#1TELE KOM AUS TRIA Telekom Austria Public Bond Investor Presentation January 2005#2Cautionary Statement This presentation contains certain forward-looking statements. Actual results may differ materially from those projected or implied in such forward-looking statements. Forward-looking information involves risks and uncertainties that could significantly affect expected results. These risks and uncertainties are discussed in Telekom Austria's SEC filings, including, but not limited to, Telekom Austria's Form 6-K containing the relevant press release and certain sections of the Company's Annual Report on Form 20-F. Legal Disclaimer The following information does not include an offer to subscribe or to purchase or a solicitation to treat relating to the securities and may not be construed to contain such offer or solicitation. Furthermore, it does not constitute a prospectus within the meaning of Austrian civil law or Austrian capital market law and may not be construed to constitute such prospectus. Any offering of the securities would be exempt from the requirement to draw up and publish a prospectus pursuant to § 3 subpara. 1 no 11 of the Austrian Capital Market Act. 2 TELE KOM AUS TRIA#3Table of Contents Group Overview ■ Business Overview ■ Financial Overview Mobiltel Transaction Update ■ Credit Rating Summary of Key Credit Strengths and Transaction Terms Appendices 3 TELE KOM AUS TRIA#4Group Overview TELE KOM AUS TRIA#5Telekom Austria Group Overview Wireline Fixed Line Data Internet Wireless Mobile ■ 2.9 million access lines (0.34 million of which are ADSL lines) ■ Total traffic voice (incl. Internet dial-up) market share: 55.4% ■ 1.1 million Internet subscribers in Austria ■ 0.26 million Internet subscribers in Czech Republic Consolidated 4.8 million subscribers · 3.2 million in Austria (41.8% market share) - 1.3 million in Croatia (48.1% market share) · 0.36 million in Slovenia (23.4% market share) Partnership with Vodafone in Austria, Croatia and Slovenia (Vodafone live!) ☐ Strong & stable market position Significant free cash flow Successful cost cutting New business opportunities Growing broadband market share Strong market position Significant free cash flow Benefiting from rising data services Leveraging growth opportunities in CEE Vodafone cooperation Note: All data as of 3Q 2004 unless otherwise stated. 5 TELE KOM AUS TRIA#6Telekom Austria Ownership Structure Shareholder Structure Free Float 69.8% ÖIAG (Exchangeable) 5.0% Total ÖIAG Stake 30.2% Highlights ÖIAG ■ Privatisation Agency of the Republic of Austria ÖIAG has monetized an additional 17.0% of its stake in December 2004 ■ Austrian Government has reiterated its intention to proceed with a full privatisation ÖIAG 25.2% Free Float ■ IPO in November 2000 ■ Currently 69.8% 6 TELE KOM AUS TRIA#7Business Overview TELE 7 KOM AUS TRIA#8Telekom Austria - 3Q 04 Highlights Rising Results Both business segments contribute to rising results Wireline Wireline business shows further slowing decline in voice revenues and strong wholesale revenues; further headcount reduction Wireless Operating Cash Flow Wireless business benefits from subscriber growth as well as increasing customer and visitor roaming revenues Rising operating cash flow accelerates net debt decline to EUR 2.1 billion Full Year Outlook Solid 3Q 04 improves full year outlook in spite of an expected weaker 4Q 04 TELE KOM AUS TRIA 80#9Wireline Results 3Q 04 (EUR million) * ** 3Q 2004 Results Revenues* Adj. EBITDA** 537.2 +1.7% 546.4 3Q 2003 3Q 2004 214.7 +3.2% Key Highlights Strong wholesale business drives further rise in wireline revenues Headcount fell by 474 (4.7%) during 3Q 04; profit margins will continue to benefit 221.6 Seasonal decline of ADSL net adds during 3Q 04, successful relaunch of product offering during 4Q 04 3Q 2003 3Q 2004 3.3% interconnection rate cut in line with expectations For comparative purposes, prior periods were adjusted to reflect the change in the accounting for third party value added services. Operating income before depreciation, amortization and impairment charges TELE KOM AUS TRIA 6#10Market Environment • Wireline - 6.4% 2.5% 2.2% 4.7% 4.0% Voice Market Shares* 54.0% Telekom Austria ■Tele2 □ UTA Telering etel □ MCI Telekabel ■ Other Key Developments Successful relaunch of new TikTak packages benefits revenues and market share 12.3% 13.8% *Telekom Austria estimates 3Q 04 ■ Total wireline market share (including inter- net dial-up) for Sept. 04 was 55.4% 49.5% Broadband Market Shares* 34.2% Cable 10.3% 6.1% TA-Retail TA-Wholesale Unbundled lines offering broadband services *Telekom Austria market research Sept. 04 Acquisition of UTA by Tele2 might drive further market consolidation. Tele 2 might become subject to regulatory scrutiny due to its market share ■ Various initiatives have been taken to strengthen the broadband market position: Increased bandwidth and download volume as well as free spam and virus filters for business customers Attractive entry products and increased download volumes for residential customers 10 TELE KOM AUS TRIA#11Wireless Results 3Q 04 (EUR million) 3Q 2004 Results Revenues* 530.0 110.5 +6.4% 563.9 25.4 21.8 119.1 Adj. EBITDA 208.0 +8.1% 224.8 59.6 4.4 53.5 404.3 428.3 150.1 157.4 17.5 Key Highlights ■ Attractive results in all mobile operations ■ 3Q 2003 3Q 2004 3Q 2003 3Q 2004 ☐ mobilkom austria VIPnet Si.mobil Strong domestic competition but mobilkom austria continues to grow profitability Domestic business benefits from higher subscriber number and strong customer roaming revenues Rising profitability in Croatia and Slovenia due to increasing visitor roaming revenues Attractive uptake of new Vodafone data products Introduction of mobile number portability in Austria on Oct. 16, 2004 * For comparative purposes, prior periods were adjusted to reflect the change in the accounting for third party value added services. 11 TELE KOM AUS TRIA#12Market Environment mobilkom austria Market Shares and Subscribers SRC+SAC mobilkom austria (EUR million) 42% 8pp. T-Mobile Austria 16pp. 39.6 26% One* 30.3 39.2 32.8 20% 24.5 23.2 tele.ring 11% Hutchison 1% 2000 2001 2002 2003 1Q 03 2Q 03 incl. Tele2 (MVNO) customers Blended ARPU il 24.5 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04 Mobile Data in % of Airtime Revenues* (EUR) 37.5 37.5 37.2 35.6 36.8 35.2 பா 39.2 13.0% 14.3% 3Q 03 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04 3Q 04 *Traffic related revenues of wireless segment Note: All data as of 3Q 2004 unless otherwise stated. 12 TELE KOM AUS TRIA#13Financial Overview TELE 13 KOM AUS TRIA#14Financial Highlights +1.6% 3,908 3,970 Revenues 1,019 +2.6% 1,046 1,464 +3.1% Adj. EBITDA* 1,510 +5.5% 423 446 FY 2002 FY 2003 3Q 2003 3Q 2004 FY 2002 FY 2003 3Q 2003 3Q 2004 Net Debt CAPEX -17.7% 3,204 -21.4% 2,637 2,637 FY 2002 FY 2003 FY 2003 2,072 3Q 2004 -10.1% 662 595 132 -12.4% 115 FY 2002 FY 2003 3Q 2003 3Q 2004 * Operating income before depreciation, amortization and impairment charges Note: All data in EUR million. 14 TELE KOM AUS TRIA#15800 Telekom Austria Debt Maturity Profile Telekom Austria Debt Maturity Profile* (EUR million) 700 595 600 500 400 244 237 300 300 200 100 0 2005 2006 101 2007 2008 2009 2010 5 5 - 2011 2012 2013 thereafter Long-term debt and current portion of long-term debt EUR 750 million bond 2003 - 2013 750** Highlights As of Sept. 30, 2004 Telekom Austria had cash and cash equivalents, short-term and long-term investments amounting to EUR 197 million ■ Telekom Austria has access to committed lines of credit amounting to EUR 800 million (incl. a EUR 350 million ABS programme) ■ The proceeds from the bond will be used to refinance existing corporate debt and to increase the financial flexibility for 2005 Mid-term financial targets: - - Net debt/equity < 120% - Net debt/adj. EBITDA < 2.0 Adjusted EBITDA/ net interest expense > 8.0 * ** 15 TELE KOM AUS TRIA#16Financial Overview - Telekom Austria Group Credit Ratios Improving Adj. EBITDA/Net Interest FY2000 - Q3 2004 (LTM) Net Debt/Adj. EBITDA FY2000 - Q3 2004 (LTM) 6.6x 3.2x 10.8x 9.7x 9.4x 2.4x 2.2x 8.7x 1.7x 1.2x FY 2000 FY 2001 FY 2002 FY 2003 Q3 2004 (LTM) FY 2000 FY 2001 FY 2002 FY 2003 Q3 2004 (LTM) ■ Telekom Austria managed to strongly improve its net interest coverage since FY2000 ■ Net debt/adj. EBITDA has dropped to 1.2x in Q3 04 from 3.2x in FY2000 16 TELE KOM AUS TRIA#17Strong Cash Flows Provide Financial Flexibility Adj. EBITDA less Capex* (EUR million) 292 +13.6% Net Debt (EUR million) -21.4% 331 2,637 2,072 3Q 2003 3Q 2004 Dec. 31, 03 Sept. 30, 04 * Capital expenditures for tangible and intangible assets Highlights Over EUR 900 million of operating free cash flow during first nine months EUR 34 million of share buybacks since August 04 Pension obligations are negligible 76% debt/equity ratio gives enough flexibility for expansion Cash allocation allows prudent external growth and distribution strategy 17 TELE KOM AUS TRIA#18Mobiltel Transaction Update TELE 18 KOM AUS TRIA#19Attractive Asset in a Stable Environment in Telekom Austria's Target Region Growth Strategy - Target Region Czech Rep. Slovakia Austria Hungary Romania Slovenia Croatia BiH Serbia Bulgaria Mtel Montenegro Kosovo Macedonia Albania Identified target region provides mobilkom austria group with significant growth opportunities Acquisition of the call option for Mobiltel is a further step in implementing Telekom Austria Group's strategy Macroeconomic Stability(1) Improved credit ratings: since June 2004 the country is rated investment grade for the first time (S&P: BBB- stable outlook) Significant real GDP growth of 4-5% p.a. (2003: 4.3%) Bulgarian Lev pegged to Euro at 1.96 LEV/EUR Foreign indebtedness down from 105% of GDP ('97) to 46% ('03) Accession to the EU expected for 2007 Attractive Mobile Market(1) Mobile penetration (51.8% in 1H 2004) 2 major mobile providers (GSM): - Mobiltel (67.0% market share), - Globul (31.4% market share) Currently 3rd operator has analogue network only 3 UMTS licenses are expected to be granted in 2005 Mobiltel Well Positioned (1) Dominant market share 2.75 million subscribers as of June 30, 2004 (36.4% post-paid) Strong brands (Mtel and Prima) Strong profitability - EBITDA margin of 63% in 2003 Blended ARPU of EUR 13.1 in 1H 2004 High quality GSM 900/1800 network (1) All data refers to 1H 2004 unless otherwise stated. 19 TELE KOM AUS TRIA#20Mobiltel Transaction - Highlights Highly attractive asset Attractive purchase price Smooth integration process Positive impact on TA financials expected ■ Mobiltel is the undisputed market leader in Bulgaria High-quality network infrastructure and strong brands ☐ Excellent margins (e.g. EBITDA margin of 65.4% as of 1H 04) ■ Telekom Austria has entered into a call option agreement, which gives Telekom Austria Group the unilateral right to acquire 100% of the share capital of Mobiltel for an enterprise value of up to EUR 1,600 million including a variable earn-out Purchase price is well within stated acquisition multiple ranges of 4x to 6x EBITDA Earn-out provision further motivates existing shareholders to improve Mobiltel's performance until takeover " ☐ Telekom Austria will conduct exhaustive confirmatory due diligence prior to closing of the transaction mobilkom austria group has highly skilled team and well-defined process available to provide for smooth integration process Significant expertise and excellent track record on historic acquisitions in CEE Mobiltel provides Telekom Austria Group with substantial growth opportunity complementing its stable domestic business ■ Based on historically high level of profitability we expect further good performance yielding significant earnings accretion for Telekom Austria Group 20 TELE KOM AUS TRIA#21Credit Rating TELE KOM AUS TRIA 21#22Telekom Austria Group - Rating Agencies have affirmed Ratings for Mobiltel Transaction Mobiltel Acquisition Well Received by Agencies - No Change in Ratings (M) Moody's Investors Service Limited 17 May 2004, affirmed 29 November 2004 Senior unsecured rating: Baa2 / Positive Outlook ■ The current rating factors in that TA will continue to benefit from a leading and stable market positions in the Austrian wireline market, where its market share has stabilised at circa 55% since 2003, and from its leading position in the wireless market Moody's affirmation incorporates expectations that TA would cash fund such acquisition leading to an increase in debt, but that TA, through internal free cash flow generation, would reverse the initial negative impact on credit metrics ■ The ratings affirmation reflects Moody's belief that the company would arrange adequate funding in advance of the transaction Standard & Poor's 14 April 2004, affirmed 29 November 2004 Senior unsecured rating: BBB / Positive Outlook • The ratings on Telekom Austria AG primarily reflect the company's leading market position in all segments of the Austrian telecoms market, strong free cash flow generation and moderate leverage • The impact of the potential Mobiltel transaction would leave the company within the financial parameters of its ratings Furthermore, despite the higher business risk associated with the growing Bulgarian telephony market, the transaction would give access to good cash flows in future years, allowing for relatively fast repayment of assumed debt at Mobiltel 22 222 TELE KOM AUS TRIA#23Summary of Key Credit Strengths and Transaction Terms TELE KOM AUS TRIA 23 23#24Summary of Key Credit Strengths Group ☐ Wireline Wireless ☐ Strong operating profitabilty and operating free cash flow Moderately leveraged balance sheet with net debt/adj. EBITDA of 1.2x. ■ Ratio impact of Mobiltel acquisition will be quickly absorbed with scope for further debt reduction ■ Interest coverage and cash flow-to-debt ratios are strong and amongst the best in the European telecom operator universe Continued leading position in the Austrian wireline market ■ Wireline market share loss reversed and stablized at 55%; wireline operating margins restored (1-9M 04: 39.8%) - Restructuring program largely completed with significant cost reductions achieved; over 35% wireline headcount reduction since Dec. 31, 2000 Leading market position and strong cash generation from domestic wireless operations Strong growth and cash flow potential from existing market positions in foreign operations Good access to Mobiltel's cash flows accelerates debt reduction 24 TELE KOM AUS TRIA#25Appendices TELE KOM AUS TRIA 25 25#26Net Debt - Telekom Austria Group (EUR million) Long-term debt Short-term debt - Short-term portion of capital and cross border lease + Capital lease obligations Sept. 30, 2004 Dec. 31, 2003 1,697.4 694.0 2,342.3 631.3 -106.2 -95.5 1.0 2.1 Cash and cash equivalents, short-term and long-term investments Financial instruments, included in other assets and other current assets -197.4 -226.4 -16.6 -16.5 Net debt of Telekom Austria Group Shareholders' equity Net debt/Equity 2,072.2 2,637.3 2,722.0 2,639.4 76.1% 99.9% 26 TELE KOM AUS TRIA#27Employee Benefit Obligations - Pension liabilities are negligible EUR million Pensions Contractual termination benefits Service awards Severance FY 2003 FY 2002 9.6 9.7 31.9 132.3 46.9 57.9 67.6 32.6 27 27 TELE KOM AUS TRIA#28Operating Revenues by Segment % Revenues (EUR million) 3Q 04 3Q 03 Change 1-9M 04 1-9M 03 % Change Wireline 546.4 547.8 -0.3% 1,635.2 1,631.8 0.2% Wireless 563.9 537.1 5.0% 1,583.2 1,510.3 4.8% Other & eliminations -64.1 -65.5 -2.1% -187.2 -190.8 -1.9% Total revenues 1,046.2 1,019.4 2.6% 3,031.2 2,951.3 2.7% Third party value added services revenues recorded prior to October 1, 2003 3Q 04 3Q 03 1-9M 04 1-9M 03 Wireline -10.6 Wireless -7.1 Other & eliminations 2.4 Total revenues -15.3 -32.7 -20.3 7.1 -45.9 Revenues exluding third party value added services revenues 3Q 04 3Q 03 % Change 1-9M 04 1-9M 03 % Change Wireline Wireless Other & eliminations 546.4 537.2 1.7% 563.9 530.0 6.4% -64.1 -63.1 1.6% 1,635.2 1,583.2 -187.2 1,599.1 2.3% 1,490.0 6.3% -183.7 1.9% Total revenues exluding third party value added services revenues 1,046.2 1,004.1 4.2% 3,031.2 2,905.4 4.3% 28 TELE KOM AUS TRIA#29Adjusted EBITDA and Operating Income by Segment (EUR million) 3Q 04 3Q 03 % Change 1-9M 04 1-9M 03 % Change Wireline 221.6 214.7 3.2% 650.4 625.8 3.9% Wireless 224.8 208.0 8.1% 614.3 575.2 6.8% Intersegmental eliminations & other 0.0 0.4 -10.9 1.7 Total adjusted EBITDA* 446.4 423.1 5.5% 1,253.8 1,202.7 4.2% (EUR million) 3Q 04 3Q 03 % Change 1-9M 04 1-9M 03 % Change Wireline 38.8 Wireless 132.9 21.9 129.0 77.2% 80.1 3.0% 345.3 16.0 337.6 400.6% 2.3% Intersegmental eliminations & other 0.1 0.5 -10.6 2.0 Total operating Income 171.8 151.4 13.5% 414.8 355.6 16.6% * Adjusted EBITDA is defined as net income excluding interest, taxes, depreciation, amortization, impairment charges, dividend income, equity in earnings of affiliates, other non-operating income/expense, minority interests and the cumulative effect of changes in accounting principle. TELE KOM AUS TRIA 29#30Capital Expenditures by Segment (EUR million) 3Q 04 3Q 03 % Change 1-9M 04 1-9M 03 % Change Wireline tangible 69.4 69.0 Wireless tangible 45.3 Tangible 114.7 0.6% 176.9 60.3 -24.8% 119.7 129.3 -11.3% 296.6 183.6 148.0 331.6 -10.6% -3.6% - 19.1% Intangible 0.5 Total 115.2 2.2 -77.3% 10.0 131.5 -12.4% 306.6 9.5 341.1 5.3% -10.1% (EUR million) Wireless tangible mobilkom austria VIPnet Si.mobil 3Q 04 3Q 03 % Change 1-9M 04 1-9M 03 % Change 31.1 11.2 49.0 8.9 -36.5% 25.8% 3.0 2.3 30.4% 66.9 100.1 47.3 43.1 5.3 -33.2% 4.6 9.7% 15.2% 30 TELE KOM AUS TRIA#31Information on Bulgaria Economic Information ■ ■ GDP growth (real) Inflation Unemployment rate Foreign direct investment (% of GDP) Foreign direct investment (EUR million) 2001 2002 2003 4.1% 4.9% 4.3% 7.4% 5.8% 2.3% 19.2% 17.8% 13.6% 5.0% 5.6% 6.7% 755 923 1,190 The Bulgarian Lev is pegged to the Euro at 1.96 Lew per EUR Bulgaria's foreign currency debt ratings: Standard & Poor's (S&P): BBB- (stable outlook) Moody's: Ba1 (positive outlook) Fitch: BBB- (stable outlook) Bulgaria's accession to the EU is targeted for 2007 Geographic information: Population 2003: 7.8 million 30% of population live in urban areas of Sofia (capital), Plovdiv and Varna Area: 110,912 km² Mobile penetration (June 30, 2004): 51.8% 31 TELE KOM AUS TRIA#32Regulatory and Competitive Landscape in Bulgaria Communications Regulation Commission (CRC) as Key Regulatory Body CRC was established in February 2002 to replace former national regulatory authority - - Independent body to oversee regulation of the telecommunications sector Five members are political appointees with five-year terms Main power lies in preparation, granting, approval, supervision and termination of licences Enforces current telecommunications law (October 2003) which implements Acquis 2000 (harmonisation of national telecommunications legislation with EU law) Broad regulatory policy on the sector is to provide universal public access to effective telecommunications services at reasonable prices, harmonisation with EU law and full liberalisation Mobile number portability must be implemented by no later than January 1, 2007 CRC plans tender offer for three UMTS licenses; issuance not expected before March 2005 Bulgarian Mobile Landscape dominated by Two Major Players Mte tel Undisputed market leader (67.0% market share) Operating since 1994 Strong branding and first mover advantage with large corporates High-quality GSM 900/1800 network Glob Market entry in 2001 Major competitor to Mobiltel (31.4% market share) 100% owned by Greek OTE GSM 900/1800 network M МОБИФон First operator, since 1993 Owned by BTC (88%) and Radio Electronic Systems (12%) Steadily declining market share (1.6%) Analogue network (NMT450) GSM license granted recently TELE KOM AUS TRIA 32 32#33Mobiltel Historical Financials - Strong Cash Flow Generation (EUR million) Mobile penetration Mobiltel market share Subscribers ('000s) Revenues % Growth EBITDA % Margin 2002 2003 1H 2004 28.3% 44.0% 51.8% 74.0% 69.4% 67.0% 1,672 2,425 2,750 384 432 226 15.6% 12.5% 11.2% 221 272 148 57.6% 63.0% 65.4% Net income 144 184 107 Capex 160 87 52 As % of Revenues 41.5% 20.2% 22.9% EBITDA - Capex 61 185 96 Source: Company data 33 TELE KOM AUS TRIA#34Further Details Listing ■ Vienna Listing: ■ NYSE Listing: TKA AV / TELA.VI TKA US / TKA.N Contact Contact Person: Telephone: Fax: E-Mail: Website: Mr Hans Lang +43 (0)59 0 59 1 25208 +43 (0)59 0 59 91 25208 [email protected] www.telekom.at Financial Calendar ■ March 16, 2005: May 18, 2005: Full Year Results 2004 Results for the First Quarter 2005 May 25, 2005: Annual General Meeting 34 TELE KOM AUS TRIA