EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTARY TO FINANCIAL RESULTS H1 2000



HALF-YEAR RESULTS OF 2000

                         ‘A year of changes’



Estonian  Telecom, the leading provider of telecommunication services

in Estonia, today announces its half-year results, for the six months

ended June 30, 2000.





Highlights



  ·    Revenue up 15% to 1,947 mln kroons (US$ 121 mln)

·    EBITDA up 17% to 1,032 mln kroons (US$ 64 mln)

·    EBITDA margin 53%

·    Profit before tax  up 31% to 544 mln kroons (US$ 34 mln)

·    Earnings per share up 56% to 3.94 kroons (US$ 0.24)

·    Net gearing –14%





Commenting on results the Chairman, Toomas Sõmera, said:



“Remarkable  progress has been achieved in one of  our  priorities  –

customer orientation, and in the development of internal co-operation

as  well  as partnerships with other organisations during  the  first

half  of  the  year.  Complex solutions have been  launched  for  our

business customers. The first combined product of the mobile and  the

fixed operator has been provided to our private clients.”





For further information please contact:



Raul Kalev

Public Relations                             +372 627 2466



Hille Võrk

Financial Manager                            +372 627 2460













CHAIRMAN’S STATEMENT



Strong  growth of Estonian Telecom Group continued in the first  half

of  2000 certified by good financial results. Remarkable progress has

been achieved in the development of internal co-operation as well  as

partnership  with other organisations. Our priority remains  to  give

better  and more flexible service to both existing and new  customers

to achieve a competitive advantage under free competition.



Revenue and Expenditure



Total  revenue of Estonian Telecom Group in the first  half  of  2000

amounted  to 1,947 mln kroons, up by 15%. Operating expenses  of  the

Group  were  914  mln kroons up by 12%. EBITDA margin  of  the  Group

continued  to grow reaching 53% by the end of the half-year  (52%  in

the first half of 1999 and 51% in 1999 in total).



Total  revenue  from  fixed network services amounted  to  1,357  mln

kroons,  up by 15%. Local call revenue were the fastest growing  part

of the revenue exceeding the corresponding result in 1999 by 29%. The

growth is fuelled by internet dial-up. In June 2000, 38% of the local

call  minutes were dial-up minutes. By the end of the first half-year

of  2000  more  than 40 thousand customers used the  dial-up  service

provided  by  Estonian Telephone Company, the fixed line operator  of

Estonian Telecom Group. The company estimates its market share to  be

around  50%. Revenue from trunk, international and mobile calls  were

up by 2%, 5% and 8% correspondingly. Main line revenue grew by 9% and

other revenue declined by 4%.



Expenses  relating  to fixed network services  amounted  to  740  mln

kroons,  up  by  11%.  A factor behind this expenses  growth  is  the

continuing  decline in the number of employees. By the  end  of  June

2000, the total number of employees of Estonian Telephone Company had

fallen  to  2,541 (2,772 on December 31, 1999). By the  end  of  June

there  were  201 main lines per employee, thus exceeding the  interim

benchmark of 200.



Depreciation in the fixed network area was 345 mln kroons, up by 7%.



Total  operating result of fixed network communications was  272  mln

kroons (192 mln in 1999), up by 41%.



Total  revenue from mobile communication services were up by  17%  to

919  mln kroons. The revenue growth accelerated in the second quarter

of 2000 when total revenue grew by 19% compared to the same period in

1999. Record number of new customers joined Estonian Mobile Telephone

company, the mobile operator of Estonian Telecom Group in the  second

quarter.  During  the  first  3  months  of  2000,  15  thousand  new

subscribers  were gained. During the second quarter of the  year  the

total  number of customers grew by 33 thousand reaching 292  thousand

by  the  end  of June which corresponds to about 63 per  cent  market

share.  92  thousand customers used the prepaid service. The  growing

number  of prepaid customers as well as several advantaged facilities

offered to both existing and new customers continued falling trend of

average  revenue  per  user. In June 1999 the monthly  ARPU  was  589

kroons. By June 2000 it had fallen to 469 kroons.



However,  activities attracting new customers accelerated expenditure

growth.  Total  operating expenses related to  mobile  communications

amounted  to 486 mln kroons, up by 22%. Main reasons for the increase

were  marketing costs, including subsidised handsets new subscribers,

and higher staff costs.



Depreciation and amortisation in the segment of mobile communications

amounted  to  132 mln kroons, up by 21%. The relatively  high  growth

results  from fastened amortisation of NMT network which the  company

intends to close by December 2000.



Total  operating result of mobile communications was 301  mln  kroons

(281 mln in 1999), up by 7%.



Net Profit



Net  profit of Estonian Telecom Group in the first half-year of  2000

amounted  to  541  mln kroons. Restructuring of the Group  that  took

place  in  the first half of 1999 makes it impossible to compare  net

profit  of  the period with the corresponding period in  1999.  Also,

amendments  into  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 net

profits of the two periods incomparable.



Earnings per share in the first half year of 2000 increased by 56% to

3.94 kroons (2.52 kroons per share in 6 months of 1999).



Investments



Estonian Telecom Group invested 570 mln kroons in six months of 2000.



One  of  the  most remarkable projects in year 2000 is “Tallinn  100”

(100%  digitalisation of Tallinn) in the course of which about 62,000

electromechanical exchanges will be replaced with  digital exchanges.

About  50%  of  the  replacements were  done  by  the  end  of  June.

Digitalisation in Estonia in total had risen to 60.5%. By the end  of

2000,  70% digitalisation rate is expected. RAS-1000 (development  of

radio-link  telephone  connections) shall  be  mentioned  as  another

ongoing  investment project in fixed communications area.  In  total,

there  were 35.5 main telephone lines per 100 inhabitants by the  end

of  June. Fast growing use of mobile phones gives us reason to expect

fixed telephone penetration to stabilise at 38% level.



The majority of investments of the mobile area focus on  building and

improving base stations, exchanges and other network equipment.



Changes in Equity



Several  changes  have taken place in the equity of Estonian  Telecom

Group in the first half of 2000.



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).  The  list  of

shareholders,  on the basis of which dividends were distributed,  was

determined on June 9, 2000. The dividends were paid out on  July  12,

2000.



Due to the changes in the Income Tax Law, no dividend taxes has to be

paid in year 2000.





Restructuring Equity and Liabilities



The amount of long term interest bearing loans and borrowings fell by

290  mln  kroons during the six months of 2000 caused by both regular

and  anticipatory  repayment  of long term  bank  loans  by  Estonian

Telephone  Company.  The centralised Treasury function  started  from

January  1  2000 at Estonian Telecom Ltd level made it reasonable  to

replace  a  part of external loans with inter-company loans  at  more

favourable  terms. Thus the net financing costs amounted  to  10  mln

kroons compared to 31 mln kroons in 1999.



An  increase  in current liabilities compared to the end of  December

1999  results from accrued dividends of Estonian Telecom Ltd  in  the

amount of 550 mln which were paid out in July 2000.



Net gearing of Estonian Telecom Group as at June 30 2000 was -14% (4%

on  December 31 1999). 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.



Contingencies



A  court  case has been instituted against Estonian Telephone Company

in  the  amount of 55 mln kroons by an insolvent company OÜ Albufent.

The  opinion  of  the  respondent is that  the  claim  is  unfounded.

However, if the decision of the court on the issue will be in  favour

of  the  petitioner,  OÜ Albufent, no negative  effect  on  financial

results of Estonian Telephone Company will follow, by opinion of  the

management of the company.



Changes in Technologies and Services



A  wide  range of the products and services has been launched by  the

operating  subsidiaries of the Group in last few  years  targeted  at

better  meeting  the  needs of our clients.  However,  the  technical

character  of  these products sometimes makes it  difficult  for  the

clients  to  make  the  best choice. In the  first  quarter  of  2000

Estonian Telephone Company started to advertise the trademark “et”, a

trademark for telecommunication services and solutions, packages that

relate  to  fixed telephone and data services, (in co-operation  with

Estonian  Mobile Telephone Company) mobile telephone  services,  ISDN

and  IN-network based services. The first solution offered under  the

trade  mark  was “Home-Line”; calls at favoured rates between  mobile

phones  and  a  fixed phone of a household. By now, telecommunication

solutions  for private houses, retailers and small offices have  been

worked  out  integrating voice and data communication  services  most

likely to be needed by these kinds of clients.



The  ratio  of data communication revenue has tremendously  increased

during  the  last  year. The trend has made the development  of  data

communication  area another priority for Estonian Telephone  Company.

On March 1 the company successfully launched its ADSL based broadband

product  portfolio.  The portfolio consists of three  products  (ADSL

Light,  ADSL  Plus and ADSL Premium) and covers most  of  the  market

demand. The company is integrating different technologies in order to

provide  advanced communication solutions. The first WEB  based  VoIP

service  “Web-Phone 800” has been launched allowing calls to free-of-

charge numbers from multi-media computers.



Triumphal march of internet has put a seal on activities of  Estonian

Mobile   Telephone  Company  as  well.  In  April  2000  the  company

introduced   a   Wireless  Application  Protocol  service   for   its

contractual  clients. WAP offers the possibility  of  using  internet

services  through  a  mobile  telephone.  It  is  possible  to   find

information  on  foreign currency exchange rates  and  share  prices,

weather  reports, etc. In co-operation with other companies,  Lexicon

of Foreign Words is provided, bank account balances can be read, etc.

EMT clients can also read their e-mails by phone.



A  three-way agreement to create the testing environment for  General

Packet  Radio Services, named as project WAY was signed  by  Ericsson

Estonia,  Tallinn Technical University and Estonian Mobile  Telephone

Company  in April. The project shall ensure the competitive advantage

for  the  company  to  introduce new  packet  data  services  on  GSM

infrastructure, when GPRS system will be operational in the beginning

of 2001.



Widening in Co-operation



Limited  number  of  population in Estonia and by  western  standards

relatively  low   purchasing power make  it  hard  to  maintain  high

revenue growth ratios based on traditional telecommunication services

only. Estonian Telecom Group is intending to participate actively  in

intertwine  of  telecommunications area with  neighbouring  areas  of

businesses.  Several  co-operation  agreements  have  been  concluded

during  the  first  half  of 2000 aimed at  developing  and  offering

services based on experiences of different fields of activities.



In  March 2000, Estonian Telephone Company, Estonian Mobile Telephone

Company together with another Estonian company, Privador Ltd, started

a joint project to analyse the creation of Public Key Infrastructure.

This  offers  consumers  a fast and secure authentication  method  to

access  a  number  of  electronic services, eg forwarding  electronic

documents  and  digital  signatures. The  PKI  is  named  to  be  the

cornerstone of information society, allowing users to communicate via

networks  and identify each other safely. In May 2000, EMT,  ETC  and

the  major commercial banks in Estonia, Hansapank and Eesti Ühispank,

started  a  project to develop a joint PKI that allows for the  swift

and secure use of several services via telephone and internet.



A  three-way  agreement  to facilitate the implementation  of  Mobile

Positioning System service in Estonia for Estonian Rescue  Board  was

signed  in  April by Estonian Rescue Board, Estonian Mobile Telephone

Company and Ericsson. The positioning services will enable to  locate

all  callers  of  emergency number 112 in electronic maps  of  Rescue

Board  emergency  centres, enabling to shorten the time  between  the

call  and  the  help  to  be delivered. Also,  the  fleet  management

function  is close to being offered to the vehicles of Rescue  Board,

to  automatically choose the nearest vehicle to reach  the  emergency

spot  and to choose the shortest route. The applications software  is

jointly   created  by  agreement  parties  and  Regio,  the   leading

electronic map company of Estonia.



In May 2000 Estonian Telephone Company and Eesti Ühispank started the

final  negotiations for the establishment of a separate joint venture

to  create  the most credible and commonly used internet environment.

The joint venture intends to offer services in all major areas of  e-

commerce  beyond  the parent companies’ main fields of  activity.  It

intends  to  provide  portal  services,  mediation  services  through

various trading environments and client mediation, logistics services

as well as software and IT solutions.



In  co-operation with municipal authorities of the two largest  towns

in  Estonia,  Tallinn  and Tartu, Estonian Mobile  Telephone  Company

prepared and launched a new service that allows its clients to pay by

mobile phone for parking their car in those towns. During July  2000,

the  first month the service was offered, approximately two  thousand

clients used the option.



An  e-billing  project  was  prepared by  Estonian  Mobile  Telephone

Company and Hansapank in the first half of 2000. As an outcome of the

project,  starting from July 1, 2000, mutual clients  of  the  mobile

operator and the bank were offered the option to subscribe for  their

mobile phone bill to go to their hanza.net e-mail box and also to pay

for it by the internet-bank.



Changes in Management Structures



The  Annual  General Meeting of the shareholders of Estonian  Telecom

elected  the company’s new Supervisory Board. Mr. Aare Tark  was  re-

elected to be Chairman of the Supervisory Board.



The  new elected Supervisory Board recalled from the Management Board

of  Estonian  Telecom  Ltd. Mr. Mart Nurk  who  was  elected  to  the

Supervisory Board.



On May 31, 2000 the letter of resignation was submitted by Mr. Toomas

Sõmera,  Chairman  of the Management Board of Estonian  Telecom.  The

Supervisory Board accepted the letter of resignation.





Raul Kalev

PR-manager

+372 6460 220