EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTARY TO CONSOLIDATED FINANCIAL RESULTS OF 1999



The consolidated profit and loss statement of Estonian Telecom Ltd in 1999 

covers the following companies:

- Estonian Telecom Ltd - parent company;

- Estonian Telephone Company - 100% affiliate of Estonian Telecom Ltd;

- Estonian Mobile Telephone Company - 100% affiliate of Estonian Telecom Ltd;

- AS Teabeliin - 60% affiliate of Estonian Telephone Company;

- AS Telefonipood - 70% affiliate of Estonian Telephone Company;

- AS Esmofon - 100% affiliate of Estonian Mobile Telephone Company;

- AS Esmofon Tartu - 68% affiliate of AS Esmofon;

- AS Tarvin - 100% affiliate of	Estonian Mobile Telephone Company.



Consolidated reports were drawn in accordance with international accounting 

standards (IAS).



Income from business

In 1999 Estonian Telecom Group's income from business increased by 16%, 

reaching 3,595 million kroons (in 1998 - 3,099 million kroons). The fixed 

telephone communication operator Estonian Telephone Company and the mobile 

communication operator Estonian Mobile Telephone Com-pany both contributed 

considerably to the achievement of this increase.



In 1999 the consolidated income from business of Estonian Telephone Company was 

2,457 million kroons. From October 1999 Estonian Telephone Company started 

rendering free Internet call-in services. By the end of the year approximately 

25,000 clients were using the service, which corresponds to approximately 40% 

of the market share. The time spent on call-in services made up 30% of the 

total minute count of local calls by the end of the year, thus contributing to 

the increase of business income and compensating for the previous decrease in 

the income of Estonian Telephone Company resulting from the mediation of mobile 

communi-cation due to the rapid increase in the number of mobile phones.



The consolidated income from business of Estonian Mobile Telephone Company 

reached 1,615 million kroons. The share of income from mobile communication 

in the aggregate income of Estonian Telecom Group remained on the level of 44%. 

The increase in these incomes was caused by several circumstances: (a) in 1999 

the number of clients increased by 61%, reaching 243,900 by the end of the year;

(b) the total minute count of calls increased; (c) in addition to traditional 

call forwarding, several new services gained popularity, for instance income 

from SMS services increased by 109% within a year. As about 2/3 of the new 

clients of the company chose the prepaid SIM-card, the average income per 

client dropped.



Operating costs

The operating costs of Estonian Telecom Group added to 1,759 million kroons 

(in 1998 - 1,571 million kroons). The increase of operating costs has always 

been slower than the increase of income from business. Steps will be taken in 

2000 to increase the efficiency of the Group.



In 1999 the operating costs of Estonian Telephone Company were 1,402 million 

kroons (in 1998 - 1,261 million kroons). In 1999 Estonian Telephone Company 

reduced the number of its employees from 3,228 to 2,771. The quantity of main 

telephone lines per employee increased from 153 to 184. In 2000 the decline of 

the number of employees will continue.



In 1999 the operating costs of Estonian Mobile Telephone Company reached 

792 million kroons (in 1998 - 707 million kroons). Last year the number of 

employees of Estonian Mobile Telephone Company increased only by 17 people 

i.e. 8% in contrast to the 61% increase in the number of their clients.



Depreciation and change in the value of assets

In 1999 depreciation and depreciation charges of Estonian Telecom Group 

increased by 157 million kroons i.e. 22%, compared to 1998, when they totalled 

881 million kroons.



The depreciation of Estonian Telephone Company reached 656 million kroons 

(increase - 18.4%). Real estate objects were re-appraised in the total value of 

48 million kroons. In 1999 the depreciation of Estonian Mobile Telephone 

Company was 228 million kroons, having increased by 34% compared to the 

previous year. The increase was due to large-scale investments in previous 

years.



Profit

In 1999 the net profit of Estonian Telecom Group reached 580 million kroons. 

Due to restructuring carried out in the first half of 1999 the net profit was 

not comparable to the pertinent result in 1998 - 318 million kroons.



The adoption of the new Income Tax Act had a positive impact on the profit of 

Estonian Mobile Telephone Company in the amount of 68 million kroons and a 

negative impact on the profit of Estonian Telephone Company in the amount of 

168 million kroons.



In 1999 Estonian Telecom Group's income per share increased by 10%, reaching 

4.78 kroons (4.33 kroons in 1998). Income per share without taking into account

the extraordinary expenses was 5.48 kroons, increasing by 27%.



	                             Estonian     Estonian     Estonian  

                                     Telecom      Telephone    Mobile Telephone

                                     Group        Company      Company



Profit after taxes* (million EEK)      749	    142	         533

Margin (%)	                        20.8	      5.8	  33.0

Increase (%)	                        17.0	    -46.4	  36.7



EBIT (million EEK)	               955	    398	         595

Margin (%)	                        26.6	     16.2	  36.8

Increase (%)	                        18.8	     13.7	  19.4



EBITDA (million EEK)	             1,836	  1,054	         823

Margin (%)	                        51.1	     42.9	  51.0

Increase (%)	                        20.2	     16.6	  23.1

* prior minority share



Investments

In 1999 the total investments of Estonian Telecom Group added to 1.1 billion 

kroons.



The investments of Estonian Telephone Company added to 712 million kroons. 

The majority of investments were used for the development of the telephone 

network. During 1999, 49,000 new basic lines were installed; the number of 

analogue lines was reduced by 29,000. By the end of the year the number of 

basic lines was 515,486 i.e. 35.7 lines per 100 inhabitants. In December 1999 

the level of digitalisation was 55.3%. The telephone queue had dropped to 

39,000 by the end of the year. This year Estonian Telephone Company has planned

to digitalise Tallinn in full.



Estonian Telephone Company acquired 70% participation in the public limited 

company AS Telefonipood. AS Telefonipood operates one of the largest sales 

chains of telephones in Estonia and sells mobile phones and subscription 

agreements with Estonian Mobile Telephone Company.



Estonian Mobile Telephone Company invested 306 million kroons in 1999. Within 

a year the number of the company's GSM radio channels grew by 34.2%. At the 

same time the number of GMS cells increased by 28.7%. The construction of 

connection lines of radio links between Tallinn and Tartu was completed. 

In 1999 the main attention was focused on the improvement of the quality of 

the mobile network of country and town districts and the development of 

additional services. By the end of 1999 the GSM network of Estonian Mobile 

Telephone Company covered 98% of the territory of Estonia (in 1998 - 95%). 

In order to secure its innovative reputation at the Estonian telecommunications

market Estonian Mobile Telephone Company completed the intro-duction of 

IN-system and in co-operation with two leading banks launched the VPN (Virtual 

Private Network) service. Preparations have been completed also for the 

rendering of WAP and positioning services. The market launch of both products 

has been scheduled for the first half of the year 2000.



Assets and liabilities

The volume of consolidated assets of Estonian Telecom Group increased by 9% 

within a year (being 3,807 million kroons at the end of 1998 and 4,140 million 

kroons at the end of 1999). The volume of capital assets reached 3,011 million 

kroons by the end of 1999 (2,977 million kroons at the end of 1998) and the 

volume of trading assets 1,129 million kroons (830 million kroons at the end 

of 1998).



The volume of long-term liabilities of the Group dropped from 675 million 

kroons to 524 million kroons. The volume of short-term liabilities increased 

from 535 million kroons to 589 million kroons. The volume of interest bearing 

liabilities dropped by 111 million kroons within a year, making up 601 million 

kroons at the end of the year.



Changes in share capital

As of January 1, 1999, 100% of the shares of Estonian Telecom Ltd were 

government-owned. Estonian Telecom's participation in Estonian Telephone 

Company and in Estonian Mobile Telephone Company was 51%. On January 25, 1999 

the first public sale of the shares of Estonian Telecom Ltd was launched, as 

a result of which government disposed of 49% of the shares previously in its 

possession i.e. 36,015,000 shares with par value of 10 kroons. The sale of 

shares ended on February 9, 1999. According to the submitted purchase wishes 

the commercial value (equilibrium price) of the shares was established as 

85 kroons per share.



On December 28, 1998 the government of Estonia decided to enlarge the share 

capital of Estonian Telecom Ltd by 638,831,780 kroons, i.e. up to 1,373,832,780

kroons by issuing 63,883,178 new type-A shares with par value of 10 kroons. 

On March 24, 1999 "A contract on the subscription of shares and transfer of 

non-monetary contribution" was concluded and the "Subscription list of shares" 

signed, pursuant to what the issued shares were subscribed as follows:

-  Telia AB:	        14,425,234 type-A shares with par value of 10 kroons;

-  Sonera Holding B.V.:	14,425,234 type-A shares with par value of 10 kroons;

-  Baltic Tele AB:	35,032,710 type-A shares with par value of 10 kroons.



According to the restructuring plan of Estonian Telecom the shares referred to 

above substituted all the shares of Estonian Mobile Telephone Company and 

Estonian Telephone Company in the possession of Telia AB, Sonera Holding B.V., 

and Baltic Tele AB. 



Before that, during the first public sale of shares, Telia AB and Sonera 

Holding B.V. both utilised the right granted them by the restructuring contract

to purchase 1,717,289 type-A shares each.



After IPO and restructuring the structure of the share capital of Estonian 

Telecom Ltd was as follows:

- The Republic of Estonia:  37,485,000 type-A shares = 27.28%, 1 type-B share;

- Public investors:	    32,580,422 type-A shares = 23.72%;

- Telia AB:	            16,142,523 type-A shares = 11.75%;

- Sonera Holding B.V.:	    16,142,523 type-A shares = 11.75%;

- Baltic Tele AB:	    35,032,710 type-A shares = 25.50%.



Estonian Telecom Ltd became the 100% owner of Estonian Telephone Company and 

Estonian Mobile Telephone Company.



In April 1999 the Business Registry of the Tallinn City Court registered the 

growth of the share capital of Estonian Telecom to 1,373,832,780 kroons.





Raul Kalev

Information Manager

+372 6460 220