The Telekom Austria Group Doubles Net Income and Continues Success Despite Intense Competition (2)

For the first time in 13 years, the Telekom Austria Group was able to stop fixed access line loss in Austria and bring about a sustainable turnaround. Based on convergent offerings like aonTV, a dramatic surge in data traffic, the accelerated rollout of the Giga-network and the rising demand for higher bandwidths and higher transmission capacities, the fixed line business is currently experiencing a renaissance. In 2010 a total of 1,400 fixed line net additions were recorded, with the total number of fixed access lines rising to 2.315 million by year-end 2010. "We are currently experiencing customer growth in the fixed line business without cannibalizing our mobile customer base," said Hannes Ametsreiter about this extraordinary success at the international level. In 2010, the Telekom Austria Group was one of the only two telecommunications providers in Europe to record fixed line customer growth.

The number of fixed broadband lines rose by 13.5% to 1.16 million in the year under review and voice minutes showed a similar development as in the previous year dropping by approximately 12%.

The Austrian mobile subscriber base saw a growth of 5.6% to 5.1 million customers, which represents an outstanding performance considering the challenging competitive landscape in Austria. Average revenues per user (ARPU) were EUR 22/month at year-end 2010 in line with the European average. However, the decrease in ARPU since 2004 amounts to 46% in Austria, representing a peak level in a European comparison (European average: 20% drop over the same period). This downward trend reflects the challenging competitive landscape in Austria. The domestic mobile broadband subscriber base rose by roughly 30% to 654,000 customers.

The main challenge for the Telekom Austria Group is to safeguard its competitiveness and earnings power against the backdrop of intense competition, rising production costs and declining prices: in Austria the consumer price index (CPI) has registered an increase by +19 percentage points since the year 2000 and the domestic telephone services cost index (TS-CPI) has decreased by -21 percentage points over the same period (EU: CPI +23 pp /TS-CPI -5 pp).

In 2010, a total of EUR 516 million were invested, which is an increase of roughly EUR 90 million or 22% compared to the previous year. "With our investments in the domestic broadband network, we are upgrading Austria's business location infrastructure, safeguarding the competitiveness of the country and the domestic economy for the years to come. A benefit to all Austrians," stressed Hannes Ametsreiter, highlighting the investment program of the Group in Austria.

At year end 2010, 1.7 million Austrian households were within the coverage of the powerful Giga-network. At year end 2011 it will be more than 2.1 million households. The Telekom Austria Group's Giga-network is based on a wide range of fiber-optic technologies and allows transmission speeds of up to 100 Mbit/s. The company's mobile network A1 Net - which ranks first in terms of network quality in the German-speaking area - will have its transmission speeds and network performance upgraded through LTE technology and through the connection of mobile base stations to the fiber-optic network. At year-end 2010, more than 1,100 mobile base stations had been connected to the "hybrid Giganet".

Data traffic in Austria is growing at a dramatic pace, as demonstrated by the following figures: domestic fixed line data volumes have registered a 2.5-fold surge since 2008 from roughly 45 petabytes to over 110 petabytes (1 petabyte = 1 million gigabytes), the surge in mobile data traffic was 3.5-fold (from 2 petabytes to 5 petabytes) over the same period. Further exponential growth rates are anticipated in future: currently the average fixed line data volume per user amounts to 8 gigabytes per month with transmission speeds of up to 8 Mbit/s. Over the mid-term demand is expected to reach 100 gigabytes per month with transmission speeds of up to 20-100 Mbit/s. Mobile communication shows similar trend: mobile data volumes will increase from the current 1.5 gigabytes/month to 10 gigabytes/month and transmission speeds from 2.5 Mbit/s to 5 Mbit/s. The development mainly will be driven by mobile broadband, smartphones, multimedia devices such as HDTV, video streaming and gaming.

According to Hannes Ametsreiter and Hans Tschuden, one important milestone for the company on its path towards the future is represented by the successful merger of the Austrian fixed line and mobile communication operations: "We have almost finalized the largest merger in Austrian economic history without any major losses. We would like to thank all our employees for their willingness to support this massive change, which has affected each one of us with such a great commitment and dedication." Thanks to this restructuring program, the Telekom Austria Group will now be in a better position to manage both operating costs and overall investments in a more efficient manner, considerably enhancing its effectiveness in the market.

In the Austrian segment, revenues decreased slightly by 4% to EUR 3.064 billion in 2010. EBITDA comparable declined by 12% to EUR 1.032 billion mainly due to intensive competition and regulatory measures, as cost savings could only party compensate for lower revenues.

Bulgaria

In Bulgaria, the Telekom Austria Group is represented by its local subsidiary Mobiltel with a customer base of 5.3 million customers. Therefore, in terms of subscriber numbers the Bulgarian market is as important as the Austrian market. However, both revenues and earnings are considerably lower. Bulgaria has the lowest broadband penetration rate in the EU, but, at the same time, the highest data rate per user. As a result, the market offers strong growth potential for convergent products. For this reason, Mobiltel acquired two fiber-optic operators Megalan Network and Spectrum Net in 2010. Under the M-Tel brand, the three operators jointly launched convergent product bundles successfully in the year under review.

Mobiltel was able to increase the number of contract customers by 6.7% in 2010 compared to the previous year. Mobile broadband subscriber base was almost doubled from roughly 60,000 to 126,000 customers. Due to the weak local economy, both revenues and earnings registered a slight decline.

Belarus

The Telekom Austria Group is active in the Belarusian market through its local subsidiary velcom, which accounts for 4.4 million customers and a market share of 42%. In the year under review, velcom was able to increase its subscriber base by 6%. Revenues (in EUR) rose by 14% to EUR 343.6 million and EBITDA comparable by 4%. In 2010, the Group's stake in velcom was expanded to 100%.

Croatia

In Croatia, Vipnet was able to increase customer numbers by 6% in 2010. Against the backdrop of a challenging economic situation, both revenues and earnings showed a slight decrease. The ARPU dropped by 8%. The number of broadband customers grew by more than 30% to 178,958 subscribers.

Additional Markets

In the "Additional Markets segment" (Slovenia, Republic of Serbia, Republic of Macedonia and Liechtenstein) customer numbers increased by 5% to 619,000 subscribers and revenues grew by 8% to EUR 321.1 million in 2010. EBITDA comparable rose by 197% to EUR 41.1 million year-on-year.

The Telekom Austria Group's annual report will be published beginning of April, 2011. The Annual General Meeting will take place on May 19, 2011 in Wr. Stadthalle, Vienna.

Please visit http://www.telekomaustria.com/ir/publications-cc-en.phpto where you find the Financial Report on the fourth quarter of 2010.

About Telekom Austria Group:

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