EESTI TELEKOM

COMMENTARY TO FINANCIAL RESULTS



COMMENTARY TO GROUP FINANCIAL RESULTS, 9M 2000



NINE MONTHS RESULTS OF 2000

       ‘ A year of changes’

                            

Estonian    Telecom,    the    leading    provider     of

telecommunication  services in Estonia,  today  announces

its results for the nine months ended September 30, 2000.





Highlights



·    Number of mobile subscribers up 38% to 317 thousand

·    Number of fixed lines per employee up to 210

·    EBITDA margin 54%

·    Profit before tax up 28% to 876 mln kroons

·    Earnings per share up 50% to 6.34 kroons



Commenting on results the Chairman, Jaan Männik, said:



“The  success story continues with increasing competition

ahead.”





For further information please contact:



Krister Björkqvist

CFO                            + 372 627 2465



Hille Võrk

Financial Manager              + 372 627 2460





CHAIRMAN’S STATEMENT



The nine months of 2000 can be considered successful. The

strong growth of both mobile and Internet subscribers has

continued  and  the  efficiency of the  Estonian  Telecom

Group  has  improved. However, there are only two  months

left    until    full    liberalisation    of    Estonian

Telecommunications market.



Revenue and expenditure

Total  revenue  of  Estonian Telecom Group  in  the  nine

months  of 2000 amounted to 2,951 mln kroons, up by  13%.

Operating expenses of the Group were 1,351 mln kroons  up

by  10%. EBITDA of the Group amounted to 1,600 mln kroons

(EBITDA margin 54%).



Total revenue of the fixed network segment were 2,025 mln

kroons, up by 13%. The growth results from the revenue of

Telefonipood Ltd, a 70% subsidiary of Estonian  Telephone

Company  (the  fixed  network  operator  of  the   Group)

acquired  in  October1999, but also from  the  growth  of

ETC’s  own revenue. The fastest growing part of the fixed

network revenue continues to be local call revenue  where

the  result  of the nine months of 1999 was  exceeded  by

24%.  The main factor behind the growth is Internet dial-

up. In September 2000, 41% of the local call minutes were

dial-up minutes. Estimated market share of the company on

dial-up   market  is  about  51%.  Revenue  from   trunk,

international and mobile calls were up by 2%, 4%  and  5%

correspondingly. Main line revenue grew by 9%  and  other

revenue declined by 6%. From October 1, 2000, new tariffs

of  fixed  network  services become effective  (refer  to

”Rebalancing”)  affecting the structure of  the  revenue.

However, it is the opinion of Estonian Telephone  Company

that  depending on the consumer behaviour, the change  of

rates  will make a minimum impact on the economic results

of the company, affecting the turnover by less than 1%.



Expenses relating to the fixed network services  grew  by

12%  with  Estonian  Telephone  Company  having  only  2%

operating  expenses growth. By the end of September,  the

total  number of employees of the company had  fallen  to

2,457  (2,772 on December 31, 1999). The number of  fixed

lines per employees had reached 210.



Total operating result in the fixed network area was  411

mln kroons (316 mln kroons in 1999), up by 30%.



Total revenue from mobile communication services was   up

by  15%  to  1,426 mln kroons. The strong growth  in  the

number  of  customers  has continued:   16  thousand  new

customers in the first quarter, 33 thousand in the second

and   until  the  end  of  September,   26  thousand  new

customers to this  service. The total number of customers

by  the  end of September was 317 thousand. 106  thousand

customers were using the operator’s prepaid service.



Another  battle  of  the price war  started  on  Estonian

mobile  communications market in summer 2000 with  minute

rates  falling  to  2.5 kroons per minute.  In  order  to

respond   to  the  competitors  price  reductions,   from

September Estonian Mobile Telephone Company reduced  some

tariffs  of its most popular Delta package. From  October

2000   tariff-reductions  for  other  subscriber-packages

became effective. Average monthly revenue per customer of

the  company  in  September  2000  was  430  kroons.  The

reduction  of minute rates also means a further  fall  of

ARPU  .  To  guarantee continuous growth in revenue,  the

company has put more effort into the development  of  new

value added services.



Total    operating   expenses   relating     to    mobile

communications amounted to 725 mln kroons, up by 15%. The

number  of employees of the company had grown to  266  by

the  end  of September (223 on December 31, 1999).  There

has  been strong growth in marketing costs resulting from

sharp competition in the market.



Total  operating result of the mobile communications  was

500 mln kroons, up by 13%.



Net Profit

Net  profit of Estonian Telecom Group in the nine  months

of  2000 amounted to 871 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.



Earnings  per share in the nine months of 2000  increased

by  50% to 6.34 kroons (4.24 kroons per share in 9 months

of 1999).



Investments

Estonian  Telecom Group invested 863 mln kroons  in  nine

months of 2000.



Estonian    Telephone   Company   has    continued    the

implementation  of   the  “Tallinn  100”  project   (100%

digitalisation of Tallinn by the end of 2000). By the end

of  September, digitalisation in Tallinn was 95%  and  in

Estonian  in total had risen to 67%. There are  currently

nine  fully-digitalised towns in Estonia  By the  end  of

the  year,  digitalisation rate is planned to reach  70%.

Total  number  of main lines by the end of September  was

521,901 corresponding to 36.3 penetration rate.



In  May  2000,  Estonian Telephone Company  and  Estonian

Union  Bank  started  the  final  negotiations  for   the

establishment of a separate 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 September.



The  majority of investments in the mobile area focus  on

building and improving base stations, exchanges and other

network  equipment. On September 5 2000, Estonian  Mobile

Telephone  Company 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  cost  of  the

building is 28.5 mln kroons.



Changes in Equity

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

Telecom  Ltd. approved the allocation of profit suggested

by  the  Management Board. According to the decision,  68

mln  kroons was transferred into legal reserves.  It  was

decided to pay 549 mln kroons 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  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 309 mln kroons during the nine  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  9 mln kroons compared to 43 mln  kroons  in

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.



In   September  2000,  Estonian  Telecom  Ltd.   mandated

Bankgesellschaft  Berlin AG, AS Hansabank,  the  Dai-Ichi

Kangyo  Bank,  Landesbank Schleswig  Holstein  (Tallinn),

Leonia Corporate Bank plc and Swedbank to arrange  a  EUR

40,000,000 5-year revolving credit facility. The facility

was  mandated on a “club” basis, following a  competitive

bidding process. The signing of the agreement is expected

to take place shortly.



Net gearing of Estonian Telecom Group as at September 30,

2000 was –4%.



Contingencies

A   court  case  has  been   initiated  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.



Diversifying service portfolio

The  best-known  new service launched in the  first  half

year  of 2000 was probably the Mobile Positioning  System

service  for the Estonian Rescue Board developed  jointly

by Estonian Mobile Telephone Company, the Estonian Rescue

Board  and Ericsson. The application software was jointly

created  by  the  above listed companies and  Regio,  the

leading  electronic map company of Estonia.  The  project

has   been   developed  further  and  MPS  services   for

commercial  use  was launched in November 2000.  Estonian

Mobile  Telephone  Company  considers  Regio  to  be  its

permanent  partner in development software solutions  for

using  MPS  services in the most diverse applications  as

experts  estimate  that  60% of additional  mobile  phone

services will be based on location in the next few years.

To  strengthen its position in the area further, Estonian

Mobile Telephone Company made a strategic investment into

Mgine  Technologies, a Finnish-Estonian software  company

that  focuses  on personalisation and mobile  positioning

software products in October 2000 by purchasing 5% of the

shares  of the company. The rest of the company is  owned

by  Digital  Open  Network  Environment  Corporation,   a

company  listed  on  the NM list of  the  Helsinki  Stock

Exchange.  Through the investment, EMT will have   access

to  Mgine  Technologies’ unique software and  development

opportunities in personalisation and positioning. EMT  on

its  side will provide Mgine Technologies access  to  its

product development resources, testing facilities as well

as   access   to  the  real  life  customer   development

environment.



A  new  facility  has been added for the  mobile  parking

service  launched in July 2000. Starting  from  September

2000,  clients  can notify the operator  of  starting  or

ending  their parking via WAP, in addition to the offered

earlier SMS-messaging. During the first three months  the

service has been available up to 4,600 EMT’s clients have

started to use it.



A   brand-new   service  in  Estonian  Mobile   Telephone

Company’s portfolio and on Estonian market in general  is

mobile  phone insurance. The company in cooperation  with

the  insurance  brokerage Marsh Estonia  has  prepared  a

service called ProMobile aimed at protecting a customer’s

mobile  phone  against potential loss through   theft  or

accident.  The  testing  period of  the  new  service  is

started   and   will   continue  until   February   2001.

Afterwards, the service will be offered to both legal and

private persons. In the future, the service is planned to

be extended to the terminals situated at vending machines

and control equipment.



Another   operator  of  the  group,  Estonian   Telephone

Company,  has  made a step forward in data  communication

area. In addition to different access possibilities known

as   Atlas   product-family   the   company   opened    a

communication  environment  Hot  for  its  customers   in

October  2000.  In addition to traditional services  like

mail-box,   calendar,  space  for   Web-page,   the   new

environment  allows  clients  to  create  Intranets   for

communicating with their friends or colleagues in case of

small offices.



Customer oriented service

Cooperation  has  continued  with  the  major  commercial

banks.  From  July  1, 2000, mutual clients  of  Estonian

Mobile  Telephone Company and Hansabank have been 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.  Starting  from  October,  EMT   and

Estonian Union Bank provide their clients with an  option

to  get via the Internet information on their last  three

months mobile phone bills and the itemized calls from the

previous months. The information can also be saved  as  a

separated file for processing purposes.



To    publicise  more  efficient  payment  possibilities,

Estonian  Telephone Company ran the direct-order campaign

during  the summer. An hour of free local call  time  was

offered to the customers choosing the direct debit  order

for  their  monthly payments. By the end of  August,  one

third of the company’s customers had made their choice in

favour  of  the possibility. Active use of other  payment

channels  allows Estonian Telephone Company to reorganise

its  service  centres into sale centres of  products  and

services of the company. Some of the service centres with

low  operation  capacity were closed  in  line  with  the

intention to keep operating expenses of the company under

control.



During the first half of the year several packages  being

complex  solutions  designed for certain  customer  types

were launched by Estonian Telephone Company. However,  in

some  cases it still seemed complicated for companies  to

select  the  package  that would satisfy  their  specific

communication  needs.  As  a  solution  to  the  problem,

Estonian Telephone Company started up a questionnaire  on

their  Web-page enabling a potential customer to describe

some  characteristics of its business as well  as  likely

communication needs. Based on the information the company

will  make  an  offer  suitable to requirements  of  this

particular customer.



Rebalancing fixed telephone tariffs

As   a   pre-requisite  for  the  opening  of  the  fixed

communications  market  to  the  full  competition   from

January  1 2001, re-balancing of the tariffs of  Estonian

Telephone  Company had to be completed.  Several  changes

were introduced into company’s rates from October 1 2000:



                   Old rate    New rate       Change

                    (EEK)       (EEK)

Digital             3,600       3,000          -17%

telephone

subscription

fee,   corporate

customers

Digital              198         120           -39%

telephone

monthly     fee,

corporate

customers

Rate per minute,     0.16        0.24          +50%

local calls,  at

peak hours

Rate per minute,     1.06        0.68          -36%

trunk calls,  at

peak hours

Rate per minute,     0.08        0.18          +125%

local calls,  at

off-peak hours

Rate per minute,     0.53        0.51           -4%

trunk calls,  at

off-peak hours

Rate per minute,                 0.08        absent until

local calls,  at                                 01.10.00

the night rate

Rate per minute,              reduced  depending  on  the

international                 country up to 25%

calls

The  call set-up              applied from the 1st second

charge                        after  the  connection  has

                              been established (from  the

                              8th second previously)



At the company’s level the impact of new tariffs on total

revenue  is expected to be insignificant. At a customer’s

level,  depending  on  his  or her  specific  consumption

pattern,  introduction  of the  new  rates  may  lead  to

essential  changes in their monthly bills. To soften  the

impact of the rebalancing and keep some specific customer

groups  with  the  company several advantageous  packages

were introduced simultaneously with the new tariffs.



As  data-traffic is the fastest growing part of the fixed

line  traffic and the share of data communication revenue

forms  essential  part of the company’s and  the  group’s

total  revenue, retaining this part of its  customer-base

is  a  priority  for  Estonian  Telephone  Company.  From

October   1,   2000   “Atlas  Internet  901   Bonus”,   a

possibility  to  use dial-up service at 17%  discount  at

peak hours and at 33% discount at off-peak hours for a 25-

kroons monthly fee will be available.



Estonian  Telephone  Company  launched  its  ADSL   based

broadband  product portfolio on March  1.  The  portfolio

consists  of  three products: ADSL Light, ADSL  Plus  and

ADSL  Premium.  To encourage private individuals  to  use

permanent   Internet  connections  instead   of   dial-up

service,  affected  by  higher local  call  tariffs,  the

company reduced subscription fee for the Atlas ADSL Light

package by three times to 500 kroons and monthly  fee  by

about 40% to 590 kroons from October 1.



International  calls  is the area  where  we  expect  the

strongest  competition after full liberalisation  of  the

market  on January 1, 2001. Rebalancing in general  shall

improve competitiveness of Estonian Telephone Company  in

the  area.  To  strengthen its positions  further,  bonus

packages  of  international calls  were  introduced  from

October   1   2000  offering  up  to  25%   discount   on

international  calls  from Estonian  Telephone  Company’s

network.



Development  of  Voice  over IP (VoIP)  technology  based

services has reached the stage of testing. From September

27  “Netifon”, a service calls initiated from a  computer

through  Internet  into  any  fixed  line  telephony   in

Estonia, was introduced.



Negotiations with other operators

Pursuant  to the new Telecommunications Law, an  operator

having   significant   market  power   is   required   to

interconnect  its  telecommunications  network  and   the

public  telecommunications network of  another  operator.

The first agreement was signed between Estonian Telephone

Company and Tele2, a member of the Swedish Netcom  Group,

on  October  2.  In accordance with the agreement,  Tele2

will  be compensated for the Internet calls directed into

its  network.  The process of concluding  interconnection

agreements  is complicated as the principles of  charging

for   the  interconnection  of  networks  are  still   in

development  stage  by  the  regulator.  As   a   result,

potential  interconnection  fees  have  received  a  wide

variety   of   different  opinions  from   the   opposite

participants.



Terminating the Concession Agreement

From  January  1,  2001  the Estonian  telecommunications

market  will  be  fully liberalised  and  the  Concession

Agreement,  concluded  between  the  government  of   the

Republic  of Estonian and Estonian Telephone  Company  in

1992  would  become  unsuitable for  the  new  situation.

Thereby,   negotiations  were  started  between  Estonian

Telephone  Company  and  the Ministry  of  Transport  and

Communications  in May 2000 aimed on termination  of  the

Concession  Agreement  and  replacing  it  with   a   new

agreement.   After   discussing  the   issue   with   the

Government,  the Ministry of Transport and Communications

has  announced the intention to terminate the  Concession

Agreement and sign a new agreement by January 1 2001.  In

accordance  with  the proposal of the Ministry,  Estonian

Telephone  Company  would be obligated  to  enable  other

operators  access  to its networks.  The  company  should

guarantee the number portability to its clients by  2004.

Time-schedule would be established for liquidation of the

waiting   list  formed  before  January  1  2001.   After

termination   of   the   Concession  Agreement   Estonian

Telephone  Company would have no obligation to  harmonize

its  tariffs with the government. The Republic of Estonia

would  obligate  not  to discriminate Estonian  Telephone

Company  in  comparison  with the  other  operators.  The

negotiations are still ongoing.



Personalia

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

appointed   the   current  Estonian   Telephone   Company

Management  Board  member Mr. Valdo  Kalm  to  chair  the

company from September 1, 2000.





Raul Kalev

PR manager

+372 6 272 466