UPDATE 2-Indonesia's Telkom Q2 net profit drops 13.7 pct

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By Muhamad Al Azhari and Andreas Ismar

JAKARTA, July 31 (Reuters) - PT Telekomunikasi Indonesia Tbk (TLKM.JK), Indonesia's top telecoms firm, had a bigger-than-expected 13.7 percent drop in second-quarter net profit, as costs rose and revenue per user fell.

But Telkom's president director, Rinaldi Firmansyah, said he expected revenue to grow more than 10 percent this year, driven by the firm's broadband internet and cellular businesses, implying a stronger performance in the second half of 2008.

State-controlled Telkom, Indonesia's largest listed company with a market value of $17.5 billion, had a net profit of 3.09 trillion rupiah ($338.9 million) in April-June, calculated from the published first-half and first-quarter results.

That was down from 3.58 trillion rupiah a year ago, and below analysts' expectations of 3.45 trillion rupiah.

A sharp increase in the company's depreciation, maintenance and marketing costs drove Telkom's operating profit down 13.75 percent in the second quarter, based on Reuters calculations.

Raymond Kosasih, an analyst at Deutsche Bank, said that the firm's weak first-half result was due to competition in the cellular business and the strategy of Telkom's mobile phone arm, PT Telekomunikasi Selular (Telkomsel), which resulted in loss of share in new customers.

"Costs continue to surge to reflect larger network base. We also attribute the weak result to an ineffective advertising and promotion campaign despite increased spending on this front," Kosasih said in a report.