EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTS ON PRELIMINARY RESULTS OF 2000



Estonian    Telecom,    the    leading    provider     of

telecommunication  services in Estonia,  today  announces

its  preliminary  results for the  financial  year  ended

December 31, 2000.







Highlights



·    Total revenue up 11% to 3,973 mln kroons

·    EBITDA up 13% to 2,078 mln kroons

·    EBITDA margin 52%

·    Net profit for the period 1,176 mln kroons

·    Profit margin 30%

·    Earnings per share 8.56 kroons

·    Number of mobile subscribers up 34% to  327 thousand

·    Digitalisation rate 71%





Commenting  on  the results, the Chairman,  Jaan  Männik,

said:





“Results  of 2000 as well as the first weeks of operating

in  a  totally liberalised market  have been in line with

management’s expectations.”





For further information please contact:



Krister Björkqvist                   +  372 627 2465

CFO



Hille  Võrk                          +  327 627 2460

Financial Manager





CHAIRMAN’S STATEMENT



Results of 2000 were in line with the expectations of the

Management  of the Group. Revenue growth is slowing  down

from   exceptionally  high  growth  rates  in  the  past.

Profitability ratios are continuously high testifying the

ability  of  the  companies of the Group to  raise  their

efficiency.  Also,  the first weeks of  competition  have

followed our expectations. Loss of market shares has been

moderate justifying activities undertaken by the Group in

preparation for the full liberalisation of the market.



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  9%. 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.

Total  operating result in the group was 471  mln  kroons

(398 mln kroons in 1999), up by 18%.



Total  revenue of EMT Group was up by 12%  to  1,816  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).  Total operating result of the group was  669  mln

kroons, up by 12%.



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.









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 shareholder of B-series share (the  Estonian

State).  2000. 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 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. The maximum number of shares to

be issued in exchange to the convertible bonds is 850 000

or and increase of 0,62%.



During  the  course  of the initial subscription  of  the

convertible bonds, which took place between December  18,

2000  and January 5, 2001, 20,750 A-series and 20,750  B-

series  bonds  were subscribed by 144  employees  of  the

Estonian Telecom Group.



Net  gearing of Estonian Telecom Group as at December 31,

2000 was –7%.



Opening telecommunications market for competition



From  January  1,  2001, the Estonian  Telecommunications

market   became  fully  liberalised.  Several   preparing

activities  to the event affected companies  of  Estonian

Telecom Group during the year 2000.



As  a  pre-requisite  for  the  opening  of  the  market,

rebalancing of the tariffs of Estonian Telephone  Company

had to be completed. Several changes were introduced into

company’s  rates  from October 1, 2000: subscription  and

monthly fees for business customers were reduced,  minute

rates  for  local  call were risen and minute  rates  for

trunk   calls   were  reduced.  Several   reductions   of

international call tariffs have taken place since October

2000.  Also,  bonus  packages  have  been  introduced  to

improve the position of the company in the area where the

most intensive competition is expected.



On  February 9, 2000 the new Telecommunications  Act  was

adopted  by  the  Parliament to regulate the  market  and

favour  competition after January 1, 2001.  According  to

the   new   Telecommunications  Act,  Estonian   National

Communications  Board  had  to recognise  companies  with

significant  market power (SMP) by the end of  2000.  The

Board   recognized  Estonian  Telephone  Company  as   an

undertaking    with    SMP   on    Estonian    Telephone,

interconnection and leased line services  markets  as  of

January 1, 2001.



An  obligation raising from Estonian Telephone  Company’s

status  as  an  undertaking with SMP  is  allowing  other

operators  to  interconnect  its  networks.  The  company

started negotiations with its main competitors, Uninet (a

company  belonging to Finnet Group) and Tele2 (a  company

belonging to Netcom Group) in June 2000 already.  It  was

the  intention of the company to employ the best European

pricing practices but the small size of the country makes

it  difficult  to follow EU experiences in every  aspect.

The desire of the government to liberalise the market and

at the same time to solve some social problems by the use

of  Estonian Telephone Company made the process even more

complicated. Even some supplementary regulatory acts were

missing  almost  until  the end  of  the  year,  Estonian

Telephone   Company   was  able  to   publish   a   draft

interconnection agreement in September and sign the first

agreements  with Uninet and Tele2 before the end  of  the

year 2000.



In  1992  the Concession Agreement was concluded  between

the  government of the Republic of Estonian and  Estonian

Telephone Company. As the agreement became unsuitable for

the  new situation, on December 29, 2000, representatives

of  the  Republic  of  Estonian  and  Estonian  Telephone

Company executed an agreement on the termination  of  the

Concession Agreement. The new agreement will regulate the

relationship  between the Republic  of  Estonia  and  the

company,  in addition to the Telecommunications  Act  and

the  respective  legal  acts.  The  agreement  determines

several  rights  and  obligations of  Estonian  Telephone

Company which became effective from January 1, 2001.  The

agreement will terminate on January 1, 2004.



From  January  1, 2001, entrance to the market  has  been

free  for new competitors. However, only Tele2 and Uninet

have actually started offering their services. During the

first  two  weeks  of the year 2001,  Estonian  Telephone

Company has lost 8% of its international traffic  and  3%

of the local long distance traffic to its competitors. No

new operators have entered the local calls market.



Change of business name



In  December  2000, EMT made a change in  the  Commercial

Register  regarding  its business name.  Estonian  Mobile

Telephone  Company Ltd was renamed EMT Ltd.  As  a  brand

name  and logo, EMT had been used for a long time already

and is considerably well known among Estonian people.  It

was  the  decision of the management that at this current

stage  of development of the market, they do not want  to

refer  just  to the mobile phone in their business  name.

The new name, EMT, leaves more room for interpretations.



Changes in management boards

On  August 31 2000, Mr. Toomas Sõmera resigned  from  the

position  of  the  Chairman of the  Management  Board  of

Estonian  Telecom Ltd. Mr. Jaan Männik, up to the  moment

CEO  of Estonian Telephone Company, was appointed to  the

position from September 1, 2000.



The  Supervisory  Council of Estonian  Telephone  Company

elected the current Estonian Telephone Company Management

Board member Mr. Valdo Kalm CEO of the company.





Hille Võrk

Financial Manager

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