Eesti Telekom                 FINANCIAL RESULTS                 03/07/2002



COMMENTS ON AUDITED RESULTS 2001



The  consolidated statements of AS Eesti Telekom in  2001

cover the following companies:

·    AS Eesti Telekom – parent company;

·    AS Eesti Telefon – 100% affiliate of Eesti Telekom;

·    AS EMT – 100% affiliate of Eesti Telekom;

·    AS Telefonipood – 100% affiliate of Eesti Telefon

·    AS Connecto – 100% affiliate of AS Eesti Telefon

·    AS Esmofon – 100% affiliate of EMT

·    AS Esmofon Tartu – 100% affiliate of Esmofon

·    AS Mobile Wholesales – 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  2001,   the

auditors report hasn’t been signed yet.



Main changes compared to the preliminary results

published on February 7, 2002 are the following:



1. Investment in Reach-U Systems was revaluated by –7.8

mln EEK (-0.5 mln EUR).

2. Assets in total amount of  94 mln EEK (6 mln EEK) were

written off in Eesti Telefon (100 mln EEK (6.4 mln EUR)

in preliminary accounts).

3.  Under net cash in investing activities, purchases  of

shares,  investments and other (-133 mln EEK  or  –8  mln

EUR) and proceeds from sale of investments (50 mln EEK or

3 mln EUR) have been split on acquisition of subsidiaries

(-14  mln  EEK  or  –0.9  mln EUR)  and   acquisition  of

associated  companies (-6 mln EEK or -0.4  mln  EUR)  and

rest have been booked to cash and cash equivalents at the

end of the year.



Revenues, expenses, and profits



In 2001, consolidated revenues of the Eesti Telekom Group

amounted to 4,285 mln EEK (274 mln EUR), showing  a  rise

of 8%, compared to the year 2000. EBITDA of the Group was

1,931  mln EEK (123 mln EUR), down by 7 % with an  EBITDA

margin  of 45%. Operating expenses grew by 24%,  compared

to  the  year 2000, to 2,354 mln EEK (150 mln  EUR).  Net

profit of the Eesti Telekom Group in 2001 amounted to 779

mln  EEK  (50 mln EUR), showing a fall of 31 %.  Earnings

per  share  were  5.67 EEK (0,36 EUR).  The  consolidated

financial results have been influenced by several unusual

factors:



  Ų     An  insolvent company, OÜ Albufent, had  filed  a

     lawsuit against AS Eesti Telefon in the amount of 55 mln

     EEK  (3.5  mln EUR). On 6 February 2001, OÜ Albufent

     submitted an application to the Tallinn City Court to

     unconditionally drop the claim against AS Eesti Telefon.

     On 19 February 2001, the Tallinn City Court issued a

     decree ending the proceedings in the aforementioned case.

     But over the years, AS Eesti Telefon had built up  a

     monetary reserve, amounting to 46 mln EEK (2.9 mln EUR),

     to deal with this claim. Since the case was dismissed,

     the company was now able to release this sum through the

     profit and loss account by reducing costs.

Ų    On 11 April 2001, AS Eesti Telefon concluded an

agreement for the sale of shares to Eniro Eesti AS. In

accordance with the agreement, AS Eesti Telefon sold its

60% of AS Teabeliin to Eniro Eesti AS, a subsidiary of

Eniro AB. The sales price of the shares was 43.5 mln EEK

(2.8 mln EUR). The capital gain from the transaction, in

the amount of 32 mln EEK (2 mln EUR), is accounted as

revenue from subsidiaries.

  Ų     In  accordance  with IAS 12,  the  principles  of

     accounting for the income tax calculated on dividends

     have changed. Until now, income tax on dividends was

     subtracted from the retained profits. Starting in 2001,

     the tax is accounted through the profit and loss account.

     To  ensure  accurate  comparability,  the  financial

     statements for 2000 have been adjusted accordingly.

Ų    New interconnection agreements concluded at the

beginning of 2001, between Eesti Telefon and mobile

operators, have had significant influence on the total

revenues and expenses of both the Eesti Telefon Group and

the EMT Group.

  Ų    Following first year of competition Eesti Telefon

     has reviewed its assets under IAS 36 and made a 94 mln

     EEK (6 mln EUR) write-off.



The year 2001 was a challenging one for AS Eesti Telefon,

the   fixed  line  operator  of  the  Group.   The  fixed

communications market became wide open for competition on

1  January  2001.   Several other operators  entered  the

market,  causing a significant reduction in international

calls  tariffs.  However,  AS  Eesti  Telefon  faced  the

challenge by making its tariffs more flexible,  with  the

introduction  of bonus packages, and with  various  other

promotional activities.  In the middle of the  year,  the

rate  of  the tariff reductions slowed down,  and  market

shares  of  Eesti  Telefon  stabilised.  At  the  end  of

December 2001, the company estimated its market share  of

total  call  minutes, domestic call minutes,  and  mobile

minutes  to  be  91%,  90%, and 75%  respectively.  Eesti

Telefon estimated its market share of international  call

minutes to be 70%. Another step for maintaining customers

was  taken  in  January  2002.  New  price-packages  were

introduced,   which   allow  customers   with   different

communication   needs   to   choose   between   different

combinations  of  monthly fee and  minute  tariffs,  thus

optimising their expenditures on communications.



Among  the  main revenue categories of AS Eesti  Telefon,

domestic  call revenues grew by 1%, revenues from  mobile

communications  by  17%,  and dial-up  revenues  by  21%,

compared  to 2000. Revenues from data communications  and

Internet   connections  grew  by  144%.   Revenues   from

international  calls fell by 46%, and main line  revenues

by 6%.



To  increase  its  efficiency,  Eesti  Telefon  has  also

reviewed  its  cost structure. As a result, the  decision

was  made  to  sell  17  office buildings  and  technical

facilities  with  a total area of 21,500  square  metres.

Most  of  these  premises were analog exchange  premises,

which  had become obsolete as a result of digitalisation.

Also, the current head-office of the company will be  put

up for sale. Eesti Telefon expects to save 5 mln EEK (0.3

mln EUR) per year by cutting operating expenses with this

sale.



In  order to promote higher efficiency, and to be able to

concentrate on its main activities, Eesti Telefon  turned

over  all  its customer service activities to  Hallo!,  a

chain   store  belonging  to  AS  Telefonipood,  a   100%

subsidiary of Eesti Telefon. At the same time, the number

of Eesti Telefon customer service centres doubled to 39.



The number of employees of AS Eesti Telefon fell to 1,552

by the end of the year 2001 (December 2000:2,379).



The  consolidated  total revenues of  the  Eesti  Telefon

group in 2001 amounted to 2,872 mln EEK (184 mln EUR),  a

rise  of 7 %, compared to the year 2000. The increase  in

interconnection revenue amounted to 204 mln EEK  (13  mln

EUR).  Operating expenses of the group rose by 31  %,  to

1,996  mln  EEK  (127 mln EUR), of which, interconnection

expenses  amount to 430 mln EEK (27 mln EUR). The  EBITDA

and  the  net profit of the Eesti Telefon group were  877

mln  EEK  (56  mln  EUR)  and 49  mln  EEK  (3  mln  EUR)

respectively, down by 25 % and 88 %.



A  survey of the Estonian Communications Board shows that

by  the  end  of 2001, mobile penetration in Estonia  had

reached  52%.  The same source estimated  AS  EMT’s  (the

mobile operator of the Eesti Telekom Group) market  share

to  be 54%.  AS EMT itself reported its number of clients

at  the  end of 2001 to be 382.7 thousand. The net growth

in  the number of customers in 2001 was 54.3 thousand. By

the  end  of December 2001, the company had 127  thousand

prepaid customers (net growth of 18.6 thousand) and 255.7

post-paid   customers  (net  growth  of  35.7  thousand).

Monthly  ARPU in 2001 was 452 EEK (28.9 EUR) per customer

(449 EEK (28.7 EUR) per customer in 2000).



The total revenues of the EMT group amounted to 2,217 mln

EEK  (142 mln EUR), up by 402 mln EEK (26 mln EUR) or  22

%,  of which, interconnection revenues amount to 293  mln

EEK (19 mln EUR). The operating expenses of the EMT Group

were  1,143 mln EEK (73 mln EUR), up by 273 mln EEK   (17

mln  EUR) or 31 %, of which, interconnection fees  amount

to  163  mln  EEK (10 mln EUR). The EBITDA of  the  group

amounted to 1,074 mln EEK (69 mln EUR)(a growth of 14 %).

The  EBITDA  margin reached 48%. The net profit  for  the

year  was  757 mln EEK (48 mln EUR), up by 11 %, compared

to the year 2000.



Balance sheet and cash flow



At  the  end  of December 2001, the total assets  of  the

Eesti  Telekom group amounted to 4,236 mln EEK  (271  mln

EUR)(December 2000: 4,620 mln EEK (195 mln  EUR)).  There

has  been  a  reduction in both long term and short  term

debt   obligations.  In  July  2001,  AS  Eesti   Telekom

repurchased one-year bonds in the total amount of 100 mln

EEK  (6  mln EUR). AS Eesti Telekom made loan repayments,

both scheduled and pre-scheduled. At the end of 2001, the

net gearing of the Eesti Telekom group was –9.0%.



The  net  operating  cash flow was strong,  amounting  to

1,739  mln EEK (111 mln EUR). The total cash flow of  the

group  was –146 mln EEK (-9 mln EUR). The negative  total

cash  flow resulted from financial outflows in the  total

amount  of   982  mln  EEK  (63 mln  EUR)(incl.  dividend

payouts  of  756  mln  EEK (48 mln  EUR))  and  investing

activities  in the total amount of 903 mln  EEK  (58  mln

EUR).



Investments



In  2001,  the  Eesti  Telekom group invested,  excluding

investments into commercial papers, 971 mln EEK  (62  mln

EUR)  in  2001 (23% less than in 2000). The Eesti Telefon

group  invested 495 mln EEK (32 mln EUR), the  EMT  group

456  mln EEK (29 mln EUR). Resulting from changes in  the

business  environment, in 2001, Eesti  Telefon  decreased

its planned investments  by 300 mln EEK (19 mln EUR). The

aim  of  this reduction was to increase the profitability

of  investments.  The  main investments  area  for  Eesti

Telefon  was  ADSL network. The majority  of  investments

made  by EMT went into base stations, exchanges,  and  IT

systems.



The number of main lines per 100 inhabitants was 34.9  at

the end of December 2001 (December 2000: 35.9). In total,

501,691  Eesti Telefon main lines were in use in December

2001.  The  number  of lines per employee  was  321.  The

digitalisation  rate  has reached 71.8%  (December  2000:

71.2%).  By  the  end  of  the  year  17  thousand   ADSL

connections  were installed, or 1.2 connections  per  100

inhabitants.



One of the most important investment areas for AS EMT was

GPRS.  The  GPRS network, as a commercial endeavour,  was

launched  on  1  July  2001.  The  service  can  be  used

everywhere in Estonia where GSM is available. EMT intends

to support the development of GPRS in Estonia. In May,  a

Mobile  Applications  Initiative  Centre  was  opened  at

Tallinn  Technical University in co-operation  with  EMT.

The centre, the first of its kind in Estonia, is a mobile

communications  testing environment ideal  for  personnel

training  and  product development. These facilities  are

also suitable for designing new GPRS and UMTS networks.



Both  subsidiaries of the Eesti Telekom  group  are  also

supporting    the    development    of    the     general

telecommunications environment in Estonia. On 16 February

2001,  Eesti Telefon, EMT, and two major commercial banks

signed   an  agreement  for  the  establishment   of   AS

Sertifitseerimiskeskus (Certification  Centre  Ltd.)  The

centre will provide certification related services, based

upon the essential public infrastructure. By statute, the

centre   will  deal  basically  with  certification   and

timestamps.  12 mln EEK (0.8 mln EUR) have been  invested

into the founding of AS Sertifitseerimiskeskus, 3 mln EEK

(0.2 mln EUR) by each participant in the project. At  the

beginning  of  2002,  the  Parliament  of  Estonia   made

electronic   ID-cards   compulsory   for   all   Estonian

residents, which increased the significance of   the  PKI

project.



On  7  March 2001, several Estonian companies,  including

Eesti  Telefon  and  EMT, together with  the  government,

introduced the look@world project, aimed at promoting the

use of Internet, thereby improving the quality of life in

Estonia  and the nation’s competitiveness in Europe.  One

aim  of the participants is to raise Internet penetration

of  Estonia,  in  three years, to 74 %,  thus  surpassing

Finland.  Both Eesti Telefon and EMT will invest  30  mln

EEK  (1.9 mln EUR) into the project during the next three

years.



An important investment project in 2002 will be UMTS. The

Ministry  of  Roads and Communications is  preparing  the

necessary legislation for issuing third generation mobile

phone service licenses. It is expected that four licenses

will   be  issued.  The  expected  launch  of  the  third

generation technology will be in 2003-2004.



Regulatory issues



2001  was  the  first  year of full  competition  in  the

Estonian  telecommunications market. Numerous  regulative

acts  became effective and had to be implemented. Several

debates between operators and regulatory authorities rose

out of the different interpretations of the acts.



On  13 February 2001, the Estonian Parliament adopted  an

amendment to the Telecommunications Act,  which  set  the

upper  limits for interconnection service fees (effective

until  31  December 2001) that the major operators  could

charge.   Eesti  Telekom considered  the  stipulating  of

limits for interconnection service fees (on top of a cost-

based  pricing requirement) to be unjustified and unfair.

Eesti  Telefon filed suit to overturn an 18 April  ruling

of  the Communications Board that forced Eesti Telefon to

reduce  the  interconnection  service  fees  which  Eesti

Telefon  was charging other operators, so that  the  fees

would  be in accordance with the amendment. Eesti Telefon

requested   that  the  Communications  Board  ruling   be

suspended  for the duration of the case, which the  Court

refused   to   do.   On   10   December   2001,   Tallinn

Administrative   Court   decided   in   favour   of   the

Communications Board. However, Eesti Telefon had  already

started to implement the ruling, by discounting its cost-

based  interconnection service fees. New  interconnection

contracts had already been concluded with some operators.



On  21 December 2001, the Communications Board ordered AS

Eesti Telefon to lower the regional level interconnection

tariffs in 2002, so that they would be in accordance with

the   Telecommunications  Act  and  the  methodology   of

accounting    the   costs   of   an   operator    of    a

telecommunications network as established by a decree  of

the  Government. Eesti Telefon will comply and lower  the

tariffs by 1 cent.



On 1 April 2001, Eesti Telefon changed the classification

and  tariffs  of calls. As of that date, local  and  long

distance  calls  were  replaced by  national  calls  with

unitary  tariffs.  Following the recommendations  of  the

National  Communications  Board,  methodologies  for  the

calculation  of  end-customer and  interconnection  costs

were  unified. The same tariffs became effective for  all

Estonian operators. The Competition Board reacted  on  24

April  2001,  by  ruling  that, in  accordance  with  the

Competition  Act,  Eesti Telefon must  cancel  these  new

tariffs.   Lower   tariffs  were   recommended   by   the

Competition Board for the service calculated on the basis

of justified pricing, traditional proportions between the

price-rise and the CPI growth rate, and acceptable return

on  equity.  The Competition Board filed a  case  against

Eesti Telefon in the Administrative Court.  A fine of  up

to 5% of annual net sales can be imposed for abuse of the

position of dominant market operator.



Eesti Telefon is of the opinion that the price between 14

and  34  cents  (0.008-0.021 EUR) for a call  within  the

network  is cost-based. Eesti Telefon did not accept  the

complaint  by the Competition Board, and on 23 May  2001,

took  the  case to Tallinn Administrative  Court.  On  17

January  2002,  Tallinn Administrative Court  decided  in

favour  of  Eesti Telefon, and dismissed the  Competition

Board’s complaint. The Competition Board has appealed  to

a  higher court in respect of he judgment passed  by  the

Tallinn Administrative Court.



On  13  November  2001,  AS EMT was  declared  to  be  an

operator  with  significant market power in  the  general

mobile service market in 2002. EMT decided to contest the

Directive  in court, because it found that the  directive

was   not   in  conformity  with  law.  Along  with   the

administrative  appeal, EMT also applied  for  suspending

the  performance  of the directive. Court  satisfied  the

application  by  its ruling of January 18,  2002,  as  it

considered EMT's application to be grounded. AS  EMT  was

not  declared  to be an operator with significant  market

power in interconnection services market. On 26 November,

the Communications Board declared AS Eesti Telefon to  be

an  operator with significant market power, in  2002,  in

the  public telephone service market, public leased  line

service   market,  and  public  interconnection   service

market.



The Estonian Parliament has passed the implementation act

of  the  property statutes, which stipulate the right  of

way  issues for Eesti Telefon. At the moment, we have not

reserved  any  funds  for  the  settlement  of  potential

landowners’ claims.



Share buy-back option



The  Annual  General  Meeting of the shareholders  of  AS

Eesti  Telekom took place 23 May 2001. The Annual General

Meeting  also  authorised AS Eesti  Telekom  to  acquire,

within  one year (until 23 May 2002), up to 5% of the  A-

series  shares  of  AS Eesti Telekom. Up  until  now,  no

shares have been re-acquired by AS Eesti Telekom.





Hille Võrk

Financial manager

+372 6 272 460