EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTARY TO PRELIMINARY FULL YEAR RESULTS OF 1999



Highlights



·     Revenue up 16 % to 3,595 mln kroons (US$ 245 mln) - 1998: 3  099  mln

  kroons

·     EBITDA  up 21 % to 1,840 mln kroons (US$ 125 mln) - 1998: 1  526  mln

  kroons

·    EBITDA margin 51 % up from 49%

·    Net profit 580 mln kroons (US$ 39 mln) - 1998: 318 mln kroons

·     Earnings  per share up 10 % to 4.78 kroons (US$ 0.33)  -  1998:  4.33

  kroons

·    EPS, excluding extraordinary expense, up 27% to 5.48 kroons



Commenting on the results the Chairman, Toomas Sõmera, said:



“1999  was another year of growth for Estonian Telecom. However, the period

of  expansion in voice traffic telecommunication areas within the  Estonian

market  is about to end.  Efficiency, entering new business areas  and  co-

operation  inside the Group, aimed at better service for our customers  are

priorities for us in the year 2000.”







For further information please contact:



Raul Kalev

Investor Relations / Estonian Telecom                  + 372 646 0220



Hille Võrk

Financial Manager / Estonian Telecom                   + 372 627 2460



Tim Thompson / Nicola Cronk

Buchanan Communications                           0171 466 5000





CHAIRMAN’S STATEMENT



1999 was another year of growth for Estonian Telecom. Even under conditions

of economic slowdown, the company increased its revenue by 16%. The leap in

use  of  mobile communications and dial-up services that took place in  the

Estonian  market  during  1999 proved an essential  contribution  to  these

results  .  However,  we recognise that the period of  expansion  in  voice

traffic  telecommunication areas in  our domestic market is about  to  end.

Efficiency and entering into new business areas are our main priorities for

year 2000.



Revenue



Total  revenue of the Group in 1999 increased by 16 % to 3,595  mln  kroons

(1998:  3,099).  Both  fixed line operator Estonian Telephone  Company  and

mobile operator Estonian Mobile Telephone Company contributed to the strong

growth.



The  total  revenue  of  Estonian Telephone Group amounted  to   2,457  mln

kroons.  The  company  started to offer free dial-up  Internet  service  in

October  1999. By the end of the year, about 25 000 clients were using  the

service,  about a 40% market share by number of clients. Share  of  dial-up

minutes into total number of local call minutes raised to 30%, contributing

to   the  growth  of  the  total  operating  revenue  of  the  company  and

compensating  the loss of traffic caused by the heightened  use  of  mobile

phones for voice transmission, rather than fixed lines.



Total  revenue  of Estonian Mobile Telephone Group amounted  to  1,615  mln

kroons.  Share  of  mobile  revenue into total revenue  of  the  Group  has

remained  on  44% level. The growth was generated by multiple factors:  (i)

number of clients increased by 61% during 1999, amounting to 243.9 thousand

by  the  end  of the year; (ii) the number of call minutes used by  clients

increased;  (iii)  in  addition  to  traditional  voice  transmission,  new

services  gained  popularity: revenue generated from SMS-services  grew  by

109%  in 1999. However, as 2 out of 3 of the new customers have chosen pre-

paid  service, the revenue per customer has fallen. Monthly  ARPU  in  1999

(yearly average) was 573 kroons compared to 779 kroons in 1998.





Operating Expenses



Total  operating expenses of Estonian Telecom Group amounted to  1,755  mln

kroons  (1998:  1,573  mln  kroons). The Group has  kept  the  increase  in

operating  expenses lower than the revenue growth. Several  activities  are

also  planned  for  the  year 2000 aimed at continued  improved  efficiency

within the Group.



Total operating expenses of Estonian Telephone Group in 1999 was 1,402  mln

kroons.  The company reduced its headcount from 3228 at the end of 1998  to

2,771  by  the end of 1999. The number of main lines per employee increased

from  153 to 184 during 1999.  A further review of staffing levels will  be

continued in 2000.



Total  operating expenses of Estonian Mobile Telephone Group were  792  mln

kroons  (1998:  707 mln kroons). The number of employees  increased  by  17

(8%), compared to the number of clients, an increase of 61%.



A  Central  Treasury  department was established  at  Group  level  at  the

beginning  of the year to centralise liquidity management functions  within

the  group.  Several  other Group level functions will  be  transferred  to

Estonian  Telecom  during the year, with the purpose  of  increasing  cost-

efficiency.    Co-operation  between  divisions  of   the   two   operating

subsidiaries  is  increasing, avoiding duplicated  activities  as  well  as

focusing  on  working out complex, integrated solutions for our  customers.

Outsourcing possibilities have been considered in areas which are not  core

businesses of the Group.



Depreciation and Amortisation



In  1999,  depreciation and amortisation increased by 163 mln kroons  (23%)

compared to 1998 and amounted to 884 mln kroons.



Depreciation of Estonian Telephone Group amounted to 656 mln kroons (growth

of 18.4%). 48 mln of this was revaluation of real estate objects.



Depreciation of Estonian Mobile Telephone Group in 1999 was 228 mln kroons,

a  34%  increase on 1998. This was caused by extensive capital  expenditure

made in earlier years.



Taxation



A  new  Income  Tax Law became effective in Estonia from January  1,  2000.

Instead  of the taxation of corporate income, the Law foresees taxation  of

dividend  distributions, fringe benefits, representation  costs  and  other

disbursements  that  may  be  treated as  concealed  profit  distributions.

Resulting  from the change in taxation, the concept of tax base  of  assets

and  liabilities looses its economic essence. No deferred tax  assets,  nor

deferred tax liabilities, meaning of IAS 12 Income Tax, can arise. Decrease

in deferred income tax liabilities by 68 mln kroons, resulting from the new

Tax  Law, has been recorded as an income tax revenue in the profit and loss

statement,  in accordance with IAS 12.60. Decrease in deferred  income  tax

assets  by  84  mln  kroons has been recorded as an  income  tax  expenses,

excluding  29 mln kroons which were transferred to accumulated  profits  of

the  previous periods already. Balance of the accumulated profits  in  1999

balance was reduced by the amount.



As  on  December  31, 1999, Estonian Telephone Company had  an  income  tax

receivable in amount of 85 mln kroons. In accordance with the previous Law,

it  could  have  been balanced with income tax accounted on profit  of  the

following  periods. As Estonian Telecom is the 100% owner of the shares  of

Estonian  Telephone  Company, no income tax liability  will  arise  in  the

coming periods on dividends paid by the subsidiary company and no offset of

the  kind  is  possible under the new Income Tax Law.  The  item  has  been

recorded as an extraordinary expense in financial statements of 1999.



Profit



Net   profit  of  Estonian  Telecom  Group  amounted  to  580  mln  kroons.

Restructuring of the Group that took place in the 1st half of 1999 makes it

impossible  to compare net profits of the period with the result  of  1998,

318 mln kroons.



                 Estonian      Estonian       Estonian

                 Telecom       Telephone       Mobile

                                Company       Telephone

                                               Company

Profit  after      663            142            533

tax, mEEK*)

margin, %          18.5           5.8           33.0

growth, %          3.6           -46.4          36.7

EBIT, mEEK         955            398            595

margin, %          26.6          16.2           36.8

growth, %          18.8          13.7           19.4

EBITDA, mEEK      1,840          1,054           823

margin, %          51.2          42.9           51.0

growth, %          20.6          16.6           23.1

*) Before minority interest



Adoption of the new Income Tax Law in Estonia had positive impact worth  of

68  mln  kroons  for  Estonian Mobile Telephone Company  profitability  and

negative  impact  worth  of  168 mln kroons to Estonian  Telephone  Company

profitability.



Earnings per share of Estonian Telecom Group in 1999 increased 10% to  4.78

kroons  (4.33  kroons in 1998). Earnings per share excluding  extraordinary

expense was 5.48 kroons which gives growth by 27%.



Investments



More than 1 billion kroons was invested by Estonian Telecom Group in 1999.



Estonian  Telephone Company invested 714 mln kroons in 1999.  The  majority

of  the  investments  was  made into network development.  During  1999  49

thousand new digital lines were installed and the number of analogue  lines

fell by 29 thousand. By the end of 1999, the number of main lines had grown

to 510 thousand.  35.4 lines for every 100 inhabitants. Digitalisation rate

in  December 1999 was 55.7%. By the end of the year 39 thousand  applicants

were  on  the  waiting list for a fixed connection. By  the  end  of  2000,

Estonian  Telephone  Company  intends to  achieve  100%  digitalisation  in

Tallinn.



70%  ownership  in  AS  Telefonipood was  acquired  by  Estonian  Telephone

company. AS Telefonipood operates one of the largest telephone-shop  chains

in Estonia, also selling mobile phones and contracts with EMT.



In total, 322 mln kroons were invested by Estonian Mobile Telephone Company

in 1999. During the year the number of radio channels in GSM network of the

company increased about 34.2%. At the same time, number of base stations in

GSM  network  increased  by  28.7%. Radio link trunk  transmission  network

Tallinn-Tartu  was  completed  and taken into  operation.  Major  attention

during 1999 was paid to quality of the network coverage in rural and  urban

areas  and to the development of additional services. In 1999 the  coverage

of GSM network by territory was increased from 95% to 98%.



To  maintain  the  leading  position  as  innovative  operator,  IN  system

implementation was completed and VPN (Virtual Private Network) service  was

taken  into trial use by two major banks of Estonia. Also, preparations  to

start  with WAP and positioning services were started. Both services should

be launched in the first half of year 2000.



Interest bearing loans and borrowings



On  April  12,  1999 Estonian Mobile Telephone Company raised an  unsecured

advance of  DEM 7 mln from existing credit facility with the interest  rate

3.16%.  Repayment  of  the  loan was made on  November  29,  1999,  at  the

termination date of the Credit Facility Agreement.



Net gearing of Estonian Telecom Group by the end of 1999 was 3.8%



Changes in Share Capital



In February 1999, the initial public offering of the Company was completed,

during  which the Estonian State sold 49% of the company’s shares to  local

and international investors. Estonian Telecom became listed on both Tallinn

and London Stock Exchanges.



The  Restructuring  Agreement,  concluded  in  December  1998  between  the

Estonian  Government,  Telia AB and Sonera Holding B.V,  stated  the  share

capital  of  Estonian  Telecom was to be raised to EEK  1,373,832,780.  The

Payment   Settlement Agreement was signed on March 24, 1999 and  63,883,178

new  shares  were issued, The shares were exchanged for all the  shares  of

Estonian  Mobile Telephone Company and Estonian Telephone Company owned  by

Telia, Sonera and Baltic Tele AB.



Sale of the remaining shares of the government



On  February  11, 2000, Memorandum of Economic Policies was signed  by  the

government  that  has to be approved by International  Monetary  Fund.  The

government, among other things, promises to decide by September 30, 2000 on

a timetable for the sale of its remaining interest in Estonian Telecom.



Telecommunications Law



The  new  Telecommunications Law was approved by the Parliament on February

9, 2000.



NOTES



1.    Consolidated financial statements for 1999 are in accordance with the

  International Accounting Standards (IAS).

2.     Calculations   concerning  revenue  and  expenses  of  International

  transactions have been changed in the consolidated accounts. Until  1999,

  net  results of quarterly international settlements were shown.  Starting

  from  1999,  gross method based on the amounts of minutes  outgoing  from

  Estonia and incoming into Estonia international calls is in use. Respective

  changes have been made into the statements of 1998 to make them comparable:

  net  sales and operating expenses on materials, consumables, supplies and

  services were increased by 171,217 th. Estonian kroons.





Raul Kalev

PR-manager

6 460 220