company and therefore, there were no differences between
Indonesian GAAP and U.S. GAAP.

r. Gain
(loss) on Sale of Property, Plant and Equipment

Under Indonesian GAAP, the Company classifies
gain (loss) on sale of property, plant and equipment as a
component of other income (expenses) which are excluded from
determination of operating income.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Under U.S. GAAP, gain (loss) on sale of
property, plant and equipment is classified as a component of
operating expenses and hence included in the determination of
operating income. For the years ended December 31, 2001,
2002 and 2003, operating income would have been higher by
Rp10,944 million, Rp130,450 million and
Rp182,883 million, respectively, and other income
(expenses) would have been lower by the same amounts due to the
inclusion of gain on sale of property, plant and equipment in
the determination of operating income.

(2) A summary of the significant adjustments
to consolidated net income for the years ended December 31,
2001, 2002 and 2003 and to consolidated stockholders
equity as of December 31, 2002 and 2003 which would be
required if U.S. GAAP had been applied, instead of
Indonesian GAAP, in the consolidated financial statements are
set forth below:

|                                                                                                 |                                                                                                                                      |      |  |      |   |      |           |         |   |  |           |         |   |  |           |          |  
|------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ---- |  | ---- | - | ---- | --------- | ------- | - |  | --------- | ------- | - |  | --------- | -------- | -
|                                                                                                 |                                                                                                                                      | Note |  | 2001 |   | 2002 |           | 2003   
|                                                                                                 |                                                                                                                                      |      |  |      |   |      |           |        
|Net income according to the consolidated
    statements of income prepared under Indonesian GAAP |                                                                                                                                      |      |  |      |   |      | 4,068,391 |         |   |  | 8,039,709 |         |   |  | 6,087,227 |         
|                                                                                                 |                                                                                                                                      |      |  |      |   |      |           |         |   |  |           |         |   |  |           |         
|U.S. GAAP adjustments  increase
    (decrease) due to:                                          |                                                                                                                                      |      |  |      |   |      |           |         |   |  |           |         |   |  |           |         
|                                                                                                 | Termination benefits                                                                                                                 |      |  | (a   | ) |      |           | 140,000 |   |  |           | 530,981 |   |  |           | (670,981 | )
|                                                                                                 | Capitalization of foreign exchange differences,
    net of related depreciation of (76,732), (79,797) and (76,756),
    respectively |      |  | (b   | ) |      |           | 74,987  |   |  |           | 107,365 |   |  |           | 76,756   |  
|                                                                                                 | Interest capitalized on property under
    construction net of related depreciation of (nil), (3,061) and
    (8,787), respectively  |      |  | (c   | ) |      |           | 19,690  |   |  |           | 43,045  |   |  |           | 39,077   |  
|                                                                                                 | Revenue-sharing arrangements                                                                                                         |      |  | (d   | ) |      |           | 43,999  |   |  |           | 67,959  |   |  |           | 23,159   |  
|                                                                                                 | Revaluation of property, plant and equipment                                                                                         |      |  | (e   | ) |      |           | 4,095   |   |  |           | 3,929   |   |  |           |         |  
|                                                                                                 | Pension                                                                                                                              |      |  | (f   | ) |      |           | (19,640 | ) |  |           | 111,415 |   |  |           | (109,334 | )
|                                                                                                 | Equity in net income/ (loss) of associated
    companies                                                                             |      |  | (g   | ) |      |           | (3,786  | ) |  |           | (182    | ) |  |           | (170     | )
|                                                                                                 | Amortization of landrights                                                                                                           |      |  | (h   | ) |      |           | (6,409  | ) |  |           | (11,781 | ) |  |           | (10,212  | )
|                                                                                                 | Depreciation of equipment to be installed                                                                                            |      |  | (i   | ) |      |           |        |   |  |           | 9,706   |   |  |           |         |  
|                                                                                                 | Revenue recognition                                                                                                                  |      |  | (j   | ) |      |           | 81,429  |   |  |           | (89,274 | ) |  |           | (53,226  | )
|                                                                                                 | Goodwill                                                                                                                             |      |  | (k   | ) |      |           |        |   |  |           | 21,269  |   |  |           | 21,270   |  
|                                                                                                 | Capital leases                                                                                                                       |      |  | (l   | ) |      |           |        |   |  |           | 14,241  |   |  |           | 6,882    |  
|                                                                                                 | Adjustment for Dayamitra accounted at 100%                                                                                           |      |  | (m   | ) |      |           | (4,191  | ) |  |           | (9,270  | ) |  |           | (24,476  | )
|                                                                                                 | Reversal of difference due to change of equity in
    associated companies                                                           |      |  | (n   | ) |      |           |        |   |  |           | (65,158 | ) |  |           | (38,425  | )
|                                                                                                 | Asset retirement obligations                                                                                                         |      |  | (o   | ) |      |           |        |   |  |           |        |   |  |           | (848     | )

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |          |         | 
|--------------------------------------------------------------------------- | -------------------- | ------------------------------------------------------- |  | ---- | -- | ---- | --------- | ------- | -------- | - | --------- | ------- | -------- | - | --------- | -------- | ------- | 
|                                                                            |                      | Note                                                    |  | 2001 |    | 2002 |           | 2003   
|                                                                            |                      |                                                         |  |      |    |      |           |        
|                                                                            | Deferred income tax: |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |          |        
|                                                                            |                      | Deferred income tax on equity method investments        |  |      | (p | )    |           |         |         |   |           |         |         |   |           |          | 119,456 | 
|                                                                            |                      | Deferred income tax effect on U.S. GAAP
    adjustments |  |      |    |      |           |         | (100,942 | ) |           |         | (220,724 | ) |           |          | 323,089 | 
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         
|                                                                            |                      |                                                         |  |      |    |      | 229,232   |         |          |   | 513,521   |         |          |   | (297,983  | )       
|                                                                            | Minority interest    |                                                         |  |      |    |      |           | 577     |          |   |           | 34,029  |          |   |           | 1,396    |        
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         
|                                                                            | Net adjustments      |                                                         |  |      |    |      |           | 229,809 |          |   |           | 547,550 |          |   |           | (296,587 | )      
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         
|Net income in accordance with U.S. GAAP                                     |                      |                                                         |  |      |    |      | 4,298,200 |         |          |   | 8,587,259 |         |          |   | 5,790,640 |         
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         
|Net income per share  in full Rupiah
    amount                            |                      |                                                         |  |      |    |      | 426.41    |         |          |   | 851.91    |         |          |   | 574.47    |         
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         
|Net income per ADS (20 Series B shares per
    ADS)  in full Rupiah amount |                      |                                                         |  |      |    |      | 8,528.17  |         |          |   | 17,038.21 |         |          |   | 11,489.40 |         
|                                                                            |                      |                                                         |  |      |    |      |           |         |          |   |           |         |          |   |           |         

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |            |          |  
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------- |  | ---- | --- | ---- | ---------- | ---------- | -------- | - | ---------- | ---------- | -------- | -
|                                                                                       |                                                                                       | Note                                                    |  | 2002 |     | 2003
|                                                                                       |                                                                                       |                                                         |  |      |     |     
|Equity according to the consolidated balance
    sheets prepared under Indonesian GAAP |                                                                                       |                                                         |  |      |     |      | 14,613,617 |            |          |   | 17,312,877 |           
|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           
|U.S. GAAP adjustments  increase
    (decrease) due to:                                |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           
|                                                                                       | Early retirement benefits                                                             |                                                         |  | (a)  |     |      |            | 670,981    |          |   |            |           |         
|                                                                                       | Capitalization of foreign exchange
    differences  net of related depreciation      |                                                         |  | (b)  |     |      |            | (627,229   | )        |   |            | (550,473   | )       
|                                                                                       | Interest capitalized on property under
    construction  net of related depreciation |                                                         |  | (c)  |     |      |            | 62,735     |          |   |            | 101,812    |         
|                                                                                       | Revenue-sharing arrangements                                                          |                                                         |  | (d)  |     |      |            | (470,855   | )        |   |            | (447,696   | )       
|                                                                                       | Revaluation of property, plant and equipment:                                         |                                                         |  | (e)  |     |      |            |            |          |   |            |            |         
|                                                                                       |                                                                                       | Increment                                               |  |      |     |      |            |            | (664,974 | ) |            |            | (664,974 | )
|                                                                                       |                                                                                       | Accumulated depreciation                                |  |      |     |      |            |            | 664,974  |   |            |            | 664,974  |  
|                                                                                       | Pension                                                                               |                                                         |  | (f)  |     |      |            | 231,490    |          |   |            | 122,156    |         
|                                                                                       | Equity in net loss of associated companies                                            |                                                         |  | (g)  |     |      |            | (18,082    | )        |   |            | (18,252    | )       
|                                                                                       | Amortization of landrights                                                            |                                                         |  | (h)  |     |      |            | (54,999    | )        |   |            | (65,211    | )       
|                                                                                       | Revenue recognition                                                                   |                                                         |  | (j)  |     |      |            | (715,322   | )        |   |            | (768,548   | )       
|                                                                                       | Goodwill                                                                              |                                                         |  | (k)  |     |      |            | 21,269     |          |   |            | 42,539     |         
|                                                                                       | Capital leases                                                                        |                                                         |  | (l)  |     |      |            | 14,241     |          |   |            | 21,123     |         
|                                                                                       | Adjustment for Dayamitra accounted at 100%                                            |                                                         |  | (m)  |     |      |            | (14,242    | )        |   |            | (38,718    | )       
|                                                                                       | Asset retirement obligations                                                          |                                                         |  | (o)  |     |      |            |           |          |   |            | (848       | )       
|                                                                                       | Deferred income tax:                                                                  |                                                         |  |      |     |      |            |            |          |   |            |            |         
|                                                                                       |                                                                                       | Deferred income tax on equity method investments        |  |      | (p) |      |            |            |         |   |            |            | 52,186   |  
|                                                                                       |                                                                                       | Deferred income tax effect on U.S. GAAP
    adjustments |  |      |     |      |            |            | 132,736  |   |            |            | 455,825  |  
|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           
|                                                                                       |                                                                                       |                                                         |  |      |     |      | (767,277   | )          |          |   | (1,094,105 | )         
|                                                                                       | Minority interest                                                                     |                                                         |  |      |     |      |            | 64,524     |          |   |            | 65,920     |         
|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           
|                                                                                       | Net adjustments                                                                       |                                                         |  |      |     |      |            | (702,753   | )        |   |            | (1,028,185 | )       
|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           
|                                                                                       | Equity in accordance with U.S. GAAP                                                   |                                                         |  |      |     |      |            | 13,910,864 |          |   |            | 16,284,692 |         
|                                                                                       |                                                                                       |                                                         |  |      |     |      |            |            |          |   |            |           

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The changes in stockholders equity in
accordance with U.S. GAAP for the years ended
December 31, 2001, 2002 and 2003 are as follows:

|                            |                                                 |      |            |            |   |      |            |            |   |  |            |            |  
|--------------------------- | ----------------------------------------------- | ---- | ---------- | ---------- | - | ---- | ---------- | ---------- | - |  | ---------- | ---------- | -
|                            |                                                 | 2001 |            | 2002       |   | 2003
|                            |                                                 |      |            |            |   |     
|Equity at beginning of year |                                                 |      | 12,927,793 |            |   |      | 7,765,500  |            |   |  | 13,910,864 |           
|Changes during the year:    |                                                 |      |            |            |   |      |            |            |   |  |            |           
|                            | Net income under U.S. GAAP                      |      |            | 4,298,200  |   |      |            | 8,587,259  |   |  |            | 5,790,640  |  
|                            | Dividends                                       |      |            | (888,654   | ) |      |            | (2,125,055 | ) |  |            | (3,338,109 | )
|                            | Difference due to change in equity of investees |      |            | (119,961   | ) |      |            |           |   |  |            |           |  
|                            | Other comprehensive income, net of nil tax      |      |            | 3,612      |   |      |            | (20,802    | ) |  |            | (78,703    | )
|                            | Common control transaction                      |      |            | (8,455,490 | ) |      |            | (296,038   | ) |  |            |           |  
|                            |                                                 |      |            |            |   |      |            |            |   |  |            |           
|Equity at end of year       |                                                 |      | 7,765,500  |            |   |      | 13,910,864 |            |   |  | 16,284,692 |           
|                            |                                                 |      |            |            |   |      |            |            |   |  |            |           

With regard to the consolidated balance sheets,
the following significant captions determined under
U.S. GAAP would have been:

|                                                |  |      |            |      |  |  |            | 
|----------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|                                                |  | 2002 |            | 2003
|                                                |  |      |            |     
|Consolidated balance sheets                     |  |      |            |      |  |  |            | 
|Current assets                                  |  |      | 10,628,933 |      |  |  | 9,411,469  | 
|Non-current assets                              |  |      | 33,994,014 |      |  |  | 41,935,581 | 
|                                                |  |      |            |      |  |  |            | 
|Total assets                                    |  |      | 44,622,947 |      |  |  | 51,347,050 | 
|                                                |  |      |            |      |  |  |            | 
|Current liabilities                             |  |      | 9,037,200  |      |  |  | 11,207,431 | 
|Non-current liabilities                         |  |      | 19,143,607 |      |  |  | 20,212,692 | 
|                                                |  |      |            |      |  |  |            | 
|Total liabilities                               |  |      | 28,180,807 |      |  |  | 31,420,123 | 
|Minority interest in net assets of subsidiaries |  |      | 2,531,276  |      |  |  | 3,642,235  | 
|Equity                                          |  |      | 13,910,864 |      |  |  | 16,284,692 | 
|                                                |  |      |            |      |  |  |            | 
|Total liabilities and equity                    |  |      | 44,622,947 |      |  |  | 51,347,050 | 
|                                                |  |      |            |      |  |  |            | 

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(3) | Additional Financial Statement Disclosures
    Required by U.S. GAAP and U.S. SEC

a. Income
Tax

The reconciliation between the expected income
tax provision in accordance with U.S. GAAP and the actual
provision for income tax recorded in accordance with
U.S. GAAP is as follows:

|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |         |  
|------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------- | ---- | --------- | -------- | - | ---- | ---------- | -------- | - |  | ---------- | ------- | -
|                                                                                                 |                                                                       | 2001 |           | 2002     |   | 2003
|                                                                                                 |                                                                       |      |           |          |   |     
|Consolidated income before tax in accordance with
    U.S. GAAP                                  |                                                                       |      | 6,880,064 |          |   |      | 12,483,147 |          |   |  | 10,711,267 |        
|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |        
|Income tax in accordance with U.S. GAAP at
    30% statutory tax rate                            |                                                                       |      | 2,064,002 |          |   |      | 3,744,927  |          |   |  | 3,213,380  |        
|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |        
|Effect of non-deductible expenses (non-taxable
    income) at the enacted maximum tax rate (30%) |                                                                       |      |           |          |   |      |            |          |   |  |            |        
|                                                                                                 | Net periodic post-retirement benefits cost                            |      |           | 111,922  |   |      |            | 183,597  |   |  |            | 188,375 |  
|                                                                                                 | Amortization of discount on promissory notes and
    interest expense |      |           | 28,515   |   |      |            | 58,298   |   |  |            | 132,876 |  
|                                                                                                 | Amortization of intangible assets                                     |      |           | 16,713   |   |      |            | 55,616   |   |  |            |        |  
|                                                                                                 | Tax penalty                                                           |      |           |         |   |      |            | 72,471   |   |  |            | 16,521  |  
|                                                                                                 | Employee benefits                                                     |      |           | 18,707   |   |      |            | 24,714   |   |  |            | 6,342   |  
|                                                                                                 | Permanent differences of the KSO Units                                |      |           | 12,209   |   |      |            | (8,767   | ) |  |            | 16,739  |  
|                                                                                                 | Amortization of landrights                                            |      |           | 1,922    |   |      |            | 3,534    |   |  |            | 3,064   |  
|                                                                                                 | Income which was already subject to final tax                         |      |           | (169,447 | ) |      |            | (140,982 | ) |  |            | (61,876 | )
|                                                                                                 | Decline in value of investments                                       |      |           | 23,288   |   |      |            |         |   |  |            |        |  
|                                                                                                 | Gain on sale of Telkomsels shares                                    |      |           |         |   |      |            | (949,826 | ) |  |            |        |  
|                                                                                                 | Equity in net (income) loss of associated
    companies               |      |           | 26,842   |   |      |            | 22,465   |   |  |            | (990    | )
|                                                                                                 | Others                                                                |      |           | (26,837  | ) |      |            | 53,648   |   |  |            | (95,886 | )
|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |        
|                                                                                                 | Total                                                                 |      |           | 43,834   |   |      |            | (625,232 | ) |  |            | 205,165 |  
|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |        
|Provision for income tax in accordance with
    U.S. GAAP                                        |                                                                       |      | 2,107,836 |          |   |      | 3,119,695  |          |   |  | 3,418,545  |        
|                                                                                                 |                                                                       |      |           |          |   |      |            |          |   |  |            |        

For the three year period ended December 31,
2003, all of the Companys operating revenues occurred in
Indonesia, and accordingly, the Company has not been subject to
income taxes in other countries.

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


|                                       |  |      |            |      |  |  |            |  
|-------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                       |  | 2002 |            | 2003
|                                       |  |      |            |     
|Deferred tax assets                    |  |      |            |      |  |  |            |  
|Accounts receivable                    |  |      | 151,955    |      |  |  | 145,918    |  
|Inventories                            |  |      | 14,614     |      |  |  | 11,528     |  
|Tax loss carryforwards                 |  |      | 16,254     |      |  |  | 285,856    |  
|Provision for long service awards      |  |      | 146,769    |      |  |  | 142,084    |  
|Deferral of revenue                    |  |      | 214,597    |      |  |  | 230,564    |  
|Long-term investments                  |  |      | 52,605     |      |  |  | 38,048     |  
|Others                                 |  |      |           |      |  |  | 72,730     |  
|Provision for employee benefits        |  |      |           |      |  |  | 131,757    |  
|                                       |  |      |            |      |  |  |            |  
|Total                                  |  |      | 596,794    |      |  |  | 1,058,485  |  
|                                       |  |      |            |      |  |  |            |  
|Deferred tax liabilities               |  |      |            |      |  |  |            |  
|Property, plant and equipment          |  |      | (2,406,220 | )    |  |  | (2,471,577 | )
|Intangible assets                      |  |      | (1,115,897 | )    |  |  | (1,527,796 | )
|Pension costs                          |  |      | (79,303    | )    |  |  | (125,010   | )
|Prepaid expenses and other receivables |  |      | (21,618    | )    |  |  | (49,519    | )
|Others                                 |  |      | (842       | )    |  |  |           |  
|                                       |  |      |            |      |  |  |            |  
|Total                                  |  |      | (3,623,880 | )    |  |  | (4,173,902 | )
|                                       |  |      |            |      |  |  |            |  
|Total deferred tax liabilities  net   |  |      | (3,027,086 | )    |  |  | (3,115,417 | )
|                                       |  |      |            |      |  |  |            |  

Benefits enjoyed by pensioners fall under the
category of benefits in kind which are non-deductible expenses
under Indonesian tax laws.

b. Fair Value of Financial
Instruments

The following methods and assumptions are used to
estimate the fair value of each class of financial instruments:



| |                                                        
| | -------------------------------------------------------
| | Cash and Cash Equivalents and Temporary
    Investments

The carrying amount approximates fair value
because of the short-term nature of the instruments.

Short-term bank
loans

The carrying amount approximates fair value
because of the short-term nature of the instruments.

Long-term
Liabilities

(i) The fair value of two-step loans are
estimated on the basis of the discounted value of future cash
flows expected to be paid, considering rates of interest at
which the Company could borrow as of the respective balance
sheet dates.

For purposes of estimating the fair value of
two-step loans, the Company has used the average Rupiah
borrowing rates of 14.92%, and 9.63%, the average
U.S. Dollar borrowing rate of 1.65% and 1.21% and the
respective average borrowing rates for 2002 and 2003 for the
debt in other currencies. Under the current environment, an
estimate of the interest rates as of a point in time, given the
significance of the Companys debt and the general
unavailability of funds, is difficult. For one

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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


percentage point increase in the above-mentioned
borrowing rates, the fair value of the Companys long-term
two-step loans at December 31, 2003 would decrease by
Rp462,988 million.

(ii) The fair value of suppliers
credit loans, bridging loan and long-term bank loan is estimated
on the basis of the discounted value of future cash flows
expected to be paid, considering rates of interest at which the
Company could borrow as of the balance sheet date.

(iii) The fair value of the liability for
the acquisition of subsidiaries is estimated on the basis of the
discounted future cash flows expected to be paid.

(iv) The fair value of the bonds and
guaranteed notes are based on market prices at balance sheet
date.

The estimated fair values of the Company and its
subsidiaries financial instruments are as follows:

|                          |                                              |                 |           |            |  |  |           |           | 
|------------------------- | -------------------------------------------- | --------------- | --------- | ---------- |  |  | --------- | --------- | 
|                          |                                              | Carrying Amount |           | Fair Value
|                          |                                              |                 |           |           
|2002                      |                                              |                 |           |            |  |  |           |          
|Cash and cash equivalents |                                              |                 | 5,699,070 |            |  |  | 5,699,070 |          
|Temporary investments     |                                              |                 | 573,000   |            |  |  | 573,000   |          
|Short-term bank loans     |                                              |                 | 39,205    |            |  |  | 39,205    |          
|Long-term liabilities:    |                                              |                 |           |            |  |  |           |          
|                          | Two-step loans                               |                 |           | 8,570,142  |  |  |           | 9,866,256 | 
|                          | Suppliers credit loans                      |                 |           | 338,697    |  |  |           | 361,388   | 
|                          | Bridging loan                                |                 |           | 95,517     |  |  |           | 101,213   | 
|                          | Bonds                                        |                 |           | 975,992    |  |  |           | 1,050,000 | 
|                          | Guaranteed notes                             |                 |           | 1,337,518  |  |  |           | 1,441,575 | 
|                          | Liabilities for acquisitions of subsidiaries |                 |           | 3,004,935  |  |  |           | 3,235,312 | 
|                          | Bank loans                                   |                 |           | 247,432    |  |  |           | 268,309   | 
|2003                      |                                              |                 |           |            |  |  |           |          
|Cash and cash equivalents |                                              |                 | 5,094,472 |            |  |  | 5,094,472 |          
|Temporary investments     |                                              |                 | 4,006     |            |  |  | 4,006     |          
|Short-term bank loans     |                                              |                 | 37,642    |            |  |  | 37,642    |          
|Long-term liabilities:    |                                              |                 |           |            |  |  |           |          
|                          | Two-step loans                               |                 |           | 7,691,045  |  |  |           | 9,230,697 | 
|                          | Guaranteed notes                             |                 |           | 1,121,224  |  |  |           | 1,452,826 | 
|                          | Bonds                                        |                 |           | 981,278    |  |  |           | 1,265,606 | 
|                          | Bank loans                                   |                 |           | 2,924,590  |  |  |           | 3,140,373 | 
|                          | Liabilities for acquisitions of subsidiaries |                 |           | 2,334,749  |  |  |           | 2,498,138 | 
|                          | Suppliers credit loans                      |                 |           | 165,629    |  |  |           | 194,006   | 
|                          | Bridging loan                                |                 |           | 50,365     |  |  |           | 52,393    | 
|                          | Other                                        |                 |           | 9,153      |  |  |           | 9,153     | 

The methods and assumptions followed to determine
the fair value estimates are inherently judgmental and involve
various limitations, including the following:



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | i. Fair values presented do not take into
    consideration the effect of future currency fluctuations.

F-130



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii. Estimated fair values are not
    necessarily indicative of the amounts that the Company and its
    subsidiary would record upon disposal/termination of the
    financial instruments.

c. Research
and Development

Research and development expenditures, as
determined under U.S. GAAP, amounted to approximately
Rp39,523 million, Rp8,995 million and
Rp9,111 million in 2001, 2002 and 2003, respectively.

d. Comprehensive
Income

|                                              |  |      |           |      |  |      |           |   |  |  |           |  
|--------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                              |  | 2001 |           | 2002 |  | 2003
|                                              |  |      |           |      |  |     
|Net income under U.S. GAAP                    |  |      | 4,298,200 |      |  |      | 8,587,259 |   |  |  | 5,790,640 |  
|Unrealized gain (loss) in value of securities |  |      | (42       | )    |  |      | 207       |   |  |  |          |  
|Foreign exchange translation of associates    |  |      | 3,654     |      |  |      | (21,009   | ) |  |  | (78,703   | )
|                                              |  |      |           |      |  |      |           |   |  |  |           |  
|                                              |  |      | 4,301,812 |      |  |      | 8,566,457 |   |  |  | 5,711,937 |  
|                                              |  |      |           |      |  |      |           |   |  |  |           |  

Adjustments to net income to arrive at
comprehensive income include foreign currency translation
adjustments and unrealized gains (losses) in the value of
securities. The components of accumulated other comprehensive
income (loss) are as follows:

|                                           |  |      |         |      |  |      |         |  |  |  |         | 
|------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                           |  | 2001 |         | 2002 |  | 2003
|                                           |  |      |         |      |  |     
|Unrealized losses in value of securities   |  |      | (207    | )    |  |      |        |  |  |  |        | 
|Foreign exchange translation of associates |  |      | 256,674 |      |  |      | 235,665 |  |  |  | 156,962 | 
|                                           |  |      |         |      |  |      |         |  |  |  |         | 
|                                           |  |      | 256,467 |      |  |      | 235,665 |  |  |  | 156,962 | 
|                                           |  |      |         |      |  |      |         |  |  |  |         | 

e. Employee
Benefit Plans



| |            
| | -----------
| | The Company

The disclosures under SFAS No. 87 and
SFAS No. 106 are as follows:

|                                            |  |         |          |             |  |      |          |      |  |      |          |      |  |  |         |   |  |  |         |   |  |  |         |  
|------------------------------------------- |  | ------- | -------- | ----------- |  | ---- | -------- | ---- |  | ---- | -------- | ---- |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                            |  |         |          |            
|                                            |  | Pension |          | Health Care
|                                            |  |         |          |            
|                                            |  | 2001    |          | 2002        |  | 2003 |          | 2001 |  | 2002 |          | 2003
|                                            |  |         |          |             |  |      |          |      |  |      |          |     
|Components of Net Periodic Pension
    Cost |  |         |          |             |  |      |          |      |  |      |          |      |  |  |         |   |  |  |         |   |  |  |         |  
|Service cost                                |  |         | 59,629   |             |  |      | 90,869   |      |  |      | 119,089  |      |  |  | 46,689  |   |  |  | 69,345  |   |  |  | 80,599  |  
|Interest cost                               |  |         | 277,077  |             |  |      | 418,044  |      |  |      | 537,797  |      |  |  | 298,541 |   |  |  | 424,834 |   |  |  | 493,596 |  
|Expected return on plan assets              |  |         | (266,325 | )           |  |      | (343,121 | )    |  |      | (421,706 | )    |  |  | (49,011 | ) |  |  | (33,744 | ) |  |  | (56,004 | )
|Net amortization and deferral               |  |         | 61,354   |             |  |      | 110,557  |      |  |      | 186,879  |      |  |  | 78,291  |   |  |  | 106,501 |   |  |  | 123,244 |  
|Curtailment                                 |  |         |         |             |  |      |         |      |  |      |         |      |  |  |        |   |  |  | 49,576  |   |  |  |        |  
|                                            |  |         |          |             |  |      |          |      |  |      |          |      |  |  |         |   |  |  |         |   |  |  |         |  
|Net periodic pension cost                   |  |         | 131,735  |             |  |      | 276,349  |      |  |      | 422,059  |      |  |  | 374,510 |   |  |  | 616,512 |   |  |  | 641,435 |  
|                                            |  |         |          |             |  |      |          |      |  |      |          |      |  |  |         |   |  |  |         |   |  |  |         |  

F-131



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


A summary of plan assets, projected benefit
obligation and funded status of the plans were as follows:

|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|---------------------------------------------- |  | ------- | ---------- | ----------- |  | ---- | ---------- | ---- |  |  | ---------- | - |  |  | ---------- | -
|                                               |  |         |            |            
|                                               |  | Pension |            | Health Care
|                                               |  |         |            |            
|                                               |  | 2002    |            | 2003        |  | 2002 |            | 2003
|                                               |  |         |            |             |  |      |            |     
|Change in benefit obligation                   |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Beginning of year                              |  |         | 2,289,134  |             |  |      | 4,248,110  |      |  |  | 3,286,991  |   |  |  | 3,812,781  |  
|Service cost                                   |  |         | 90,869     |             |  |      | 119,089    |      |  |  | 69,345     |   |  |  | 80,599     |  
|Interest cost                                  |  |         | 418,044    |             |  |      | 537,797    |      |  |  | 424,834    |   |  |  | 493,596    |  
|Employee contributions                         |  |         | 31,939     |             |  |      | 40,530     |      |  |  |           |   |  |  |           |  
|Benefits paid                                  |  |         | (186,805   | )           |  |      | (222,421   | )    |  |  | (70,491    | ) |  |  | (93,420    | )
|Plan amendment                                 |  |         | 1,676,601  |             |  |      |           |      |  |  |           |   |  |  |           |  
|Actuarial (gain) loss                          |  |         | (71,672    | )           |  |      | 2,129,818  |      |  |  | 102,102    |   |  |  | (544,785   | )
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Benefit obligation at end of year              |  |         | 4,248,110  |             |  |      | 6,852,923  |      |  |  | 3,812,781  |   |  |  | 3,748,771  |  
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Change in plan assets                          |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Fair value of plan assets at beginning of year |  |         | 2,571,714  |             |  |      | 3,099,648  |      |  |  | 330,461    |   |  |  | 343,896    |  
|Employer contributions                         |  |         | 359,725    |             |  |      | 521,816    |      |  |  | 59,543     |   |  |  | 180,580    |  
|Actual return on plan assets                   |  |         | 343,121    |             |  |      | 421,706    |      |  |  | 53,287     |   |  |  | 56,004     |  
|Benefits paid                                  |  |         | (186,805   | )           |  |      | (222,421   | )    |  |  | (79,852    | ) |  |  | (98,612    | )
|Actuarial gain (loss)                          |  |         | 11,893     |             |  |      | (149,440   | )    |  |  | (19,543    | ) |  |  | (14,972    | )
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Fair value of plan assets at end of year       |  |         | 3,099,648  |             |  |      | 3,671,309  |      |  |  | 343,896    |   |  |  | 466,896    |  
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Funded status                                  |  |         | (1,148,462 | )           |  |      | (3,181,614 | )    |  |  | (3,468,885 | ) |  |  | (3,281,875 | )
|Unrecognized prior service cost (gain)         |  |         | 2,264,095  |             |  |      | 2,062,830  |      |  |  | (2,301     | ) |  |  | (1,934     | )
|Unrecognized actuarial net (gain) loss         |  |         | (943,576   | )           |  |      | 1,378,701  |      |  |  | 1,576,793  |   |  |  | 952,885    |  
|Unrecognized net transition obligation         |  |         | 177,525    |             |  |      | 148,891    |      |  |  | 291,899    |   |  |  | 267,574    |  
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  
|Net amount recognized                          |  |         | 349,582    |             |  |      | 408,808    |      |  |  | (1,602,494 | ) |  |  | (2,063,350 | )
|                                               |  |         |            |             |  |      |            |      |  |  |            |   |  |  |            |  

|                                                       |  |         |            |      |  |  |            |  
|------------------------------------------------------ |  | ------- | ---------- | ---- |  |  | ---------- | -
|                                                       |  |        
|                                                       |  | Pension
|                                                       |  |        
|                                                       |  | 2002    |            | 2003
|                                                       |  |         |            |     
|Accumulated benefit obligation (ABO)                   |  |         | 3,436,184  |      |  |  | 4,258,022  |  
|Fair value of plan asset                               |  |         | (3,099,648 | )    |  |  | (3,671,309 | )
|                                                       |  |         |            |      |  |  |            |  
|                                                       |  |         | 336,536    |      |  |  | 586,713    |  
|                                                       |  |         |            |      |  |  |            |  
|Excess of ABO over fair value of plan assets           |  |         | 336,536    |      |  |  | 586,713    |  
|Prepaid pension expense                                |  |         | 349,582    |      |  |  | 408,808    |  
|                                                       |  |         |            |      |  |  |            |  
|Additional minimum liability under U.S. GAAP           |  |         | 686,118    |      |  |  | 995,521    |  
|                                                       |  |         |            |      |  |  |            |  
|Unrecognized prior service cost 
    intangible asset |  |         | 686,118    |      |  |  | 995,521    |  
|                                                       |  |         |            |      |  |  |            |  

The measurement date used to determine pension
and health care benefit measures for the pension plan and the
health care plan is December 31 of each years.

F-132



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


The assumptions used by the independent actuary
to determine the benefit obligation and net periodic pension
cost of the plan as of December 31, 2001, 2002 and 2003
were as follows:

|                                         |  |         |    |             |  |      |    |      |  |      |    |      |  |  |    |   |  |  |    |   |  |  |    |  
|---------------------------------------- |  | ------- | -- | ----------- |  | ---- | -- | ---- |  | ---- | -- | ---- |  |  | -- | - |  |  | -- | - |  |  | -- | -
|                                         |  |         |    |            
|                                         |  | Pension |    | Health Care
|                                         |  |         |    |            
|                                         |  | 2001    |    | 2002        |  | 2003 |    | 2001 |  | 2002 |    | 2003
|                                         |  |         |    |             |  |      |    |      |  |      |    |     
|Discount rate                            |  |         | 13 | %           |  |      | 13 | %    |  |      | 11 | %    |  |  | 13 | % |  |  | 13 | % |  |  | 11 | %
|Expected long-term return on plan assets |  |         | 13 | %           |  |      | 13 | %    |  |      | 11 | %    |  |  | 13 | % |  |  | 13 | % |  |  | 11 | %
|Rate of compensation increase            |  |         | 6  | %           |  |      | 6  | %    |  |      | 8  | %    |  |  |   |   |  |  |   |   |  |  |   |  

Assumed health care cost trend rates at
December 31, 2001, 2002 and 2003 are as follow:

|                                                                                 |  |      |      |      |  |      |      |   |  |  |      |  
|-------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                 |  | 2001 |      | 2002 |  | 2003
|                                                                                 |  |      |      |      |  |     
|Health care cost trend assumed for next year                                     |  |      | 16   | %    |  |      | 14   | % |  |  | 12   | %
|Rate to which the cost trend is assumed to
    decline (the ultimate trend rate) |  |      | 10   | %    |  |      | 10   | % |  |  | 8    | %
|Year that the rate reaches the ultimate trend rate                               |  |      | 2005 |      |  |      | 2005 |   |  |  | 2006 |  

The actuarial valuation for the pension plan as
of December 31, 2001, 2002 and 2003 were prepared on
February 4, 2002, February 28, 2003 and May 21,
2004, respectively, by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide.

Discount rate is based on the yields available on
Government Bonds i.e., 10%  12% for Bonds maturing
between 2008 and 2013. The level of salary growth assumed are
based on long-term inflation of the order of 6%  7%.

Assumed health care cost trends have a
significant effect on the amounts reported for the health care
plans. A one-per change assumed health care cost trend rates
would have the following impact:

|                                             |  |                |         | 
|-------------------------------------------- |  | -------------- | ------- | 
|                                             |  | 1-Percentage  
|                                             |  | Point Increase
|                                             |  |               
|Effect on total of service and interest cost |  |                | 107,685 | 
|Effect on postretirement benefit obligation  |  |                | 758,572 | 

The Companys pension plan weighted average
asset allocation at December 31, 2002 and 2003, by asset
category, is as follows:

|                   |  |            |     |              |  |      |     |   |  |  |     |  
|------------------ |  | ---------- | --- | ------------ |  | ---- | --- | - |  |  | --- | -
|                   |  |            |     |             
|                   |  |            |     | Allocation  
|                   |  |            |     | of Plan     
|                   |  |            |     | Assets as of
|                   |  | Expected   |     | December 31 
|                   |  | Allocation |     |             
|                   |  | 2004       |     | 2002         |  | 2003
|                   |  |            |     |              |  |     
|Debt securities    |  |            | 68  | %            |  |      | 7   | % |  |  | 24  | %
|Deposit securities |  |            | 21  | %            |  |      | 82  | % |  |  | 67  | %
|Equity securities  |  |            | 7   | %            |  |      | 7   | % |  |  | 5   | %
|Real estate        |  |            | 1   | %            |  |      | 2   | % |  |  | 2   | %
|Other              |  |            | 3   | %            |  |      | 2   | % |  |  | 2   | %
|                   |  |            |     |              |  |      |     |   |  |  |     |  
|Total              |  |            | 100 | %            |  |      | 100 | % |  |  | 100 | %
|                   |  |            |     |              |  |      |     |   |  |  |     |  

F-133



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


Dana Pensiun Telkom is moving to a more long term
focused investment strategy and during 2004 intends to further
reduce holding deposit securities in favor of longer term debt
securities.

The Companys post-retirement health care
plan weighted average asset allocations at December 31,
2002 and 2003, by asset category, are as follows:

|                   |  |              |     |      |  |  |     |  
|------------------ |  | ------------ | --- | ---- |  |  | --- | -
|                   |  |             
|                   |  | Allocation  
|                   |  | of Plan     
|                   |  | Assets as of
|                   |  | December 31 
|                   |  |             
|                   |  | 2002         |     | 2003
|                   |  |              |     |     
|Debt securities    |  |              |    |      |  |  |    |  
|Deposit securities |  |              | 98  | %    |  |  | 98  | %
|Equity securities  |  |              |    |      |  |  |    |  
|Real estate        |  |              |    |      |  |  |    |  
|Other              |  |              | 2   | %    |  |  | 2   | %
|                   |  |              |     |      |  |  |     |  
|Total              |  |              | 100 | %    |  |  | 100 | %
|                   |  |              |     |      |  |  |     |  

Contributions

The Company expects to contribute
Rp816,023 million to the pension plan and
Rp200,000 million to the post-retirement health care plan
during 2004.

Expected
Future Benefit Payments

The expected benefit payments are as follows:

|            |  |         |           |             |  |  |           | 
|----------- |  | ------- | --------- | ----------- |  |  | --------- | 
|            |  | Pension |           | Health Care
|            |  |         |           |            
|2004        |  |         | 242,312   |             |  |  | 100,054   | 
|2005        |  |         | 282,056   |             |  |  | 114,866   | 
|2006        |  |         | 316,589   |             |  |  | 131,507   | 
|2007        |  |         | 367,143   |             |  |  | 148,374   | 
|2008        |  |         | 437,514   |             |  |  | 165,132   | 
|2009  2013 |  |         | 3,503,488 |             |  |  | 1,170,330 | 



| |          
| | ---------
| | Telkomsel

|                              |  |         |        |      |  |      |        |   |  |  |        |  
|----------------------------- |  | ------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                              |  |        
|                              |  | Pension
|                              |  |        
|                              |  | 2001    |        | 2002 |  | 2003
|                              |  |         |        |      |  |     
|Service cost                  |  |         | 2,247  |      |  |      | 4,021  |   |  |  | 4,679  |  
|Interest cost                 |  |         | 1,315  |      |  |      | 2,395  |   |  |  | 3,337  |  
|Expected return on assets     |  |         | (2,417 | )    |  |      | (2,741 | ) |  |  | (1,013 | )
|Net amortization and deferral |  |         | (125   | )    |  |      | 437    |   |  |  | 1,045  |  
|                              |  |         |        |      |  |      |        |   |  |  |        |  
|Net periodic benefit cost     |  |         | 1,020  |      |  |      | 4,112  |   |  |  | 8,048  |  
|                              |  |         |        |      |  |      |        |   |  |  |        |  

F-134



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


A summary of plan assets, projected benefit
obligation and funded status of the plans were as follows:

|                                                                            |  |      |        |      |  |  |         |  
|--------------------------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------- | -
|                                                                            |  | 2002 |        | 2003
|                                                                            |  |      |        |     
|Vested benefits                                                             |  |      | 5,049  |      |  |  | 9,185   |  
|                                                                            |  |      |        |      |  |  |         |  
|Accumulated benefit obligation                                              |  |      | 11,073 |      |  |  | 21,921  |  
|                                                                            |  |      |        |      |  |  |         |  
|Projected benefit obligation                                                |  |      | 28,060 |      |  |  | 47,645  |  
|Plan assets at fair value                                                   |  |      | 27,918 |      |  |  | 8,504   |  
|                                                                            |  |      |        |      |  |  |         |  
|Excess of plan assets over projected benefit
    obligation                 |  |      | (142   | )    |  |  | (39,141 | )
|Unrecognized net transition obligations                                     |  |      | 7,564  |      |  |  | 7,106   |  
|Unrecognized prior service cost                                             |  |      |       |      |  |  | 2,173   |  
|Unrecognized net (gain) loss                                                |  |      | (667   | )    |  |  | 23,831  |  
|                                                                            |  |      |        |      |  |  |         |  
|Prepaid (unfunded) pension cost before adjustment
    for minimum liability |  |      | 6,755  |      |  |  | (6,031  | )
|                                                                            |  |      |        |      |  |  |         |  
|Additional minimum liability                                                |  |      | (1,359 | )    |  |  | (7,386  | )
|                                                                            |  |      |        |      |  |  |         |  
|Prepaid (unfunded) pension cost after adjustment
    for minimum liability  |  |      | 5,396  |      |  |  | (13,417 | )
|                                                                            |  |      |        |      |  |  |         |  

The actuarial calculation for the pension plan is
prepared by PT Watson Wyatt Purbajaga, an independent
actuary in association with Watson Wyatt Worldwide. The
measurement date used to determine pension benefit measures for
the pension plan is December 31 of each years.

The assumptions used by the independent actuary
to determine benefit obligation and net periodic pension cost of
the plan as of December 31, 2001, 2002 and 2003 were as
follows:

|                                    |  |      |    |      |  |      |    |   |  |  |     |  
|----------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | --- | -
|                                    |  | 2001 |    | 2002 |  | 2003
|                                    |  |      |    |      |  |     
|Discount rate                       |  |      | 12 | %    |  |      | 12 | % |  |  | 11  | %
|Salary growth rate                  |  |      | 10 | %    |  |      | 10 | % |  |  | 9   | %
|Expected long term return on assets |  |      | 12 | %    |  |      | 12 | % |  |  | 7.5 | %



| |                                        
| | ---------------------------------------
| | f. Recent Accounting
    Pronouncements

FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entitiesincludes requirements for financial
reporting by companies involved with variable interest entities.
A variable interest entity is a corporation, partnership, trust
or any other legal structure used for business purposes that
either (a) does not have equity investors with voting
rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its
activities. FIN 46 changes that by requiring a variable
interest entity to be consolidated by a company if that company
is subject to a majority of the risk of loss from the variable
interest entitys activities or entitled to receive a
majority of the entitys residual returns, or both.
FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate but in
which it has a significant variable interest. In December 2003,
the FASB approved a partial deferral of FIN 46. Under the
new guidance, application of FIN 46R is required in
financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose
entities for periods ending after December 15, 2003.
Application by public entities,

F-135



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)


other than small business issuers, for all other
types of variable interest entities is required in financial
statements for periods ending after March 15, 2004. The
adoption of this standard did not have a material impact on the
Companys financial statements.

SFAS No. 150 Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity.In May
2003, the FASB issued SFAS No. 150 which establishes
standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities
and equity. It also include required disclosures for financial
instruments within its scope. For the Company,
SFAS No. 150 was effective for instruments entered
into or modified after May 31, 2003 and otherwise will be
effective at the beginning of the first financial year beginning
after June 15, 2003. FASB Staff Position
No. FAS 150-3 deferred certain provisions of
SFAS No. 150 for certain mandatorily redeemable
non-controlling interests. The Company currently does not have
any financial instruments that are within the scope of
SFAS No. 150.

EITF Issue 00-21 Accounting for
Revenue Arrangements with Multiple
Deliverables.The Issue
addresses a vendors accounting for transactions involving
the delivery of more than one product or service, and when it is
necessary to separate the transaction into individual component
deliverables, each with its own separate earnings process. If
the conditions requiring separate revenue recognition exist,
revenue is allocated among the different deliverables based on
their relative fair values (the relative fair value of each of
the component deliverables to the aggregated relative fair value
of the bundled deliverables), with revenue for each component
deliverable recognized when the revenue is realized and earned.
The final consensus will be applicable to agreements entered
into in fiscal periods beginning after June 15, 2003 with
early adoption permitted. The adoption of this standard did not
have a material impact on the Companys financial
statements.

F-136



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##### Table of Contents



PERUSAHAAN PERSEROAN (PERSERO)


P.T. TELEKOMUNIKASI INDONESIA Tbk AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

DECEMBER 31, 2002 AND 2003, AND FOR YEARS
ENDED


DECEMBER 31, 2001, 2002 AND
2003


(Figures in tables are presented in millions
of Rupiah, unless otherwise stated)




|    |                                                                              
|--- | -----------------------------------------------------------------------------
|59. | RECONCILIATION OF NET INCOME TO NET CASH
    PROVIDED BY OPERATING ACTIVITIES

|                                                                                      |                                                                |      |           |            |   |      |            |            |   |  |            |            |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ---- | --------- | ---------- | - | ---- | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                                                                      |                                                                | 2001 |           | 2002       |   | 2003
|                                                                                      |                                                                |      |           |            |   |     
|Net income                                                                            |                                                                |      | 4,068,391 |            |   |      | 8,039,709  |            |   |  | 6,087,227  |           
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                |      |           |            |   |      |            |            |   |  |            |           
|                                                                                      | Depreciation of property, plant and equipment                  |      |           | 2,869,772  |   |      |            | 3,473,370  |   |  |            | 4,779,520  |  
|                                                                                      | Interest income                                                |      |           | (571,586   | ) |      |            | (479,802   | ) |  |            | (366,024   | )
|                                                                                      | Interest expense                                               |      |           | 1,329,642  |   |      |            | 1,582,750  |   |  |            | 1,383,446  |  
|                                                                                      | Foreign exchange (gain) loss                                   |      |           | (811,933   | ) |      |            | (723,831   | ) |  |            | (363,505   | )
|                                                                                      | Equity in net (income) loss of associated
    companies        |      |           | 85,686     |   |      |            | (4,598     | ) |  |            | (2,819     | )
|                                                                                      | Gain on sale of property, plant and equipment                  |      |           | (10,944    | ) |      |            | (130,450   | ) |  |            | (182,883   | )
|                                                                                      | (Gain) loss on sale of trading and investment
    securities   |      |           |           |   |      |            | (3,196,380 | ) |  |            | 46,595     |  
|                                                                                      | Amortization of intangible assets                              |      |           | 55,709     |   |      |            | 187,990    |   |  |            | 730,659    |  
|                                                                                      | Amortization of unearned income                                |      |           | (85,201    | ) |      |            | (59,691    | ) |  |            | (61,812    | )
|                                                                                      | Amortization of deferred charges                               |      |           | 36,014     |   |      |            | 11,903     |   |  |            | 26,555     |  
|                                                                                      | Net periodic postretirement benefit cost                       |      |           | 374,510    |   |      |            | 616,512    |   |  |            | 641,435    |  
|                                                                                      | Net periodic long service award benefit cost                   |      |           | 94,539     |   |      |            | 289,922    |   |  |            | 207,126    |  
|                                                                                      | Provision for doubtful accounts and inventory
    obsolescence |      |           | 342,900    |   |      |            | 31,103     |   |  |            | 326,419    |  
|                                                                                      | Income tax expense                                             |      |           | 2,006,895  |   |      |            | 2,898,971  |   |  |            | 3,861,090  |  
|                                                                                      | Minority interest in net income of subsidiaries                |      |           | 474,605    |   |      |            | 810,222    |   |  |            | 1,503,478  |  
|Changes in assets and liabilities:                                                    |                                                                |      |           |            |   |      |            |            |   |  |            |           
|                                                                                      | Trade accounts receivable                                      |      |           | (980,196   | ) |      |            | (373,125   | ) |  |            | (827,772   | )
|                                                                                      | Other accounts receivable                                      |      |           | (78,930    | ) |      |            | 882        |   |  |            | 6,512      |  
|                                                                                      | Inventories                                                    |      |           | (51,278    | ) |      |            | 31,398     |   |  |            | 76,486     |  
|                                                                                      | Prepaid expenses                                               |      |           | (153,415   | ) |      |            | (17,936    | ) |  |            | (344,731   | )
|                                                                                      | Prepaid taxes                                                  |      |           |           |   |      |            | (84,409    | ) |  |            | (127,607   | )
|                                                                                      | Trade accounts payable                                         |      |           | 134,237    |   |      |            | 1,303,288  |   |  |            | 593,826    |  
|                                                                                      | Other accounts payable                                         |      |           | 23,035     |   |      |            | 166,383    |   |  |            | (27,663    | )
|                                                                                      | Taxes payable                                                  |      |           | 319,412    |   |      |            | (1,601,223 | ) |  |            | 477,961    |  
|                                                                                      | Accrued expenses                                               |      |           | 225,170    |   |      |            | 347,910    |   |  |            | (760,763   | )
|                                                                                      | Unearned income                                                |      |           | 60,223     |   |      |            | 134,850    |   |  |            | 317,650    |  
|                                                                                      | Advance from customers and suppliers                           |      |           | 89,600     |   |      |            | 80,090     |   |  |            | (30,884    | )
|                                                                                      | Contribution to Yayasan Kesehatan Pegawai Telkom               |      |           | (41,693    | ) |      |            | (59,543    | ) |  |            | (180,580   | )
|                                                                                      | Payment of long service award benefit                          |      |           | (28,865    | ) |      |            | (76,525    | ) |  |            | (222,743   | )
|                                                                                      | Interest paid                                                  |      |           | (1,256,404 | ) |      |            | (900,660   | ) |  |            | (1,178,332 | )
|                                                                                      | Interest received                                              |      |           | 590,966    |   |      |            | 480,288    |   |  |            | 369,982    |  
|                                                                                      | Income tax paid                                                |      |           | (2,098,272 | ) |      |            | (1,914,895 | ) |  |            | (3,905,317 | )
|                                                                                      |                                                                |      |           |            |   |      |            |            |   |  |            |           
|Net cash provided by operating activities                                             |                                                                |      | 7,012,589 |            |   |      | 10,864,473 |            |   |  | 12,852,532 |           
|                                                                                      |                                                                |      |           |            |   |      |            |            |   |  |            |           

F-137