One-Off Special Effects Aimed at Saving Personnel Costs Over the Long Term Cause Reported Operating Loss (1)

VIENNA, May 11, 2011 /PRNewswire/ -- Telekom Austria Group Within Expectation of International Analysts, Reiteration of Its Outlook for Full-Year 2011

-- In Q1 2011, revenue decline was further slowed down to 0.7%

-- Broadband drives growth of Austrian fixed net access lines - rapid rollout of GigaNet: by year-end 2011, ultra-high-speed broadband coverage will reach roughly 2.1 million Austrian households

-- Persistently strong demand for smartphones, mobile broadband customer base increased by 51.1% in Q1 2011

-- The number of mobile subscribers rose by 5.7% exceeding the 20-million customer mark for the first time

-- Regulatory measures and higher operating expenses - especially for the marketing of smartphones - led to a decline in EBITDA comparable (-7.1%)

-- High acceptance of new social plans resulted in one-off restructuring costs of EUR 184.1 million leading to an operating loss in the first quarter of 2011

-- Negative effects on earnings through social plans will bring operating loss on the accounting side, but personnel-related cost savings for the future

-- Development of Q1 2011 within expectation of 24 international Telco analysts

-- Outlook for the full-year 2011 was confirmed

Telekom Austria Group's Key Financial Figures for the First Quarter of 2011

    
    Financial Figures in EUR million          Q1-2011  Q1-2010  +/-
    Fixed access lines (in Million)              2.32     2.31   0.5%
    Mobile subscribers (in Million)             20.08    19.00   5.7%
    Mobile broadband customers (in Million)      1.23     0.81  51.1%
    Group revenues                           1,118.0  1,126.0   -0.7%
    EBITDA comparable                          396.7    426.8   -7.1%
    EBIT                                       -42.3    166.3      -
    Net result                                 -79.2     91.2      -
    Capital expenditures                       120.4    136.4  -11.7%
    Employees (end of the period)               17,162   16,637  3.2%

In the first quarter of 2011, the Telekom Austria Group was able to further slow down the decline in revenues of the previous year; Group revenues decreased by 0.7% to EUR 1,118 million. While Belarus and the segment "Additional Markets" reported revenue growth, the Austrian and the Croatian segments showed a decrease in revenues, with the Bulgarian business remaining almost stable. Against the backdrop of a persistently challenging economic environment which is and will continue to be characterized by intensive competition and regulatory pressure, demand for broadband offerings and smartphones continued to pick-up.

As a result, the total number of mobile broadband customers at the group level rose by 51.1% to 1.23 million. In Austria, fixed net access lines continued to show a favorable development in the first quarter of 2011, continuing the upward trend seen in Q4 2010. In the period under review, fixed access lines increased by 7,300 lines compared to a loss of 3,200 access lines in the first quarter of the previous year despite declining fixed net voice minutes. Thus, this increase in lines is mainly attributable to stronger usage of broadband offerings.

"User revenues remained almost stable in the first quarter of 2011 thanks to the strong demand for fixed net and mobile broadband products - thus, our group-wide strategic orientation towards convergence and our high investments in broadband infrastructure paid off. Recently A1 Telekom Austria was granted for its mobile broadband network, which ranks second Europe-wide among a total of 94 European network operators. This further demonstrates that we are on the right track," said Hannes Ametsreiter, CEO Telekom Austria Group, underpinning the company's clear strategic success.

EBITDA comparable declined by 7.1% to EUR 396.7 million due to regulatory measures, higher operating costs (mainly related to the marketing activities and subsidies for smartphones) as well as to revenue declines in Austria, Bulgaria and Croatia. The favorable earnings development in Belarus and in the segment "Additional Markets" - especially in the Republic of Serbia - could only partly compensate for margin pressure.

As announced in February 2011, a new social plan was presented by A1 Telekom Austria following successful negotiations with personnel representatives. This was immediately accepted by some 514 employees, the majority of whom have civil servant status. The high acceptance of social plans will reduce personnel-related costs over the long term but has resulted in one-off special effects for the period under review. All personnel costs related to the acceptance of this new social plan, which will also be incurred in the years to come, would have to be recorded at the time of the acceptance of the social plan and consequently resulted in one-off restructuring expenses of EUR 184.1 million in the period under review leading to an operating loss for the first quarter of 2011.

"Therefore, this quarterly loss is not due to operative reasons but rather to accounting principles. Over the next years, personnel-related costs will be reduced accordingly, easing the burden on the company's profit and loss account," said Hans Tschuden, CFO and Deputy Chairman of the Telekom Austria Group, explaining the above-mentioned development of the results.

"Our strict cost management and our investments in broadband infrastructure provide the basis for our good competitive position" added Ametsreiter, whilst Tschuden commented on the development of the first three months: "We are confident that we will close the 2011 business year as anticipated in our outlook."

Outlook for the Full-Year 2011

Against a backdrop of persisting price competition and a gradual economic recovery in almost all operating markets of the Telekom Austria Group, revenues are expected to amount to up to EUR 4.6 billion for the financial year 2011 and EBITDA comparable to up to EUR 1.6 billion. Capital expenditures of the Telekom Austria Group are forecasted to reach up to EUR 800 million and operating free cash flow is expected to amount to approximately EUR 800 million. This outlook is given on a constant currency basis.

The Markets of the Telekom Austria Group in Detail:

Austria

The main growth driver for the fixed net business is broadband, with the number of domestic broadband access lines rising by 12.7% to roughly 1.2 million in the first quarter of 2011. Thus, almost every second fixed net access line has been up-graded for future-proof data communication. The number of aonTV subscribers increased by 50% to more than 165,000 customers compared to the same period of the previous year.

(CONTINUA)