Telekom Austria Group Increases net Income Significantly and Generates EBITDA Increase of More Than 20%

VIENNA, November 10, 2010 /PRNewswire-FirstCall/ --

- Mobile Communication Customers Increased by 5.4% to 19.5 Million on Group Level, Loss of Fixed Lines in Austria Almost Stopped

- Acquisition of two Fiber-Optic Network Operators in Bulgaria Finalized

- Group Revenues Declined Slightly by 3.9% in the First Nine Months of 2010

- Group EBITDA (Including Impairment and Restructuring Charges) Increased by 21.5%

- Net Income Increased Sevenfold to EUR 257 Million

- Free Cash Flow Rose by 8.8% in the First Nine Months

Commenting on the results Hannes Ametsreiter, CEO Telekom Austria Group, said, "I am satisfied with the development of our business over the first nine months of 2010. In line with expectations both revenues and results have held up well against a challenging economic and regulatory environment. Through our rapid implementation of the merger of mobilkom austria AG and Telekom Austria TA AG we are managing our business to meet these challenges head on and safeguard the Group's competitiveness in Austria for years to come."

The first nine months of the current financial year were marked by a very challenging environment in many respects: Almost all markets of the Telekom Austria Group showed weak economic development, with Croatia and Bulgaria hitting a downward trend. Against the background of persisting competitive pressure, the challenge was to tackle intrusive regulatory measures such as the reduction of both roaming tariffs and interconnection fees. The impact of these revenue-affecting measures on the Telekom Austria Group was more detrimental to the Group than peers given the Group's dominant market leading position in Austria.

Against this background, the subscriber base in Austria showed a particularly favorable development, with mobile customers increasing by 6.3% to over 5 million in the period under review. Due to attractive product bundles and innovative products, the reduction in the loss of fixed lines during the first nine months was almost halted, with only 1,200 lines lost in the third quarter 2010. The digital cable TV aonTV subscriber numbers rose by 55.3% totaling about 134,000 customers as of end of September 2010 compared to the same period of the previous year.

Milestones of the First Nine Months

The main highlights of the reporting period under review encompassed the finalization of the acquisition of Velcom in Belarus, the acquisition of two fiber-optic operators in Bulgaria as well as the rapid implementation of the merger of mobilkom austria AG and Telekom Austria TA AG. The 100%-acquisition of Velcom had already been agreed upon in 2007, when the company acquired a first controlling stake in the Belarusian provider. With 4.2 million subscribers and a market share of 42.0%, Velcom is performing well, with revenues increasing by 20.8% in Q3 2010 alone. The acquisition of two fiber-optic operators in Bulgaria via the Group's local subsidiary Mobiltel reflected the strong market demand for convergent products also in this country. The two newly acquired companies and Mobiltel have complementary product offerings and have already launched first product bundles mid of October, including mobile and fixed line communications under the M-Tel brand.

Concerted efforts were also devoted to safeguarding the Group's future positioning in Austria, with the two domestic operations mobilkom austria AG and Telekom Austria TA AG being legally merged into a new single company under the corporate name A1 Telekom Austria AG as of July 8, 2010. With this merger, the Telekom Austria Group is the first operator in Austria to respond to the global trend towards convergence of fixed line and mobile communication. Furthermore, the Group's organizational structure was completely reengineered. At Group level, Telekom Austria AG was turned into a management holding based in Vienna. As a result, the eight markets of the Group in Central Eastern Europe with more than 16,500 employees and roughly 22 million customers addressing a total population of about 41 million people are now directly managed from the Vienna headquarters. To reflect this organizational change, segment reporting is now based on geographical markets, instead of the segmentation in fixed line and mobile communication business. From now on, the Telekom Austria Group will report separately on the five operating segments, Austria, Bulgaria, Croatia, Belarus and Additional Markets.

The merger of the domestic fixed line and mobile operations will also have significant financial effects going forwards and is expected to result in a positive cash flow effect of roughly EUR 100 million starting 2014/2015.

Business Development in Figures

In the first nine months of 2010, group revenues declined by 3.9% to EUR 3.48 billion in line with expectations due to lower revenues in Austria, Bulgaria and Croatia. Revenue growth came from the segments of Belarus as well as the Republics of Serbia and Macedonia. Declining prices due to increasing competition and intrusive regulatory measures were the main reasons behind this drop in Group revenues and also led to a reduction of roaming tariffs and traffic fees. Group EBITDA comparable declined by 7.3% to EUR 1.29 billion in the first nine months of 2010 mostly because of regulatory measures. Group EBITDA (including impairment and restructuring charges) increased by 21.5% to EUR 1.27 billion because of impairment charges recorded in 2009. Cost-cutting and efficiency-enhancing measures were able to only partly compensate for the decline in earnings in the period under review. The operating result (EBIT) of the first nine months was EUR 476.4 million. This considerable increase of 112.8% compared to the same period of the previous year is to be attributed to impairment charges recorded in Belarus and in the Republic of Serbia in 2009. Net income significantly increased to EUR 256.5 million. Free cash flow rose by 8.8% to EUR 591.1 million.

Despite a very challenging and competitive market landscape, Group capital expenditures increased by 5.6% to EUR 443.3 million. Through the rollout of broadband Internet in rural areas (VDSL@CO - FTTCO) and the acquisition of 2.6 GHz frequencies for the fourth mobile generation (LTE), both network quality and performance have been considerably enhanced. In Austria the Telekom Austria Group pushed ahead with the rollout of the fiber-optic network in the cities of Villach and Klagenfurt within the framework of the company's GigaNet City pilot projects. In Vienna, preparation work is currently underway to connect the 15th and 19th districts to the corporate fiber-optic network. Until 2010, a total of 1.7 million households and commercial businesses in the major urban centers of the country will be able to surf the net with high-speed Internet, more than doubling the original target.

Outlook for the Full Year 2010

Based on the overall performance in the first nine months of 2010, the Telekom Austria Group reiterates its outlook for the full year: revenues are expected to amount to approximately EUR 4.70 billion and EBITDA comparable, which excludes impairment and restructuring charges, to EUR 1.60 - 1.65 billion. The capital expenditures are expected to range between EUR 750 and 800 million. Operating free cash flow (EBITDA comparable minus Capex) is expected to amount to at least EUR 800 million. Furthermore, the Telekom Austria Group confirms its intention to distribute at least 75 Eurocents per share as dividend. This corresponds to a dividend yield of roughly 6.8% based on the closing share price of EUR 11.04 as of September 30, 2010. In the first nine months of the year under review, the Telekom Austria Group's share recorded an increase of 12.4%, whereas the ATX and the sector index DJTelco Stoxx showed only a plus of 0.2 % and 0.8% respectively.

Please find detailed information concerning the results of the first nine months and the third quarter of 2010 of the Telekom Austria Group at http://www.telekomaustria.com/ir/interim-results.php

    Comparison of Key Financial Figures TAG in the First 9 Months 2010 (EUR
million)

                                     1-9 2010    1-9 2009 % change
    Mobile Subscribers (mn.)         19,5        18,5     + 5.4%
    Total Access Lines (mn.)          2,3         2,3     - 0.3%
    Personnel EOP (full-time
    equivalents)                   16,559      16,802     - 1.4%
    Revenues                        3,480       3,621     - 3.9%
    EBITDA comparable*)             1,293       1,395     - 7.3%
    EBITDA**                        1,266       1,042     +21.5%
    EBIT                              476         224    +112.8%
    Net income                        257          31    +718.6%
    Capital expenditures              443         420      +5.6%
    Free Cash Flow                    591         543      +8.8%

    *) excluding impairment and restructuring charges
    **) including impairment and restructuring charges
    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 roughly 22 million customers across its markets of operations. The Group is currently operating in eight countries: in Austria (with the newly merged A1 Telekom Austria), 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 16,500 employees, revenues were EUR 4.8 billion as of year-end 2009. 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, Spokeswoman & Director Corporate Communications, Telekom Austria Group mobile: +43-664-6639187, email: [email protected]

SOURCE Telekom Austria Group