One-Off Special Effects Aimed at Saving Personnel Costs Over the Long Term Cause Reported Operating Loss

VIENNA, May 11, 2011 /PRNewswire-FirstCall/ -- Telekom Austria Group Within Expectation of International Analysts, Reiteration of Its Outlook for Full-Year 2011

- In Q1 2011, revenue decline was further slowed down to 0.7%

- Broadband drives growth of Austrian fixed net access lines - rapid rollout of GigaNet: by year-end 2011, ultra-high-speed broadband coverage will reach roughly 2.1 million Austrian households

- Persistently strong demand for smartphones, mobile broadband customer base increased by 51.1% in Q1 2011

- The number of mobile subscribers rose by 5.7% exceeding the 20-million customer mark for the first time

- Regulatory measures and higher operating expenses - especially for the marketing of smartphones - led to a decline in EBITDA comparable (-7.1%)

- High acceptance of new social plans resulted in one-off restructuring costs of EUR 184.1 million leading to an operating loss in the first quarter of 2011

- Negative effects on earnings through social plans will bring operating loss on the accounting side, but personnel-related cost savings for the future

- Development of Q1 2011 within expectation of 24 international Telco analysts

- Outlook for the full-year 2011 was confirmed

Telekom Austria Group's Key Financial Figures for the First Quarter of 2011

    Financial Figures in EUR million          Q1-2011  Q1-2010   +/-

    Fixed access lines (in Million)              2.32     2.31   0.5%
    Mobile subscribers (in Million)             20.08    19.00   5.7%
    Mobile broadband customers (in Million)      1.23     0.81  51.1%
    Group revenues                           1,118.0  1,126.0   -0.7%
    EBITDA comparable                          396.7    426.8   -7.1%
    EBIT                                       -42.3    166.3      -
    Net result                                 -79.2     91.2      -
    Capital expenditures                       120.4    136.4  -11.7%
    Employees (end of the period)               17,162   16,637  3.2%

In the first quarter of 2011, the Telekom Austria Group was able to further slow down the decline in revenues of the previous year; Group revenues decreased by 0.7% to EUR 1,118 million. While Belarus and the segment "Additional Markets" reported revenue growth, the Austrian and the Croatian segments showed a decrease in revenues, with the Bulgarian business remaining almost stable. Against the backdrop of a persistently challenging economic environment which is and will continue to be characterized by intensive competition and regulatory pressure, demand for broadband offerings and smartphones continued to pick-up.

As a result, the total number of mobile broadband customers at the group level rose by 51.1% to 1.23 million. In Austria, fixed net access lines continued to show a favorable development in the first quarter of 2011, continuing the upward trend seen in Q4 2010. In the period under review, fixed access lines increased by 7,300 lines compared to a loss of 3,200 access lines in the first quarter of the previous year despite declining fixed net voice minutes. Thus, this increase in lines is mainly attributable to stronger usage of broadband offerings.

"User revenues remained almost stable in the first quarter of 2011 thanks to the strong demand for fixed net and mobile broadband products - thus, our group-wide strategic orientation towards convergence and our high investments in broadband infrastructure paid off. Recently A1 Telekom Austria was granted for its mobile broadband network, which ranks second Europe-wide among a total of 94 European network operators. This further demonstrates that we are on the right track," said Hannes Ametsreiter, CEO Telekom Austria Group, underpinning the company's clear strategic success.

EBITDA comparable declined by 7.1% to EUR 396.7 million due to regulatory measures, higher operating costs (mainly related to the marketing activities and subsidies for smartphones) as well as to revenue declines in Austria, Bulgaria and Croatia. The favorable earnings development in Belarus and in the segment "Additional Markets" - especially in the Republic of Serbia - could only partly compensate for margin pressure.

As announced in February 2011, a new social plan was presented by A1 Telekom Austria following successful negotiations with personnel representatives. This was immediately accepted by some 514 employees, the majority of whom have civil servant status. The high acceptance of social plans will reduce personnel-related costs over the long term but has resulted in one-off special effects for the period under review. All personnel costs related to the acceptance of this new social plan, which will also be incurred in the years to come, would have to be recorded at the time of the acceptance of the social plan and consequently resulted in one-off restructuring expenses of EUR 184.1 million in the period under review leading to an operating loss for the first quarter of 2011.

"Therefore, this quarterly loss is not due to operative reasons but rather to accounting principles. Over the next years, personnel-related costs will be reduced accordingly, easing the burden on the company's profit and loss account," said Hans Tschuden, CFO and Deputy Chairman of the Telekom Austria Group, explaining the above-mentioned development of the results.

"Our strict cost management and our investments in broadband infrastructure provide the basis for our good competitive position" added Ametsreiter, whilst Tschuden commented on the development of the first three months: "We are confident that we will close the 2011 business year as anticipated in our outlook."

Outlook for the Full-Year 2011

Against a backdrop of persisting price competition and a gradual economic recovery in almost all operating markets of the Telekom Austria Group, revenues are expected to amount to up to EUR 4.6 billion for the financial year 2011 and EBITDA comparable to up to EUR 1.6 billion. Capital expenditures of the Telekom Austria Group are forecasted to reach up to EUR 800 million and operating free cash flow is expected to amount to approximately EUR 800 million. This outlook is given on a constant currency basis.

The Markets of the Telekom Austria Group in Detail:

Austria

The main growth driver for the fixed net business is broadband, with the number of domestic broadband access lines rising by 12.7% to roughly 1.2 million in the first quarter of 2011. Thus, almost every second fixed net access line has been up-graded for future-proof data communication. The number of aonTV subscribers increased by 50% to more than 165,000 customers compared to the same period of the previous year.

In March 2011, A1 Telekom Austria was able to finalize fiber-optic network rollout in the 15th and 19th Vienna districts. For the first time an entire district could be connected to the company's GigaNet via fiber-optic technology. A total of 90,000 households and commercial businesses in the 15th and 19th Vienna districts have now access to the high-performance Internet and multimedia services of A1 Telekom Austria. Within the GigaNet coverage area customers are provided with bandwidths of up to 30 Mbit/s based on the company's Giga-speed products, which enable multimedia services such as high-resolution TV. By year-end 2011, the total number of households and commercial businesses covered by the company's GigaNet will reach roughly 2.1 million countrywide. This corresponds to a network coverage of roughly 50% of all domestic households and commercial businesses. In addition to other Vienna districts, further provincial Capitals and regional centers will benefit from this infrastructure initiative and will be connected to the company's GigaNet. Along with the 1,000 mobile base stations that are currently connected to the company's GigaNet, additional base stations will soon follow suit contributing to enlarging the company's "hybrid" GigaNet.

A1 Telekom Austria's mobile broadband network has recently received an important award. "Arcchart" - the International Association of Network Operators - carried out a network test among 94 European providers. The test report showed that A1 is by far the best mobile broadband network in Austria. With download speeds of roughly 2.5 Mbit/s on average, A1 customers can surf the net twice as fast as the customers of company's main domestic competitor, which won the second place. Furthermore, A1 was the only Austrian network operator to win the best mark "high". In a European benchmark, A1 Telekom Austria ranks second among 94 European network operators. The superiority of the network is mainly attributable to the network blanket coverage and the well-developed HSPA+ infrastructure, which A1 Telekom Austria started to rollout as early as 2009. In a country benchmark, Austria ranks fifth among 28 other European countries, which is mainly attributable to the excellent network quality of A1.

The number of Austrian mobile customers rose by 5.2% to roughly 5.1 million, with the number of mobile broadband contract subscribers increasing by even 23.8%. This favorable development also reflects the successful marketing of smartphones, which account for more than 13% of all mobile handsets. Since November 2010, A1 Telekom Austria has also included the Apple iPhone into its portfolio. By mid March 2011, a total of 100,000 iPhone users had joined the A1 Telekom Austria network.

The intensity of competition on the domestic market is also reflected by the company's declining average revenue per user. In the fixed net business ARPL declined by 2.4% and in mobile communication by 8% (ARPU). The regulation-induced reduction of roaming and interconnection tariffs had an additional negative impact on earnings. Revenues in the Austrian segment dropped by 3.3% to EUR 738.3 million and EBITDA comparable decreased by 11.3% to EUR 259.2 million.

Bulgaria

In Bulgaria, mobile customer base remained stable with 5.3 million subscribers. Due to focused marketing activities, contract customer share increased from 61% to roughly 66%. Mobile broadband subscriber base more than doubled to 141,000 customers compared to same period of the previous year. At the end of the first quarter of 2011 following the finalization of the acquisition of two fiber-optic operators Megalan AD and SpektrumNet AD in 2010, total fixed access lines amounted to 99,100 lines, with fixed net broadband lines accounting for more than 93,000 lines.

Revenues of the Telekom Austria Group's Bulgarian subsidiary Mobiltel amounted to EUR 133.4 million in the first quarter of 2011, a decline of 1.5% compared to the previous year's level mainly attributable to price pressure. EBITDA comparable declined by 10.7% due to higher personnel costs and increased material expenses as a result of the acquisitions.

Belarus

In Belarus, velcom showed a favorable development, with mobile customers rising by 7.3% to 4.4 million. Mobile broadband recorded a particularly strong growth of 463.9% to roughly 197,500 subscribers. ARPU increased by 11.0%.

As a result, revenues grew by 22.2% to EUR 89.9 million and EBITDA comparable by 20.8% to EUR 42.1 million. The negative effect of foreign exchange translations on revenues which amounted to EUR 1.0 million in the first quarter of 2011 has already been taken into account.

Croatia

Despite a persistently challenging macro-economic environment, Vipnet in Croatia was able to increase its mobile subscriber base by almost 2% to 2.7 million customers in the first quarter of 2011. Customer growth was primarily driven by the contract segment and the demand for mobile broadband, with the mobile broadband subscriber base growing by 22.9% to more than 179,000 customers. However, ARPU declined by 16.2% due to lower usage and regulatory measures.

Vipnet's revenues declined by 10% to EUR 90.3 million and EBITDA comparable by 13.6% to EUR 24.9 million.

Additional Markets

In Slovenia, mobile customer base was increased by 6.5% to 629,900 despite a highly competitive landscape, with mobile broadband showing a considerable growth of 21.8%. ARPU declined by 1.4%. Si.mobil's revenues rose by 8.0% to EUR 42.6 million, whereas EBITDA comparable dropped by 4.9% to EUR 10.9 million due to higher expenses.

In the Republic of Serbia, mobile subscribers increased by 22.7% to 1.4 million. Vip mobile's revenues rose by almost 30% to EUR 30.2 million. ARPU increased by 14.8% and EBITDA comparable amounted to EUR 4.3 million in the first quarter of 2011.

In the Republic of Macedonia, the mobile customer base grew by 47.2% to more than 490,000 subscribers. Vip operator was able to increase revenues by 60% to EUR 11.1 million and substantially improve EBITDA comparable to -0.4 million.

Details about the Annual General Meeting 2011

The Annual General Meeting of the Telekom Austria Group will take place on May 19, 2011 at 10 am in the Vienna Stadthalle, Halle F, A-1150 Vienna, Vogelweidplatz 14.

Please visit http://www.telekomaustria.com/ir/interim-results.php where you find the Financial Report on the First Quarter of 2011.

About Telekom Austria Group

The Telekom Austria Group, listed on the Vienna Stock Exchange since November 2000, is the leading telecommunications provider in Central and Eastern Europe with more than 22 million customers across its markets of operations. The Group is currently operating in eight countries: in Austria (A1TA), Slovenia (Si.mobil), Croatia (Vipnet), the Republics of Serbia (Vip mobile) and Macedonia (Vip operator), Bulgaria (Mobiltel), Belarus (Velcom) and Liechtenstein (mobilkom liechtenstein). The total market of the eight countries covers about 41 million inhabitants. The Group has more than 17,000 employees, revenues were EUR 4.7 billion as of year-end 2010. Telekom Austria Group's portfolio encompasses products and services of voice telephony, broadband Internet, multimedia services, data and IT solutions, wholesale as well as m-payment solutions. More detailed information is available at http://www.telekomaustria.com

Contact

Elisabeth Mattes, Director Corporate Communications and Spokeswoman, Telekom

Austria Group email: [email protected] mobile: +43-664-6639187

SOURCE Telekom Austria Group