Telefónica O2 Czech Republic - 2007 First Nine Months Financial Results

Telefónica O2 Czech Republic, a.s. is pleased to announce its unaudited financial results for the first nine months of 2007. These results are consolidated and prepared according to International Financial Reporting Standards and fully include the Slovak operation.

CZ Fixed Segment Overview

Total business revenues in the fixed line segment went up by 0.1% to CZK 22.5. billion in 9M 2007, driven by the healthy growth of revenues from broadband Internet based services, value added services and IT services, which in total more than offset declines in traditional voice revenues. Revenues from broadband, data and other value added telecommunication services accounted for 27.8% of business revenues in 9M 2007 compared to 24.9% in 9M 2006. Fixed line business revenues decreased 0.2% in 3Q 2007 alone.

Revenues from traditional access decreased by 7.3% yoy to CZK 7.3 billion in 9M 2007 and by 11.5% in 3Q 2007 alone. The tariff rebalancing introduced in April 2006 no longer has a positive effect on this revenues stream as seen last year. The total number of fixed telephony accesses amounted to 2,135 thousand at the end of September 2007, down by 15.8% yoy mainly as the result of the strong fixed to mobile substitution effect. However, the decline in fixed telephony accesses decelerated during 2007. The net losses decreased to 72 thousand in 3Q 2007 from 81 thousand in 2Q 2007 and 129 thousand in 3Q 2006. This is a result of improving the number of gross adds and lower number of disconnections following the Company’s effort to enhance the quality of fixed lines via broadband and bundled offers.

Revenues from traditional voice services (voice traffic and interconnection) declined in total by 7.3% and 4.5% yoy in 9M and 3Q 2007 to CZK 7.1 billion and CZK 2.3 billion respectively. Revenues from voice traffic declined by 20.0% yoy to CZK 3.4 billion in 9M 2007, as a result of lower voice traffic generated by our customers, which decreased at the same time by 19.7% yoy to 2,041 million minutes.

Interconnection revenues went up 9% yoy in 9M 2007 and amounted to CZK 3.6 billion driven by higher international transit traffic and an increase in the number of LLU.

Revenues from Internet & broadband increased in total by 17.7% yoy to CZK 2.9 billion in 9M 2007 (16.5% to CZK 983 in 3Q 2007) as a result of 38.3% growth in revenues from broadband based services which more than offset decreasing revenues from narrowband, confirming the company’s successful strategy to focus on ADSL and IPTV based services.

Revenues from broadband services (ADSL, IPTV and content) amounted to CZK 2.7 billion in 9M 2007, up by 38.3% yoy. Of this, CZK 2.4 billion represented revenues from retail broadband (up 44.4% yoy) and CZK 299 million from wholesale services (up 3.1% yoy). The total number of ADSL accesses (retail and wholesale) reached 545 thousand at 30 September 2007, compared to 427 thousand a year ago (up 27.7% yoy). The total number of O2 TV’s customers increased to 53 thousand at the end of September 2007, representing 16 thousand net adds in 3Q 2007, up from 12 thousand in 2Q 2007. During 3Q 2007 Telefónica O2 further improved the content proposition of its O2 TV service. The company enlarged the portfolio of TV channels by adding two new ones (O2 TV Sport plus and O2 TV Films plus). In addition it expanded the number of available to watch on the video on demand feature, following a contract with The Walt Disney Company, one of Hollywood’s biggest entertainment companies. From 14 September, Telefónica O2 hasprovided live broadcast of all O2 Extraliga ice hockey games via O2 TV, on the Internet and mobile phones.

Revenues from narrowband Internet decreased by 62.7% yoy to CZK 188 million in 9M 2007 on the back of 68.1% decrease in dial up Internet traffic.

Revenues from data services decreased by 2.6% yoy to CZK 3 billion, mainly due to a 9.4% decline in revenues from leased lines, while revenues from data network services increased by 6.5% yoy as a result of the growth of IP Connect and IP VPN connections.

Revenues from IT services and business solutions reached CZK 1.3 billion in 9M 2007, 2.4 times higher than in the same period in 2006, as a result of growing activities in ICT and IT services for Government and large corporate customers. Substantial growth in this category of revenues (CZK 538 million, i.e. +212.8% yoy) in 3Q related to the customer solution for government customers. Equipment sales amounted to CZK 313 million, down by 28.2% yoy due to the lower number of units sold and special discount offers.

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