Telekom Austria Group: Cash Flow Growth Despite Demanding Market Environment (y 2)

While the sustained migration of Fixed Net voice customers to the Mobile Communication segment remains a key challenge, fixed line broadband continues to make steady inroads into the market for internet access. In addition, attractive product bundles and innovative products like aonTV continue to be the main drivers for the reduction in line losses. The Fixed Net segment continues to focus on the protection of cash flows by offering a market-oriented product portfolio and attractive pricing schemes.

The Mobile Communication segment remains negatively impacted by reductions in termination charges and roaming tariffs. In addition, Austria is a highly developed mobile communications market characterised by intense competition and persistent price pressure. In the Central & Eastern European region, a challenging macro-economic environment, fiscal burden and a high level of competition shape the operational situation. Moreover, innovative products, such as mobile broadband and convergent product bundles become an increasing element of the competitive environment in CEE.

Telekom Austria Group Refined Outlook for 2010

Several negative external effects and the impact of weak economies shape the market environment for Telekom Austria Group. These effects include the unabated fixed-to-mobile substitution and the continued price pressure in Telekom Austria Group's major markets. In addition, regulatory induced lower roaming prices as well as mobile termination rates will continue to impact the group's results in the second half of 2010. Taxes levied on mobile communication services in Croatia and the Republic of Serbia pose an additional burden.

For the second half of 2010, the management expects the challenging market environment to continue to persist. However, the refined outlook reflects the group's confidence to be able to successfully address these challenges through clear customer focus, intensified marketing of innovative products and strict cost management. Moreover, the revised outlook now includes the impact of the integration of Fixed Net and Mobile Communication activities in Austria.

For the financial year 2010, revenues are expected to amount to approximately EUR 4.7 billion. Stringent cost control will mitigate the impact from lower revenues and is anticipated to result in an EBITDA of EUR 1.60 - 1.65 billion. In light of investments for the migration to an All-IP based voice network in the Fixed Net segment, capital expenditures of Telekom Austria Group are forecasted to reach EUR 750 to 800 million. This amount does not reflect a material roll-out of glass fiber which is not expected to start in 2010.

Operating Free Cash Flow remains the primary focus of the management and is expected to amount to at least EUR 800 million. Telekom Austria Group reiterates its intention to distribute the higher of 65% of the annual net income or at least 75 Eurocents per share as dividend until 2012.

The Management Board remains committed to its capital allocation policy including returning excess cash to shareholders via share buybacks within the 1.8x-2.0x net debt/EBITDA target balance sheet structure and provided stability in its main foreign currencies and operations.

However, in light of the ongoing challenging operating environment share buyback is not expected to start in 2010.

This outlook is given on a constant currency basis.

    
                                                    
                              Outlook 2010*        Outlook 2010**
                              as of Aug. 18         as of May 12
    Telekom Austria Group
                            
    Revenues                  approx. EUR 4.7bn     approx. EUR4.7 bn
    EBITDA                    EUR 1.60 - 1.65bn     approx. EUR1.6 bn    
    Capital expenditures      EUR 0.75 - 0.80bn     approx. EUR0.8 bn
    Operating Free Cash Flow  at least EUR 0.8bn    approx. EUR0.8 bn
                              65% of net            65% of net
                              income, DPS of        income, DPS of
    Dividend                  75 cents minimum      75 cents minimum
    * Including the impact of the merger of domestic operations
    **Excluding the impact of the merger of domestic operations

Further Information

For more detailed information about the first half-year 2010 please refer to the corresponding report on Telekom Austria Group's website at http://www.telekomaustria.com/interim_re...

Disclaimer:

This news release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are usually accompanied by words such as "believe," "intend," "anticipate," "plan," "expect" and similar expressions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. These factors include, but are not limited to, the following:

    
    - the level of demand for telecommunications services or equipment,
      particularly with regard to access lines, traffic, bandwidth and new
      products;
    - competitive forces in liberalized markets, including pricing pressures,
      technological developments, alternative routing developments and new
      access technologies, and our ability to retain market share in the
      face of competition from existing and new market entrants;
    - the effects of our tariff reduction or other marketing initiatives;
    - the regulatory developments and changes, including the levels of
      tariffs, the terms of interconnection, unbundling of access lines and
      international settlement arrangements;
    - our ability to achieve cost savings and realize productivity
      improvements;
    - the success of new business, operating and financial initiatives, many
      of which involve start-up costs, and new systems and applications,
      particularly with regard to the integration of service offerings;
    - our ability to secure the licenses we need to offer new services and
      the cost of these licenses and related network infrastructure
      build-outs;
    - the progress of our domestic and international investments, joint
      ventures and alliances
    - the impact of our new business strategies and transformation program;
    - the availability, terms and deployment of capital and the impact of
      regulatory and competitive developments on capital expenditures;
    - the outcome of litigation in which we are involved;
    - the level of demand in the market for our shares which can affect our
      business strategies; changes in the law including regulatory, civil
      servants and social security law, including pensions and tax law; and
      general economic conditions, government and regulatory policies, and
      business conditions in the markets we serve.

    
    Contacts:
    Elisabeth Mattes                      Matthias Stieber
    Group Spokeswoman                     Investor Relations
    Telekom Austria Group                 Telekom Austria Group
    Tel.: +43-664-66-39187                Tel.: +43-664-66-126
    E-Mail:                               E-Mail:
    elisabeth.mattes@telekomaustria.com   matthias.stieber@telekomaustria.com

Elisabeth Mattes, Group Spokeswoman, Telekom Austria Group, Tel.: +43-664-66-39187, E-Mail: elisabeth.mattes@telekomaustria.com, or Matthias Stieber, Investor Relations, Telekom Austria Group, Tel.: +43-664-66-126, E-Mail: matthias.stieber@telekomaustria.com