EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTS ON CONSOLIDATED FINANCIAL RESULTS 2000



The  consolidated statements of Estonian Telecom  Ltd  in

2000 cover the following companies



     Estonian     Telecom  parent company

     Ltd

     Estonian   Telephone  100% affiliate of Estonian Telecom

     Company

     EMT Ltd               100% affiliate of Estonian Telecom

     Teabeliin Ltd         60%    affiliate    of    Estonian

                           Telephone Company

     Telefonipood Ltd      70%    affiliate    of    Estonian

                           Telephone Company

     Esmofon Ltd           100% affiliate of EMT

     Esmofon Tartu Ltd     68% affiliate of Esmofon

     Tarvin Ltd            100% affiliate of EMT





Consolidated  accounts  were  drawn  in  accordance  with

international accounting standards (IAS).



Auditor  has  accomplished  the  audit-control   of   the

accounts  and  issued  a draft auditor’s  report  to  the

shareholders. As the Management Board of Estonian Telecom

Ltd  hasn’t  made the dividends proposal  for  2000,  the

auditors report hasn’t been signed yet.



Revenue and expenditure

Total revenue of Estonian Telecom Group in the year  2000

amounted  to  3,973  mln kroons,  up  by  11%.  Operating

expenses  of the Group were 1,895 mln kroons, up  by  8%.

EBITDA of the Group amounted to 2,078 mln kroons,  up  by

13% with EBITDA margin 52% (1999 51%).



Total  revenue of Estonian Telephone Group was 2,690  mln

kroons,  up  by 10%. Growth of the fixed network  revenue

slowed   down  toward  the  end  of  the  year.  Positive

contribution to the growth was given by Telefonipood  Ltd

which  became 70% owned by Estonian Telephone Company  at

the  end  of  1999  and 100% owned at the  end  of  2000.

However, growth of Estonian Telephone Company itself  was

quite moderate. The fastest growing part of the company’s

revenue  were  local  call revenue growing  by  28%.  One

factor behind the growth was internet dial-up service. At

the  end of 2000, internet dial-up minutes formed 40%  of

local  call minutes. Numbers of dial-up minutes  in  2000

were much higher than the corresponding figures for 1999.

However,  during the year 2000, monthly  amounts  of  the

minutes  stabilised, higher local call tariffs introduced

from  October  1,  2000  restricted  the  further  growth

potential and the company itself started to encourage its

clients  to exchange their dial-up services for permanent

connections.   On  the  other  hand,  rebalancing   fixed

communications  tariffs  from October  2000  was  another

factor  that contributed to the growth of the local  call

revenue  in  total. In the fourth quarter of 2000,  local

call  revenue  formed  22% of the total  revenue  already

compared  to  only  16% in the fourth  quarter  of  1999.

Revenue  from  trunk calls were down by 4%, international

call  revenue  maintained their 1999 level. Revenue  from

mobile calls grew by 1% and main line revenues by 6%.



Expenses of Estonian Telephone Group grew by 9% to  1,527

mln  kroons. Majority of the growth was caused by the new

subsidiary,   Telefonipood  Ltd.  Expenses  of   Estonian

Telephone Company itself only grew by 1%. Total number of

employees  fell  to  2,379 by the end  of  December  2000

(2,772  on  December 31, 1999). Also, several changes  in

operations of the company took place during 2000 aimed on

improving efficiency.



EBITDA  of Estonian Telephone Group was 1,163 mln  kroons

(1,051 mln kroons in 1999), up by 11%.



Total  revenue of EMT Group was up by 12%  to  1,815  mln

kroons. The growth in the number of customers has  slowed

down.  During  the  last three months  of  the  year,  11

thousand new customers joined the operator. However,  the

slow-down  is fuelled first of all by prepaid  customers.

When  during  the  first 9 months  of  the  year  prepaid

customers  formed almost 50% of the total number  of  new

customers,  then in the fourth quarter the share  of  the

new  prepaid  customers fell to just  27%  of  the  total

number  of  customers  gained.  In  total,  EMT  had  327

thousand  customers  at the end of  2000.  Its  estimated

market  share  was  about 60%. Despite falling  ratio  of

prepaid customers monthly ARPU continued to fall reaching

398  kroons  in  December 2000. Due  to  heavy  promotion

activities organised by EMT’s competitors Radiolinja  and

QGSM  (Tele2)  several discounts and promotion  campaigns

were  organised  by EMT as well aimed at  attracting  new

customers and encouraging usage of certain services: free

subscription   periods,  free  call   minutes   for   new

subscribers,  discount  coupons  to  buy  new   handsets,

reduced  SMS  tariffs. Also, minute tariffs were  reduced

from September or October 2000 for several user packages.



Total  operating expenses relating of EMT Group  amounted

to  870 mln kroons, up by 10%. The number of employees at

the  end  of  the year 2000 was 271 (223 at  the  end  of

1999). EBITDA of the group was 946 mln kroons, up by 15%.



Depreciation

In  2000  depreciation of Estonian Telecom Group was  969

mln kroons, up by 10%. Depreciation of Estonian Telephone

Group   amounted  to  692  mln  kroons  growing  by   6%.

Depreciation of EMT Group amounted to 277 mln kroons,  up

by   22%.   The   increase  resulted  from   a   fastened

amortisation of the NMT network during year 2000.



Net financing item

There was an essential improvement in net financing  item

of  the  group in 2000. In 1999, other financial expenses

exceeded other financial income by 51 mln kroons. In 2000

the  difference  was 12 mln kroons only. The  improvement

resulted form activities of the central Treasury  of  the

Group established in the beginning of the year which made

it  possible to substitute a part of external loans  with

cheaper internal loans.



Net profit

Net  profit  of Estonian Telecom Group in the  year  2000

amounted to 1,176 mln kroons. Net profit in 1999 was  580

mln kroons. Restructuring of the Group that took place in

1999  makes  it  difficult to compare net profit  of  the

period  with  the  corresponding figure  in  1999.  Also,

amendments  to  Income  Tax Law  which,  instead  of  the

taxation  of  corporate  income,  foresees  taxation   of

dividend  distributions, fringe benefits,  representation

costs  and other disbursements, have made the net profits

of the two periods incomparable.



As  at December 31, 1999, Estonian Telephone Company  had

an  income tax receivable of  85 mln kroons. Due  to  the

prescripts  of  the  new Income Tax Law,  effective  from

January  1,  2000, that asset could not be realised  and,

therefore,  it  was  recognised  in  the  1999  financial

statements as an extraordinary expense. In June 2000, the

Income  Tax  Law  was amended allowing  transfer  of  the

income tax receivable from Estonian Telephone Company  to

its  parent Estonian Telecom. According to the amendment,

the  asset will be realised at the distribution of profit

to  natural persons and non-residents against the  income

tax liability on dividends. By its nature, the subsequent

law   amendment   reverses   the   negative   impact   of

extraordinary expense and the asset is recognised in  the

accounts for 2000 as extraordinary income.



Earnings per share in 2000 were 8.56 kroons (4.78  kroons

in 1999).



Investments

Estonian Telecom Group invested 1,376 mln kroons in 2000.



870  mln  kroons  were  invested  by  Estonian  Telephone

Company.   Majority   of   the  investments   went   into

development  of  telecommunication  networks.  The   most

remarkable  project of the year, 100%  digitalisation  of

Tallinn,   was   finished   in   December.   In    total,

digitalisation rate in Estonia raised to 71%.  Number  of

main lines per 100 inhabitants at the end of December was

36.



In  May  2000,  Estonian Telephone Company  and  Estonian

Union  Bank  started  the  final  negotiations  for   the

establishment  of  a  joint venture to  create  the  most

credible and commonly used Internet environment.  15  mln

kroons  was  invested by Estonian Telephone Company  into

the share capital of the joint venture.



In  November 2000, Estonian Telephone Company started  to

establish Connecto Ltd, a subsidiary, whose main area  of

activity   will   be  construction  and  maintenance   of

telecommunication  networks.  The  subsidiary   will   be

established to enable the parent company to focus on  its

core business. The company will employ approximately  500

people. Share capital of the subsidiary is 15 mln  kroons

and it started operating in January 2001.



At  the  end  of  December  an agreement  was  signed  by

Estonian  Telephone Company to increase its  shareholding

in  Telefonipood Ltd from 70% to 100%  as  a  part  of  a

project  aimed  at  improving the  effectiveness  of  the

private customer service.



407  mln  kroons  were invested by EMT. The  majority  of

investments   focus  on  building  and   improving   base

stations,  exchanges and other network equipment.  During

the  year  2000, the number of traffic channels increased

and  the  number of base stations increased by  26.7  and

22.7%  respectively. Due to the successful implementation

of  GSM  standard  and the necessity to utilise  existing

resources  more  efficiently, EMT  closed  down  its  NMT

network on December 10, 2000.



In  September 2000, EMT signed a contract for the  design

and  construction of a new technical centre  in  Tallinn.

The total area of the centre will be 3,000 m2, and it  is

scheduled  to  be completed in 2001. Total costs  of  the

building is 28.5 mln kroons.



EMT  sees  its mission in offering its clients additional

value  through developing and implementing new innovative

services, products and solutions and selling them also to

other  service providers in both Estonia and abroad.  The

company  wants to be active not only in basic  activities

in   telecommunications  value  chain  but  also  in  the

neighbouring parts of the chain, directly or  indirectly.

M&A   is  one  vehicle  to  ensure  the  future  of  EMT,

broadening  its field of activities in the fast  changing

environment      on     converging     industries      of

telecommunications, IT and media.



In   October  2000,  EMT  acquired  5%  stake  in   Mgine

Technologies    OY,    a    Finnish    positioning    and

personalisation solutions company, which also  owns  100%

of  Estonian based subsidiary Mgine Technologies Estonia,

a  well  known IT company active in creating  positioning

solutions,  digital  maps  technologies,  solutions   for

logistics,  etc. With its 5% ownership,  EMT  became  the

largest  foreign shareholder of the company (the rest  of

the   shares  belong  to  Done  Group  of  Finland).  The

partnership serves well to EMT’s ambitions to  be  active

in product development field related to the location data

of   mobile   handsets.  Also,  EMT  can  be  the   first

implementer of Mgine’s solutions though participation  in

the product development process.



In  January 2001, EMT acquired 26% stake in Voicecom  OÜ,

an  Estonian IT company active in creating solutions  for

telecommunications and banking sector. The  company  also

participated  in development of the EMT’s mobile  parking

service and m-commerce platforms, which makes Voicecom  a

very important strategic partner for EMT.



During  the  year  2000,  EMT  started  preparations  for

implementation GPRS. Commercial launch of the  system  is

planned in the middle of 2001. With the implementation of

GPRS  EMT  aims  to  stimulate creation  of  content  and

applications  by many different partners  fulfilling  the

mobile  data network with useful traffic. Open interfaces

for  content  and  application providers and  transparent

business models for partnership will be developed.



Assets

The  volume  of  consolidated assets of Estonian  Telecom

Group  increased  by 12% within a year (being  4,621  mln

kroons at the end of 2000 and 4,140 mln kroons at the end

of  1999). The volume of non-current assets reached 3,331

mln  kroons  and the volume of current assets  1,290  mln

kroons  by the end of 2000 (in 1999 3,011 mln kroons  and

1,129 mln kroons respectively).



Changes in equity

On  May  25, 2000, the Annual General Meeting of Estonian

Telecom  Ltd. approved allocation of profit suggested  by

the  Management Board. According to the decision, 68  mln

kroons  were  transferred into legal  reserves.  549  mln

kroons were decided to pay out as dividends, of which 203

mln  kroons as ordinary dividends and 346 mln  kroons  as

“Anniversary” dividends. EEK 4 per share was paid out  to

the  shareholders of A-series shares. EEK 10 000 was paid

out  to  the owner of B-series share. The dividends  were

paid out on July 12, 2000.



Due to tax prepayments, no dividend taxes had to be paid

in year 2000.



Restructuring equity and liabilities

The  amount  of  long  term interest  bearing  loans  and

borrowings  fell by 323 mln kroons during the  year  2000

caused by both regular and anticipatory repayment of long

term bank loans by Estonian Telephone Company.



A  public bond issue was conducted from July 12  to  July

19,  2000.  In  the  course of the  issue  the  investors

subscribed  for  bonds  totalling  111  mln  kroons.  The

company  decided to approve the issue at volume  100  mln

kroons and at 6.1% annual interest rate. Maturity date of

the  bonds issued is July 20, 2001. The issue of Estonian

Telecom  bonds  was  the very first securities  issue  in

Estonia that could be subscribed through the internet.



In   September  2000,  Estonian  Telecom  Ltd.   mandated

Bankgesellschaft  Berlin AG, the  Dai-Ichi  Kangyo  Bank,

Landesbank  Schleswig Holstein Girozentrale, Leonia  Bank

plc, Swedbank and Hansapank to arrange a EUR 40,000,000 5-

year  revolving credit facility. The loan  agreement  was

signed on January 18, 2001. Interest rate of the loan  is

Euribor + 0.775%.



From  the  beginning of year 2001, the  Estonian  Telecom

Group will introduce a new compensation system consisting

of  two  parts:  stock option scheme and  incentive  plan

scheme.  An Extraordinary General Meeting of shareholders

of  Estonian Telecom, held on December 15, 2000  resolved

to  issue convertible bonds as a part of the stock option

scheme. Issue price of the bonds was 10 kroons. The bonds

could  be  exchanged for the shares of  Estonian  Telecom

during two periods of May 2 until June 2, 2003 (A-series)

and  of May 2 until June 2, 2004 (B-series). The exchange

and  subscription price for the shares to  be  issued  in

exchange to the bonds during the exchange period  is  the

trade  volume weighted average price of the share at  the

Tallinn Stock Exchange between January 1 and January  31,

2001  (for  A-series) and between April 1 and  April  30,

2001  (for  B-series),  but in no  case  lower  than  the

weighted average price of A share of Estonian Telecom  on

December 14, 2000, which was 90.62 kroons.



The maximum number of shares to be issued in exchange  to

the  convertible  bonds is 850 000  or  and  increase  of

0,62%.  The new maximum registered share capital  of  ETL

after  the  lapse of conversion period, as prescribed  in

the  terms and conditions of convertible bonds,  will  be

EEK  1  382 332 780,  provided that all convertible bonds

will be converted into shares.





Hille Võrk

Financial Manager

+372 6 272 460