Telecom Market in Indonesia

April 2013 Table of contents

. Key highlights 2-5

. Market size and growth 6-9

. Competitive landscape and key players 10-13

. Political, economic and regulatory environment 14-16

. M&A scenario in Indonesia 17-18

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 1 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key Highlights Key highlights of the Indonesian telecom market Market overview: size, key players and outlook

Indonesian telecom market

Revenue, subscribers and penetration Key players Market outlook

Key fixed-line players* 3.7 bn1 | 43.8 mn2 | 17.6 4.1 bn | 46.9 mn | 18.3 Fixed Telkom Revenue Fixed-lines Fixed-lines per Revenue Fixed-lines Fixed-lines per 100 people 100 people 2012 2012 2012 Bakrie Telecom 2015E 2015E 2015E

Key mobile players* 14.1 bn | 329.7 mn | 129 11 bn | 266.4 mn | 107 Indosat Subscribers per Mobile Revenue Subscribers Subscribers per Revenue Subscribers 100 people XL Axiata 100 people 2012 2012 2012 2015E 2015E 2015E Hutchison 3 Axis Smartfren (post merger of Mobile-8 and Smart Telecom, which earlier operated independently in the market) Sampoerna Telekom (STI) 53.4 mn | 4.3 mn | 3.4 mn 93 mn | 7.4 mn | 5.6 mn Internet3 * Most of the fixed-line and mobile operators Internet Internet Broadband Internet Internet Broadband users subscribers subscribers provide internet services and are focusing on users subscribers subscribers 2012 2012 2012 data revenue as a key growth driver. 2015E 2015E 2015E

Note: 1 Billion 2 Million 3 Internet services would be a subset of fixed and mobile services, as internet would either be provided through fixed or wireless networks. However, it is mentioned separately as the split of internet users among fixed and mobile internet is not available. Source: The Economist Intelligence Unit, accessed on 15 April 2013

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 3 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key highlights of the Indonesian telecom market Market trends

Shift from fixed to mobile ■ There is a continuous shift from fixed to mobile services, particularly in voice and data services, resulting in slower fixed line services revenue growth.

Dominance of prepaid ■ Indonesia is a prepaid customer dominated mobile market. Telkomsel, the largest mobile telecommunications provider in mobile customers Indonesia, had 104.8 million prepaid customers in 2011, compared to just 2.1 million postpaid subscribers.

■ As voice and SMS services flatten, operators are trying to grow their businesses beyond telecommunications (non-voice or substitute products), such as internet data access and application stores. Mobile operators are introducing value added services Efforts to diversify service (VAS) to leverage the shift in consumer preferences from fixed to mobile services. portfolio to include more ■ In 2011, Telkomsel introduced Tap Izy, the first mobile contactless payment system in Indonesia, by which customers can use non-voice offerings their own phone as an electronic wallet. ■ In January 2011, Telkomsel, in cooperation with Google, launched Business Connect. Available as a hosted push-mail service, Business Connect assists customers to easily manage all of their corporate activities.

■ Fixed-line and mobile services are also facing Mobile VoIP usage, January 2013 increasing competition from over-the-top (OTT) VoIP user VoIP time spent Sessions per Country services (for example Line and KakaoTalk apps). A percentage (minutes per month) month report from Arbitron Mobile revealed that Indonesians Japan 68.2% 386.5 222.4 used more voice over Internet Protocol (VoIP) and chat Indonesia 40.9% 134.9 65.9 apps in January 2013, beating the usage rates in the Increase in competition UK 22.1% 79.2 35.1 from OTT services UK, the US, Germany and China. US 16.5% 77.6 35.6 ■ Indonesian telcos may come up with their own cross- 27.0% 68.1 31.8 platform messaging app ‘Messaging Indonesia’ along Germany with the Indonesian Telecommunication Regulatory France 17.4% 65.2 34.3 Authority (BRTI) to counter the intensifying competition China 16.4% 26.6 27.2 from OTT services (apps). Source: Arbitron Mobile Trends Panels Service, Persons 18+, January 2013

Source: The Economist Intelligence Unit, accessed on 15 April 2013

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 4 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key highlights of the Indonesian telecom market Challenges

Geographical spread and ■ Indonesia comprises 17,000 islands between Asia and Australia, representing a unique geographical challenge for telcos in related coverage issues expanding their network coverage. Indonesia’s tower market still has significant geographical expansion remaining.

■ SIM card penetration in Indonesia has already reached over 100 percent, leaving little room for operators to grow their High SIM card penetration customer base from basic voice or SMS service. Mobile subscriptions per 100 people reached 107 in Indonesia in 2012.

Change in accounting ■ Recent accounting changes to classify tower leases from operational to financial is expected to result in higher depreciation and policies for leasing amortization, and interest costs and lower financing cash flows. In addition, the accounting change would result in lower towers operational and maintenance costs and higher operating cash flows.

Increase in capital ■ An additional issue is bringing network quality to a level that encourages data use due to positive user experience. This implies expenditure to improve significantly higher capex before customers see enough value to increase data spending. network quality

■ While Indonesia’s underdeveloped telecom market and large population are an attractive proposition to foreign investors, corruption and government bureaucracy continue to be factors that discourage potential investors. High levels of corruption and government ■ Global network exchange provider Epsilon announced plans to build a data centre with a partner in in 2011. The bureaucracy project, however, was subsequently abandoned. One of the challenges voiced by Andreas Hipp, CEO of Epsilon, was licensing. “We’ve found that it is almost impossible to obtain an international licence, and approval for simple business licences can take a long time, unless you to go down the route of paying ‘expedite fees’ which is an issue for us,” he explained.

Source: The Economist Intelligence Unit, accessed on 15 April 2013; NOMURA International analyst report on PT Telkom; Paul Budde report on the the Indonesian telecom market, 2013

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 5 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Market Size and Growth Telecom market in Indonesia Fixed-line market: market Size and Growth

Although Indonesia has been working steadily to build a solid foundation of improved telecom infrastructure, the national fixed-line tele-density has remained low over the years.

Fixed-line telecom market revenue and growth, 2008‒15E Fixed-line telecom subscribers, 2008‒15E

5 40

50 20 lines telephone Fixed 32 4 people 100 per 24 40 3 16 16 30 2 US$ billionUS$

8 Percentage 12 20 1 0

0 -8 10 8 2008 2009 2010 2011 2012 2013E 2014E 2015E Fixedtelephone lines (millions) 2008 2009 2010 2011 2012 2013E 2014E 2015E

Revenue (US$ billion) Revenue growth (percentage) Fixed telephone lines Fixed telephone lines per 100 people

Source: The Economist Intelligence Unit, accessed on 15 April 2013 Source: The Economist Intelligence Unit, accessed on 15 April 2013

Key findings . The fixed-line network started expanding significantly in 2005, increasing 33.6 percent y-o-y to reach 13.1 million (about 6 percent tele-density) fixed telephone lines. The growth was primarily driven by the extensive deployment of fixed-wireless technology, signalling a new approach to the expansion efforts. . By 2010 fixed-line numbers had reached 39.1 million and about 80 percent of these were fixed-wireless-based services. The growth rate eased in 2011 to 7.1 percent, as the total number of fixed-lines reached an estimated 41 million. . According to Pyramid Research and The Economist Intelligence Unit, the growth in fixed telephone lines will drop further to 2 percent y-o-y in 2017, when the total lines are expected to reach 48.7 million. The decline in growth can be attributed to the shift in consumer preference toward mobile services and the increasing competition from OTT voice services. . The increasing shift toward mobile services can be highlighted using the fact that fixed services comprised just 13 percent of the total telephone subscriber base in 2011, compared to 1998 when mobile services accounted for only 15 percent of the total market.

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 7 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Telecom market in Indonesia Mobile market: market Size and Growth

A particularly strong feature in the Indonesian telecom market has been the strong expansion in its mobile subscriber base. Mobile subscriptions per 100 people increased at a CAGR of 17.1 percent during 2008 ‒12 to reach 107.

Mobile telecom market revenue and growth, 2008‒15E Mobile telecom subscribers, 2008‒15E 16 16 350 140 14 14 300 120 12 12 250 100 10 10 200 80 8 8

US$ billionUS$ 150 60 100 people 6 6 Percentage 100 40 4 4 2 2 50 20 per subscriptions Mobile

0 0 Mobile subscriptions (millions) 0 0 2008 2009 2010 2011 2012 2013E 2014E 2015E 2008 2009 2010 2011 2012 2013E 2014E 2015E

Revenue (US$ billion) Revenue growth (percentage) Mobile subscriptions (millions) Mobile subscriptions per 100 people Source: The Economist Intelligence Unit, accessed on 15 April 2013 Source: The Economist Intelligence Unit, accessed on 15 April 2013

Key findings . After being hit by the regional economic crisis in late 1990s, the mobile market gained momentum in 2000. While the number of mobile subscribers had fallen from a pre-crisis peak of 1.2 million to 800,000, mobile operators accumulated three million subscribers by the end of year 2000. Since then subscriber numbers have grown at a CAGR of 42.8 percent during 2000‒12, totalling 266.4 million subscriptions in 2012. . In 2007, two new players, Hutchison CP Telecommunications (HCPT) and Smart Telecom, entered the market, briefly increased the number of active mobile operators in the country to eight. This number later reduced to seven with the 2011 merger of Smart Telecom and Mobile-8; however, this has still not been enough to calm fears of oversaturation in the mobile market. . As smart devices penetration increases further, the growth momentum of the mobile market is expected to continue, with subscriptions reaching 363.7 million by 2017 and the corresponding mobile revenue totalling US$17.4 billion. Mobile data services are expected to be a key revenue driver. ‒ According to the TIME Magazine’s global mobility poll (released in August 2012), while SMS remains the main function of mobile phones for Indonesians, mobile internet services follow closely behind. The poll revealed that Indonesians particularly enjoyed the ability to connect with friends and family using mobile devices. In addition to social media, Indonesians are more likely to use mobile devices for business purposes, with 93 percent of those surveyed believing that mobile technology has made Indonesia a more efficient place to do business.

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 8 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Telecom market in Indonesia Internet market: market Size and Growth

Indonesia has a nascent broadband market, with subscriptions lagging Asian peers. However, launch of 3Gservices and increasing demand for indicate strong growth potential.

Internet users and subscribers, 2008‒15E Broadband subscribers, 2008‒15E

6 2.5 Broadband subscriptions

100 3 subscriptions Internet

5 2.0 people 100 per 80 people 100 per 4 2 1.5 60 3 1.0 40 (millions) 1 2 0.5 Internet users and 20 1 Broadband subscriptions subscriptions Broadband subscriptions (millions) 0 0 0 0.0 2008 2009 2010 2011 2012 2013E 2014E 2015E 2008 2009 2010 2011 2012 2013E 2014E 2015E

Internet users (millions) Internet subscriptions (millions) Broadband subscriptions (millios) Broadband subscriptions per 100 people Internet subscriptions per 100 people

Source: The Economist Intelligence Unit, accessed on 15 April 2013 Source: The Economist Intelligence Unit, accessed on 15 April 2013

Key findings . The internet market is in its early stages of development that totalled an estimated 53.3 million users and 4.3 million subscribers in 2012. However, the market is showing strong growth momentum as the total internet users increased at an exponential CAGR of 30 percent during 2008 ‒12. . Although dial-up internet services had dominated the market up until recently, accelerated broadband development during the last 2‒3 years turned the tide with broadband now accounting for about 80 percent of the total internet subscriptions. . However, Indonesia’s broadband industry is still in its nascent stage. Broadband penetration in Indonesia has lagged behind Asian peers such as Singapore and Malaysia and continues to remain the lowest in the region. Fixed broadband totalled about 2.7 million coming into 2012. This represented a (population) penetration of just 1 percent and a household penetration of just 4 percent. . Given that all Indonesian mobile operators have launched 3G services and sales increased in 2012, mobile broadband continues to be a potential growth driver.

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Key telecom operators in Indonesia

Operator Brief description Fixed-line (including fixed-wireless services*) Mobile

PT Telekomunikasi Telkom is the largest telecommunications It operates mainly in fixed-line telephony, internet and Indonesia (Telkom services company in Indonesia. It is a semi- data communications. Indonesia or Telkom) privatized, majority state-owned multi-listed company.

PT Telekomunikasi Selular Telkomsel is a Jakarta-based subsidiary of It is a mobile phone network (Telkomsel) Telkom that was founded in 1995. operator

Indosat Founded in 1967, Indosat is a Jakarta-based Indosat provides cellular service, both prepaid and postpaid, through Indosat Mobile brand information and telecommunication operator. product, IM3 powered by Indosat and Indosat internet, fixed telecommunication services, The company operates in Indonesia, the fixed wireless and fixed line; in addition to fixed data communication service including Netherlands, Singapore, Malaysia, and the US. internet.

PT XL Axiata Tbk (XL) The Jakarta-based telecom service provider was The company, together with its formerly known as PT Excelcomindo Pratama subsidiaries, provides mobile phone Tbk. It operates through Global System for services for retail and corporate Mobile Communications and customers. It offers short message Telecommunications Network Services segment. service (SMS), data, voice and The company was founded on 6 October 1989. other value-added mobile services.

PT Bakrie Telecom PT Bakrie Telecom (Bakrie Telecom) is engaged The company's services include fixed wireless access in the provision of fixed digital radio cellular using extended-time division multiple access (E- telecommunication network and services. It has TDMA) technology, which is a limited-mobility service operations in Jakarta, Banten, Bali, Sumatera, using code division multiple access (CDMA) 2000 1x Sulawesi, Kalimantan and Java. The company technology. offers its products under the brand names including Esia, Wifone, Wimode, EsiaTel and SLI Hemat 009.

* Fixed-wireless services use wireless devices or systems to connect two fixed locations (such as building to building or tower to building) with a radio or other wireless link. Other term used for this is ‘Wireless local loop’ — use of wireless communications link as the last mile connection for delivering telecom services. © 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 11 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Telecom market in Indonesia Fixed-line market: competitive Landscape

Fixed-line subscribers and annual change by operators, June 2012 Key Findings Operators Subscribers* (million) Annual change (percentage) • Telkom’s fixed-line business revenue grew 0.4 percent y-o-y Telkom 25.00 -8% in FY12, following three consecutive years of declines, as fixed line data revenue more than offset traditional voice Indosat (Star One) 0.20 -29% declines. The trend is likely to continue in the near term.

Bakrie Telecom 11.46 -19% • Bakrie Telecom is facing decline in its core business — limited mobility fixed-wireless CDMA services. This ongoing structural decline is set to continue as customers continue to * Includes fixed-wireless and –wireline services shift toward GSM. Source: Paul Budde report on the Indonesian telecom market overview, 2013 • Furthermore, Bakrie’s new business divisions — broadband wireless (dongle) access and the proposed launch of EVDO Fixed revenue of key telecom operators, 2009‒11 set top boxes with a keyboard that plug into TVs to provide internet access, have yet to provide a material revenue 2,800 2,529.1 2,477.7 2,348.6 contribution. These new divisions may also require higher 2,400 capex and opex in 2013, putting further pressure on the 2,000 company’s ongoing operating losses. 1,600 ‒ Bakrie Telecom’s operating loss worsened from US$17.9 1,200 million in 2011 to US$51.5 million in 2012, on a revenue of

US$ MillionUS$ US$243 million, as the company remains sub-scale 800 versus its depreciation charges and suffered subscriber 179.4 282.3 284.6 266.7 losses (which declined to 11.6 million in December 2012 400 133.1 128.7 compared to 13 million in 2010). 0 2009 2010 2011 • Indosat’s fixed revenue also declined 18.3 percent y-o-y to Telko m Indosat Bakrie Telecom US$105.1 million in FY12.

Note: The chart above provides fixed business segment revenue for Telkom and Indosat, and total revenue for Bakrie Telecom Source: Dow Jones Companies and Executives, accessed on 22 April 2012; JP Morgan broker report on Bakrie Telecom, September 2012

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms All currency conversions at IDR1=US$0. 0.0001029336 as on 15 April 2013 12 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Telecom market in Indonesia Mobile market: competitive Landscape

Wireless revenue of key operators in Indonesia (US$ million), 1Q09 ‒ 4Q12 Key Findings 1,600 • The Indonesian mobile market has five key operators, including 1,400 three state-owned operators — Telkomsel, Axiata’s XL and 1,200 Qtel’s Indosat. STC-owned Axis and Hutchison-owned Three are 1,000 the smaller rivals to the three state-owned majors, which 800 collectively account for about 90 percent of the market.

US$ Million 600 • In FY12, the revenue share remained almost flat y-o-y among 400 the three wireless operators, with Telkomsel, Indosat and XL 200 Axiata holding 58.7, 20.5 and 20.8 percent of the market, respectively. 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 • In 4Q12, the three state-owned operators reported healthy mobile net subscriber additions (Telkomsel – 3,669,000; Indosat Telkomsel Indosat XL Axiata – 3,100,000 and XL Axiata – 3,414,000).

• In FY12, while Telkomsel and Indosat added 18 million and 7 Wireless EBITDA of key operators in Indonesia (US$ million), 1Q09 ‒ 4Q12 million mobile subscribers respectively, XL Axiata lost 650,000 subscribers.

• Telkomsel is keen to reap the benefit of rising smartphone 900 penetration, by continuing to avoid unlimited plans and subsidies, 750 and competing on coverage and quality rather than price. 600 450 300 US$ Million “The current number of five GSM players in the 150 Indonesian market is unsustainable, and consolidation in 0 the market is inevitable.” – Eric Aas, CEO of Axis 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 (speaking at Total Telecom World 2012)

Telkomsel Indosat XL Axiata

Source: NOMURA analyst report, 2 April 2013 ;TMT Finance, Axis CEO pushes for consolidation, published on 14 November 2012

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms All currency conversions at IDR1=US$0. 0.0001029336 as on 15 April 2013 13 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Political, economic and regulatory environment

Macroeconomic environment in Indonesia Political and economic environment

Amid government bureaucracy and corruption, risk of political instability continues to deter potential investors. Although Indonesia’s legislative and presidential elections in 2004 and 2009 were largely peaceful, political instability has commonly risen as an issue ahead of national elections and threatens the upcoming elections in 2014. The winner of the 2009 legislative elections, President Susilo Bambang Political factors Yudhoyono’s Democratic Party, has been hit hard by corruption scandals during the past two years, decreasing its chance to again lead the parliament. While some polls suggest that the Golkar Party and the Indonesian Democratic Party of Struggle (PDI-P) are expected to gain from the Democrats’ loss and may lead the votes next year, it remains unforeseen as to who will lead Indonesia in 2014.

In March 2013, Vice President Boediono allayed fears of disruptions in Indonesia’s economic growth as the domestic political situation is expected to intensify ahead of 2014 elections. Boediono said Indonesia was projected to maintain its economic growth at about 6 percent Economic per annum over the next few years, supported by robust demand in domestic consumption and investment sectors. factors The country has seen healthy GDP growth rates over the past few years. Indonesia’s nominal GDP is expected to grow 6.7 percent y-o-y in 2013, reaching US$936.5 billion. Increasing GDP, along with reducing unemployment rate over the years has also resulted in increasing disposable income, which, in turn, is a positive indicator for the country’s telecom service providers.

Nominal GDP and personal disposable income, 2005 ‒12 Unemployment rate (percentage), 2005‒12

900 12 11.2 800 10.3 700 10 9.1 8.4 600 7.9 8 7.1 500 6.6 6.1 6

US$ billionUS$ 400 300 4 200 2 100 2005 2006 2007 2008 2009 2010 2011 2012 0 2005 2006 2007 2008 2009 2010 2011 2012 Nominal GDP Personal dosposable income

Source: The Economist Intelligence Unit, accessed on 15 April 2013

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Regulatory environment in Indonesia Evolution of telecom-related regulations and key developments

The government passed a Telkom was to lose its monopoly service rights in the local-call market by mid- The Directorate General new telecommunications 2002 (original rights were until 2010) and in the domestic long-distance call of Post and law, allowing for private market by mid-2003 (original rights until 2005). Indosat was to lose its Telecommunications sector participation in the monopoly in the international telephone call market in 2003 (compared to the (DGPT), which was part market. original mandated date of 2004). of the Ministry of Communications and 1989 1993 2000 2001 Information Technology (MCIT), was previously The 1989 law was amended, making foreign participation only As the country moved toward a more liberal telecom regime, it responsible for the possible through joint ventures. Foreign control was limited to 35 was important to rationalize the cross-ownership between PT implementation of the percent of Indonesian telecommunications companies. The Telkom and PT Indosat. In a deal valued US$1.5 billion, the two policies and strategies in decision to partly privatise PT Telkom and PT Indosat was also telcos signed an MOU to change their shareholdings. the telecom industry. made at this time.

Telkom and Indosat could not eliminate the cross-shareholdings In April 2011 the BRTI said mobile phone The BRTI announced the establishment between them due to the non-fulfilment of several conditions. The users could lodge complaints with both the of a department to monitor the online project having fallen through, Telkom was required to pay Indosat BRTI and the relevant mobile operators to activity of Internet users that appeared US$198 million under the terms of the deal, ending their cross holdings. have spam senders’ numbers barred from to be a prelude to the ultimate The two telcos signed an interconnection agreement, a prerequisite further contact. enactment of cyber laws in Indonesia. allowing Indosat to enter the local call market.

2011 2008 2006 2003 2002

US-based telco AT&T was the first foreign operator to secure an MSO Information and Electronic As part of the sector reform, in mid-2003, the government license in the country. Made possible by the Indonesia Government’s Transactions (ITE) Law was set up an independent regulatory body — Badan Regulasi policy permitting up to 95 percent foreign ownership for communications enacted to regulate online Telekomunikasi Indonesia or BRTI — replacing the DGPT. services in the country. AT&T owns 95 percent of the joint venture, PT transactions. BRTI formally came into effect in 2004. AT&T Global Network Services Indonesia (AT&T Indonesia),

Source: Paul Budde Communications report on the Indonesian Telecom Market, 2013

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Telecom market in Indonesia M&A scenario and recent transactions

According to a recent BCG report ‘Private Equity in Southeast Asia: Increasing Success, Rising Competition’, Indonesia is one of the region’s most active merger and acquisition markets as private equity (PE) taps into domestic-driven economic growth. From 2005 to 2010, in terms of value, mergers and acquisitions in Southeast Asia accounted for 18 percent of private equity deals in Asia.

However, the increasing demand to enter the local market has driven asset prices up. According to the report, acquisition prices in Indonesia have risen to 16.2 times earnings as measured by recent M&A transactions. Moreover, the asset price hike in Indonesia is the highest in the region.

Telecom companies, in particular, are looking at M&A transactions to increase their market share in the growing economy and handle the growing debt burden. Struggling CDMA operators - including Bakrie Telecom and PT Smartfren Telecom Tbk - may participate in consolidation, as they face tight liquidity amid weak profitability. CDMA operators are struggling due to a lack of variety of CDMA handsets and a narrowing of the tariff spread between CDMA and GSM operators. Telkom’s CDMA unit, Flexi, which had discussed an unsuccessful merger plan with Bakrie Telecom in 2010, could acquire one of the smaller CDMA operators to strengthen its customer base. Given below are some of the recent M&A deals involving Indonesian telcos.

STI buys stake in Bakrie Telecom In March 2012, Sampoerna Telekomunikasi Indonesia (STI) acquired a 10 Tower Bersama buys 2,500 towers from Indosat percent stake in mobile operator Bakrie Telecom as part of a share swap In April 2012, shareholders of Indonesian telecoms infrastructure company deal between the two CDMA mobile operators. While STI paid US$90 million PT Tower Bersama approved a plan to purchase 2,500 mobile towers from for the stake in Bakrie, in return Bakrie took 35 percent stake in STI. the country’s second largest operator, PT Indosat, for US$406 million. Synergies resulting from the deal are expected to enable Bakrie Telecom to scale quickly as competition increases in the mobile data market.

Telkom mulls merger of tower unit with rival PT Telekom, the country's biggest telecoms firm, is considering merging its tower unit with a listed telecom firm as it moves to expand its tower business. The merger, if successful, is expected to create the biggest telecom tower company in Indonesia, where foreign ownership is prohibited in the tower business and the market is controlled by a handful of firms. Telkom is considering four listed telecom tower firms, including Tower Bersama and Sarana Menara, for the merger with its unit PT Dayamitra Telekomunikasi (Mitratel), but has not yet begun official talks, said Indra Utoyo, a Telkom director.

© 2013 KPMG International, an Indian Partnership and a member firm of the KPMG network of independent member firms 18 affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Prepared by:

Amrita Puniani Senior Analyst, Global Media & Telecommunications T +91 124 612 9370 M +91 995 800 5055 [email protected]

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