TLK

Business Context and Reporting Period

This Form 6-K filing by Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom) reports unaudited consolidated financial and operational results for the first quarter of 2007 (ended March 31, 2007). The report was issued on May 30, 2007. Telkom operates as the dominant telecommunications provider in Indonesia, with the Government of Indonesia holding a 51.19% stake. The company's primary segments include fixed-line services, cellular services (via subsidiary Telkomsel), and data/internet services.

Key Financial Metrics

Debt and Liquidity: Total consolidated debt (short-term and long-term) increased to Rp 14,203 billion in Q1 2007 from Rp 12,758 billion in Q1 2006. The debt mix shifted, with Rupiah-denominated debt rising to 50% of the portfolio (from 33%) and US Dollar debt falling to 41% (from 54%). Cash and cash equivalents stood at Rp 7,363 billion as of March 31, 2007.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue grew 22.8%, driven primarily by a 23.8% increase in cellular revenue and a 35.8% increase in data and internet revenue.
• Expense Pressure: Operating expenses rose 33.6%, outpacing revenue growth. Key drivers included a 36.9% increase in Operations & Maintenance (due to concession fees and radio frequency charges) and a 22.5% rise in personnel expenses.
• Accounting Change: Interconnection revenue is now reported on a gross basis rather than net. While this increased reported revenue and expenses, the net impact on EBITDA remained consistent with prior periods.
• Profitability Decline: Despite revenue growth, Net Income fell 12.1% due to higher operating costs and a significant swing in foreign exchange gains (from a gain of Rp 774 billion in Q1 2006 to a loss of Rp 86 billion in Q1 2007).
• Subscriber Growth: Telkomsel subscribers surged 44.3% to 38.9 million, maintaining a >50% market share. Fixed-line subscribers grew modestly by 0.2% to 8.7 million, while fixed-wireless (Flexi) subscribers grew 48.1% to 4.6 million.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted the strong performance of the cellular segment and data services (TelkomNet Instan and Speedy broadband). Capital expenditure for the quarter was significant, with Telkomsel investing Rp 4.09 trillion and Telkom investing Rp 386 billion in network infrastructure.

Risks and Contingencies:

• Foreign Exchange: The company faces exposure to currency fluctuations, though it hedges approximately 36.5% of foreign debt obligations through time deposits.
• Regulatory Costs: Increases in concession fees and radio frequency charges are impacting operating margins.
• Forward-Looking Statements: The filing includes a standard disclaimer that projections regarding strategies and objectives involve risks and uncertainties that could cause actual results to differ materially.

Investor Verification Checklist

• EBITDA Margin Compression: Verify the sustainability of the 6.1 percentage point drop in EBITDA margin and whether cost controls are in place to reverse the trend.
• Foreign Exchange Impact: Assess the volatility of the "Gain (loss) on foreign exchange" line item, which swung from a major profit contributor in 2006 to a loss in 2007.
• Debt Structure: Confirm the implications of the shift toward higher Rupiah-denominated debt (50%) versus foreign currency debt.
• ARPU Trends: Monitor the decline in blended Average Revenue Per User (ARPU) for Telkomsel (-10%) and Flexi (-6.9%) amidst rapid subscriber growth.
• Capital Intensity: Review the high capital expenditure requirements (Rp 4.48 trillion combined for Q1) and their impact on future free cash flow.