Telekom Srbija

CONTENTS

OTE GROUP AT A GLANCE OTE Group at a glance...... 6 Shareholder structure and share information...... 8 OTE Group key financial and operational highlights...... 10 OTE Group operations...... 12 OTE Group key developments...... 14 Message from the Chairman ...... 16

OTE SA: THE PARENT COMPANY OF THE GROUP Corporate governance...... 20 Corporate responsibility...... 30 Investments in infrastructure...... 34 Human resources...... 39

OTE GROUP OPERATIONS FIXED-LINE ΟΤΕ SA Broadband services...... 48 Voice services...... 56 Services for telecom operators...... 62 Fixed – line regulatory framework...... 68 International telephony, Internet & data (OTEGLOBE)...... 71 ROMTELECOM...... 74 -2- OTE Annual Report 2010

MOBILE TELEPHONY Cosmote Group...... 82 Greece (Cosmote)...... 84 Albania (AMC)...... 90 Bulgaria (Globul)...... 93 Romania (Cosmote Romania)...... 96 OTHER OPERATIONS IN GREECE AND ABROAD OTEestate...... 102 Hellas-Sat...... 105 OTESat-Maritel...... 107 OTEplus...... 109 OTEAcademy...... 111 Telekom Srbija...... 114

ANNUAL FINANCIAL REPORT Annual financial report...... 120 -3- OTE Annual Report 2010 -4- OTE Annual Report 2010 -5- OTE Annual Report 2010 -6- OTE Group at a glance OTE GROUP AT A GLANCE

GREECE BULGARIA Fixed-line, mobile telephony, and IPTV Mobile telephony

Number of Subscribers: Number of Subscribers: 3,919,767 Fixed-line: 3,856,794 Mobile telephony: 7,993,492 ALBANIA Fixed-line ADSL*: 1,149,162 Mobile telephony IPTV Services: 50,038 Number of Subscribers: 2,022,541 * Includes only those in operation, not the total number sold SERBIA ROMANIA Fixed-line, mobile telephony and Pay TV Fixed-line, mobile telephony, IPTV and satellite TV Number of Subscribers: Number of Subscribers: Fixed-line: 3,000,000 Fixed-line: 2,603,983 Mobile telephony: 5,549,000 Mobile telephony*: 6,849,468 Fixed-line ADSL: 543,000 Fixed-line ADSL: 1,013,445 IPTV Services: 59,000 IPTV and satellite TV services: 1,053,627 *OTE owns a 20% stake in Telekom Srbija *Including Zapp -7- OTE Group at a glance

SerbiaS AlbaniaA

RomaniaR GreeceG BulgariaB

OTE Group -8- OTE Group at a glance SHAREHOLDER STRUCTURE AND SHARE INFORMATION

SHARE INFORMATION OTE’s shares trade in the Athens and London Stock Exchanges (GDRs). As of September 2010, OTE’s shares ceased to trade in the New York Stock Exchange (NYSE). Following OTE’s delisting from the NYSE, OTE’s ADSs (American Depositary Shares) trade in the OTC (Over the Counter) market under the ticker HLTOY through the Level I ADSs program. OTE continues to report to the US Securities and Exchange Commission (SEC). ASE

Symbol > OTE Bloomberg symbol > HTO GA Reuters symbol > OTEr.AT

31.12.2010 Capitalization > € 3,004.6 mn Annual-High > € 10.75 Annual-Low > € 5.20 Average Trading Volume > 1,098,932 -9- OTE Group at a glance

30.3% 30.0% 20.0% 10.1% 9.6%

International Deutsche Hellenic Greek Other institutional investors Telekom State institutional investors

Shareholder structure March 31, 2011

120

100

ΟΤΕ

60 SΧΚΕ* ΧΑ

0 Jan.10 Feb.10 Mar.10 Apr.10 May 10 Jun10 Jul.10 Aug.10 Sep.10 Oct.10 Nov.10 Dec.10 Jan.11 Feb.11 Mar.11

Price relative performance chart for Jan. 10 – Mar. 11

* Εuro Stoxx Telecommunications Index -10- OTE Group at a glance ΟΤΕ GROUP KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS

2010 1,919.4 2010 0.08

**2009 2,168.0 **2009 0.84

**2008 2,356.4 **2008 1.24

Operating Income before Depreciation and Amortization* Earnings per Share (€) (€ mn)

2010 13.7%

**2009 15.0%

28.1% 71.9%

**2008 15.1% Other countries Greece

CAPEX as % of Revenues Geographical distribution of revenues (2010)***

* Excluding the effect of voluntary retirement plans ** Adjusted amounts due to a change in accounting policy *** Before eliminations -11- OTE Group at a glance

2010 1,149 2010 20,785

2009 1,113 2009 22,309

2008 959 2008 20,027

OTE ADSL subscribers (000) OTE Group mobile telephony subscribers (000)

2010 1,013

2009 824

2008 651

RomTelecom ADSL subscribers (000) -12- OTE Group at a glance OTE GROUP OPERATIONS

FIXED-LINE OPERATIONS IN OTHER OPERATIONS GREECE AND ROMANIA IN GREECE AND ABROAD In Greece, OTE Group is involved in real estate, sat- Greece ellite and maritime communications, professional OTE offers fixed-line, broadband, IPTV, data and training, etc. It is also present in Serbia through its leased line services in Greece. Through its wholly- 20% stake in the country’s incumbent telecommuni- owned subsidiary OTE Globe, OTE also offers inter- cations operator, Telekom Srbija. national wholesale telephony and data services.

Romania OTE also owns 54% of RomTelecom, the telecommunications incumbent in Romania, providing fixed- line, broadband, data, leased line, IPTV and satellite TV services to the local market.

MOBILE TELEPHONY IN GREECE AND ABROAD (COSMOTE GROUP) Cosmote, OTE Group’s fully-owned subsidiary, is the leading provider of mobile telephony in Greece. The company also enjoys significant mobile telephony market shares in Albania and Bulgaria. Cosmote is the owner of Germanos SA, one of the largest distribution chains of technology products in SE Europe. -13- OTE Group at a glance

45.6% 35.4% 11.7% 7.3%

Cosmote OTE RomTelecom Other

Segment revenue contribution (2010)*

50.7% 34.4% 9.3% 5.6%

Cosmote OTE RomTelecom Other

Segment OIBDA contribution (2010)**

* Before eliminations ** Operating income, depreciation & amortization, excluding the effect of voluntary retirement plans -14- OTE Group at a glance OTE GROUP KEY DEVELOPMENTS

FEBRUARY 2010 NOVEMBER 2010 OTE proceeds with the launch of a series of pack- Mr. Michael Tsamaz, Managing Director of Cosmote, ages that combine talk time to fixed-line and mobile is appointed Chairman and CEO of OTE, in replace- phones, as well as broadband and IPTV services, con- ment of Mr. Panagis Vourloumis, who held these posts siderably enhancing thereby its portfolio of products from May 2004. Mr. Michalis Tsamaz joined the OTE and services. Throughout the year new packages were Group in 2001, initially as the Executive Vice-Presi- offered in order to meet the distinct needs of custom- dent of OTE International, CEO of OTE Investments ers. and CEO of OTE Globe, while at the same time he was in charge of the major transformation program AUGUST 2010 of OTE fixed-line. Before joining OTE, Mr. Tsamaz Aiming to reduce its operational costs, the complexi- held senior executive positions in multinational com- ty of its financial reporting and to focus on the trading panies, such as Vodafone and Philip Morris. of its shares in its key market, the Athens Stock Ex- change, OTE informs the New York Stock Exchange (NYSE) of its intention to delist. OTE’s American Depositary Receipts continue to be traded in the OTC (Over the counter) market through a “Level I” pro- gramme.

OCTOBER 2010 OTE launches the development of an innovative New Generation Access (NGA) network, which will provide final users with ultra-high speed broadband services, with improved quality. The new fiber optic access network will initially be launched at a limited number of urban centers, covering the municipalities of Alexandroupoli, Komotini, Xanthi, Serres and Zo- grafou, aiming to gradually expand to further areas. -15- OTE Group at a glance

FEBRUARY 2011 OTE DISTINCTIONS > OTE announces its decision to proceed with the MARCH 2010 dissolution and liquidation of its real estate in- OTE was presented with the award for Best Corpo- vestment company, OTE PROPERTIES REIC. In rate Governance in Greece during the 2010 Corporate view of the current economic environment, the Governance Awards, organized by World Finance company’s listing in the Athens Stock Exchange Magazine. would not constitute the optimal move, from a APRIL 2010 strategic point of view, to leverage on the Group’s For a second year in a row, OTE received the “Silver” substantial real estate assets level distinction for 2009 by the CR Index in Greece, which reflects the company’s high performance with > OTE signs an agreement for a €900 million Re- respect to Corporate Responsibility. volving Credit Facility (Bond Loan) with a consortium of 16 Greek and foreign banks. OTE initially draws an amount of €600 million, while the JUNE 2010 remaining amount of €300 million remains avail- OTE received the top two awards at the Annual In- able to OTE Group as an undrawn backstop line. vestor Relations Awards organized by Capital Link. Following this, the company uses the aforementioned €600 million, a credit line of €332 million JULY 2010 and cash flow in order to repay the bond of €1.5 > OTE was voted “Best Company for Investor Rela- billion that matured in mid-February tions” in Greece for 2010 by the annual Thomson Reuters Extel Survey. > OTE announces a series of management changes that are aimed at improving the Group’s organi- > OTE was certified as Cisco Gold Partner. The zation and operation. Certain new positions are Gold Partner certification acknowledges OTE’s created, that of the OTE Group Chief Operating technical expertise in specialized network tech- Officer, the OTE Group Chief Information Officer, nologies and affirms OTE’s excellence and effi- the OTE Group International Affairs Chief Officer ciency in planning, implementing and supporting and that of the OTE Group Director of Customer specialized value-added solutions of guaranteed Service, while several of OTE’s general directo- quality. rates are reorganized and unified and the subsidiaries’ report centres are unified. -16- OTE Group at a glance MESSAGE FROM THE CHAIRMAN

Athens, May 13, 2011

My appointment as CEO of OTE Group came at a In 2010, OTE Group sales dropped by 8%, its EBITDA critical economic juncture, the reverberations of fell by 11.5%, and its net profit dropped by 90.4%, due which are being felt throughout Southeast Europe. mainly to an impairment at RomTelecom, addition- The causes of the crisis, as well as its effects, are al charges imposed on OTE by the State’s Pension known to all. Over the past two years, all countries Fund (IKA) in regard to the 2005-2006 Voluntary in the region have suffered from GDP contraction, Retirement Program, an extraordinary tax levied by which in turn has directly affected their ability to fi- the Greek State on profitable businesses, and costs nance state budgets. related to past years’ tax audit. In Greece, the consequences have been dramatic. Sales of the OTE S.A. parent company were reduced The world economic crisis revealed chronic flaws in by 10.1%, its EBITDA fell by 9.6% and its net profit the country’s structure and organization, and made dropped by 78.5%, due mainly to the above-men- apparent the Greek economy’s total lack of solid eco- tioned additional IKA charges, which significantly nomic foundations. Needless to say, this environment affected its already high payroll costs. has had a direct impact even on strong, healthy com- The Company’s negative performance is the result of panies, in the form of shrinking consumer spending, the following factors: higher interest rates, limited access to funding and 1. the impact of the Greek economy investments, etc. 2. unhealthy competition At the time I assumed my duties, the solid condition 3. unfair and shortsighted regulation of the OTE Group – its moderate leverage (two times 4. the way the company operates, and EBITDA), its competitive subsidiaries, its cash posi- 5. our “corporate culture” tion and reduced headcount – was the result of a long We cannot influence the first three factors, but we and arduous process of operational and structural can work on the last two. changes initiated by my predecessor of the past six Within a very unfavorable environment, RomTele- years, Mr. Panagis Vourloumis. These changes were com slashed its operating costs and reduced its per- necessary in order for OTE to evolve into a modern sonnel, partly containing the drop in its operating company, able to face competition. These initiatives profits. proved most beneficial, especially in light of the fi- Cosmote Greece continued its impressive course, nancial crisis. Think of the consequences, had OTE improving all its performance indicators vis-à-vis its and its subsidiaries, in Greece and abroad, been less competitors. However, the mobile telephony sector healthy and had the Group higher refinancing needs. in Greece has suffered a serious blow, not only from -17- OTE Group at a glance the effect of the crisis, but mainly from the price 5. Change in our approach to and management of wars initiated by our competitors. regulatory affairs Cosmote Romania improved its competitiveness and 6. Leverage of the synergies with Deutsche Telekom was less affected than its rivals by the shrinking mar- 7. Investments in NGA networks and technology ket. 8. Changes in the management, appraisal and devel- In Bulgaria, Globul implemented effective measures opment of human resources towards operating cost containment and managed to In Romania, synergies between RomTelecom and generate satisfactory profits. Cosmote will continue, with an aim to reduce the op- AMC in Albania was up against an especially nega- erating costs of both companies and to offer bundled tive, as well as unpredictable, competitive and regu- service packages. latory environment, which affected its profitability. In Greece, Cosmote will pursue its strategy, to main- OTE Group’s other subsidiaries, notably OTE- tain its leading position, in terms of service revenues, GLOBE and Hellas Sat, achieved satisfactory per- and its profitability through operating cost control. formances, reaching their targets. This is the only way to protect the future of our com- The conditions we are confronting today render the panies and to secure the required capital for neces- need for immediate measures and actions, impera- sary investments. tive in order to safeguard the success of our strategy In Bulgaria we will continue with our strategy, to and enhance the value of our company, OTE Group. maintain profitability, while holding at the same This value provides the foundation for all future in- time our market position. We are also contemplat- vestments and, therefore, our company’s growth. ing an expansion of our service portfolio into broad- In Greece, the transformation of OTE will have to band and TV services, to make our business more proceed at an even brisker pace, in preparation of its competitive through the offer of a complete range of merging, when conditions allow it, with Cosmote. products. We envision tomorrow’s OTE as a modern, versatile In Albania, the new management team is focusing and efficient company; a company that is the con- on reducing costs and on enhancing the company’s sumers’ first choice, able to meet their needs more image through the creation of a limited number of fully than any other company; a model corporation, company-owned shops and other relevant initiatives. which will lead Greece’s technological evolution In order to achieve all of the above, what is needed, with its investments. first of all, is active participation, commitment and But in order to meet these objectives, we will have to boldness on everyone’s part – not only by manage- work on the following: ment, but also employees and, first and foremost, 1. Development of competitive products and servic- their union representatives. We must all acknowl- es that will compensate for the reduced revenue edge the situation in which we are, adapt accordingly from traditional services and make courageous decisions. The measures taken 2. Reduction of operating costs across all operations at OTE so far are mild compared to those taken by 3. Improvement of customer experience at all points other companies. It is imperative that everyone un- of contact with the company: customer service, derstand that OTE is now a private-sector company customer service call centers, points of sale, etc. with many shareholders, and financed according to 4. Restructuring of policies and procedures that the rules of international markets. govern our operations -18- OTE Group at a glance

Ahead of us lie two very difficult years. We cannot allow ourselves to be swept away by the economic developments. Management, employees and labor union members – we are all jointly responsible for creating a safe “life raft” which will carry us out of the crisis. This can only be achieved through earnest cooperation and the acknowledgement of the fact that we cannot continue being bound by vested rights from the past. Finally, the State and the Regulatory Authority must understand that the telecommunications market has become utterly competitive and that, at this moment, OTE is the only telecommunications company that can contribute to the country’s economic development through the necessary investments in new generation networks and technologies. For these to take place, a healthy OTE is required.

Michael Tsamaz Chairman of the Board of Directors & Chief Executive Officer of OTE SA -19- OTE SA: The parent company of the Group -20- OTE SA: The parent company of the Group CORPORATE GOVERNANCE

CORPORATE GOVERNANCE OTE’s corporate governance system Corporate governance refers to a number of princi- In September 2010, Law 3873/2010 was enacted. ples and practices adopted by a company in order to This law requires that all Greek listed companies uphold its performance and the interests of its share- must release, on an annual basis, information on the holders and all stakeholders. corporate governance principles and practices they ΟΤΕ implements best corporate governance practices have adopted. Specifically, Law 3873/2010 obliges across its operations, based on international and eu- companies to publish a Corporate Governance State- ropean standards. By reinforcing its procedures and ment, which is included in the Annual Report of the organizational structure, the company manages not Board of Directors and provides information on the only to comply with the regulatory framework, but Corporate Governance Code, which the company also to develop a corporate culture founded on busi- has decided to implement and on any additional ness ethics and committed to protecting the rights of (beyond and above applicable legislation) corpo- its shareholders and the interests of all stakeholders. rate governance practices. In particular, the State- As a large capitalization company, listed on the Ath- ment contains information concerning: the General ens Stock Exchange and with its shares also traded Assembly of Shareholders, shareholders’ rights, the on the London Stock Exchange, OTE complies with way in which the latter are exercised, the compo- applicable domestic and international corporate gov- sition and function of the Board of Directors (and ernance legislation. It should be noted that following any other administrative, managerial or supervisory OTE’s delisting from the New York Stock Exchange bodies or committees) and the internal audit and risk on August 2010, its American Depository Shares management systems, related to the preparation of (ADSs) trade in the OTC (Over the Counter) market the company’s financial statements. through the Level I ADSs program. OTE continues to Enforcing Law 3873/2010, ΟΤΕ complies with the report to the US Securities and Exchange Commis- special practices laid down by the Hellenic Federa- sion (SEC). tion of Enterprises’ (SEV) Code for Listed Compa- All relevant provisions and practices are incorporated nies, posted on: http://www.sev.org.gr/online/index. in the company’s Articles of Incorporation, Bylaws, aspx and http://www.sev.org.gr/Uploads/pdf/KED_ Internal Operations Regulation, Code of Ethics and TELIKO_JAN2011.pdf. OTE’s Corporate Govern- Business Conduct, Personnel Regulation, and in all ance Statement is included in its 2010 Annual Fi- other company regulations or policies overriding its nancial Report. business functions. OTE applies corporate governance principles and -21- OTE SA: The parent company of the Group

4 out of 10 members of the Board of Directors are independent

practices on the basis of three key priorities, which members among them. From June 2009 to June 2010, include the role of the Board of Directors and the the BoD comprised of three (3) executive members Management team, the protection of shareholders’ and seven (7) non-executive members, of whom four rights and the enhancement of transparency, control (4) were independent. From June 2010 to the present, and information disclosure. the BoD comprises of two (2) executive members and eight (8) non-executive members, of whom four (4) are independent. According to the Sharehold- ers’ Agreement between the Greek Government and The role of the BoD and the Protection of shareholders’ Management team rights Deutsche Telekom, the BoD consists of members proposed by Deutsche Telekom and the Greek Gov- ernment. Pursuant to the provisions of the company’s Articles of Incorporation, the members of the BoD serve for a three (3) year term. This term commences on the date Transparency, control and disclosure of Information the members are elected by the General Assembly of Shareholders and is terminated upon the completion Corporate Governance at OTE of the Ordinary General Assembly of Shareholders of the year in which the three (3) year term has ended. The table that follows depicts the members of the 1.BOARD OF DIRECTORS BoD and their capacities, with dates of commence- 1.1 Composition of the Board of Directors ment of office (election dates by the General Assem- Pursuant to the provisions of the Articles of Incorpo- bly of Shareholders- the most recent one) and dates of ration, the Board of Directors (BoD) consists of nine termination of office of each one. (9) to eleven (11) members, who may or may not be The changes to the Board of Directors that took place shareholders in the company. From June 2009 until during the period 2010-2011 are as follows: today, the BoD consists of ten members. > The BoD member Mr. Hamid Akhavan-Malayeri The members of the BoD are either executive or non- submitted its resignation on 19/2/2010 and was executive members, of which at least two (2) are in- replaced by Mr. Rainer Rathgeber dependent. They are elected by the General Assembly > Vice-Chairman, Mr. Haralambos Dimitriou and of Shareholders, which also appoints the independent members Messrs. Iordanis Aivazis, Leonidas -22- OTE SA: The parent company of the Group

ΟΤΕ’S BOARD OF DIRECTORS Name Capacity Office Office Termination Commemcement (Most Recent )

Michael Tsamaz Chairman and Managing Director, 3/11/2010 2012 Executive member Dimitrios Tzouganatos Vice-Chairman, Independent 23/6/2010 2012 non-executive member Kevin Copp Executive member 24/6/2009 2012 Roland Mahler Νon-executive member 17/3/2011 2012 Rainer Rathgeber Νon-executive member 19/2/2010 2012 Efstathios Anestis Νon-executive member 23/6/2010 2012 Nikolaos Karamouzis Νon-executive member 23/6/2010 2012 Michael Bletsas Independent non-executive member 23/6/2010 2012 Panagiotis Tabourlos Independent non-executive member 24/6/2009 2012 Vassilios Fourlis Independent non-executive member 23/6/2010 2012 Guido Kerkhoff Νon-executive member 24/6/2009 17/3/2011 Panagis Vourloumis Chairman and Managing Director, 24/6/2009 3/11/2010 Executive member Haralambos Dimitriou Vice-Chairman, 24/6/2009 18/6/2010 non-executive member (appointed Vice-Chairman by the BoD on 6/2/2009) Hamid Akhavan-Malayeri Νon-executive member 24/6/2009 19/2/2010 Iordanis Aivazis Executive member 24/6/2009 18/6/2010 Leonidas Evangelidis Independent non-executive member 24/6/2009 18/6/2010 Konstantinos Michalos Independent non-executive member 24/6/2009 18/6/2010 Ioannis Benopoulos Independent non-executive member 24/6/2009 18/6/2010 -23- OTE SA: The parent company of the Group

Evangelidis, Konstantinos Michalos and Ioan- Compensation and Human Resources Committee nis Benopoulos submitted their resignations on OTE’s BoD established the Compensation and Hu- 18/6/2010 and were subsequently (on 23/6/2010) man Resources Committee in 2004. This Committee replaced by Messrs. Nikolaos Karamouzis, Ef- is appointed by the company’s BoD and consists of a stathios Anestis, Dimitrios Tzouganatos (who was minimum of three members, at least two of whom are appointed Vice-Chairman), Vassilios Fourlis and non-executive. The Chairman of the Committee is also Michael Bletsas respectively appointed by the BoD. The Committee’s main duties, > On 3/11/2010, the BoD revoked the appointment as set out in its Regulation, are the following: of Mr. Panagis Vourloumis as Chairman of the > Setting the principles of the company’s human re- BoD and Managing Director of the company. sources policy, which will influence the Manage- Subsequently – on the same date – Mr. Panagis ment’s relevant decisions and practices Vourloumis resigned as member of the BoD and > Selecting the company’s compensation and remu- was replaced by Mr. Michael Tsamaz neration policy > The BoD member Mr. Guido Kerkhoff submitted > Approving the plans concerning compensation, his resignation on 17/3/2011 and was replaced by benefits, stock options and bonuses Mr. Roland Mahler. > Proposing to the BoD the compensation and benefits of the Managing Director 1.2 Committees of the Board of Directors > Studying and processing issues related to the com- Audit Committee pany’s human resources In April 1999, OTE’s management established an Audit > Setting the principles of Corporate Responsibility Committee. According to article 37 of Law 3693/2008, policies the members of the Audit Committee are nominated by The Compensation and Human Resources Commit- the General Assembly of Shareholders and at least one tee submits proposals to the BoD on matters related to must have proven experience in financial matters. The the responsibilities of the Committee, which the BoD Audit Committee consists of three independent non- either approves or refers to the General Assembly of executive members of the Board of Directors, one of Shareholders, in the event that these matters must be whom is appointed Chairman. The role of the Com- resolved by the General Assembly of Shareholders. mittee is to supervise the company’s Internal Auditors From February 2009 to February 2010 the Commit- and to assist the Board of Directors in the latter’s su- tee members were Messrs. Haralambos Dimitriou pervisory responsibilities (monitoring the financial in- (Chairman), Hamid Akhavan-Malayeri and Ioannis formation published by the company, evaluating and Benopoulos. From February 2010, following Mr. Ha- controlling the internal audit systems, and assessing mid Akhavan-Malayeri’s resignation, until June 2010, and coordinating the auditing process and control pro- the Committee members were Messrs. Haralambos cedures, in accordance with applicable laws). Dimitriou (Chairman), Ioannis Benopoulos and Gui- From June 2009 to June 2010, the members of the do Kerkhoff. From June 2010 until March 2011 the Audit Committee were Messrs. Panagiotis Tabourlos Committee members were Messrs. Nikolaos Kara- (Chairman – Expert on Financial Matters), Leonidas mouzis (Chairman), Kevin Copp and Guido Kerkhoff. Evangelidis and Ioannis Benopoulos. From July 2010 Form April 2011 to date, the Committee members to date, its members are Messrs. Mr. Panagiotis Ta- are Messrs. Nikolaos Karamouzis (Chairman), Kevin bourlos (Chairman – Expert on Financial Matters), Copp and Roland Mahler. Dimitrios Tzouganatos and Vassilios Fourlis. -24- OTE SA: The parent company of the Group

MEMBERS OF THE MANAGEMENT TEAM Name Capacity

Michael Tsamaz Chairman and Managing Director Zacharias Piperidis OTE Group Chief Operating Officer Chief Commercial Officer for Enterprise and Business Services Chief Commercial Officer for Residential Customers (As of 17/2/2011) Kevin Copp ΟΤΕ Group Chief Financial Officer Georgios Athanasopoulos OTE Group Chief Information Technology Officer OTE Chief Information Technology Officer (As of 17/2/2011) Aristodimos Dimitriadis OTE Group Chief Compliance Officer Eirini Nikolaidi Executive Director of Legal and & Regulatory Affairs of OTE Group ΟΤΕ and OTE Group Legal Counsel General Director of Legal Affairs of ΟΤΕ (As of 19/01/2011) Elias Drakopoulos Chief Technology and Operating Officer Chief Technology Officer Chief Regional Operations Officer (As of 17/2/2011) Chief Commercial Officer for Corporate and Business Customers (Until 16/2/2011) Panos Sarantopoulos Chief Officer of National Wholesale Services George Mavrakis Chief Financial Officer Loizos Kyzas Chief Human Resources Officer Konstantinos Ploumbis Chief Regulatory Affairs Officer Maria Rontogianni Chief Internal Audit Officer Iordanis Aivazis Chief Operating Officer (Until 31/12/2010) Paraskevas Passias General Legal Counsel of OTE (Until 19/01/2011) Christos Katsaounis Chief Commercial Officer for Residential Customers (Until 16/2/2011) Maria Efthimerou Chief Technology Officer Until (16/2/2011) Andreas Karageorgos Chief Regional Officer Until (16/2/2011) Konstantinos Kappos Chief Information Technology OfficerUntil (16/2/2011) -25- OTE SA: The parent company of the Group

Law 3884/2010 highlights transparency and increases information dissemination to shareholders for the exercise of their voting rights at General Assemblies

2. MANAGEMENT TEAM Specifically, this new Law: The members of OTE’s management team, during > Provides for a wider invitation content which re- 2010-2011, are presented in the table on page 24. fers to the rights of the shareholders, the right to participate as a shareholder (definition of record date), the participation process (the process of ex- 3. SHAREHOLDERS ercising proxy voting, voting by correspondence 3.1 General Assembly of Shareholders or electronically) and to the relevant printed ma- In accordance with Corporate Law 2190/1920, as cur- terial and documents rently in force, and OTE’s Articles of Incorporation, > Facilitates shareholders in exercising their voting the General Assembly of Shareholders is the compa- right through: ny’s highest, in rank, body and may resolve upon all — The abolishment of shares’ blocking as a re- matters of the company, unless otherwise stipulated quirement for shareholders to exercise their by the company’s Articles of Incorporation. The Gen- voting right in the General Assembly eral Assembly of Shareholders is convoked by the — The possibility to participate from a distance Board of Directors in an ordinary session once a year, (electronically or by correspondence) within six months after the end of the previous fis- — The possibility to authorize/revoke proxies by cal year, whereby the annual financial statements are electronic means approved, and certified auditors and members of the > Enhaunces transparency and the information pro- Board of Directors are absolved from any potential indemnity. The Board of Directors may also convene vided to shareholders before and after the General extraordinary General Assemblies of Shareholders Assembly, increasing the information provided on whenever necessary. the General Assembly on the company’s webpage Law 3884/2010, which incorporates into Greek na- through: tional law, Directive 2007/36/ΕC of the European — Detailed information and clarifications con- Parliament and the Council of July 11, 2007, on the cerning General Assembly items exercise of certain rights of shareholders in listed — Participation forms (forms for authorizing or companies, brought about changes in the content of revoking a representative) the invitation for a General Assembly, in the informa- — Number of Shares tion which is posted on the company’s webpage, as — General Assembly voting results well as in the participation process of the company’s The General Assembly of Shareholders is in quorum shareholders in the General Assembly. and convenes validly when 1/5 of its share capital is -26- OTE SA: The parent company of the Group present or represented, except for issues specified ex- > Examines and evaluates the company’s auditing plicitly in the Law and the company’s Articles of In- systems and procedures corporation, when a special quorum is required, i.e., > Proceeds with compliance audits 2/3 of the company’s share capital. In this case, ac- > Identifies risks and proposes solutions to the Man- cording to Article 20 of the company’s Articles of In- agement corporation, the General Assembly is in quorum and > Monitors the consistent application and progress may validly convene to discuss the agenda if 2/3 of of Internal Audit operations across the OTE Group the company’s share capital is represented. of companies In absence of a quorum, the 1st Repeated General As- > Examines and evaluates the suitability, perfor- sembly of Shareholders convenes. On issues that may mance and efficiency of security measures in be resolved by simple quorum, the Repeated General OTE’s ICT systems Assembly of Shareholders convenes validly, irrespec- The correct and efficient operation of the Internal Au- tive of the present or represented capital. For issues dit Unit is ensured by the fact that it is an independ- that require a special quorum, at least 1/2 of the com- ent business unit, reporting directly to the company’s pany’s share capital must be present or represented, BoD, is supervised by the Audit Committee, and op- otherwise the General Assembly of Shareholders is erates under a strict code of conduct. adjourned again, in which case 1/5 of the company’s 4.2 External Audit share capital must be present or represented. Reso- The company’s regular audit is carried out by certi- lutions on issues that call for a simple quorum are fied auditors. To this end, every year, the General As- passed by absolute majority. Resolutions on issues sembly of Shareholders approves the appointment of that call for a special quorum are passed by a major- an auditing firm or a consortium of auditors to audit ity of 2/3 of those present or represented. the company’s financial statements and business op- 3.2 Payment of dividend erations over a specific period. Shareholders are eligible to receive dividends after In June 2010, OTE’s Ordinary General Assembly of the General Assembly of Shareholders approves the Shareholders assigned the regular audit of the 2010 annual financial statements. Dividends, as approved financial statements to the firm Ernst & Young (Hel- by the General Assembly of Shareholders, are paid las) Certified Auditors–Accountants SA. The fee for to shareholders in accordance with the New Law the audit of the stand-alone and consolidated financial 2190/1920, the Athens Stock Exchange Regulation, statements was set at €478,460. as in force at the time, and the company’s Articles of 4.3 Risk management Incorporation. The company implements risk management practices across all its operations and activities. The operation- 4. CONTROL MECHANISMS al risks the company faces, concern mainly: 4.1 Internal Audit > Credit risks The Internal Audit, as an independent, objective and > Liquidity risks advisory Unit, improves and ensures the company’s > Risks that derive from the regulatory and compli- smooth operation. Specifically, as part of its responsi- ance environment bilities, the Internal Audit Unit: > Risks related to competition -27- OTE SA: The parent company of the Group

The company implements an annual, risk-based planning, which is approved by the Audit Committee and provides a risk analysis methodology

In late 2010, the company launched a risk manage- ticipations (acquisitions or disposals) in a timely ment project that aimed to: a) identify b) quantita- and accurate manner, under Law 3556/2007 and tively assess and c) evaluate the risks handled by the to ensure OTE’s compliance with applicable laws company’s various operations and services. This pro- > Procedures within the framework of Law ject is monitored by the Internal Audit team. A sig- 3340/2005 (for the protection of the capital market nificant aspect of this project is the implementation from actions of inside information abuse and mar- of an annual risk-based Planning, which is approved ket manipulation) and of Corporate Governance by the Audit Committee and provides a risk analysis Law 3016/2002. In enforcing the above Laws, the methodology. company has adopted: The Board of Directors monitors and examines risk — A transactions disclosure procedure for all management, through the Audit Committee and the individuals that are considered liable under Internal Audit team. applicable law: the persons that carry out managerial duties in the company and per- 5. TRANSPARENCY AND sons closely affiliated with those persons INFORMATION DISSEMINATION should notify the company of transactions conducted for their own account relating to 5.1. Established procedures shares issued by OTE, derivatives or other Placing particular emphasis on the increase of trans- financial instruments linked to them; parency, OTE implements relevant procedures, which — A procedure that deters the improper use of stem from the legislative framework in force: inside information: persons who possess in- > A regulated-information disclosure process, side information on company operations are on the grounds of Law 3556/2007, Decision forbidden to use this information in order to 1/434/3.7.2007 and Circular No.33 of the Hellenic acquire or dispose, either directly or indi- Capital Market Commission concerning informa- rectly, financial instruments of the company tion disclosure and transparency requirements for to which the information relates; companies which are publicly traded on stock ex- — A procedure that monitors any financial activ- changes. ity carried out by OTE’s managers/directors The aim of this disclosure process is to inform the with the company’s major suppliers/clients: investment community and all interested parties the persons that carry out managerial duties of any significant changes in the company’s par- in the company should notify the company of -28- OTE SA: The parent company of the Group

By virtue of the corporate compliance system, the company and its employees are protected from any legal consequences due to misconduct

financial transactions conducted with major 5.3 Communication with shareholders clients or suppliers of the company. Apart from established procedures that ensure transparency, OTE has adopted a number of other prac- 5.2 Regulatory compliance tices that enhance transparency and the dissemination OTE Group has adopted a Compliance Management of information to all interested parties, such as: System (CMS), regarding the company’s compliance > Posting of company-related information on OTE’s with the legislation in force as well as internal poli- website so that all interested parties can have cies, with an aim to avoid risks and other legal con- equal and timely access to that information sequences for the company and its employees. Key > Release of corporate publications (Annual Report, elements of the CMS incude the following: Form 20-F, Corporate Responsibility Report) > Prevention of misconduct together with the com- which enhance the continuous flow of information pliance with the policies, in order for the company on issues that relate to the company’s strategy, tar- and its employees to be protected from any legal gets, operation and performance consequences due to any misconduct; the CMS > Establishment of a two-way communication chan- contributes in reducing the reputational risks of nel between company representatives and the in- the Group; vestment community through the organization of > Detection of compliance violations and the re- conferences, corporate presentations, investor sponse to them. The company has established a days, road shows (in Greece and abroad) and con- whistleblowing policy and relevant communica- ference calls tion channels facilitating the report of illegal ac- All activities related to OTE’s listing on the Athens tivities or behavior; Stock Exchange (ATHEX) and the London Stock Ex- > Monitoring of the CMS through statistical data change (LSE) and to the company’s obligations under collection and processing the relevant US Securities and Exchange Commis- The operational unit responsible for the planning sion rules, are the responsibility of OTE’s Investor and adoption of the CMS comes directly under the Relations Department. These activities include: company’s Board of Directors. Moreover, Regulatory > Responding to shareholder requests (both indi- Compliance Committees have been set up and are vidual and institutional, in Greece and abroad) operating in OTE Group companies (Cosmote and and providing information related to the exercise RomTelecom). of their rights and the payment of dividends > The release of the company’s financial results and -29- OTE SA: The parent company of the Group

the timely and fair dissemination of information related to the company’s financial performance to all shareholders, through presentations, conference calls, road shows, conferences and meetings > The presentation of activities and communication with shareholders through various communication channels (Investor Relations website, corporate presentations, etc.) > The preparation of the company’s Annual Report, the Corporate Governance Report, and the Form 20-F for the US Securities and Exchange Commis- sion > Relationship building with the Stock Exchanges and Capital Market Commissions in the countries where OTE is listed > Ensuring the company’s compliance with the regulatory framework of the capital markets in which OTE is listed > Supporting the company’s credit rating process (rating review) > The organization and hosting of the company’s General Assemblies of Shareholders and the dissemination of information to shareholders The Investor Relations Department is headed by Mr. Dimitris Tzelepis. His contact details are as follows: Tel: +30 210 611 1574 Fax: +30 210 611 1030 E-mail: dtzelepis@ote.gr Address: 99 Kifisias Ave., Maroussi, Athens Call center: +30 210 611 1000 Investor Relations webpage: http://www.ote.gr/portal/page/portal/InvestorRela- tion More information on Corporate Governance at OTE is available in the company’s Corporate Governance Report 2010 and at: http://www.ote.gr/portal/page/ portal/InvestorRelation/CorporateGovernance/Our- Principles. -30- OTE SA: The parent company of the Group CORPORATE RESPONSIBILITY

In the past five years, Corporate Responsibility has OTE also participates in Greece’s Corporate Respon- become an important part of OTE’s business strat- sibility Index (CRI), produced in association with egy, policy and operations. Through its CR program “Business in the Community”, and was ranked “Sil- “Building Ties” introduced in 2005, OTE takes a ver” in 2008 and 2009, and “Gold” in 2010. comprehensive approach to responsible behavior in the marketplace, its’ employees, society and the en- SYSTEMATIC APPROACH vironment. OTE’s CR strategy and initiatives focus TO CORPORATE on issues that are important to the company’s success RESPONSIBILITY GOALS and to its stakeholders, in close alignment with Euro- OTE sets and reviews CR goals annually, and reports pean and international CR standards. the results in the OTE CR Report each year. (The relevant table is available on page 31) OTE’S CORPORATE RESPONSIBILITY CORPORATE RESPONSIBILITY CERTIFICATIONS ACTIVITIES In 2006, OTE was one of the first Greek companies to Building Ties in the marketplace apply the Global Reporting Initiative “G3” Sustaina- OTE makes a significant contribution to the market- bility Reporting Guidelines, achieving an application place and to the Greek economy through its strong level “C” and in 2007 and 2008 the company upgrad- focus on broadband technology development (and ed to the GRI G3 level “B”, while in 2010, OTE was availability) in Greece. Broadband services are avail- also one of the first Greek companies to undertake able in remote areas of the country and accessible to independent external assurance of its CR reporting in all social groups. The company also develops pro- accordance with the AA1000 AccountAbility Prin- grams for vulnerable social groups and students. Be- ciples Standard. As a result, OTE’s 2009 CR Report tween 2006 and 2010, OTE has invested over €1.3 received the GRI G3 application level “B+”. billion in broadband infrastructure development and Since 2008, OTE has been continuously listed in the services, whilst the broadband penetration in Greece FTSE4Good, the International Index of companies has increased from 4.7% of the population, in 2006, that meet internationally recognized standards for to 20.3% in 2010. The most important CR activities corporate responsibility, transparency and account- in the marketplace for 2010 were: ability. -31- OTE SA: The parent company of the Group

OTE CORPORATE RESPONSIBILITY GOALS

CR strategy > Incorporate CR principles into OTE’s Business Plan > Conduct dialogue with stakeholders > Maintain and expand CR certifications by international organizations

Marketplace > Strengthen efforts to bridge the broadband gap nationwide, with targeted actions > Expand the PC deployment program nationwide > Expand safer internet initiatives > Implement a new procurement policy

Workplace > Establish a new Human Resources Helpdesk > Strengthen dialogue with its’ employees through the intranet (U-Link) > Continue OTE Employee Volunteer Programs

Environment > Record in detail the nationwide ecological footprint of OTE > Systemize and expand recycling programs nationwide > Stabilization of energy consumption in OTE buildings

Society > Continue the blood donation program of OTE employees > Maintain the company’s strong profile by enhancing the cooperation with NGO’s and bodies from the local community -32- OTE SA: The parent company of the Group

Through the program “Building Ties”, OTE, since 2005, has adopted an integral approach towards responsible corporate behavior, with respect to the market place, its employees, society and the environment

> The continuation of its long-standing offering > OTEAcademy professional training seminars of products and services for vulnerable social > OTE continued with its support of 54 Employee groups, such as: Cultural Centers across Greece (with approxi- — Conn-x for students mately 20,000 members) — Tele-assistance > Through the company’s Volunteer Blood Dona- — Teleworking tion programs, OTE employees gathered, in 2010, — Tele-medicine through Video-Conferencing 3,214 units of blood, 2,200 of which were offered — Call Centre for people with hearing dissabili- outside the company. ties Building Ties with the environment > The offer, for the 6 year in a row, of free broad- OTE is committed to its sustainable development, band connections to graduate and postgraduate financially and environmentally. In 2007, OTE com- students who achieved academic excellence menced the systematic recording of its environmental > The launching of a campaign on internet safety, in footprint for energy, water and waste management, order to promote and inform the public, in part- applying international regulations and guidelines for nership with the Adolescent Health Unit (AHU) measurement. For 2010, most important CR activities of the 2nd Paediatric Clinic of the University of for the environment include: Athens at the ‘Pedon P. & A. KIRIAKOU’ Hospi- > The continuation of the measurement of the com- tal, as well as the publication of a special leaflet pany’s environmental footprint distributed in all OTESHOP stores, to inform the > The expansion of the environmental footprint in public on the matter. 3 additional buildings, in South Western Greece Building Ties with employees Telecommunication Region of 92 employees and OTE believes in the professional development and 3,210.85 sq. feet , in total motivation of employees, and aims to realize these > Recycling of 137,637 kg of electrical and electron- key principles through policies and practices related ic equipment to health and safety in the workplace, equal oppor- > The recycling of 396 tones of paper and card- tunities, professional training programs, evaluation, boards (an increase of 7% in comparison to 2009). and internal communication. For 2010, key corporate Building Ties with society responsibility activities, related to the employees, in- OTE is a committed partner to society. The company clude: is focused on helping children, people with disabili- -33- OTE SA: The parent company of the Group ties and other vulnerable social groups, through its unrelenting support to NGO’s. OTE also supports organizations that promote or uphold the Greek cultural heritage and endorses a corporate culture of volunteerism. In 2010, OTE contributed €1,560,675 in sponsorships, donations and fundraising. Specifi- cally: > OTE continued to offer it’s support to NGO’s and other social groups and children, such as: — A Child’s Smile — “Together for Children” Union — MDA HELLAS — The Food Bank — The Association for the Psycho-social Health of Children and Adolescents (EPSYPE) > The company supported insitutions and actions that uphold the preservation of Greece’s cultural heritage, such as: — The Benaki Museum — The Thessaloniki Photography Museum. Further information on OTE’s Corporate Responsi- bility practices is available in OTE’s 2010 Corporate Responsibility Report. -34- OTE SA: The parent company of the Group INVESTMENTS IN INFRASTRUCTURE

TECHNOLOGY IPTV services and Video on Demand (VoD) to a CONVERGENCE FOR THE total of 400 towns and villages PROVISION OF BUNDLED > Reinforced the DWDM transmission network, through the upgrade of the existing rings, the de- PRODUCTS velopment of two new DWDM rings in Crete and The increased demand for bundled products, and es- the installation of two new metropolitan rings in pecially products that include broadband services, Thessaloniki and Patras calls for a single broadband platform which will sup- > Upgraded the IP network by increasing the capac- port the convergence of various technologies. One of ity of the links between the nodes the most significant challenges for telecom operators > Installed an IMS system (to introduce VoIP ser- today, therefore, is the upgrade and transformation of vices) their networks and infrastructure. > Received the new Voice Mail platform, which is In recent years, OTE has been investing in the trans- expected to be completed in the first half of 2011 formation of its existing fixed-lineTDM network into > Completed Phases 1 and 2 of the new Intelligent a Next Generation Network (NGN). The architecture Network (IN) platform and expects to complete of this network, based on IP technologies, offers au- Phase 3 in the first half of 2011. tomated control from a central location and can support existing and new infrastructure. The TISPAN OTE’S CUTTING EDGE IMS network architecture, on which New Generation NETWORKS Networks are based, allows for the convergence of Apart from OTE’s advanced network, which are pre- fixed-line and mobile telephony. sented on page 35, the company has also developed As part of its network upgrade, OTE: IPTV, ADSL and FTTx networks. > Expanded the ADSL network (installation of about 150,000 new ports in 2010) IPTV > Installed ETHERNET DSLAMs at new points of In 2010, OTE’s IPTV services were expanded to 508 presence so as to offer ADSL service in smaller points throughout Greece, from which a 10Gbps or urban centers 2.5Gbps NG-SDH ring passes, and there also in- > Proceeded with the development of an NGA net- stalled Ethernet DSLAMs. The expansion of IPTV work in various regions throughout Greece services availability, through the use of the NG-SDH > Developed the IPTV infrastructure and provided ring network, will continue in 2011. -35- OTE SA: The parent company of the Group

OTE’S NETWORKS

ΙΡ Access Network > Consists of 108 points of presence throughout Greece > The services offered through the network are: IP VPN, VoIP VPNs, Direct Internet Access (DIA) and Dial-Up Internet access

IP distribution > Supports all the broadband and IP services provided by OTE and core network > The number of BRAS systems of the distribution network increased in 2010, to 56, at 15 points of presence > The IP Core network consists of 7 points of presence throughout Greece > The network’s node connections are carried out exclusively through nX10Gbps circuits

Ethernet Network > Supports broadband Internet and leased-line services > By the end of 2010 there were over 1000 Metro Ethernet points of presence throughout Greece, compared to 700 at the end of 2009 > Products and services based on IP and Ethernet networks include: — IP VPNs — DIA (Direct Internet Access) — VoIP VPNs — E-Line (Layer 2 VPNs) — Wide Area Ethernet (Layer 2 VPNs among cities) — Integrated Central ADSL Connection — Dial-Up Internet access

NGN/IMS Network > The NGN facilitates the provision of VoIP services as part of the state-spon- sored SYZEFXIS project > A total of 43 points of presence throughout Greece are equipped with the SUR- PASS type of NGN infrastructure with Media Gateways, 1 Softswitch, 10 SIP Servers, 1 Centralized IP PBX and 4 SBCs > In 2010 an IMS system was installed which will gradually replace the existing NGN system and will serve both the SYZEFXIS network as well as OTE’s VοIP services

WiMax wireless > These are operating in the following regions in Greece: broadband networks — Thessaloniki, where it serves a large part of the city, as well as the Sindos- Kalohori Industrial Area, meeting the needs, mostly, of business users — Mount Athos — The Attica region — Samos — Region of Zagorohoria -36- OTE SA: The parent company of the Group

OTE’s fixed-line network, in 2010: > 224 digital centers > 2,462 remote subscriber units > The installed capacity of OTE’s exchanges on December 31, 2010 stood at: — 5,9 million PSTN lines — 661,000 ISDN BRA lines — 9,500 installed PRA lines

ADSL oped, initially, in a limited number of urban cent- In 2010, OTE continued to reinforce its presence in ers, covering the municipalities of Alexandroupolis, the ADSL market, increasing the number of installed Komotini, Xanthi, Serres, Zografou and the area of ADSL ports from about 1.6 million by the end of Kareas. At the same time, the project is underway 2009, to over 1.7 million in 2010. By late 2010, the in the area of Voula-Vouliagmeni and licenses have service was available at a total of 1,933 points (OTE been granted for the engineering of the network in buildings, booths or spaces owned by third parties), Efkarpia, Thessaloniki and the Pylaia area of Thes- with over 4,470 DSLAMs, which corresponded to saloniki, which will begin in 2011. 97.5% of telephone connections, compared to 1,501 PoPs at the end of 2009 and 95.7% coverage. SPECIAL NETWORKS Wishing to offer connection speeds greater than TETRA 2Mbps, the company has turned to Ethernet technol- In 2010, OTE, the sole provider of the TETRA com- ogy (ETH DSLAM), while at the same time begin- mercial services in Greece, enriched the “OTE TET- ning to restrict the use of ATM technology. RA SERVICES” network with 11 new base stations, Local Loop thus significantly expanding its radio coverage. By the end of 2010, there were 1,376,000 local loops The network covers Athens and the greater Attica with shared and fully unbundled local loop access, region, Thessaloniki and its greater area, as well as compared to 984,000 in 2009. Also, by the end of other large cities and regions throughout Greece, al- 2010, the number of local exchanges with active lowing for individual and group calls, calls to other Physical Collocation, only, was 112, the number with networks, and data transmission (Short Data Services active Distant Collocation, only, was 686, while the & Packed Data Services) safely, through encryption. number of local exchanges with both active Distant The “OTE TETRA SERVICES” network consists of and Physical Collocation was 64. a Network Transfer and Management Center and 105 FTTx base stations, 45 of which are installed in Athens. OTE has been developing a new generation access network with fiber optic close to the user (FTTH/ SATELLITE COMMUNICATIONS FTTB/FTTC) in order to offer broadband services at OTE has two Satellite Communication Centers in higher speeds, up to 50Mbps per subscriber. Thermopylae and Nemea with a total of 42 transmis- The new fiber optic access network is being devel- sion-reception satellite antennas, while its two Head- -37- OTE SA: The parent company of the Group

OTE’s satellite communications infrastructure covers the geographical area of Europe, North America, Australia, North Africa, the Middle East and Western Asia, via European, American, African and Asian satellites, including the Greek satellite HELLAS-SAT-2

Ends (satellite and IPTV) cover the geographical area work (MF - HF – VHF- NAVTEX), OTE offers: of Europe, North America, Australia, North Africa, > Navigation safety Services – the Global Maritime the Middle East and Western Asia, through European, Distress Safety Systems (GMDSS) American, African and Asian satellites, including the > Special programs for seamen (weather reports, Greek satellite HELLAS-SAT-2. medical instructions, gale warnings, update re- In 2010, OTE provided via the Eutelsat, Intelsat, In- ports, service messages, and Mediterranean weath- marsat, Hellas-Sat, Amos, Thaicom, NSS, Apstar, Af- er map transmission) ricaSat and Arabsat satellites, the following services: > Commercial radio communications (radio-calls > Satellite transmission of image, voice and data and radio-teletype communications, maritime sat- services at a total transmission rate of 450Mbps ellite communications, FAX, e-mail, and TELEX). (permanent and occasional radio and television transmissions, distribution of radio and TV con- NETWORKS’ EXPANSION tent, reception/transmission of radio and TV sig- IN 2011 nals to another satellite [turnaround services], During 2011, the company will proceed to: and data transfer) > Develop and expand the NGA network (FTTH/ > Inmarsat services to parts of the Atlantic and In- FTTB/FTTC) in various regions across Greece dian Ocean (telephony, Internet, data, Telex, e- > Expand the ADSL network (increase the existing mail and GMDSS navigation security) points of presence and install DSLAMs at new > Satellite control services (telemetry and orbital points of presence) position control and change) > Expand the commercial availability of IPTV in OTE’s satellite services are supported by a high ca- more regions throughout Greece pacity interconnection (SDH and Ethernet services) > Expand the Metro Ethernet network (install new with OTE’s core network and the OTEGLOBE inter- Ethernet switches) and upgrade the existing Met- national center. During 2010, OTE also invested in ro Ethernet nodes satellite pay TV infrastructure, transmission antenna > Receive the new Interactive Voice Response (IVR) systems and the upgrade of the Inmarsat base station. platform > Expand the Service Assurance platform in OTE’s RADIO-MARITIME IP network and develop test and diagnostics tools COMMUNICATION SERVICES for ADSL Through its Radio-maritime Communications Net- -38- OTE SA: The parent company of the Group -39- OTE SA: The parent company of the Group HUMAN RESOURCES

In 2010, due to the economic crisis and the espe- tem. This system will replace all the existing relevant cially demanding and competitive environment, the systems and will effectively support the company’s company focused on two key issues: the develop- Management in its work. ment of its personnel and the control of operational costs, through increased productivity and efficiency. FOCUSED ON REDUCING Significant progress was made in both of these areas OPERATING COSTS AND through specific projects and initiatives. ENHANCING PERSONNEL DEVELOPMENT EFFICIENCY OF HUMAN RESOURCES Aiming to reduce operating costs and to enhance personnel’s efficiency, in 2010, the company introduced In 2010, ΟΤΕ implemented a Job Family Model. the HR Efficiency program. This program, which has This model, which facilitates personnel’s develop- been handled with the utmost priority, will focus on ment via up-to-date tools and applications, entails: a) the monitoring and review of existing policies, prac- the charting of all the job roles within the company, tices and the company’s organizational structures. b) their detailed description, and c) their grouping Emphasis will be placed on the identification of into families of similar roles. The model is the base measures which will be contributing to the reduction upon which human resources development systems of costs in a systematic way. The first results of this will be founded. These systems will ensure: program are expected to emerge in the first months > Growth and development of 2011. > Compensation, benefits and incentives > Education, specialization and the optimum management of skills FOCUS ON THE So far, all roles have been recorded, described in PROFESSIONAL detail and classified into groups. The project’s final DEVELOPMENT OF stage, which involves matching employees to the EMPLOYEES roles listed, began in 2010 and is expected to be com- The company is committed to providing its employ- pleted sometime during 2011. ees with opportunities for professional development Moreover, OTE is beginning to set up a modern, in- and also to accumulate the skills required for OTE to tegrated Human Capital Management (HCM) sys- remain competitive. -40- OTE SA: The parent company of the Group

Τhe company aims to enhance personnel efficiency

To accommodate this need, the OTE Group, and par- At the same time, existing evaluation processes re- ticularly OTEAcademy, which is OTE’s training and corded the performance of company employees vis- professional development agent, organizes seminars à-vis the successful completion of their tasks. OTE’s and training programs. performance evaluation system aims at motivating, In 2010, about 5,900 OTE employees participated in rewarding and encouraging the professional devel- educational programs. ΟΤΕAcademy, develops spe- opment of its employees, and ensuring transparency cific programs or adapts some educational programs and objectivity throughout the evaluation process. in order for them to meet OTE’s specific educational The current evaluation system also facilitates job ro- needs. tation practices within the company, preparing em- OTEAcademy’s educational programs cover the fol- ployees for a change in either tasks or position. lowing areas: > Technology and Telecommunication COMPENSATION AND REWARD > Information Technology POLICIES AS PART OF OTE’S > Management TARGET-SETTING AND > Customer Services EVALUATION SYSTEM > Sales Although OTE’s compensation policy, which has > Financial Issues been established through Collective Labour Agree- > Human Resources ments, determines salaries based on the years of > Health and Safety service and education, a compensation and reward > Technical Issues. policy is also in force, as part of the human resources EVALUATION SYSTEMS FOR target-setting, evaluation and reward system. This ALL COMPANY EXECUTIVES system is defined by specific rules and regulations and is based on the principle of fair allocation of re- In 2010, members of the company’s senior manage- wards. In cases when performance exceeds preset ment were evaluated through the new PPR (Perfor- targets, the Management may grant rewards in the mance & Potential Review) evaluation system, en- form of bonuses. In special cases of extraordinary hancing, thereby, transparency with respect to their nature, the company may reward its employees by skills and performance. In detail, this new system fo- other means (commendation, extraordinary bonuses, cuses on the evaluation of their performance as well etc.). as on their potential progress within the company. -41- OTE SA: The parent company of the Group

In 2010, OTE implemented the PPR (Performance & Potential Review) evaluation system for senior management, aiming to evaluate their skills and performance

All OTE employees, including those seconded from diation (EMR) levels in OTE Group buildings, as subsidiaries, are subject to the same performance part of the Environmental Management Systems, evaluation and reward systems and under the same ISO 14001:2004 regulations relating to working hours, job rotation > Digitalization of the physical archive of decisions and promotions, irrespective of their years of em- issued by OTE’s management since 2000, and ployment within the company. creation of an electronic filing and indexing system KEY DEVELOPMENTS > Recording (through the ARIS system of recorded IN 2010 processes) of all the primary and supportive processes implemented by the company across its At the end of 2010, the company had 10,925 employ- various operations. ees compared to 11,369 in 2009. The average age of OTE’s employees stood at 45 years. During 2010, 98 Projects and developments, in 2010, as part of the employees were hired by ΟΤΕ, 542 were no longer company’s organizational structure: working for the company and 461 employees left the > Documentation of all internal processes up to a company as part of an early retirement scheme. Sub-Division level according to the ΟΤΕ PDM model and methodology (annulment or estab- Projects and developments in 2010 related to quality lishment of a process, change in the description/ and organization: name of an Operational Unit etc.) > Participation in the EFQM’s “Committed to Ex- > Documentation, control and encoding of Opera- cellence’’ Business Excellence Model for the Eu- tional Units’ projects ropean certification of OTE’s departments > Collaboration with OTE’s IT Operational Unit on > Planning and implementation of an information the Peoplesoft HCM project, regarding: program, throughout Greece, for the develop- — Filing descriptions of Operational Units’ pro- ment, application and certification of integrated jects; and Quality Management Systems, ISO 9001:2004, — Linking Operational Units’ data about their Environmental Management Systems, ISO structure with the ARIS Information system 14001:2004 and Health and Safety in the Work- through HR LINK. place Management Systems, ΕLΟΤ 1801:2008 > Development of an annual, pan-Hellenic program for the measuring of Electromagnetic Ra- -42- OTE SA: The parent company of the Group

Support Specialized

6.6% 3.0%

55.7% 28.5% 5.3% 1.0%

Technical Commercial Finance Other

OTE employees per function (2010)

47.5% 34.9% 16.7% 0.9%

35-49 50-59 20-34 60+

OTE employees’ age mix (2010) -43- OTE SA: The parent company of the Group

2011 OUTLOOK The company’s key objectives for 2011 involve the reduction of operating costs and the increase of personnel efficiency. The company will leverage on the potential of its existing personnel. Human Resources Division’s objectives include the following: > Completion of the Job Family Model > Completion of the HR Efficiency program > Planning, development and certification of the Quality Management Systems according to ISO9001, ISO14001, and ISO27001 OHSAS (ΕLΟΤ1801), as well as the European Certifica- tion of Business Excellence (EFQM) > Review and designation of Key Performance In- dicators (ΚΡΙs) related to the company’s organizational structure. -44- OTE Group operations -45- OTE Group operations -46- OTE Group operations -47- OTE Group operations OTE GROUP OPERATIONS

Germanos SE Europe ΟΤΕ GLOBE (100%) Greece (100%)

Globul Hellas Sat OTESat-Maritel Other Cosmote Bulgaria Greece Greece companies Greece (100%) (94%) of the Group (100%) (99%)

Zapp ΟΤΕ Α.Ε. Romania Greece (100%)

ΟΤΕ AMC Investment Albania Services (97%) Greece (100%)

Cosmote ΟΤΕestate ΟΤΕAcademy OTEPlus Greece Greece Greece Romania (30%) (70%) (100%) (100%) (100%)

RomTelecom Romania (54%)

OTE Group’s structure

Fixed-line Telephony Mobile Telephony Other Operations -48- OTE Group operations

Fixed-line OTE SA BROADBAND SERVICES

Reduced growth rate of broadband services in Moreover, through OTE’s satellite broadband Internet Greece service and its Hellas Sat satellite, broadband services The growth rate of broadband services in Greece are now available in Greece’s most remote areas. posted a drop, compared to previous years. This drop During 2009-2010, OTE employees installed a to- is due both to the maturity of the market and the eco- tal of 301,588 new ADSL ports through 856 new nomic crisis, which seem to have affected demand. DSLAMs. Responding to the needs of other telecom- The Greek Regulator (EETT) estimates that about munications operators, the company also activated a 20% of unbundled local loop access subscribers are total of 733,625 new lines for unbundled local loop voice customers. access – LLU (341,175 LLU in 2009 and 392,450 In recent years, one of the main strategic and busi- new LLU lines in 2010). ness objectives of OTE’s Management has been to Through Conn-x, OTE leads new technology devel- increase broadband services penetration in Greece opments in Greece and remains the first choice, for (which is approaching EU-average levels). Through customers seeking quality broadband services. In De- the investment of billions of euros in infrastructure cember 2010, OTE’s broadband services customers and the implementation of radical changes in its were more than 1,140,000. structure (in order for it to meet the demands that broadband development entailed on a technological, EMPHASIS ON BUNDLES AND technical, regulatory and commercial level), in recent INTERNET SERVICES years OTE has successfully met the country’s need During 2010, competition among operators was es- for technological advancement. Without any financial pecially intense with respect to bundled products for support from the Greek State or the European Union, residential customers, the marketing of new bundled OTE has secured the availability of broadband ser- products, as well as the continuous promotion of of- vices to the overwhelming majority of the country. fers and discounts on packages that combine voice, Today, over 95% of existing telephone connections in broadband Ιnternet (Double Play), and/or pay-TV Greece feature the infrastructure necessary to provide (Triple Play). broadband services. Competition intensified even further, as a result of the The development of OTE’s ADSL network continued promotion of bundles of fixed-line and mobile teleph- in 2010 throughout Greece, with its Points of Pres- ony services (that were a result of the collaboration of ence (PoPs) coming to 1,937 of which 1,710 are with- mobile telephony companies and fixed-line operators, in the Attica region. -49- OTE Group operations

25%

20%

15%

10%

0% 2003 2004 2005 2006 2007 2008 2009 2010

Greek Broadband Population Penetration

3000

2,529 2500

2,100 2000

1,606 1500

1,083 1000

500

0 2007 2008 2009 2010

Evolution of Greek broadband market - Active lines (000) -50- OTE Group operations

The New Generation Access Network will provide final users with super high - speed broadband services, based on fiber optic (Fiber-To-The-x), with advanced qualitative features

in line with the trends of convergence of telecommu- ket, and a new telecommunications provider (who nication services).The new emerging trend is that de- was active in other regions in Greece) expanded its mand is turning to bundled packages, which greatly activities in the Attica region. reduce the cost of telecom services for residential customers. ΟΤΕ: NEW GENERATION Tariffs for broadband services dropped considerably ACCESS NETWORK as a result of the continuous promotional offers in As part of its strategy to provide new, innovative ser- the market. Despite intense regulatory intervention, vices, while at the same time improving the quality of OTE succeeded in remaining competitive, in terms broadband access, OTE began, in 2010, to develop, of its tariff policy. The quality of the services pro- for the first time in Greece, a New Generation Access vided, along with OTE’s response to its customers’ Network (New Generation Access - NGA). This net- specialized needs, and also through a comprehensive work will provide final users with super high-speed customer service system and a well-organized distri- broadband services, based on fiber optic (Fiber-To- bution network, contributed significantly to OTE’s The-x) with advanced qualitative features (down- success in maintaining its market share. loading up to 50Mbps and uploading up to 5Mbps). As regards companies and businesses, broadband ser- Τhe development of the New Generation Network vices are still a necessary tool for their operation and was launched in a limited number of urban areas commercial activities (as indicated by the increase throughout Greece and will gradually expand to other in electronic shops and the promotion of products areas as well. through social media and other online marketing activities in 2010). As a result, last year, the demand in PRODUCTS AND SERVICES services in the corporate customer market, focused on value - added and networking services. FOR RESIDENTIAL Furthermore, during the year, a gradual replacement CUSTOMERS of traditional connectivity services (e.g. leased lines, The convergence of telecommunication services, ΑΤΜ) with newer ones (IP VPN, Ethernet) was re- the consumer trend towards home entertainment, as corded. These new services offer customers more well as the considerable expansion of ADSL in re- versatile, simplified and economical solutions. cent years, have led telecommunications operators During the same period, synergies between telecom- worldwide to provide digital TV services through munication companies increased in the overall mar- broadband access (IPTV). These services are usually -51- OTE Group operations

OTE’s objective: to become customer’s first choice in the triple-play market segment

offered to customers as part of triple-play products, a and a DSLAM). OTE intends to bridge this gap, with- combination of voice (mainly VoIP), ADSL and TV/ in 2011, by offering Conn-x TV via satellite as well. VοD services. During 2010, and as part of its commitment to the In response to international trends and customers’ development of new technologies and the increase of evolving needs, OTE launched, in early February broadband penetration, OTE: 2009, the Conn-x TV (IPTV) service, available at > Upgraded ADSL speeds for all subscribers 460 Points of presence of OTE’s network throughout throughout Greece at no extra cost. In particu- Greece. These include the capitals of all the prefec- lar, 8Mbps customers were upgraded to 24Mbps, tures, small towns, islands, and urban centers with while 2Mbps customers were granted double the even smaller populations. The service is available at speed of uploading, at 512 Kbps. Those who al- speeds, 2 and 24Mbps. ready had 24Mbps were offered lower prices In terms of content, the number of TV channels has > Launched three new double-play discount packag- increased to 48, covering most genres and interest es at a fixed net price: the Conn-x Mixed 200 pack- areas, such as children’s programs, documentaries, age (a fixed price which includes the monthly fee sports, fashion and lifestyle, news, music and en- for a PSTΝ/ISDN BRA telephone connection, plus tertainment, i.e. films and TV series. Content is ex- 180 minutes local or long distance calls, within or pected to expand even further in 2011. Key to OTE outside the OTE network, 20 minutes of calls to Conn-x TV’s take up, was the securing of the rights to mobile phones of any Greek network, as well as OPAP’s Greek Football Cup for 3 years, starting with unlimited access to the Internet through a Conn- the 2010/11 season. x connection at 2Mbps speed); the DP2 discount At the end of 2010, the customer base of OTE’s IPTV program (a fixed price which includes the monthly services was 50,038 subscribers. fee, unlimited local and long distance calls within Throught the Conn-x TV offering, OTE aims at meet- and outside the OTE network, as well as unlim- ing its customers’ demand for a greater selection of ited access to the Internet through a Conn-x con- TV options and programs, while at the same time cap- nection at 2Mbps speed); and the DP24 discount turing first position in the triple-play market. Never- program (a fixed price which includes the monthly theless, a large portion of OTE’s subscriber base, and fee, unlimited local and long distance calls within the overall Greek population, cannot opt for Conn-x and outside the OTE network, as well as unlimited TV services due to ADSL2+ technology limitations access to the Internet through a Conn-x connec- (mainly because of the distance between the customer tion of 24Mbps) -52- OTE Group operations

56.0% 44.0%

ΟΤΕ Retail Total LLU ADSL & OTE wholesale

OTE retail ADSL market share (2010)

1,044 1,011

55.2%

801 41.1%

34.8%

Conn-x subscribers

% Subscribers using voice and broadband as % of total Conn-x subscribers

2008 2009 2010

Conn-x subscribers

2010 50

2009 16

IPTV subscribers (000) -53- OTE Group operations

The two most successful broadband programs, in terms of sales, were the DP24 with 117,600 new customers and the DP2 with 82,000 new customers

> Launched the new Cοnn-x on a 2nd phone line, PRODUCTS AND SERVICES addressing customers that wish to alternate their FOR CORPORATE AND Conn-x connection, between two telephone con- BUSINESS CUSTOMERS nections at a lower cost than the sum of the two In the corporate and business market, besides the connections basic telecommunication services (telephony, broad- > Developed a service for the long-distance man- band, and connectivity services), OTE also offers agement of xDSL equipment, for the activation of managed network services, as well as supply, set up, broadband services, and the automatic set up of installation, and equipment and software support ser- equipment supported by communication protocol vices. To this end, the company develops and offers TR069. This service is a comprehensive solution standardized solutions and packages that combine te- which will benefit both OTE, by virtue of the easy lephony, broadband Internet access, and Data Center and fast set up of its equipment, and the customer, services. by virtue of the immediate service offered after the During 2010, demand in the corporate and business sale in the event of malfunctions customer market segment centred on broadband ac- > Provided voice and broadband services through cess services, bundled services and packages with the WiMAX fixed wireless access network -in ar value-added services with guaranteed quality and eas, where broadband services through a wire line competitive prices. network are not possible Within this framework, in 2010, OTE proceeded to: The two most successful broadband programs, in > Carry out a review and a full evaluation of the 2010, in terms of sales, were the DP24, with 117,600 ΟΤΕ IP VPN service, in order for it to correspond new customers and the DP2, with 82,000 new cus- perfectly to customers’ different needs for price, tomers. It should be noted that during the last quar- speed and quality, within a highly competitive enter of the year, OTE offered Conn-x 6+6. Despite the vironment short time it was on offer, the number of applications > Draft a standardized SLA (Service Level Agree- came close to 30,000. ment) for its IP VPN, Ethernet & DIA services, in order to provide guarantees with respect to the quality of its services > Create and launch new products/bundles for equipment hosting services (Data Center, Co-location) -54- OTE Group operations

The company provides corporate and business customers with integrated solutions and standardized service packages that combine telephony, broadband access and Data center services

> Launch a new ΟΤΕ Business Portal Packs pack- cally, the NSRF’s Digi-Retail and Digi-Content age addressing mainly small and mid-sized com- initiatives, allow the companies that are involved panies that wish to develop their own website to make use of Information and Communication (Corporate Site package) or e-shop (e-shop pack- Technologies (ICT) age) and make use of corporate applications Through the development and implementation of ad- > Review and evaluate the Dedicated Internet Ac- vanced Data Mining models (which include, among cess service, as a premium solution for corporate other things, an analysis of a project’s value, tariffs and business customers in terms of Internet ac- optimization potential as well as the observation of cess, with a new tariff policy and fully automated customers’ behavior), the company has succeeded in IT Systems. This service provides the combination utilizing information related to experience and cus- of a circuit and Internet feed to OTE customers tomer behavior, in taking strategic decisions to pro- that opt for permanent and high quality Internet mote sales and retain customers. access at a wide range of speeds (1Mbps-1Gbps), through various access technology options OBJECTIVES FOR 2011: > Integrate the 3 Ethernet services (Basic, Advanced OTE’S SERVICES PORTFOLIO & Wide-area) into a single e-line Ethernet service TO SUCCESSFULLY MEET THE with a simplified structure, improved features and NEEDS OF EVERY HOME AND a new tariff policy. The Ethernet services network meets a) the connectivity needs of businesses’ BUSINESS points of presence, for the transmission of large ΟΤΕ is looking forward to the further increase of volumes of data at high speeds, while at the same broadband penetration in the residential customers time reducing their telecommunication cost, and market segment and to maintaining its leading posi- b) the network connection needs of the customers tion and market share in the access and broadband > Integrated solutions packages that combine net- services markets through Conn-x. The company is work and IT technologies (ICT services) for state- committed to the development of a services portfolio funded projects under the Greek National Strate- (internet, Voice, TV) that will reliably meet the needs gic Reference Framework (NSRF), such as Digi of each household. Lodge, Digi retail, and E-health. ΟΤΕ participates Aiming to retain its customers and to defend its mar- in the NSFR program, offering reliable services ket share in the access and broadband markets, ΟΤΕ and telecommunication and IT products. Specifi- will focus on the following: -55- OTE Group operations

> The development of new broadband products/services — The launch of Internet access services at higher speeds (30Mbps/2.5Mbps and 50Mbps/5Mbps) gradually throughout Greece. The aim is to provide, besides Internet access packages, double-play and triple-play packages as well — The offering of bundled packages in collaboration with Cosmote (a comprehensive solution for the customer, for fixed and mobile telephony services and fixed and mobile broadband services, to uphold customer loyalty and ensure customer retention) — The development of value-added services, to be combined with Conn-x (such as on-line storage, back-up, sharing, etc.) — The launch of a satellite TV service > The enrichment of the product portfolio — Rationalization of product offering, in terms of both existing services and services under development — The promotion of aggressive tariff offers — The targeted launch of packages (addressed to specific market segments and covering specific telecommunication needs) > Stimulation of demand for OTE’s products and services for retail customers — New communication campaigns — Increased communication through new media: Internet, interactive marketing and other one- to-one actions > In the corporate and business customer market, ΟΤΕ aims to defend its leading position through: — The development of innovative products, services and comprehensive solutions that combine network and IT technologies (ICT) — Services and Cloud Computing solutions, which allow for much development — Services offering based on the Next Generation Access network. -56- OTE Group operations

FIXED-LINE OTE SA VOICE SERVICES

Catering to the needs of every residential customer > Further emphasis on Internet access programs and modern business, ΟΤΕ has developed a wide port- via the mobile network (mobile Internet via a pc) folio of innovative products and services, competitive through discounts and special offers data and telephony programs, and best-of-class, inte- > The gradual replacement of carrier pre-selection grated services. by the Wholesale Line Rental (WLR) service, through which alternative providers offer fixed- MARKET TRENDS line services without OTE’s monthly rental Following some reshuffling that involved Greek tel- In 2010, the corporate and business customer market ecom operators, the Greek telecommunications mar- was affected by the following developments: ket now comprises of four powerful entities dominat- > The financial crisis led many companies to close ing the market scene. The forging of synergies and down. This effected the shrinking of the corpo- partnerships (in order to provide bundled products at rate and business customer market, as well as lower –overall- prices) along with the need for inte- an increased customer sensitivity with regards to grated solutions has led to the convergence of fixed product prices. Aiming to streamline their operat- and mobile telephony, in terms of services and tech- ing expenses and to upgrade their technological nology. The special offers and price war is expected infrastructure, companies and businesses began to continue. seeking out integrated solutions at more attractive In 2010, the residential customers market was marked prices by: > The Public Sector’s effort (a major client of ΟΤΕ) > Aggressive tariff policies by telecom operators to reduce its operating costs across all areas, led to > Dynamic promotion of offers and discounts on a gradual decrease in the take up rate of telecom- telephony and double-play (telephony and Inter- munications products and services net) services. Emphasis was laid on programs that > Competition’s differentiation strategies, through combine ADSL and telephony with time-based bill- discounts and special offers ing, as well as on unlimited call packages for local > The cooperation of companies that provide IT and national long-distance calls equipment and applications with telephony opera- > The offer of fixed-line, mobile and Internet- ser tors, in order to develop integrated solutions that vices packages, at a flat rate within a single bill, combine network and IT technologies (ICT ser- responding to the needs for integrated solutions at vices). The need of Greek businesses for bundled lower prices and ensuring customer loyalty products and integrated solutions (with respect to -57- OTE Group operations

telecommunication technologies and IT services), calls, not included in the package, are charged as local along with the alternative operators’ objective calls. to increase their average revenue per customer, In 2010, ΟΤΕ further reduced the prices of the OTE brought effected a very competitive market in this Mobile programs in order to fully address the needs of area. ΟΤΕ met this challenge, by reinforcing exist- subscribers that opt for low cost solutions, for calls to ing partnerships and forging new ones. mobile networks as well. In the prepaid card market, OTE offers the OTE Tel- FIXED-LINE PROGRAMS ekarta (only for public phones), the OTE Chronokarta FOR RESIDENTIAL CUSTOMERS and the OTE Allo cards, the OTE Smile&Web prepaid The dire financial conditions, which negatively af- phone and Internet card, the OTE Conn-x Wi-Fi card fected consumer activity, fierce competition, and con- for wireless Internet access, and the OTEKARTA for stant regulatory interventions, resulted in OTE los- fixed-line calls. ing customers in 2010. Indicatively, the percentage In the prepaid card market, the company maintained of customers that cut off their telephone connection its leading position again this year by retaining its cus- increased from 7.6% in 2009 to 10.5% this year. In tomer base and telecommunication traffic. Starting in late 2010, ΟΤΕ had 3.4 million PSTN lines (includ- 2011, OTE began transitioning to the new Intelligent ing WLR) and approximately 480,000 ISDNA BRA Network (IN) services for pre- and post-paid cards. & PRA lines. In the tele-information services and sales call center During 2010, in response to its customers’ needs and market, the company defended its market share by en- the challenges posed by competition, the company riching the content of its 11888 service and promot- proceeded with the upgrade of existing voice service ing new services based on five-digit numbers (14744, packages and the launch of new ones. 14844, 14944). In 2010, an upward trend was observed With regards to its residential customers, OTE up- in the Value Added Services (Voice Port & Conversa- graded the popular All Day + 60’ Mobile package, to tional Services: 1535, 1515), which reinforced fixed- a package with a reduced flat rate that includes the set line’s sales volume and is expected to continue to do monthly fee, unlimited local and national long-dis- so in 2011. tance calls, and 60 minutes of free calls to all national OTE also operates a number of Portals with consider- mobile networks. able numbers of visits. One of the most popular news/ OTE also reviewed the packages that combine the entertainment portals in the Greek market, with an es- monthly fee with prepaid call time for local, national timated 1.2 million unique visitors per month (which long-distance and mobile calls, addressing customers translates into 13 million page views), is www.otenet. with less talk-time needs. gr Other major portals include: www.Travel.gr (a tour- Moreover, in 2010 the price of the Fixed-line + Mo- ist services portal), www.WomanToday.gr (a portal bile 300 package was reduced. The company also dedicated to women’s and lifestyle issues), as well as launched the new Fixed-line and Mobile 165 package. www.2x4.gr (a special portal for cars and driving). This package includes, at a flat rate, the PSTΝ/ISDN Besides its telephony packages, the company also of- BRA telephone connection’s set monthly fee, as well fers value added services, such as caller ID, blocking as 150 minutes of local or national long-distance calls of outgoing calls, outgoing ID blocking, etc. to all fixed-line networks and 15 minutes of calls to all national mobile networks. Any national long-distance -58- OTE Group operations

OTE’s Call Centers and the OTEShops contributed significantly to OTE’s annual sales

FIXED-LINE PACKAGES FOR with multiple customer service points and offering a CORPORATE AND BUSINESS wide range of services. This network consists of the CUSTOMERS Group’s shops: > ΟΤΕSHOPS OTE launched new packages for its corporate and > Cosmote shops business customers and enhanced its existing prod- > Germanos shops uct portfolio. In 2010, the most successful products in > The Call Centers (sales and customer service net- terms of sales were: work) > The OTE Business “4500” time packages for small > The www.oteshop.gr (e-shop) and medium-sized businesses and the OTE Busi- ness “15000” time packages for large businesses The OTESHOPS, Cosmote shops and Germanos shops with privileged billing within and outside the pack- The OTE Group’s shop network in Greece comprises age. These time packages offer 4,500 or 15,000 of 224 OTESHOPS throughout Greece (of which 206 minutes of pre-paid talk time for local calls to all are self-owned and 18 are franchises), 435 Germanos fixed-line networks shops, and 22 Cosmote shops. > The OTEBusiness Call Corporate discount pro- ΟΤΕ’s Call Centers grams that offer a flat rate for local and national ΟΤΕ’s Call Centers operate throughout Greece, at 4 long distance calls to all fixed-line networks, for points. They consist of 1,000 work stations and serve the price of a local call, to an OTE number, and customers all over the country. They boast highly additional discounts depending on the amount of trained personnel and advanced technical equipment. the customer’s monthly bill for local and national OTE’s specialized customer service centers include long distance calls to all fixed-line networks the 13888 telephone sales center, the 11888 telephone The company also offered comprehensive voice and directory service, and the www.oteshop.gr online shop. data transfer solutions via IP technology. OTE also offers the OTELINE call center for outbound Telemarketing, the 139 call center for operator- ONE OF THE LARGEST assisted long-distance calls, the 11889 call center for DISTRIBUTION AND CUSTOMER international directory information, and the 14744, SERVICE NETWORKS IN GREECE 14844, and 14944 call centers for tele-information. ΟΤΕ boasts one of the most extensive distribution In order to better serve the needs and safety of Greece’s networks in Greece, covering the entire country, citizens, ΟΤΕ offers the 1502 citizen request manage- -59- OTE Group operations ment call center for issuing certificates; the 112 Eu- of thousands of calls were answered within very short ropean emergency call number; the 121 malfunction response times. report call center; the help center for the hearing im- Moreover, OTE built up new communication channels paired; and the OTEAlert home emergency alert sys- (portals, proactive support, mail, etc.) with its custom- tem. ers, responding to their needs, and carried out count- less sales, either directly or by forwarding requests to Telephone sales center - 13888 expert sales advisors within the company. Answered calls > 3.1 million In 2010, OTE also implemented its new IT systems in Average response time > 21 sec. order to optimize the efficiency of its sales channels Customer satisfaction rate > 94% and their support, as well as to expand the potential for business intelligence. www.oteshop.gr online sales Visits > 2.9 million target in 2011: CUSTOMER- Sales > 17,809 ORIENTED TRANSFORMATION THROUGH NEW SYSTEMS AND Directory enquiries - 11888 PROCEDURES Answered calls > 28 million ΟΤΕ’s objective is to defend and further increase its Average response time > 11 sec. market share. The company will focus on its custom- Customer satisfaction rate > 97.0% er-oriented transformation, through new systems and OTE has set up for its corporate and business custom- procedures, as well as through the optimization of its ers the 13818 OTEbusiness Customer Service Call sales and customer service networks. Center, into which all separate call centers for corpo- For its corporate and business customers, OTE intends rate and business customer service were merged in to develop: 2009. As a result, OTE is able to offer through a sin- > Telephony and value-added services as part of gle-point helpdesk: guidance/advise on commercial Unified Communication (infrastructure that sup- and technical matters, enhanced services through the ports the convergence of services) OTEbusiness Customer Service groups, call-routing > IMS voice services over IP protocol via a modern IP call-center, and support to any cus- > New discount fixed-line programs and packages tomer request. The performance indicators of the inte- > Fixed-line and mobile telephony packages as a re- grated call center (for corporate and business custom- sult of the synergies within the OTE Group. ers are very satisfactory since, during 2010, hundreds

435 224 22

Germanos ΟΤΕSHOP Cosmote shops

OTE Group Greek retail distribution network (2010) -60- OTE Group operations -61- OTE Group operations -62- OTE Group operations SERVICES FOR TELECOM OPERATORS

INCREASED DEMAND FOR of their Backbone Networks (through their own in- BROADBAND SERVICES vestments, synergies, and through fiber optic infrastructure network sharing) in order to reduce their ΟΤΕ develops and offers wholesale services, which operating costs and become more versatile and com- guarantee comprehensive and cost-effective solu- petitive in terms of quality and price. tions, to telecom operators. The partnerships and mergers between fixed-line and The wholesale market continued to expand in 2010 as mobile telephony companies, that have taken place a result of the increased demand for broadband ser- due to fierce competition, are gradually altering the vices. OTE contributed significantly to this develop- landscape of the telecommunications market. As a re- ment. sult of these developments and of the broader techno- During recent years, Unbundled Local Loop Access logical and economic conditions, certain companies (LLU) has been the key area of interest for telecom are less likely to survive these trying times and con- operators; a trend that has greatly increased com- stantly changing market conditions. petition between operators who have developed the necessary infrastructure and offer alternative network services for telephony, ΑDSL and combinations SERVICES FOR TELECOM thereof. Besides the large urban centers, considerable OPERATORS activity and growth has taken place in other regions By identifying market trends and business opportu- of Greece, with a total coverage of over 4,400,000 nities that arise in different areas of commercial ac- subscribers (i.e. 85%), thus contributing greatly to tivity, ΟΤΕ develops and provides telecom operators the faster penetration of broadband services. In 2010, with the following services: the number of broadband lines exceeded 2.53 million, > Broadband Access which translates into a population penetration of over > Data Transfer 22.7%. > Voice and Network Interconnection In Greece’s telecommunications market today, there > Value-added are a total of 47 fixed-line and mobile operators, of OTE’s key objectives in this market are to: whom 16 are interconnected with OTE’s telephone > Enhance its services network, while 6 operators are active mainly in LLU > Provide best-of-class customer service services. > Ensure the company’s consistent compliance to Telecom οperators are continuing with the expansion regulatory demands In 2010, ΟΤΕ expanded its service portfolio and up- -63- OTE Group operations

ΟΤΕ’s key objective is to enhance its services and provide best-of-class customer care to telecom operators

graded the quality of its services, through the follow- for Interconnectivity Services (W-CRM WIL) and ing: Wholesale Line Rental (WLR). > Development of broadband access services as part of OTE’s new NGA network INCREASED DEMAND FOR LLU > Provision of Wholesale Leased Line Services in SERVICES Point to Point (PtP) form The great demand for LLU services that was recorded > Expansion and upgrade of data transfer servic- during the period 2007-2009 continued in 2010, as es, offered through the Ethernet network on a lo- well. ΟΤΕ met this, technically and organization- cal and national level. The points of presence of ally, challenging demand, with the provision of over the ΟΤΕ-Ethernet Service are supported by 151 392,400 new LLU lines in one year, an increase of OTE Call Centers, in 30 urban areas throughout 39% compared to 2009. By the end of 2010, the num- Greece, with the option of their interconnection. ber of LLU lines stood at approximately 1,380,000. The “ΟΤΕ Ethernet” service fully meets the needs A significant increase in demand was also recorded in of telecommunications operators for a fast, versa- services related to LLU, such as Collocation Servic- tile and safe transfer of data, without limitations es. In 2010, Physical Collocation services with LLU or further investments by the customer lines were in operation in 173 of OTE’s urban cent- > Providing all fixed-line and mobile networks sub- ers. In these, the Physical Collocation services pro- scribers with access to OTE’s 11888 directory in- vided to telecommunications operators came to 781, quiry service, to OTE’s premium services (90xx), since the Physical Collocation service at each center and to other short codes as part of its Network can be used by more than one operator. Interconnection Services > Development of a W-CRM system for the Whole- Drop in the number of wholesale ADSL connections sale Leased Line Services (W-CRM WΙL), that al- The number of wholesale ADSL connections, through lows for the recording and follow up of all Whole- OTE’s ARYS service, stood at 37,500 at the end of sale Leased Line requests through a Web-based 2010. This number has declined significantly over the Wholesale CRM system past 3 years due to alternative operators’ commercial > Expansion and upgrade of the W-CRM electronic policises that involved the development of privately- filing of requests for LLU, Wholesale ADSL, Num- owned network infrastructures. They encouraged ber portability and Carrier Pre-selection Services their subscribers to take up LLU services. Another > Operational launch of upgraded W-CRM systems factor that has contributed to the decline in the num- -64- OTE Group operations ber of wholesale ADSL connections through ARYS, by about 31.5% in 2010, that is 1.85 billion minutes, is the departure, from the market, of companies (due compared to 2.7 billion minutes in 2009. to financial problems) which were providing whole- In 2010, Carrier Pre-selected (CPS) customers stood sale broadband connections. at 205,800 (from 280,000 in 2009), while there was a steep increase in the customer base of number port- WHOLESALE LEASED LINES ability services (1,500,000 in 2010). AND DATA SERVICES FOCUS ON QUALITY OF The number of leased circuits decreased in 2010, with the total number standing at about 6,410 Terminal- SERVICE Link Parts in 2010, compared to 8,300 in 2009, and In 2010, the company monitored the market of whole- 1,520 Transmission Connections in 2010, compared sale services for telecom operators in order to identify to 2,075 in 2009. At the end of 2010, ΟΤΕ was in full market trends and customers’ evolving needs. compliance with its regulatory obligation to provide Within this context, the company proceeded to: Wholesale Leased Lines in the form of Point to Point > Complete the W-CRM (Wholesale CRM) system circuits. which monitors and receives requests pertaining Interconnection Links of 2Μbps stood at 4,777 in to Wholesale Leased Lines. The table below pre- 2010 (compared to 5,630 in 2009), of which approxi- sents the number of requests handled by OTE in mately 2,196 corresponded to Trunk segments, com- 2010 (breakdown by service): pared to 2,140 in 2009. On the whole, the demand for SDH and Ethernet net- Services Requests filed works to meet telecom operators’ needs for Backhaul with the and Backbone, decreased due to network develop- Wholesale-CRM ment and sharing. At the same time, the company recorded an increase of national capacity services take LLU – Collocation > 1.057,121 up (for data transfer to and from countries outside Number Portability (NP) > 494,998 Greece). Carrier Pre-selection (CPS) > 304,079 Wholesale Leased Lines INTERCONNECTION SERVICES (WLR) > 129,276 In 2010, with respect to telephone network intercon- Wholesale Broadband nection services, the traffic volume of alternative op- Access (A.RY.S.) > 55,188 erator calls, terminating at OTE’s network (measured in minutes), remained unchanged from 2009 levels, > Upgrade of operators’ customer care services standing at 4.4 billion minutes. The traffic volume — Online filing of requests of mobile operators terminating at OTE’s network — Release of of statistics and reports reached 1.7 billion minutes in 2010 (down from 2 bil- — Monitor and handling of requests related to lion minutes in 2009 and 2.1 in 2008). This continu- LLU, Collocation services, Wholesale ADSL ing decrease of mobile traffic volumes terminating at (Α.RY.S.) connections, Number Portability, Car- OTE’s network reflects the increase in LLU services. rier Pre-selection, Interconnection and WLR Origination and transit traffic minutes fell sharply Services > Upgrade of operators’ fault reporting call center -65- OTE Group operations

to handle all requests and problems in a timely maner. In 2010 there was great improvement in the response and request management time.

2011 OUTLOOK With respect to the market of services for telecom operators, in 2011, OTE will be: > Leveraging on its existing telecommunications infrastructure and on new technologies for the provision of its services > Providing competitive, high - quality services that meet the increasing needs of fixed-line and mobile operators within the complex environment of telecommunications market convergence > Aiming for best-of-class customer service and direct after-sale support. -66- OTE Group operations

2010 1,380

2009 987

2008 647

LLU active lines (000)

98% 2%

Full Unbundling Shared Access

LLU breakdown (2010)

726 152 808 168 781 173 Physical Co-locaton ΟΤΕ Physical Co-locaton ΟΤΕ Physical Co-locaton ΟΤΕ agreements exchanges agreements exchanges agreements exchanges

2008 2009 2010

Physical Co-location -67- OTE Group operations

2010 322.0

2009 309.8

2008 320.4

Wholesale Revenues 2010 (€ mn)*

* Total Revenues from Interconnection/Roaming/Termination,Wholesale Leased Lines,Wholesale ADSL and LLU/Co-location

51.2% 25.9% 21.1% 1.8%

LLU Interconnection/ Wholesale Wholesale ADSL Roaming/Directory Leased Lines Services

Wholesale Revenues breakdown (2010) -68- OTE Group operations FIXED-LINE REGULATORY FRAMEWORK

Electronic communications in Greece are subject to EEET, ADAE) and all concerned Ministries and com- national, European and international regulation. The plies with laws and regulations as part of the telecom- national regulatory framework comprises of: munications market development. > the Laws of the State > Presidential Decrees DEVELOPMENTS IN 2010: > Ministerial decisions DIGITAL AGENDA AND > Regulatory Resolutions, issued by independent BROADBAND SERVICES authorities, especially the Hellenic Telecommuni- During 2010, important changes took place in the locations and Post Commission (ΕΕΤΤ), the Hellen- cal and European telecommunications market, nota- ic Authority for Information and Communication bly with respect to the design and development of a Security and Privacy (ΑDΑΕ), the Hellenic Data digital society: Protection Authority (APPD), the National Coun- > The European Commission presented =an ac- cil for Radio and Television (ESR), etc. tion plan for the implementation of a “Digital The European Union regulatory framework com- Agenda”, one of seven actions that make up the prises of: new “Europe 2020” strategy. Among many other > Treaties things, it is expected that by 2013 all EU residents > Regulations will have broadband access to the Internet. More- > Directives over, it is expected that, by 2020, all EU residents > Decisions will be able to access the Internet at speeds of at > Recommendations, some of which are directly ap- least 30Mbps, while 50% of the population will plicable, while others must first be incorporated enjoy access speeds of at least 100Mbps into national Law > Meanwhile, and in line with the relevant Europe- > International Telecommunications Union (ITU) an Directive, a Body of European Regulators for Regulations and Recommendations) which the Electronic Communications (BEREC) was estab- Greek State has ratified lished and has already commenced its operations The European regulatory framework was recently > Greece’s Special Secretariat for Digital Planning revised and relevant Directives were issued. The in- carried out public consultations regarding the uti- corporation of these new Directives into national law lization of the Metropolitan Area Fiber Optic Net- should be completed by May 2011. works (MAN) OTE works with the regulatory authorities (e.g., -69- OTE Group operations

> Greece’s General Secretariat for Communications most mandatory in a market that has matured and in announced a tender offer for a technical/financial which there is increased competition. advisor for the Fiber To The Home project The company’s regulatory policy for 2010 was aimed > The plan of the General Secretariat of Commu- at defending OTE’s views vis-à-vis the Regulatory nications (Ministry of Infrastructure, Transport Authorities on a national level, as well as vis-à-vis and Networks), for the revision of the legislative other European and international agents, on issues re- framework regarding the issuing of permits for garding, among others: the installation of standardized antenna structures > The lifting of regulatory measures in markets in was opened to public consultation; aiming to re- which competition has grown satisfactorily. The duce the excessively time consuming procedure lifting of regulatory measures concerns mainly the for the issuing of such a permit retail fixed-line markets, but also wholesale mar- > Τhe Ministry of Infrastructure, Transport and Net- kets, such as the wholesale market of call forward- works, presented to the Ministerial Council and ing, markets that have been excluded from EU rec- opened to public consultation a bill which would ommendations establish a National Observatory of Electromag- > Regulatory issues related to the provision of bun- netic Fields and a geographical information sys- dled services tem that would inventory all of Greece’s networks > Protecting the company’s investments from ex- > Work Groups were set up for the Digital Greece cessive regulation. The continuous change of 2020 Forum. the market’s dynamics create new conditions in > OTE began developing a VDSL network in the terms of competition among companies. In light Municipalities of Zografou in Athens, and the mu- of this, regulation should be imposed only when nicipalities of Serres, Xanthi, Komotini and Alex- absolutely necessary, otherwise new investments androupoli. will be hampered and innovative technologies and commercial applications will be impeded. In fact, ΟΤΕ’S OBJECTIVE: a series of meetings with the EETT took place to WITHDRAW REGULATORY discuss investments in new generation networks. MEASURES IN MARKETS WITH > Compliance with obligations relating to OTE’s SATISFACTORY LEVELS OF status as Universal Service provider and minimi- COMPETITION zation of associated costs > Assurance of confidentiality with respect to - per Following up on the rapid developments in the tel- sonal data and communications. ecommunications markets, on a local as well as on a European level, OTE, has always met the obligations Regulatory issues in 2010 imposed by the Regulatory and State Authorities, > Issues concering the cost of Universal Service vis-à-vis both its customers and alternative opera- > Approval of the offer made by ΟΤΕ for Unbundled tors. In this highly demanding environment, OTE’s Local Loop Access (by ΕΕΤΤ) viewpoint is that a fully competitive market, with > Approval of the offer made by ΟΤΕ for Wholesale companies keen on investing in infrastructure, ben- Broadband Access Services (by ΕΕΤΤ) efits consumers and contributes to economic growth > Methodology for calculation of the discount pack- in general. However, it seems that deregulation is al- ages for separate or bundled services for enter- -70- OTE Group operations

prises, which are regarded as significant market in which the desired level of competition has been players achieved > Implementation of the relevant clauses concerning > Timely approval by (ΕΕΤΤ) of OTE’s submitted consumer protection and electronic communica- discount packages, the optimization of the approv- tions confidentiality al model of OTE’s packages, and the lifting of the > Issues pertaining to radio frequencies and anten- relative obligation, i.e. the requirement of prices’ na construction approval in services where there is competition > Issues pertaining to the collocation of antennas > Antennas related matters (amendment of the rel- with mobile telephony companies, etc. evant Laws) During 2010, ΟΤΕ submitted to ΕΕΤΤ for approval, > TV content – Satellite transmission and Conn-x TV 10 new discount packages for the residential > Regulation of the provision of VDSL services customer market and 4 packages for the corporate/ > New analyses of related markets, etc. business market. Of the total number of packages submitted (residential and corporate), nine (9) were approved, four (4) were rejected, and one (1) has still to be decided on. The time lag between the launch of the product and ΕΕΤΤ’s decision ranges from 1.5 to 5 months. Besides the submission of new packages, in 2010 OTE submitted data concerning existing packages, aiming to extend or upgrade them (due to ADSL speed upgrades). The time lag in these cases ranged between 2.5 to 8 months. Each time discount packages were submitted for approval, the company was not aware of the methodology that EETT would employ to review them.

Regulatory issues in 2011 The key regulatory issues, on which OTE will focus, in 2011, include the following: > Protection of investments in new technologies (such as the New Generation Access network – NGA) from excessive regulation and intervention > Incorporation of the new European regulatory framework into Greek Law, ensuring thereby, a regulatory framework which will work to safeguard the company’s interests > Follow up on developments relating to the Greek State’s new generation Fiber to the Home (FTTH) networks development project > Lifting of OTE’s regulatory obligations in markets -71- OTE Group operations INTERNATIONAL TELEPHONY, INTERNET & DATA (ΟΤΕGLOBE)

OTEGLOBE offers integrated international whole- DYNAMIC GROWTH OF sale telephony, Internet and data transmission servic- CAPACITY AND IP TRANSIT es in Greece and abroad. SERVICES The company focuses on the development and man- The company operates in a market with a high de- agement of international telephony data and capacity mand for broadband international capacities that sup- networks; on the commercial exploitation of interna- port broadband services. This increased demand calls tional services (offered to telecom operators) and on for substantial investments in infrastructure. Moreo- the provision of fully-manageable integrated servic- ver, fierce competition requires product differentia- es (international IP VPN) to large corporate clients, tion and cost containment. through partnerships. International wholesale voice services (fixed and mo- OTEGLOBE offers integrated services via its four bile telephony) pooled most of the sales volume again privately-owned networks: a) the Transbalkan Net- in 2010, despite the international trend towards the work (TBN), which connects Greece with Western reduction of international wholesale revenues. Like- Europe through the Balkans; b) the GWEN network, wise, capacity services and the international Inter- which provides interconnection with Western Europe net service (IP TRANSIT) are growing fast and are through Italy; c) the international IP/MPLS network; becoming an especially significant part of the com- and d) the international telephony network, which pany’s operations. This is a reult of the company’s was recently upgraded with Softswitch technology, focus on markets with an increasing demand for large new functionalities, and has expanded geographical- capacity connections, with international Internet ex- ly. OTEGLOBE also participates in international sub- changes, as well as the offer of integrated services marine cable systems (e.g., SMW-3) consortia, and besides Internet coverage in collaboration with other maintains more than 150 bilateral interconnections in major international operators. the field of international telephony. A large volume of An important market trend is also the demand for broadband and international inbound/outbound voice Content Delivery services, which allow Content Pro- traffic in the region of Southeastern Europe is carried viders to transmit their content through Internet in through OTEGLOBE’s networks. High Definition quality and to expand in new geographical markets. Moreover, demand has risen in the Middle East and North African markets, for new, high-quality options -72- OTE Group operations

OTEGLOBE offers a broad portfolio of state-of-the-art telecommunications services with a global range. The company’s services fall into 4 categories: > International Interconnection Solutions > International Telephony Solutions > International Solutions for corporate customers (international VPN) > International Solutions for mobile telephony operators (GRX, Signalling, MMS Hub)

for interconnection, in the Mediterranean region, with a wide range of commercial packages to customers international business centers. with diverse demands. Moreover, through its participation in the i3 forum, the company is collaborating ΟΤΕGLOBE IN THE with all the major international operators for interna- INTERNATIONAL tional telephony’s transition to new business models. ENVIRONMENT ΟΤΕGLOBE is the unique operator in the region of DEVELOPMENTS IN 2010 Southeastern Europe, with two different geographi- Enhancing OTEGLOBE’s presence in markets of cal, privately owned fiber-optic networks that guaran- interest, such as the Middle East and North Africa tee the non-stop operation of its services, since TBN Aiming to efficiently serve existing customers and to and GWEN may operate independently or as mutual forge new business partnerships with major telecom- back-up. By virtue of the multiwavelength capacity munications operators in the Middle East and North provided by both networks, OTEGLOBE now boasts Africa, the company reinforced its commercial pres- the most comprehensive and reliable network infra- ence in these regions. Within this context: structure in the greater area of Southeastern Europe. > OTEGLOBE signed an agreement for a new sub- At the same time, the company’s investments are marine cable system interconnecting Greece with founded on a cost rationalization basis, aiming to fur- Libya ther enhance OTEGLOBE’s competitiveness. This system is an investment by Telecom Libya. This Furthermore, by virtue of its vertical integration, system is called Silphium and it creates opportuni- OTEGLOBE offers end-to-end services that cater for ties for new sources of revenue, as OTEGLOBE, ex- its customers’ specialized needs in a timely manner. clusively, provides interconnection with the rest of Forging significant partnerships with major operators Europe. It also enhances OTEGLOBE’s competitive and combining its infrastructure with that of its part- position in the Mediterranean region. ners, OTEGLOBE successfully provides comprehen- > OTEGLOBE decided to upgrade the international sive solutions in areas outside its own network cover- submarine cable SMW3 which connects Greece age. with the developing markets of the Middle East, In international telephony, based on the new NGN North Africa and Asia technologies, which have enhanced the international telephony network, OTEGLOBE is able to offer -73- OTE Group operations

Leveraging on the new NGN infrastructure and promoting versatile commercial packages in international telephony Acknowledging its customers’ diverse needs in the extremely competitive environment of international telephony, OTEGLOBE offers new commercial packages based on new IP technologies, which were utilized for the upgrade and optimization of the international telephony network.

Offering services through the Internet Protocol Ver- sion 6 (IPv6) OTEGLOBE was one of the first companies to offer IPv6 services to its customers.

OTEGLOBE becomes a member of the “Strongest Companies in Greece” business community. This distinction classifies OTEGLOBE amongst Greek companies with a very low credit risk rating The “Strongest Companies in Greece” business community includes companies that have a high credit worthiness based on the ICAP Rating Score. ICAP is recognized by the Bank of Greece as an External Credit Assessment Institution and by the European Central Bank as a Source of Credit Risk Evalua- tion. Only one in ten, Greek companies is eligible for membership to the “Strongest Companies in Greece”. -74- OTE Group operations

FIXED-LINE ROMTELECOM

RomTelecom is Romania’s telecom incumbent, of- COMMERCIAL ACTIVITIES fering traditional fixed-line services, broadband and IN 2010 digital satellite TV services, as well as voice and data In view of the significant differences between resi- bundles. The company has been a member of OTE dential and corporate customers, the company has Group since 1998. two separate commercial divisions that address the particular needs of each customer group. ROMANIAN MARKET TRENDS In order to counter the significant impact of the eco- The Romanian telecommunications market in Ro- nomic crisis on business customers, RomTelecom mania is defined by aggressive competition that is launched new, cost-efficient products, including ICT driving down all operators’ revenues. Similar to other services and voice packages. markets, fixed-line services are continuing to show a Voice services downward trend. As implied by the figures on page Voice traffic in the fixed-line posted a steep drop, in 76, many consumers own more than one mobile, ef- both the residential as well as the business customer fecting thereby the oversaturation trend in the market. market segments. The company responded to this It is expected that mobile broadband services of mo- challenge with the revamp of the company’s tradi- bile telephony is the next key area of growth, with tional voice services portfolio and the development of RomTelecom customers demanding ever higher new VoIP services. Starting 2011, all voice services speeds and capacities at the lowest prices possible. subscriptions will be based on IMS services and the Romania is the fourth country in the world and first in shift from POTS technology to VoIP will lead to the Europe, in terms of high access speeds. gradual replacement of the ISDN network. As a result of the global recession however, prices be- RomTelecom leveraged on the benefits of a common come the determining factor in a consumer’s choice telecommunications network with Cosmote Roma- of operator and telecommunications services. nia, the group’s mobile arm in Romania. Through this RomTelecom does no longer hold a dominant posi- partnership customers of either company are charged tion in the fixed-line segment of the telecommunica- the same prices for calls to each other’s network. tions market; therefore several constraints that had been imposed by the Romanian National Regulatory Broadband services Authority for Communications (ANCOM) in the past RomTelecom provides high speed broadband ser- were lifted. vices. The company offers broadband services also through RomTelecom’s subsidiary, NextGen, which -75- OTE Group operations

RomTelecom aims to enhance its presence in the broadband services market of mobile telephony

addresses customers with basic telecommunications tariff policy and the promotional campaigns and mar- needs, in terms of services and prices. NextGen of- keting communication of RomTelecom. fered new products in the market in 2010, gaining After the launch of Dolce, RomTelecom had launched, popularity amongst consumers and increasing its cus- in December 2009, the “Dolce Interactiv”, an IPTV tomer base, both organically but also as a result of the service. Dolce Interactiv is a high-end product, which buy out of smaller operators in the market. has been growing steadily (from 337 subscribers in In 2011, RomTelecom will continue with the expan- December 2009 to a total of 30,000 in December sion of its broadband access network towards 2 mil- 2010). lion ports capacity, through the exclusive development of VDSL2 technology. DISTRIBUTION NETWORK FOR Moreover, an IPTV platform, developed by RomTele- RESIDENTIAL AND BUSINESS com, would cater for the needs of an increasing CUSTOMERS broadband customer base which opts for triple-play RomTelecom’s distribution network for residential services. customers includes 73 RomTelecom-owned shops, In the business segment of the market, RomTelecom 41 Cosmote shops, 233 Germanos points of sale, as maintains its market share. However RomTelecom’s well as call centers. revenues were affected by the cost cutting measures Business customer needs are catered for, by direct- implemented by companies and the close down of sales networks, authorized dealers, call centers for many businesses, as a result of the dire financial con- SOHO (Small Office, Home Office) customers and ditions. a network of dealers for small and mid-sized com- Pay-TV services panies. RomTelecom countered fierce competition, from cable TV providers in 2006, with the launch of satellite RESTRUCTURING OPERATIONS TV services, under the brand name Dolce. In 2010, AND ENHANCING PERSONNEL Dolce subscribers reached a total of 886,000. This y- EFFICIENCY o-y increase was a result of the content enrichment, Personnel expenses posted a decline in 2010, as a re- the addition of channels with great public appeal sult of the Company’s initiatives to secure a long-term (like the Dolce Sports channel – dedicated to football reduction through voluntary retirement programs and broadcasting and other sports events), a successful improvements in network operations efficiency. -76- OTE Group operations

22.0% 114.0% 14.0% 16.0% 12.0%

Fixed - line Mobile telephony Broadband Cable TV DTH TV services

Population penetration in Romania (2010)

58.0% 33.0% 36.0%

Fixed -line Broadband services DTH TV

RomTelecom market shares (2010)

6.4% 20.4% 14.5% 22.8% -2.9% -0.1% Total RomTelecom Total RomTelecom Total RomTelecom market market market

Broadband services Broadband services DTH services Fixed - line Fixed - line and mobile telephony

RomTelecom growth vs market growth (2010) -77- OTE Group operations

651 643 824 911 1,013 1,054 DSL + Wireless DTH + IPTV DSL + Wireless DTH + IPTV DSL + Wireless DTH + IPTV data data data

2008 2009 2010

Evolution of RomTelecom’s broadband, DTH and IPTV customer base (000)

2010 9,180

2009 10,017

2008 10,344

2007 12,512

2006 12,257

RomTelecom employees -78- OTE Group operations

RomTelecom Group’s headcount was reduced by mination rates). Accordingly, ANCOM presented in about 900 employees in 2010, reaching 9,180 employ- 2010 the new methodology and main economic prin- ees, while 1,400 employees left the parent company. ciples which will be used for establishing the cost During the period 2007-2010 RomTelecom’s person- calculation model for call termination services. In nel has been reduced by 26.6%. These reductions in the meantime, the whole set of obligations imposed the number of employees are part of RomTelecom’s by previous regulations – the obligations related to strategy to redesign corporate procedures and practic- transparency, non-discrimination, accounting separa- es, to eliminate overlapping activities and to increase tion, access granting and permission to use the net- personnel efficiency. In 2010, the costs associated work and the associated infrastructure, as well as the with the aforementioned initiatives and other corpo- obligation for cost-orientation- will continue to apply. rate transformation projects, stood at €33.4 mn.

Fixed-line regulatory framework FINANCIAL PERFORMANCE Following a market review, carried out during 2010, In 2010, the reduced household incomes, the higher by ANCOM, the Romanian Regulatory Authority, it VAT, the increased unemployment rate as well as the was determined that RomTelecom is an operator with higher-than-expected inflation had a negative im- significant power in the telecommunications network pact on consumer spending in Romania. Within this access market, for residential customers. As a result, framework, RomTelecom’s revenues reached €716.9 RomTelecom is obliged to provide LLU wholesale mn in 2010, from €782.5 mn in 2009, down by 8.4%. services at cost-oriented tariffs. Pro forma OIBDA stood at €178.9 mn in 2010, from ANCOM also established new tariffs for number port- €261.1 mn in 2009, posting a 31.5% drop. ability, by reducing the port-out tariffs for geographic numbers and non-geographic numbers other than mobile numbers from 13 euro per number ported, to 7.8 euro. Accordingly, the tariffs for ported mobile numbers have been set to the level of 5.6 euro per number ported, compared to 11 euro, in force since 2009. In order to promote competition in the electronic communications segment, ANCOM enforced several regulatory obligations. According to the latter, RomTelecom must develop and maintain an accounting separation model for its financial reporting. In 2011, ANCOM will review the regulations which will govern this accounting separation. For a period of two years, starting in 2010, ANCOM will review the relevant markets for call termination services at fixed and mobile locations (pursuant to EC Recommendation no. 3359/2009, whose main objective is to implement a coherent and consistent regulatory approach towards fixed and mobile - ter -79- OTE Group operations -80- OTE Group operations -81- OTE Group operations -82- OTE Group operations

MOBILE TELEPHONY COSMOTE GROUP

COSMOTE GROUP Cosmote, the mobile arm of ΟΤΕ Group, is the leading provider of mobile communications services in SE Europe. Besides Greece, the Group operates in Albania, Bulgaria and Romania through its subsidiaries AMC, Globul and Cosmote Romania respectively. In 2010, a year of many challenges, Cosmote was able to further improve its position in the Greek market, to maintain its market share in Bulgaria and Romania, and sustain its powerful position in Albania. Germanos SA, Greece’s leading telecommunications retail chain, contributed greatly to OTE attracting new customers both in the Greek market as well as in SE European markets. Thus, despite individual losses, Cosmote Group had 21 million subscribers at the end of 2010, posting a 6.8% drop on an annual basis. Specifically, compared to 2009, Cosmote’s subscriber base decreased by 13.3% in Greece (mainly due to the mandatory registration process in the prepaid segment) and 5.9% in Romania. In Albania and Bulgaria customer numbers increased by 5.9% and 0.4% respectively. -83- OTE Group operations

2010 20,785

2009 22,309

2008 20,027

Group customer base (000)

Cosmote Greece 7,993

AMC 2,023

Globul 3,920

Cosmote Romania 6,849

0 1000 2000 3000 4000 5000 6000 7000 8000

Mobile subscribers per segment 2010 (000) -84- OTE Group operations GREECE (COSMOTE)

CUSTOMERS’ CHOICE SINCE art Smart phones. Cosmote effectively responded to 2001 customers’ needs by enhancing its commercial portfolio, expanding its network coverage through 3G, Holding the leading position in the Greek mobile te- HSPA and HSPA+ technology, and offering speeds lephony market since 2001, Cosmote had 8 million up to 42Mbps downlink and up to 5.8Mbps uplink. customers at the end of 2010, having further increased its market share compared to the previous year. ADVANCED NETWORK AND In 2010, once again, Cosmote managed to attract the INFRASTRUCTURE majority (47%) of customers who switched network Cosmote’s services are provided through a GSM/ through portability. Postpaid customers increased, GPRS (2G) and a UMTS (3G) network. The GSM/ despite the adverse financial conditions. This reflects GPRS network provides voice, text messaging and Cosmote’s lead in consumers’ preference and loyal- data transfer services across the country, through ty. The company also maintained its active prepaid GPRS technology. In addition, the 3G UMTS net- customer base practically unchanged, following the work provides video telephony and data transfer ser- successful completion of the mandatory registration vices, such as multimedia messaging (MMS), WAP process. navigation, broadband Internet access, fast e-mail and Through the continuous upgrade of its network, the Intranet access at speeds up to 42Mbps. optimization of its customer service, the strengthen- In 2010, Cosmote further upgraded its network, aiming of its distribution network, the launch of new, ing to provide wireless HSPA broadband services competitive products, and the revamp of its corpo- covering the entire country, has introduced speeds up rate image, Cosmote remains at the top of customers’ to 42Mbps downlink and 5.8Mbps uplink. Moreover, preferences. a Local Multipoint Distribution Service (LMDS), Continuing with “Our world is you” motto, as the pil- mainly for business customers, has already been lar of its corporate communication, Cosmote renewed rolled out in the wider areas of Athens and Thes- its commitment to quality customer service, focusing saloniki. In October 2010, Cosmote was the first in on customer satisfaction and a portfolio that fully Greece to present the first pilot demo of the new LTE meets their needs. (Long Term Evolution) technology, with data speeds In 2010, demand for high speed Internet access via of up to 100Mbps. the mobile telephony network increased significantly, In 2011, the company aims to further increase its and especially of data services through state-of-the- -85- OTE Group operations

Cosmote’s GSM/GPRS network in 2010: > 99.8% population coverage > 98% geographical coverage > 98% coverage of Greek seas > 99% successful calls > 26 billion talk minutes > 7.5 billion text messages (SMS) > 4.7 million Gbytes of data traffic through the network network capacity, in order to effectively meet the de- covers the whole family’s needs for communica- mands for advanced, value-added services. tion, offering one bill and lower cost > Special offers for talk time and text messaging in INNOVATIVE PRODUCTS AND prepaid telephony (COSMOΚΑΡΤΑ and What’s SERVICES Up) with each top-up Cosmote’s leading position in the Greek market, once > The innovative Reload It! Service, which offers again in 2010, a result of its telecommunication net- What’s Up subscribers the opportunity to win work superiority, of the offering of new, innovative unique prizes with each top-up via the service products and services, that meet consumers’ special- website ized needs, as well as, of the large distribution net- > The exclusive CALL THEM ALL SUPERSHARE work, with the GERMANOS stores leading the way service which offers What’s Up subscribers the in attracting new customers and offering quality cus- ability to share their free talk time with their tomer care. friends. At the end of July 2010, the mandatory prepaid reg- Broadband and Value-Added services istration process was completed successfully. More 2010 was a very successful year for Cosmote, with than 95% of the active Cosmote prepaid customers respect to mobile telephony broadband services. Con- have been registered. tinuously upgrading its network, Cosmote offered Contract and pre-paid services even higher Internet access speeds, from PCs, with In 2010, Cosmote continued to launch products the popular Cosmote Internet On The Go plans. In and services which fully meet its customers’ needs. the summer of 2010, it launched the new Cosmote Among them were: Internet On The Go, with card, service for users > The Cosmote UNLIMITED tariff plans, which ful- who want Internet access from their PC. Moreover, ly meet the increased, specialized consumer needs the company launched the Cosmote Internet On The for talk time, messaging and Internet browsing Phone service, for postpaid, cost control and prepaid from the mobile phone customers, contributing further to the development > The upgraded COSMOTE Cost Control Plans, of broadband services through mobile handsets. As a which combine the advantages of both postpaid result, the company remains the provider of choice in plans & prepaid telephony this sector as well, contributing to further market de- > The enhanced COSMOTE Family Pack which velopment and enhancing its financial performance. -86- OTE Group operations

In 2010, Cosmote introduced 13838, a new customer service number which handles postpaid and prepaid customers’ requests in a timely and reliable manner

At the beginning of 2010, Cosmote launched the works in 100 countries and 3G Roaming services Mobile Advertising service, offering targeted adver- through 51 networks in 32 countries. tising solutions through the Cosmote my view portal Cosmote expanded the availability of its Cosmote or SMS/ MMS messaging to customers registered Traveller service to European countries outside the to the service. Moreover, the company launched the European Union, as well as to ten popular interna- Cosmote Μore 4 U free service, enabling its users to tional destinations. receive offers’ updates and prizes, as well as to par- At the same time, the company launched special ticipate in contests. plans for even greater control and cost efficiency for In response to increasing customer needs, Cosmote data use while roaming. Following the relevant EU has also successfully launched the Apple iPhone 4 Regulation, Cosmote launched the Roaming Data and all the cutting edge Smartphones in the market, Limit service, which sets a maximum limit for data doubling its Smartphone portfolio, compared to 2009. use within the European Union. Moreover, entering the dynamic market of tablets, an Cosmote boasts the most competitive commercial ideal solution for internet browsing, social network- network in Greece with points of sale across the ing and entertainment, Cosmote launched exclusively country, offering high quality customer care. the ZTE V9 Pad, during the fourth quarter of 2010. It’s a low-cost tablet with a 7 inch touch screen and MOBILE TELEPHONY MARKET the Android operational system. Moreover, in 2010, REGULATION the Sony Vaio W & M netbooks series were again In 2010, the key developments in terms of mobile te- available to Cosmote customers. lephony market regulation involved: The company has also revamped the Calling Tunes, > The reduction of the mobile termination rates, Music Zone, Cosmote Games and Cosmote Alerts paid to Cosmote, by the other two mobile teleph- Services. ony operators, based on a decision issued by the Roaming services Hellenic Telecommunications and Post Commis- By the end of 2010, Cosmote had signed 470 roam- sion (ΕΕΤΤ) ing agreements in 194 countries. The company also > The stimulation of competition in the electronic offered full roaming services to its prepaid custom- communications market, within each EU mem- ers with 95 networks in 44 countries, while contract ber-state, the promotion of high-speed broadband customers enjoyed GPRS Roaming through 210 net- services access, the more efficient and versatile use of the spectrum, and the reinforcement of -87- OTE Group operations

Cosmote’s Jumping Fish (www.jumpingfish.gr) is an innovative, interactive music dedicated website that offers daily music news. The central idea is the monthly introduction of a young, up-and-coming artist. The Jumping Fish organizes concerts and campaigns to promote these artists.

consumer rights through the incorporation of operators within the European Union can charge EU directives and the regulation for establishing (for providing voice roaming services on both the Body of European Regulators for Electronic the retail and wholesale level) and applies new Communications (BEREC) maximum prices on retail and wholesale fees for > The estimation of mobile telephony fees, paid by Roaming, SMS and data services. subscribers, before VAT as a percentage of each connection’s monthly bill, based on a sliding FINANCIAL PERFORMANCE scale (Article 33 of Law 3775/2009) The company’s revenues in Greece dropped by 9.7% > Imposing a prepaid card fee of 12% of talk-time compared to 2009, standing at €1,812.1 mn, while value for prepaid mobile telephony cards (Law operating income before depreciation and amortiza- 3775/2009) tion (OIBDA) stood at €667.6 mn, with a respective > The exemption, from the mobile telephony fee, of margin of about 37% (as a result of the cost contain- wireless Internet connections, provided they are ment efforts of the company during 2010). Overall, exclusive data connections (article 70 par. 1 Law in 2010, revenues from mobile services in Greece 3842/2010) dropped by more than €600 mn, with Cosmote loss- > Setting a limit to the time required to process a es standing at €190 mn. subscriber’s request to transfer his/her number to another operator. A network switch must be concluded within three (3) work days from the submission of the subscriber’s relevant application to the receiving provider (EETT decision) > Setting a minimum level of detailed charges offered for free by the companies that provide Pub- lic Telephone Services (ΕΕΤΤ decision) > The regulation of Cosmote fees for international roaming services, within the European Union, on both the retail and wholesale level, by Regulation 544/2009 of 18-6-2009 (Roaming II). This regulation extends the controls, imposed by Roaming Regulation I, on the fees which mobile telephony -88- OTE Group operations

Cosmote’s distribution network, in Greece, in 2010: > 224 OΤΕSHOPS > 22 Cosmote shops > 435 Germanos shops > A significant number of other distributors (retail and wholesale) > A dedicated corporate/business sales team covering all of Greece

28.1% 71.9% 24.8% 75.2% 29.0% 71.0% Contract Prepaid Contract Prepaid Contract Prepaid

2008 2009 2010

Mobile subscribers breakdown -89- OTE Group operations

2010 7,993

2009 9,218

7,893 2008

Mobile subscribers (000)

2010 223

2009 182

104 2008

Mobile Telephony broadband subscribers (000) -90- OTE Group operations ALBANIA (ΑΜC)

AMC, Cosmote’s 97.2% subsidiary in Albania, main- > Local Packet Core Network build up and migra- tained, in 2010, its leading position in the mobile te- tion from Cosmote, in order to provide more data lephony market in which four competing companies traffic capacity and be prepared for 3G traffic operate. Despite regulatory pressure, the aggressive > Provision of infrastructure based solutions for commercial policy of the third competitor, the entry corporate customers (requiring dedicated data (into the market) of a fourth competitor, and the global transmission services) financial crisis, the company’s market share is esti- > Construction of a second Switching Center in mated to stand approximately at about 45%. AMC op- Kashari erates a 2nd generation network, which supports both The network upgrade led to the successful manage- GSM 900 and DCS 1800 services, providing a popula- ment of the overall voice traffic in mobile telephony tion and geographical coverage of 99.8% and 89.8% which increased by 115% compared to 2009, while respectively. text messaging (SMS) increased by 19%. AMC’s customer base increased by 6% on an annual basis, reaching almost 2 million subscribers. About HIGH DEMAND FOR AMC’S 92% are prepaid phone subscribers. UNLIMITED PROGRAMS Wishing to fully meet its customers’ needs, AMC pre- UPGRADING THE NETWORK sented a series of new services and offers (offers on Mobile telephony services are supported by both group and on net, as well as competitive packages for GSM/GPRS and EDGE networks. The GSM/GPRS acquiring/retaining customers). network provides voice, text messaging (SMS) and During the first quarter of 2010, for the first time in data switching services across the country, through the Albanian market, AMC launched its Unlimited GPRS technology. The EDGE network provides data programs, offering a variety of choices to business services, such as Multimedia Messaging Services and residential postpaid customers, coupled with in- (MMS), e-mail services and Internet access at speeds creased benefits. As a result, the Average Revenue per of up to 200Kbps. User (ARPU) generated from Unlimited plans was Aiming to provide high-quality services, in 2010, 65% higher than that of the rest tariff plans. AMC continued to invest in the upgrade of its net- In collaboration with RIM and Apple, AMC success- work through the following: fully introduced, in the Albanian market, the Black- > Increase of network switching and interconnection Berry and iPhone, enhancing in this way its service capacity to accommodate larger traffic volumes -91- OTE Group operations

The EDGE network in 2010: > 89.4% population coverage > 69.8% geographical coverage > 97.8% successful calls

2010 2,023

2009 1,909

1,396 2008

Mobile subscribers (000)

6.9% 93.1% 5.5% 94.5% 7.6% 92.4% Contract Prepaid Contract Prepaid Contract Prepaid

2008 2009 2010

Mobile subscribers breakdown -92- OTE Group operations portfolio and also strengthening the company’s image as a technology and innovation leader. In the fourth quarter AMC began to expand its direct sales groups to its distributors, in order to handle part of the SOHO (Small Office/ Home Office) customer base. Following the dynamic retail network expansion of previous years, AMC has established a significant nationwide presence with 173 branded shops. This extended presence, combined with the very successful prepaid top up service through the Internet, resulted in close to 1 million transactions performed every month in AMC shops. At the same time, special emphasis was given on customer retention, with CRM activities initiated mainly focused on the prepaid segment.

FINANCIAL PERFORMANCE AMC’s revenues reached €119.3mn, posting a decrease of 18% compared to 2009, negatively impacted by a) regulation affecting both wholesale and retail tariffs, as well as international incoming calls tariffs, b) price erosion due to the intense competition initiated by the third mobile operator (in a market of four mobile operators) and c) by the financial crisis. The OIBDA margin stood at 48.9%. -93- OTE Group operations BULGARIA (GLOBUL)

Cosmote’s subsidiary, Globul, ranks second in the ably the network’s monitoring and managing capa- Bulgarian mobile market with respect to market bilities. share, which is estimated at 37%. The year 2010 was The ongoing upgrade of the network, combined with marked by adverse economic conditions, intense extended management abilities and monitoring, led to competition and ongoing price reductions. Against very good quality indicators: this backdrop, Globul was able to retain its significant > 99.4% Call Set up Success Rate (CSSR) market share, while its customer based exceeded 3.9 > 0.49% Drop Call Rate (DCR) million subscribers, with 58.3% being contract sub- It should be noted that this performance was achieved scribers compared to 54.7% in 2009. despite the increase in prime time calls, which exceeded 20%. Finally, it should also be noted that the GLOBUL’S NETWORK: company’s network was able to successfully handle TOP QUALITY INDICATORS the dramatic increase in data traffic volume, which Globul owns a 2G and a 3G (UMTS) license, as well was up by 170% compared to 2009, as a result of the as a license for fixed-line services. successful take up of the company’s services during At the end of 2010, Globul’s GSM network provided the year. 99.76% population coverage (compared to 99.67% in During 2010, the company continued to inform the December 2009), while the company’s UMTS net- public on electromagnetic radiation (EMF-exposure work offered 76.57% population coverage (compared to electromagnetic fields during the use of mobile to 69.84% in December 2009). phones)The company will continue with this program Key projects and investments in relation to Globul’s in 2011. network in 2010 include the following: > Safeguarding HLR surplus SIGNIFICANT GROWTH OF > Introduction of the new DCN management system DATA SERVICES > Application of the SLA management tool True to its customer-oriented brand positioning, in > Installation of the Near Real-Time monitoring sys- 2010, Globul was the first company to introduce into tem for problem solving the market, innovative tariffs, especially designed to > Designing DG hybrid battery systems address the needs of Bulgaria’s highly demanding The new Network Management Center started opera- and versatile customers. The services launched by tions in the first quarter of 2010, enhancing consider- Globul included the Unlimited programs, as well as Voice & Data tariff plans (Web’nTalk and Generation -94- OTE Group operations

Responding to the growth of the data services market, in 2010, Globul launched a series of unlimited data add-ons, as well as the Waz’up special application for social networking and e-mail

2010 3,920

2009 3,902

4,097 2008

Mobile subscribers (000)

51.3% 48.7% 54.7% 45.3% 58.3% 41.7% Contract Prepaid Contract Prepaid Contract Prepaid

2008 2009 2010

Mobile subscribers breakdown -95- OTE Group operations

GLOBUL), which very soon attracted over 20% of FINANCIAL PERFORMANCE gross additions. Following the success of these new During 2010, the company’s revenues fell by 8.3% services, competition was fast to follow to introduce –mainly due to the adverse economic conditions, to similar tariff plans. intense competition in the corporate/business market Further capitalizing on the growing mobile data segment, and to lower interconnection tariffs imposed market, Globul launched a series of unlimited data by the Regulatory Authority –reaching €423.3 mn. add-ons as well as the Waz’up special application for OIBDA stood at €172.2 mn., and OIBDA margin, for social networking and e-mail. Demand for Globul’s 2010, reached 40.7%, posting an increase of 1.2 pp services was enhanced by the wide variety of appli- compared to 2009, mainly due to the streamlining ini- ances the company has introduced into the market, tiatives that have countered the drop in profits. especially Smartphones. Once again, Globul was the first operator to introduce a smart phone with its own brand name, the GLOBUL Q1 and, following the market’s positive response, the Q1 second edition. As a result of the successful promotion of data services, the related revenues increased by 30% compared to 2009. Besides voice and data services, Globul also launched a bill insurance program – Globul Garant, and the Electronic Mobile wallet, both introduced for the first time in the market. During the third quarter of 2010 and following a regulatory mandate, the company set up a one-stop shop for fixed and mobile telephony number portability; a development that had positive results for Globul as the company ended the year with a positive port in/ port out balance. Reflecting the general market trends, Globul’s contract subscribers base continued to grow, reaching by the end of the year a 58.3% share of the overall company subscribers, compared to 54% in December 2009. During the year the company also presented a series of innovative and competitive voice and data packages for prepaid customers. In 2010 Globul launched a comprehensive CRM system, renewing its commitment to be customer-oriented. These new systems guarantee faster and more user-friendly retail and back-office procedures. The company, will continue to invest in the optimization of the CRM system and to improve customers’ experience with the company at all points of contact. -96- OTE Group operations ROMANIA (COSMOTE ROMANIA)

Cosmote Romania is currently Romania’s third larg- will invest in the upgrade and expansion of its 2G est mobile GSM operator. and CDMA networks, in order to provide increased In 2010, and following the successful incorporation coverage, added functionality and improved services of Zapp, Cosmote offered comprehensive data ser- to voice and data program customers. vices through 3G and CDMA technologies. Given the fact that 3G services constitute a key factor in cor- LEADING POSITION porate customers’ choice of an operator, Cosmote’s IN THE MARKET gross additions in this market segment increased by DESPITE COMPETITION about 70%, during 2010. The Romanian telecommunications market was char- At the end of 2010, Cosmote Romania’s customer acterized by intense competition in voice services base in Romania reached 6.8 million subscribers (in- offers, during the first half of 2010, which were fol- cluding Zapp), corresponding to a 24% market share. lowed by offers that combined voice and data services during the second half of the year. FOCUS ON THE FURTHER Despite the fierce competition and the deteriorating DEVELOPMENT OF THE 3G economic conditions, Cosmote Romania consolidat- NETWORK ed its position in the market, with its customer base In 2010, the company invested in the development of approaching 6.9 million customers. the 3G network in urban areas and areas of significant Competition in the prepaid segment intensified dra- commercial interest, offering 3G services to 60% of matically in 2010, with mobile telephony operators Romania’s population, while it continued to invest in frequently offering thousands of minutes of free on- the expansion and upgrade of its 2G network. Today, net calls. In these difficult market conditions, Cos- Cosmote Romania’s 2G network offers 99.3% popu- mote Romania was able to stand out by presenting in- lation and 90.2% geographical coverage. novative offers, such as free minutes to international In 2011, Cosmote Romania will continue to focus on fixed-line phones as an added option, or by launching the development of its 3G network in areas of sig- a comprehensive communication package with free nificant commercial interest. This will allow the com- minutes for network and national network calls and pany to expand the availability of new data services text messaging (this was offered for the first time in in the Romanian market and to meet the needs of its the market), thereby meeting all its customers’ needs. growing customer base. In 2011, Cosmote Romania With a leading position in the mobile market seg- -97- OTE Group operations

2010* 6,849

2009* 7,280

5,894 2008

Mobile subscribers (000)

* Zapp customers are included

19.0% 81.0% 19.2% 80.8% 20.8% 79.2% Contract Prepaid Contract Prepaid Contract Prepaid

2008 2009* 2010*

Mobile subscribers breakdown

* For comparison reasons, Zapp customers are not included -98- OTE Group operations ment, Cosmote Romania presented many new op- as corporate customers. Supported by Telemobil’s tions for SIM cards. Among them the Cartela Bonus CDMA network, this program allows customers to 48 Energy, which gives customers, for a period of 48 benefit from its extensive national coverage at mobile months, 1 euro for the first renewal of talk time each broadband speeds of up to 3.1Mbps. month – an innovative way to reward customers and Leveraging on Telemobil’s existing 3G network increase customer loyalty, while at the same time en- which offers speeds of up to 21.6 Mbps, Cosmote hancing Cosmote Romania’s economic position. Romania presented in April 2010 new prepaid mobile In the residential contract segment, Cosmote Roma- broadband services. This was followed, in Septem- nia presented, during the first half of the year, a new ber, by a comprehensive mobile broadband offer for and expanded range of services, allowing customers prepaid mobile telephony. Besides the 3G services, to “design” their own charge packages by choosing using USB sticks, the company also offers a complete from among additional available options, such as range of notebooks and netbooks. minutes to national/international networks, minutes After the presentation of its 3G services, Cosmote for calls within the network, and SMS packages. Romania announced the launch of a 3G video call Cosmote Romania enhanced its corporate customer service, together with a promotional offer (available services through the implementation of its web Budg- for the first time in Romania), which allows all Cos- et Control, which is incorporated into its WebCare mote customers (both contract and prepaid) to use the web page, offering companies the chance to optimize free minutes for network calls included in their pro- their telecommunications costs and to fully benefit gram or in the package of additional options, in order from all the advantages of the programs they have to make video calls within the network. chosen. In September, the company enhanced customers’ ex- Moreover, in 2010, Cosmote Romania continued to perience through the improved coverage of applianc- place emphasis on its synergies with RomΤelecom es for the web’n’walk service, the open Internet and by launching yet another innovative program – the the creation of Cosmote Romania’s mobile portal in One Network – which allows all Cosmote Romania’s collaboration with Deutsche Telekom. customers, both contract and prepaid, to have all their In December, Cosmote Romania introduced the iP- calls to RomΤelecom fixed-line phones, charged as hone, along with a comprehensive package of contract calls within the network. By the same token, calls programs especially for iPhones and smartphones, from RomΤelecom numbers to Cosmote will also be which combine voice, SMS, MMS and broadband charged as calls within the former’s network. services. The “Quadplay” retail offer available through the Germanos network in Romania (with 232 shops na- FINANCIAL PERFORMANCE tionwide), was yet another attractive offer for resi- In 2010, the company’s revenues reached €468.8 mn, dential customers looking for “all in one” solutions. increased by 7.2%, compared to 2009. OIBDA stood The package includes fixed-line telephony, fixed-line at 73.7 mn, posting an increase of 12.7%, compared Internet, TV and mobile telephony at a very competi- to 2009. tive price. At the data services front, as the representative of Telemobil, Cosmote presented an attractive mobile broadband Internet solution for residential as well -99- OTE Group operations -100- OTE Group operations -101- OTE Group operations -102- OTE Group operations

OTHER OPERATIONS IN GREECE AND ABROAD OTEESTATE

OTE’s real estate assets have been transferred to number of plots and buildings (150 assets with the ΟΤΕestate, a member of the OTE Group of compa- greatest value, account for 70% of the portfolio’s total nies. OTEestate’s focuses on the development, the ef- value). ficient management and commercial exploitation of The main lessee of the above buildings is OTE, which these assets. leases, partially or fully, 1,967 buildings. OTEestate has categorized the total assets of its port- REAL ESTATE PORTFOLIO: folio according to their use 2,297 PLOTS OF LAND AND 2,381 BUILDINGS UTILIZATION OF OTE ESTATE’S The real estate portfolio owned and managed by ASSSETS OTEestate consists of a large number of plots of land Working with OTE, ΟΤΕestate implemented a large and buildings. part of OTE’s Housing Policy project, which involves These real estate assets include mixed use buildings the rational and efficient use of OTE’s assets (through (i.e. buildings that house shops, offices and/or ware- the release of spaces that are not needed by OTE and houses), office buildings, warehouses or school build- which can then be utilized by ΟΤΕestate). In 2010, ings, buildings of other uses, as well as unexploited a total of about 60,000 sq. m. were released, 50% of plots of land. which are located in the Attica region. The company also monitored and updated its assets Plots/Land registry, inspecting spaces, on the spot, and measur- Total number > 2,297 ing surface areas. Total surface area > 11.06 million sq.m. As part of the project to utilize assets which are released by OTE, OTEestate has also proceeded with Buildings renovation (architectural) feasibility studies, for cer- Total number > 2,381 tain major assets. Total surface area > 1.12 million sq.m. In 2010, OTE was granted the license to renew and reinforce –statically– the company’s 3,900 sq.m. The majority of the real estate houses telecommu- headquarters at Stadiou Street 15, in the historical nications equipment and offices. The largest part of centre of Athens. the real estate’s total value is accumulated in a small -103- OTE Group operations

The largest part of the real estate’s total value is accumulated in a small number of plots and buildings (150 assets with the greatest value, account for 70% of the portfolio’s total value)

Α/Τ Other

3.4% 2.3%

72.0% 15.0% 7.3%

Local exchanges Office spaces Storage spaces/Warehouses

Space allocation per type of building (2010) -104- OTE Group operations

TECHNICAL PROJECTS FOR > To focus on the development of commercial assets THE IMPROVEMENT OF OTE’S > To release assets whose value has dropped over ASSETS the years. In 2010, the Company carried out a large number of FINANCIAL PERFORMANCE technical projects, such as: ΟΤΕestate’s revenues for 2010 amounted to €75.2 > The upgrade of buildings leased to OTE (the rel- mn, compared to €74.6 mn in 2009. OIBDA stood at evant cost reached €7.56 mn) €70.8 mn, from €60.4 mn in 2009, posting an increase > The renovation of released assets or assets leased of 17.38% on an annual basis. to third parties at a total cost of approximately €260,000 > Asset development projects amounting to approximately €500,000 > A major project at Taraboura, Patras, which involves residential and commercial developments and which will be completed in the first quarter of 2011. During 2010, the cost for this project stood at €7.82 mn.

HOUSING POLICY AND ASSETS’ MANAGEMENT OTEestate’s key objectives for 2011, include, among other things: > To plan, with OTE, the latter’s housing policy and to continue with the rational utilization of its assets. It is expected that during 2011 a further 34,000 sq. m. will be released > To utilize and commercially exploit the spaces that have been released by OTE. Between 2011-2014, ΟΤΕestate aims to lease approximately 50% of the released spaces to third parties The above objective will be achieved through: > The renovation of selected assets with a view to introduce them into the market > A dynamic promotional campaign in order to lease professional buildings > To promote the sale of 38 apartments and the leasing of 3 shops of the Taraboura, Patras project, without any further focus on residential developments -105- OTE Group operations HELLAS SAT

Hellas Sat, a member of OTE Group, provides in- ACTIVITIES IN 2010 ternational fixed satellite services (FSS) through its > During 2010, when it began offering teleport ser- wholly owned satellite Hellas Sat 2, which occupies vices, the company signed agreements with Eutel- the orbital position of 39 degrees East. The company sat-Skylogic and Integral. The partnership with offers satellite capacity services for video broadcast- Skylogic is considered especially important, since ing applications and wholesale data services in Eu- it includes the hosting and supervision of one of rope, the Middle East and South Africa, as well as sat- the eight stations that Skylogic plans on launch- ellite Internet, on a retail level, and teleport services. ing in Europe. These stations will offer state-of- Specifically the company offers: the-art services for broadband satellite access, Satellite Capacity through the new satellite KA-SAT Broadcasting (Direct-to-Home, Video Contribution, > Also, during 2010, as part of the HOST project Program distribution), IP trunking, exclusive Internet (carried out in collaboration with the European connection capacity, corporate networks and occa- Space Agency and ARTES 3 for the development sional TV broadcasting of satellite broadband services, in which Hellas Sat has been participating for a number of years) Satellite Internet (retail) and working together with Cosmote, the company These services are offered in Greece and Cyprus, equipped its Telecommunications Infrastructure through two different infrastructures; the Hellas SAT Repair vehicle with a mobile telephony BTS sta- net! HOME broadband access solution, for residen- tion, enabling it to restore mobile telecommunica- tial customers and small businesses, and the Hellas tions in cases of natural disasters SAT net! BUSINESS solution, which is addressed to > In 2010 the company launched the operation of both business and residential customers the Polaris Media platform in Serbia and con- Teleport services tinued with the development of OTE’s subscriber Through its wholly owned installations in Cyprus, the platforms: Dolce – offered by RomTelecom – in company offers transmission and reception services, Romania, and Bulsatcom in Bulgaria. Today, the transmission of TV signals and data, Internet inter- satellite hosts over 240 TV channels. Moreover, connection services, as well as equipment hosting OTE will soon be launching its satellite TV servic- services. es, enriching thereby, even further the TV content transmitted via satellite. -106- OTE Group operations

The company has turned the orbital position of 39 degrees East into an alternative “TV neighborhood” of SE Europe. Today, over 2.5 million antennas from a respective number of households are pointed towards it

The company has turned the orbital position of 39 de- FINANCIAL PERFORMANCE grees East into an alternative “TV neighborhood” of During 2010, Hellas Sat’s revenues amounted to SE Europe. Today, over 2.5 million antennas from a €30.21 mn, posting a 9.7% increase compared to respective number of households are pointed towards it. 2009, while OIBDA stood at €21.48 mn. The increase In 2010, Hellas Sat continued its successful course, in sales was due mainly to the leasing of most of the with more than 120 customers in 35 countries. satellite’s capacity in the South African band, as well as, a result of the renewal -at a higher price- of con- KEY OBJECTIVE FOR 2011: tracts that expired in 2010. STRATEGIC PARTNERSHIPS WITH OTHER SATELLITE ORGANIZATIONS Given the satellite’s high degree of utilized capacity, the company’s key objective for 2011 is to sign strategic agreements with other satellite organizations for the further development of satellite services and the launch of a second satellite in the same orbital position.

Other 0.4%

92.3% 5.1%2.2%

Capacity Broadband ser- Occasional (Long-term vices & terminals transmissions contracts)

Revenue breakdown (2010) -107- OTE Group operations OTESAT-MARITEL

OTESat-Maritel, a member of OTE Group, is one of added services, which reflect the capabilities of the the four major providers of Inmarsat maritime satel- Inmarsat FleetBroadband and the Iridium OpenPort lite communication services in the world. The com- satellite systems. pany holds a 54% market share of the Greek ship- In 2011, based on market conditions, the company to-shore communications market, as well as almost will focus on the following: 5.8% of the global Inmarsat maritime market. The > Increasing its share in the Greek maritime tel- company’s commercial operations extend to a certain ecommunications market number of maritime posts such as the UK, Germany, > Increasing its share in foreign markets through the USA, Italy, Cyprus and the Middle East, the Far the extension of its partnerships, both numerically East, Africa, Australia, the Northern Baltic Sea, India and geographically and Ukraine. > Reinforcing the company’s position in the interna- OTESat-Maritel’s main activities include the provi- tional maritime market through the development sion of global satellite Inmarsat services through the of a direct sales network in selected markets “Thermopylae” earth satellite station and collaborat- > Increasing the company’s SPs & Agents through ing stations, as well as satellite Iridium & VSAT ser- the further expansion of its indirect sales network vices. > Attracting new customers and promoting inte- The company also offers: grated solutions for new systems (FB, IOP, VSAT), > Integrated telecommunication solutions for the through new products and services, and versatile Greek and international maritime industry, com- payment packages bining different services, satellite and earth tel- > Targeting new, large accounts in the Greek and ecommunication networks and IT applications international market with tailor-made commercial > Satellite terminal equipment offers > Account clearance services for ships (Accounting > Developing and promoting service packages Authority) (equipment – traffic – software – value-added ser- and promotes OTE Group’s products and services in vices – support) the maritime market. > Dynamic promotion of services addressed to ships’ In 2010 the company signed a agreement with Inmar- crews (voice, e-mail, SMS, internet) sat to provide the GSPS satellite mobile phone to us- > Strong pre-sale and after-sale support of customers, on land and at sea, with world coverage. ers on a 24/7 basis (full technical and commercial Moreover, the company began providing new value- support) -108- OTE Group operations

OTESat-Maritel holds a 54% market share of the Greek ship-to-shore communications market

> Upgrading the network and infrastructure for ex- FINANCIAL PERFORMANCE isting and new services In 2010, the company increased its revenues and its > Monitoring and evaluating services offered profitability. OTESAT-Maritel’s revenues reached > Upgrading value-added services €29.49 mn (compared to €26.47 mn in 2009), while > Safeguarding its revenues through the minimiza- its operating income before depreciation and amor- tion of bad debts. tization (OIBDA) stood at €2.78 mn (compared to €2.54 mn in 2009). Approximately 23% of the company’s revenues come from foreign markets.

Services rendered

2.1%

93.3% 4.6%

Satellite and other Sales of telecommunications equipment services

Revenue breakdown (2010) -109- OTE Group operations OTEPLUS

ΟΤΕplus, a member of the OTE Group, provides tech- as part of the Workforce Management program nical and business services, offering integrated solu- > Technical support services on fault repair matters, tions in the fields of Information and Communication new telephone connections related constructions/ Technology (ICT) and Management Consulting. works, transmissions, switching, electrical facili- Specifically, the company: ties and broadband services throughout Greece > Conducts the following studies: > Supplying and installing large-scale antenna sys- — Strategic tems for OTE SAT TV pilot customers — Business > Conduct of an OTE customer satisfaction barom- — Operational and re-engineering eter (Phase 9) — Business research and development > Provision of consulting services regarding OTE’s — Network infrastructure and business development in terms of the National — ICT development systems, applications and Strategic Reference Framework (NSRF) services > Development of a business model for providing > Undertakes: digitization services in terms of the National Stra- — To develop and implement integrated ICT sys- tegic Reference Framework (NSRF) tems > Development of an OTE Digital City model — To provide technical support, maintenance and > Technical and consulting services concerning the consultancy services for ICT applications following: > Designs integrated ICT solutions — Management and operation of OTE’s network > Provides consultancy and technical support ser- — Operation of OTE’s 1242 ADSL Helpdesk vices in various operations of OTE. — Operation of OTE’s 1305 Call Center — OTESHOP network DEVELOPMENTS IN 2010 — Sales to OTE’s corporate and business customers In 2010, OTEplus offered numerous technological, — ADSL/Conn-x sales through OTE’s 134 cus- technical and business solutions, and offered a wide tomer service and phone sales call center. range of consultancy and technical support services: > Implementation services for OTE’s GIS network FINANCIAL PERFORMANCE system In 2010, OTEplus’ revenues amounted to €33.7 mn, > Transformation of the technical services processes down by 7.5% compared to the previous year, while the company’s OIBDA fell by 7% and reached €1.02 mn. -110- OTE Group operations -111- OTE Group operations ΟΤΕACADEMY

OTEAcademy, a member of the OTE Group, offers > Certified Training Center for Alcatel Lucent En- professional education courses and innovative ser- terprise for SE Europe and Africa vices in human resources development. The company > Member of the Project Management Institute aims to meet the training needs of professionals and (PMI) - Registered PMI Education Provider to become a globally competitive company in the area > Official Pearson VUE (Virtual Computer Based of professional training. Testing for ICT) and Prometric Examination Center In 2010, ΟΤΕAcademy: > Authorized examination center, approved by Cer- > Submitted proposals to EU training programs, tiport, for Microsoft Office Specialist and IC3 cer- which are co-funded by the Greek state, through tifications the Vocational Training Centers that OTE Acad- > Approved training center for Hewlett Packard emy operates in Athens and Thessaloniki programs > Earned a considerable competitive advantage in The company also acquired exclusive rights for the the vocational training market by virtue of its in- “Making the Solution Sale” training program in col- ternational partnerships, some of which are exclu- laboration with Ian Farmer Associates and extended sive its programs and the CISCO laboratory equipment > Expanded its international presence through the towards VoIP and CCNP direction. extension of its partnership with the World Bank In 2010, in order to promote its professional training > Implemented distance-learning programs in 12 services and expand its customer base, OTEAcademy African countries, with the participation of over focused on reinforcing the Company’s corporate im- 1,000 executives age. In addition to print media editorials and press re- > Received a distinction for being the only Oracle leases, OTEAcademy jointly organized conferences Educational Provider in Greece and panel discussions (with over 2,000 participating > Continued a series of open seminars addressing business executives). the broader market on matters of CISCO, Micro- In 2010, in collaboration with OTE’s Human Re- soft, Alcatel-Lucent, Oracle, and Hewlett Packard sources Department, OTEAcademy designed and im- technology, as well as Project Management (PMI) plemented the following projects: In 2010, the company received the following distinc- > Training programmes on technology, for OTE tions and accreditations: Group employees with different educational and > Official certified Training Center for Microsoft as work experience backgrounds a Gold Certified Partner > Implementation of the “Making the Solution Sale” -112- OTE Group operations

OTEAcademy organized distance learning programs in 12 counties of Africa with more than 1,000 participants

40% 35% 25%

Management skills Technical IT

Seminar breakdown (2010)

4,873 2,082 4,323 945 ΟΤΕ employees non-ΟΤΕ employees ΟΤΕ employees non-ΟΤΕ employees

2009 2010

Seminar atendees -113- OTE Group operations

ΟΤΕAcademy has set up specialized training workshops based on the “One in 4” training tool, which guarantees effective training and is organized according to the following key directions: > Me and my work > Me and my company > Me and my competition > Me and my client

program for ΟΤΕ’s corporate and business customers department > Efficient sales techniques for employees of OTE’s residential customers department > Pilot implementation of evaluation tools use in the hiring process.

FINANCIAL PERFORMANCE In 2010, OTEAcademy’s revenues remained unchanged compared to 2009, standing at €5.85 mn. -114- OTE Group operations TELEKOM SRBIJA

OTE Group holds a 20% stake in Telekom Srbija, > Wholesale market of call origination on the public the Serbian telecoms incumbent, offering fixed-line telephone network (voice and broadband services), mobile telephony, as > Wholesale market of call termination on the pub- well as Pay-TV services. In 2010, the total Serbian lic telephone network telecommunications and entertainment market size > Wholesale (physical) access to network points and exceeded €1.6 bn. the relevant services (including shared and full In 2010, Telekom Srbija’s mobile market share de- LLU access) creased slightly, reaching 58%. The number of ADSL > Wholesale broadband access market access lines increased by 40% in 2010, reaching > Wholesale leased lines market 543,000 (compared to 389,000 in 2009). > Wholesale market of call termination on mobile The company’s market share in traditional fixed-line telephony networks services, decreased slightly, from 100%, to 99.8%. According to the new Law, the Regulator is obliged The remaining share belongs to Orion Telekom, to review the market, within a year from the date this which obtained a license for fixed wireless access to Law came into force, and within six months after this the public telecommunication network and services date, to identify the operator which is a SMP (sig- (CDMA license) in March 2009. nificant market player), if there is one, in the various In February 2010, Telenor obtained a second license market segments. Having been determined as SMP in for public fixed telecommunication networks and ser- the wholesale market of network access, whichever vices, but as of December 31, 2010, Telenor had not operator will be obliged to publish a standard offer begun providing these services. for LLU (Local Loop Unbundling) services. To date, Telekom Srbija has not been obliged to offer LLU. NEW LAW ON ELECTRONIC In line with the new Law and following the granting COMMUNICATIONS IN SERBIA of a license for a second fixed-line operator, the Reg- As of July 1, 2010, the new Law on electronic com- ulatory Authority has initiated a process to identify munications came into force, changing standards in whether Telecom Srbija should be obliged to provide certain areas of Serbia’s telecommunications market. LLU services and has already proposed prices for full The Law recognizes 7 markets that could be regu- and shared LLU access. lated: In September 2010, the Serbian Government passed a > Retail market of access to the public telephone Decision on approving the transfer of Telekom Srbija network shares, free of charge, from the Serbian Ministry of -115- OTE Group operations

In Serbia, during 2010, population penetration (as percentage of total population) of Telekom Srbija’s services was as follows: > 41% Fixed-line > 131% Mobile telephony > 13% Broadband > 16% Cable TV

Telecommunications and Post (PTT) to the Republic increase of the monthly rental took place in April of Serbia. Following this, the Serbian Government 2010, reaching approximately 3.7 euros). The signifi- organized an international tender for the sale of part cant increase of revenues from broadband services in of its share participation in Telekom Srbija. 2010, is customer driven (145,000 new ADSL retail customers and 59,000 Multimedia customers). NEW SERVICES IN 2010 Telekom Srbija’s distribution network consists of 158 In 2010, Telekom Srbija launched new services, in- retail stores (offering fixed-line and mobile telephony cluding: Business Trunking, fixed-line bill payment products and services). The company boasts numer- via SMS, top-ups of prepaid accounts via fixed-line, ous representatives and authorized dealers, and also etc. Telekom Srbija also focuses on achieving maxi- operates separate call centres for fixed-line and mo- mum coverage and availability with respect to fixed- bile telephony customers. line and mobile broadband Internet services. Telekom Srbija’s fixed-line network digitalization level reached 98% in 2010. The company will intro- December 31, 2010 Number duce number portability in mobile telephony in 2011, of Customers and is planning to further develop its 3G, to increase in 000 the number of radio based stations, upgrade fixed-line exchanges, etc. Mobile telephony > 5,549 Contract customers > 1,434 FINANCIAL PERFORMANCE Prepaid customers > 4,115 In 2010, Telekom Srbija’s revenues reached €840 mn, down 4.7% from the previous year, due to a 10% devaluation of the RSD/EUR exchange rate (in local Broadband services currency this posts 1.2% growth). In 2010, fixed-line ADSL customers and broadband services revenues amounted to €498 (retail and wholesale) > 543 mn, while mobile telephony revenues reached €342 IPTV customers > 59 mn. Operating income before depreciation and amortiza- 4.5 thousand contract customers, are Blackberry cus- tion (OIBDA) was also affected by the devaluation of tomers (an increase of 57% compared to 2009). the currency and decreased by 9.9%, reaching €334 Revenue growth in fixed-line is tariff driven (a 99% mn (in local currency this posts a 0.5% decline). -116- OTE Group operations

20.3% 79.7% 22.8% 77.2% 25.8% 74.2% Contract Prepaid Contract Prepaid Contract Prepaid

2008 2009 2010

Mobile telephony customers breakdown

2010 543

2009 389

267 2008

ADSL customer base (000) -117- OTE Group operations

514 444 506 424 498 342 Fixd-line Mobile telephony Fixd-line Mobile telephony Fixd-line Mobile telephony

2008 2009 2010

Revenue breakdown (€ mn) -118- 2010 Annual Financial Report -119- 2010 Annual Financial Report -120- 2010 Annual Financial Report ANNUAL FINANCIAL REPORT

HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. ΑR.ΜΑΕ 347/06/Β86/10 99 KIFFISIAS AVE - 15124 MAROUSI, ATHENS Annual Financial Report

For the period from January 1, 2010 to December 31, 2010 In accordance with Article 4 of Law 3556/2007

(TRANSLATED FROM THE GREEK ORIGINAL) -2- Annual Financial Report 2010 -3- Annual Financial Report 2010 TABLE OF CONTENTS

Chapter 1 Statements of Members of the Board of Directors ...... 5

Chapter 2 Annual Report of the Board of Directors ...... 7

Chapter 3 Auditors’ Report of the Financial Statements ...... 43

Chapter 4 Annual Financial Statements ...... 45

Chapter 5 Financial Data and Information ...... 139

Chapter 6 Information pursuant to article 10 of LAW 3401/2005 ...... 146 -4- Annual Financial Report 2010 -5- Annual Financial Report 2010

Chapter 1 STATEMENTS OF MEMBERS OF THE BOARD OF DIRECTORS (In accordance with article 4 par. 2 of Law 3556/2007)

The members of the Board of Directors of HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A.: 1. Michael Tsamaz, Chairman and Managing Director 2. Kevin Copp, Board Member 3. Panagiotis Tabourlos, Board Member We confirm that to the best of our knowledge: a) The Annual Financial Statements (Consolidated and Separate) of the HELLENIC TELECOMMUNICA- TIONS ORGANIZATION S.A. for the period January 1, 2010 to December 31, 2010, which have been prepared in accordance with the applicable accounting standards, provide a true and fair view of the assets and liabilities, the owners’ equity and the results of the Group and the Company. b) The Annual Report of the Board of Directors provides a true and fair view of the financial position and the performance of the Group and the Company, including a description of the risks and uncertainties they are facing.

Maroussi, February 24, 2011

Chairman Board Member Board Member & Managing Director

Michael Tsamaz Kevin Copp Panagiotis Tabourlos

The two members of the Board of Directors, who have signed the above statements, have been authorized to do so in accordance with the decision of the Company’s Board of Directors of February 24, 2011. -6- Annual Financial Report 2010 -7- Annual Financial Report 2010

Chapter 2 ANNUAL REPORT OF THE BOARD OF DIRECTORS

The report of the Board of Directors of the HELLEN- A. FINANCIAL HIGHLIGHTS IC TELECOMMUNICATIONS ORGANIZATION OF 2010 S.A. (hereinafter referred to as “OTE” or the “Com- OTE Group Revenue decreased by 8.0% in 2010 pany”) was prepared in accordance with article 136 compared to 2009 and reached Euro 5,482.8 million, of Law 2190/1920, article 4 of Law 3556/2007 and mainly due to: article 2 of Decision 7/448/2007 of Hellenic Capital >> Decreased revenues from domestic telephony by Market Commission and refers to the Annual Finan- 13.9% and revenues from international telephony cial Statements (Consolidated and Separate) as of De- by 20.3% in comparison with the prior year. cember 31, 2010, and the year then ended. The OTE >> Decreased revenues from mobile telephony by Group (the “Group”) apart from the Company also 8.1% in comparison with the prior year. includes subsidiaries over which OTE has direct or >> Decreased revenues from sales of telecommuni- indirect control. The Consolidated and Separate Fi- cation equipment by 5.9% in comparison with the nancial Statements have been prepared in accordance prior year. with International Financial Reporting Standards >> Decreased revenues from ISDN by 7.7% in com- (I.F.R.S.), as adopted by the European Union (E.U.). parison with the prior year. This report includes the financial assessment of the >> Decreased revenues from interconnection charges results of the period from January 1, 2010 to Decem- by 9.8% in comparison with the prior year. ber 31, 2010, the Company’s strategy and objectives >> Decreased revenues from leased lines, data com- for the next three years, the significant events which munication and ATM by 7.5% in comparison with took place in 2010, a presentation of the main risks the prior year. and uncertainties for the next year, the Corporate >> Decreased revenues from prepaid cards by 35.1% Governance statement, the material transactions with in comparison with the prior year. the Company’s and the Group’s related parties, the >> Decreased other revenues by 4.7% in comparison significant events after the year end and additional in- with the prior year. formation as required by the respective law. >> Increased revenues from services rendered by 7.3% in comparison with the prior year. >> Increased revenues from ADSL and Internet by 4.7% in comparison with the prior year. >> Increased revenues from co-location and -8- Annual Financial Report 2010

revenues from access to the local loop (Local ating expenses for the year 2010 include the Group’s Loop Unbundling - LLU) by 39.6% in compari- early retirement programs’ costs of Euro 171.5 mil- son with the prior year. lion, which includes the charge of Euro 129.8 million >> Increased revenues from Metro Ethernet & IP for IKA-ETAM (as discussed bellow in section C), CORE by 33.2%, in comparison with the prior compared to the net gain of Euro 30.3 million in 2009, year. resulting from the Group’s early retirement programs’ OTE’s Revenue reached Euro 2,169.8 million, re- costs which were offset by Euro 201.9 million, that flecting a decrease by 10.1% compared to the prior derived from the transfer of 4% share capital held by year. This is a result of the decrease in revenues from the Greek State to IKA-ETAM. domestic telephony by 15.2%, as well as the decrease The Company’s Operating Expenses reached Euro in revenues from international telephony by 18.9% 2,040.1 million in 2010 and reflect a decrease of 1.4% and the decrease in sales of telecommunication compared to the prior year. The decrease in operating equipment by 15.2%, ISDN by 7.6%, interconnec- expenses is mainly due to the following: tion charges by 17.0%, leased lines by 22.7%, pre- >> 21.7% decrease in charges from domestic tel- paid cards by 28.3% and services rendered by 9.2%. ecommunications operators. These decreases were partially offset by the increase >> 11.8% decrease in depreciation and amortization. in revenues from ADSL and Internet by 5.5%, the in- >> 11.2% decrease in the cost of telecommunication crease in revenues from co-location and from access equipment. to the local loop (Local Loop Unbundling - LLU) by >> 31.0% decrease in staff retirement indemnities 41.6%, the increase in revenues from Metro Ethernet and youth account costs. & IP CORE by 39.4% and the increase in other rev- >> 7.2% decrease in other operating expenses. enues by 9.3%. >> 15.2% decrease in charges from international telecommunications operators. The Group’s Operating Expenses reached Euro >> 4.7% decrease in employee costs. 5,134.9 million and reflect an increase of 3.9% compared to the prior year. This increase is mainly due to These decreases were partially offset by the increase the increase in depreciation, amortization and impair- in the cost of the Company’s early retirement program ment by 18.0% and the increase in charges from in- in 2010 (including the charge of Euro 129.8 million ternational operators of 3.4%. The higher amount of from the IKA-ETAM case which is described in sec- depreciation, amortization and impairment in 2010 is tion C below). mainly due to the impairment of ROMTELECOM’s As a result, Operating Profit before Financial Ac- assets that amounted to Euro 244.5 million (as dis- tivities of the Group for 2010 reached Euro 384.9 cussed below in section C). These increases were par- million compared to Euro 1,043.0 million in 2009 tially offset by the decrease in payroll and employee reflecting a decrease of 63.1%. Operating Profit benefits by 5.2%, the decrease in provision for staff before Financial Activities of the Company for the retirement indemnities and youth account by 27.3%, year 2010 reached Euro 142.2 million, compared to the decrease in charges from domestic operators by Euro 345.7 million last year, reflecting a decrease of 19.7%, the decrease in cost of telecommunications 58.9%. equipment by 5.9% and the decrease in other operat- The Group’s Operating Profit before Depreciation, ing expenses by 1.3%. Furthermore, the Group’s oper- Amortization and Impairment for 2010 reached Euro -9- Annual Financial Report 2010

1,747.9 million compared to Euro 2,198.3 million in ability and the decrease in the special contributions of 2009, reflecting a decrease of 20.5%. The respec- social responsibility. tive margin on revenues reached 31.9% compared to Considering all the above, the Group’s net result of 36.9% in the prior year. Excluding early retirement 2010 was a loss of Euro 139.0 million compared to program costs, the Group’s Operating Profit before profit of Euro 407.6 million of 2009. Depreciation, Amortization and Impairment for In 2010, Losses Attributable to Non-Controlling 2010 reached Euro 1,919.4 million compared to Euro Interests in the Group’s income statement reached 2,168.0 million in the prior year, reflecting a decrease Euro 178.6 million from Euro 3.3 million in 2009. of 11.5%. The respective margin on revenues reached The 2010 amount is the result of the increased losses 35.0% compared to 36.4% in the prior year. of ROMTELECOM (mainly due to the impairment The Company’s Operating Profit before Deprecia- of ROMTELECOM’s assets), the 45.99% of which is tion and Amortization for 2010 reached Euro 516.4 attributable to non-controlling interests. million compared to Euro 770.1 million in 2009, re- As a result of all the above, the Group’s Profit Attrib- flecting a decrease of 32.9%. The respective margin utable to the Owners of the Parent for the year 2010 on revenues reached 23.8% compared to 31.9% in the amounted to Euro 39.6 million compared to Euro prior year. Excluding early retirement program costs, 410.9 million in the prior year, reflecting a decrease the Company’s Operating Profit before Deprecia- of 90.4%. tion and Amortization for 2010 amounted to Euro The Group’s Cash Flows from Operating Activities 661.1 million compared to Euro 731.2 million in the in 2010 decreased by 21.7% in comparison with the prior year, reflecting a decrease of 9.5%. The respec- prior year, amounting to Euro 1,110.4 million, mainly tive margin on revenues reached 30.5% compared to due to increased payments for income taxes and early 30.3% in the prior year. retirement programs, as well as from the decreased In relation to the Group’s Financial Activities, inter- profitability. est expense in 2010 was Euro 308.2 million, reflect- The Group’s Capital Expenditure (CAPEX) for ing a decrease of 13.9% compared to 2009, which is the year 2010 amounted to Euro 751.1 million from the result of the decrease in the Group’s debt. Inter- Euro 890.9 million in prior year reflecting a de- est income amounted to Euro 25.7 million for 2010, crease of 15.7%. The decrease is due to the decreased reflecting a decrease of 58.3% compared to the prior capital expenditure of OTE, COSMOTE group and year. Dividend income increased by 47.9% due to the ROMTELECOM. higher dividend from TELEKOM SRBIJA in the cur- The Group’s Total Debt as of December 31, 2010 was rent year. Losses from investments reached Euro 4.6 Euro 5,299.8 million compared to Euro 5,421.9 mil- million in 2010 compared to gains of Euro 23.6 million at December 31, 2009, reflecting a decrease of lion for the 2009 that reflected the gain derived from 2.3%, whereas the Group’s Net Debt (interest bearing the sale of COSMOFON and GERMANOS TELE- loans less cash and cash equivalents and other finan- COM AD SKOPJE (GTS). cial assets) at December 31, 2010, reached to Euro Income Tax (expense) of the Group was Euro 238.9 4,283.0 million from Euro 4,517.7 million at Decem- million in 2010, reflecting a decrease of 37.5% com- ber 31, 2009, reflecting an decrease of 5.2%. This de- pared to the prior year due to the decreased profit- crease is mainly due to the repayment of loans and the increased cash position. -10- Annual Financial Report 2010

As of December 31, 2010, the Group’s Net Current C. SIGNIFICANT EVENTS Liabilities amounted to Euro 1,507.8 million com- OF THE YEAR 2010 pared to Net Current Assets of Euro 463.6 million Share Option Plan as of December 31, 2009. The decrease is due to the maturing within 2011 of long-term borrowings of On January 28, 2010, OTE’s Board of Directors de- Euro 2,082.8 million. The Group’s plans to address cided on and approved the granting of 1,259,078 this shortfall are discussed under sections D(b) and Additional Options to the executives of OTE and its G, below. subsidiaries, 672,018 Basic Options to the executives of OTE and 336,780 Basic and 2,403,560 Additional Β. STRATEGY- OBJECTIVES Options to the executives of COSMOTE Group for the year 2009. The preferential purchase price is equal According to the 2011-2014 Business Plan presented to Euro 11.26. to the Company’s Board of Directors on December IKA-ETAM 17, 2010, OTE’s vision is to secure growth and market leadership by providing the ultimate customer By his letter dated January 19, 2010, the Minister of experience, to offer innovative high speed solutions Labor and Social Security informed OTE that IKA- through an optimal integrated infrastructure and to ETAM has incurred significant deficits attributable to create value for its shareholders and its society. the incorporation of the pension segment of TAP-OTE from August 1, 2008 into IKA-ETAM, and that fur- This will be accomplished through the following and ther deficits are also anticipated for 2010. In his letter with the maximum exploitation of the synergies available within the Group: the Minister further explained that such deficits are Increase customer satisfaction currently covered primarily by the Greek State and >> Retain the Company’s retail market share and partially absorbed by IKA-ETAM, he indicated that create new sources of revenues (IP-TV, satellite OTE should also contribute funds towards these defi- TV, etc.) cits and requested a meeting with OTE’s Chief Ex- >> Improve the customer experience at every contact ecutive Officer in order to discuss the relevant issues. >> Optimize sales channels The meeting was held on January 26, 2010 where the >> Further develop and expand the bundled offer- two parties agreed to establish a committee to discuss ings the issues raised. A first meeting of this committee Gradually upgrade network took place on February 11, 2010 and OTE requested >> Transform into NGA step-by-step the Ministry of Labor and Social Security’s (“Min- >> Enhance network and IT platforms to boost istry”) official positions in writing. On February 23, broadband and enable provision of new products 2010, the Ministry formally advised OTE that as a >> Leverage existing infrastructure to better address result of the Voluntary Leave Scheme it has estimated wholesale market that IKA-ETAM has foregone contributions and pen- Improve operational efficiency sions of approximately Euro 340.0. Furthermore, it >> Reduce cost also noted that the relevant outstanding contributions >> Optimize and automate processes by using currently paid by OTE on a monthly basis, should be advanced IT systems settled in full. >> Develop workforce capabilities and engagement OTE examined the Ministry’s position, however, its -11- Annual Financial Report 2010 view is that this position is unsubstantiated, given that sessment, it is in contravention of article 34 of L. ΟΤΕ has fulfilled and continues to fulfill in their to- 3762/2009 and consequently, there are valid grounds tality all the financial obligations it has towards all for the annulment of this article. On May 15, 2010 social security funds, paying all contributions, as they OTE also filed an appeal requesting the suspension are due, both in the context of its normal course of of enforcement of this Ministerial Decision before business, as well as the ones related to the company’s the same Court. The hearing for the suspension of voluntary retirement plans, strictly following all rel- enforcement was held on June 8, 2010, before the evant laws, rules and regulations. Athens Administrative Court and the Court with its Therefore, in reply to the above mentioned letter, on decision dated September 16, 2010 rejected OTE’s March 9, 2010, OTE, in a letter to the Ministry, re- request. Following this decision, subject to a positive sponded to all the specific issues included therein and outcome of a second request for suspension of en- reiterated its position that OTE fulfils in their totality forcement that is OTE’s right after the announcement all the financial obligations arising from L. 3371/2005 of the actuarial study, OTE will be legally obliged and the relevant Ministerial Decision, and requested to pay the disputed amount of the actuarial study in that the Ministry address the pending issue regarding advance of legal proceedings, irrespective of the fact the issuance of the necessary decisions by the pen- that the Company’s position is that there are good sion funds, in order to enable the participants of the grounds that OTE will finally win this case in court. Voluntary Leave Scheme of L. 3762/2009 to receive By its letter dated January 21, 2011 and received their pension entitlements. by OTE on January 28, 2011, the Ministry notified Based on article 3 of the F/10051/27177/2174 Minis- OTE of the completion of the actuarial studies and terial Decision issued at the end of March 2010, the handed over to OTE a copy of such actuarial stud- additional financial burden of the Pension Sector of ies, pursuant to article 3 of the Ministerial Decision IKA-ETAM, the Auxiliary Insurance Sector for OTE 10051/27177/2174, for the estimation of the addi- personnel of TAYTEKO and the Medical Segment tional financial burden of the pension funds, incurred of TAYTEKO as derives from articles 2 and 4 of the by OTE’s Voluntary Leave Scheme based on L. Collective Labor Agreement signed between OTE 3371/2005, stating that additional studies will follow and OME-OTE on July 20, 2005, should be paid for for the estimation of the additional financial burden by OTE in a lump-sum to the above sectors by the of the pension funds, incurred by OTE’s Voluntary last working day of September 2010. The amount of Leave Scheme based on L. 3762/2009. The additional this additional financial burden would be determined financial burden that the above mentioned actuarial by an actuarial study that would be performed by the studies state that incurred based on L. 3371/2005, Directorate of Actuarial Studies of the General Secre- amounts to Euro 129.8 million. tariat for Social Security in conjunction with the Di- OTE has a legal right and considers the option to file rectorate of Actuarial Studies and Statistics of IKA- a new petition requesting suspension of enforcement ETAM by August 31, 2010. of article 3 of the Ministerial Decision based on new On May 11, 2010 ΟTE filed an appeal against this legal grounds, once it has received a payment demand Ministerial Decision before the Administrative Court from the pension funds. At this stage, no reliable es- of First Instance of Athens, requesting the annulment timate can be made whether the suspension (fully or of article 3 as based on the Legal Department’s as- partially) will be granted or not. -12- Annual Financial Report 2010

The fact that the announcement of the results of the paid, is included in the line “Cost of early retirement actuarial study eliminates the uncertainty regarding program” in the consolidated income statement of the amount of the obligation, together with the above 2010. mentioned inability to assess whether it is prob- A total of 350 employees of ZAPP (COSMOTE’s able to take the suspension (given the first rejection) subsidiary) voluntarily terminated their employment led to the conclusion that at this stage the existing contracts and an amount of Euro 2.6 million, repre- contingent liability has crystallized. Furthermore, senting the relative costs which was fully paid, is in- based on the provisions of IAS 10, this development cluded in the line “Cost of early retirement program” should be treated as an adjusting subsequent event in the consolidated income statement of 2010. and therefore the amount of the actuarial study should OTE’s tax audit be recorded in the 2010 financial statements. With re- The tax audit of the Company for the fiscal years spect to the additional studies that will be performed 2006-2008 was completed in early May 2010 and (based on the Ministry’s notification), OTE has not the tax authorities imposed additional taxes amount- recorded any provision in its financial statements, ing to Euro 57.7 million. The Company has accepted as the amount cannot be reliably estimated until the a partial settlement for an amount of Euro 37.7 mil- announcement of such studies. As a result of all the lion. Furthermore, based on the findings of the tax above, the amount of Euro 129.8 million was record- audit, the Company has reassessed the income tax ed in the consolidated and separate income statement expense for the year 2009 and an additional tax ex- of 2010 and is included in the line “Cost of early re- pense of Euro 6.3 million was required. The amount tirement program”. settled with the tax authorities, the additional esti- OTE’s early retirement program mate for 2009, less the previously established provi- On December 23, 2009, the management of OTE sion for open tax years of Euro 14.0 million resulted approved an early retirement program according to in an amount of Euro 30.0 million being charged to which employees who would complete the number of the income statement of 2010. The remaining amount years required for retirement by December 29, 2010, of taxes imposed (Euro 20.0 million) relates to costs would be entitled to benefits in order to retire by De- associated with OTE’s Voluntary Leave Scheme and cember 30, 2010. The deadline for the applications the early retirement programs. OTE decided not to for participating in this early retirement program was include this particular item in the partial settlement on January 15, 2010. The respective cost amounted and has appealed against the tax authorities’ position to Euro 36.5 million and is included in the line “Cost before the administrative courts. Based on the respec- of early retirement program” in the consolidated and tive law, the Company was required to pay an advance separate income statement for 2010. of approximately Euro 5.0 million (25% of the as- ROMTELECOM’s and ZAPP’s restructuring plans sessed taxes and penalties) in order to appeal, which By virtue of decisions by ROMTELECOM’s CEO, will be reimbursed to the Company in the event of a dated February and April 2010, ROMTELECOM favorable court outcome. Based on the management’s announced the restructuring of specific departments assessment, OTE considers there are good grounds within the company. During 2010, 1,136 employees to believe that OTE will win this case in court. The voluntarily terminated their employment contracts amount was partially offset with claims from tax au- and an amount of Euro 24.2 million, which was fully -13- Annual Financial Report 2010 thorities of Euro 4.4 million and as a result OTE paid was charged to the consolidated and separate income Euro 0.6 million. statement in the second quarter of 2010. The amount New tax law would be finalized after the receipt of the respective notifications by the tax authorities. The Company The new Law 3842/23-4-2010 introduces two sepa- evaluated the possibility (after the payment of the rate corporate income tax rates for distributed and above mentioned contribution) of requesting a refund undistributed profits of legal entities. More specifi- of approximately Euro 30.1 million of such special cally: contribution relating to dividend income derived >> Non-distributed profits are taxed at a tax rate of from its subsidiaries’ 2008 profits, on which a special 24% (reduced annually by 1 percentage point contribution has already been imposed based on the until it reaches 20% by 2014). requirements of L. 3808/2009. Based on the instruc- >> Distributed profits are taxed at a tax rate of 40%. tions/clarifications given in December 2010 from the >> No further withholding tax is imposed on divi- Ministry of Finance with respect to the special con- dends. tribution imposed with L. 3845/2010, the amount of The new tax law applies to profits arising from the the special contribution which derives from the divi- fiscal year 2010 onwards or to the profits of previous dend income received from a subsidiary from profits accounting periods distributed after December 31, of this subsidiary on which a special contribution has 2010. The distribution of profits of previous account- been paid (either from L. 3845/2010 or L. 3808/2009) ing periods within 2010 is still taxed under the current is refunded to the Company. As a result, the amount regime (withholding tax of 10% is applicable). of Euro 30.1 million was deducted from the special Taxation of 40% on distributed profits of the legal en- contribution of the Group and the Company, and the tities exhausts the tax liability in case the beneficia- total charge for the year 2010 amounted to Euro 69.3 ries are legal entities. million for the Group and Euro 15.9 million for the In cases where such legal entities proceed to the dis- Company. The special contribution will be paid in tribution of profits, in which dividends from other le- 2011 in twelve monthly installments. gal entities are included, the part of tax already paid OTE PLC loans for those dividends is deducted from the 40% tax im- In February 2010, notes under the Global Medium- posed on distributed profits. Term Note Program of OTE PLC of Euro 1,500.0 Special contribution Law 3845/2010 million nominal value 5,375% notes maturing in According to Law 3845/2010 “Measures for the ap- February 2011 were reclassified to the “Short-term plication of the support scheme of the Greek Econo- portion of long-term borrowings” in the consolidated my by the Members of the Euro Zone and the Inter- statement of financial position. In May and December national Monetary Fund” a special contribution was 2010, OTE PLC proceeded with partial buybacks of imposed on Greek profitable entities calculated on notes of a total nominal amount of Euro 99.6 million their total net income for the fiscal year 2009 based under the aforementioned notes. The repurchased on a progressive scale up to 10% of their total net in- notes have been cancelled. In November 2010, notes come. The contribution was initially estimated to ap- under the Global Medium-Term Note Program of proximately Euro 99.4 million and Euro 46.0 million OTE PLC of Euro 650 million nominal value 3.75% for the Group and the Company, respectively and it notes maturing in November 2011 were reclassified -14- Annual Financial Report 2010 to the “Short-term portion of long-term borrowings” withholding tax which will be borne by the benefi- in the consolidated statement of financial position. ciary, however, the related law provides for certain With respect to the Notes maturing in 2011, the exceptions. Group’s refinancing strategy will combine the use ZAPP the Group’s excess liquidity, capital markets issuance The Group acquired ZAPP on October 31, 2009. The or syndicated banks loan or a shareholder loan from net assets recognized in the December 31, 2009 con- DEUTSCHE TELEKOM AG (see also section G be- solidated financial statements were based on a provi- low). sional assessment of fair value. The valuation of the In relation to the shareholder loan from DEUTSCHE net assets acquired was completed in June 2010 and TELEKOM AG, OTE’s ordinary General Assembly an additional amount of Euro 25.2 million was recog- has approved the granting of special permission pur- nized as goodwill, mainly resulting from the decrease suant to article 23a, paragraph 2 of C.L.2190/1920, in the fair values of property, plant and equipment for the conclusion of a loan offered by DEUTSCHE as provisionally assessed. As a result, total goodwill TELEKOM AG to OTE, under financial terms and arising from the acquisition of ZAPP amounted to conditions equal to or better than the financial terms Euro 58.7 million. and conditions offered by a third party. AMC Loan to TAYTEKO As of December 31, 2010 COSMOTE holds directly Based on L. 3762/2009 (Voluntary Leave Scheme a 14.76% stake in AMC’s share capital after buying a program for 600 employees) OTE was required to further 2.18% for an amount of approximately Euro grant an interest-free long-term loan to TAYTEKO 7.9 million. As a result of the above transaction, COS- for the Lump Sum benefits that TAYTEKO will be re- MOTE holds directly or indirectly 97.21% of AMC. quired to pay to these employees. The respective loan Impairment of investments in subsidiaries agreement was signed in late June 2010 for a nominal amount of Euro 30.0 million, being an interest free During 2010, an impairment test was carried out on loan with a duration of 22 years. At the date of the OTE’s participation in COSMOONE, OTE ACAD- contractual commitment the loan was discounted to EMY and VOICENET as there were indications that its present value and as a result an amount of approxi- the carrying values were not recoverable. The results mately Euro 18.6 million was charged as a finance of the impairment test showed that the recoverable expense in the 2010 income statement, out of which amounts were below the carrying amounts, therefore Euro 0.6 million was unwinded until December 31, an impairment loss of Euro 0.1 million, Euro 1.6 mil- 2010. As of December 31, 2010 the total amount of lion and Euro 0.6 million, respectively, was recog- Euro 30.0 million had been drawn down. nized in the 2010 separate income statement in the Dividend distribution line “Impairment of investments” (2009: an impairment loss of Euro 0.1 million, Euro 0.3 million and On June 16, 2010, the General Assembly of OTE’s Euro 0.3 million was recognized for COSMOONE, Shareholders approved the distribution of a dividend from 2009 profits of a total amount of Euro OTE ACADEMY and VOICENET respectively). 93.1 million or Euro 0.19 per share. Pursuant to Law Capital reduction of subsidiaries 3697/2008, dividends approved by General Meetings In December 2010, OTE ESTATE’s Extraordinary convened after January 1, 2009, are subject to 10% General Assembly of Shareholders approved the re- -15- Annual Financial Report 2010 duction of its share capital by Euro 40.9 million as a of Euro 244.5 million was charged in the 2010 con- result of a reduction in nominal amount of its shares solidated income statement and is included in the line from Euro 2.43 to Euro 2.23. As at December 31, “Depreciation, amortization and impairment”. 2010, the return of capital had not yet taken place. Telecom Srbija In December 2010, HELLAS COM’s Extraordinary Until December 31, 2009, with respect to its invest- General Assembly of Shareholders approved the re- ment in TELEKOM SRBIJA, OTE had concluded duction of its share capital by Euro 4.0 million as a that, primarily because of the 80% interest of the Ser- result of a reduction in nominal amount of its shares bian government, it did not exercise significant influ- from Euro 9.5 to Euro 1.5. As at December 31, 2010, ence over TELEKOM SRBIJA. Furthermore, since the return of capital had not yet taken place. TELEKOM SRBIJA’s shares are not publicly traded In December 2010, OTESAT MARITEL’s Extraordi- and OTE did not have availability to timely updated nary General Assembly of Shareholders approved the financial information required for a reliable measure- reduction of its share capital by Euro 7.0 million as a ment of its investment in TELEKOM SRBIJA, such result of a reduction in nominal amount of its shares investment was carried at cost. from Euro 3.54 to Euro 1.55. As at December 31, In 2010, OTE re-assessed its position as to whether 2010, the return of capital had not yet taken place. it can exercise significant influence over TELEKOM In December 2010, OTE INSURANCE’s Extraordi- SRBIJA and concluded that, for the same reasons re- nary General Assembly of Shareholders approved the ferred to above, its position remained unchanged. reduction of its share by Euro 0.5 million as a result Furthermore, OTE re-assessed its position with re- of a reduction in nominal amount of its shares from spect to its ability to reliably measure the fair value Euro 2.93 to Euro 0.43. As at December 31, 2010, the of its investment in TELEKOM SRBIJA, considering return of capital had not yet taken place. all the developments that occurred during the year as In November 2010, OTE INTERNATIONAL IN- described below. VESTMENTS LTD’s Extraordinary General As- During the third quarter of 2010, the Government of sembly of Shareholders approved the reduction of Serbia (“GoS”) initiated the sale process of a 51% its share capital by Euro 31.5 million as a result of a stake in TELEKOM SRBIJA, out of the GoS stake reduction in nominal amount of its shares from Euro or jointly with OTE’s 20% stake, if OTE would be in- 1.71 to Euro 1.58. As at December 31, 2010, the re- terested. OTE’s Board of Directors, on December 17, turn of capital had not yet taken place. 2010, decided that it would agree to sell OTE’s stake Impairment of RomTelecom’s assets in TELEKOM SRBIJA, subject to a satisfactory price As at December 31, 2010, an impairment test was and certain other conditions. The process is on-going performed by ROMTELECOM with respect to its and the GoS is expecting to receive binding bids by property, plant and equipment as there were indica- March 21, 2011. tions that its carrying value exceeds the recoverable In the context of the above sale process, OTE has amount. The impairment test was performed based on been allowed access to additional financial informa- a discounted cash-flow model, using cash-flow pro- tion relating to TELEKOM SRBIJA and, with the jections from financial budgets approved by manage- assistance of external advisors appointed by OTE ment and a discount rate of 9.75%. Αs a result of the to support it during the sale process, proceeded with impairment test mentioned above, an impairment loss evaluating such information for the purpose of inter -16- Annual Financial Report 2010 alia, making a reliable measurement of TELEKOM D. RISKS AND UNCERTAINTIES SRBIJA’s fair value. The outcome of this exercise FOR THE NEXT YEAR so far has been a materially wide range of fair value a) Credit risk estimates, primarily due to the significant variability in various market and economic assumptions and Credit risk is the risk of financial loss to the Group uncertainties on various parameters affecting the fu- and the Company if counterparty fails to meet its con- ture performance of TELEKOM SRBIJA dependent tractual obligations. on the GoS actions. Consequently, OTE concluded The carrying value of financial assets at each report- that it cannot, so far, reasonably assess probabilities ing date is the maximum credit risk to which the on the derived fair value estimates and, therefore, as Group and the Company are exposed. of December 31, 2010, its investment in TELEKOM Trade receivables could potentially adversely affect SRBIJA remained at cost. It is noted that the lower the liquidity of the Group and the Company. How- end of the above mentioned fair value estimates ex- ever, due to the large number of customers and their ceeds the carrying amount of TELEKOM SRBIJA in diversification of the customer base, there is no con- OTE’s financial statements. centration of credit risk with respect to these receiv- In early January 2011, the GoS formally announced ables. Concentration of risk is considered to exist for to OTE a “minimum reference price” based on which amounts receivable from the telecommunication ser- the GoS would be willing to sell a controlling stake vice providers, due to their relatively small number in TELEKOM SRBIJA. On January 26, 2011, OTE’s and the high level of transactions they have with the Board of Directors decided that, should the reference Group and the Company. For this category the Group price as set by the GoS (or higher) be reached, then and the Company assess the credit risk following the OTE would agree to sell its stake at that price. If the established policies and procedures and have made selling price were set at a lower level, OTE would re- the appropriate provision for impairment. consider its position. The Group and the Company have established spe- Furthermore, OTE examined if, following the de- cific credit policies under which customers are ana- cision of its Board of Directors to sell its stake in lyzed for creditworthiness and there is an effective TELEKOM SRBIJA as referred to above, the cri- management of receivables in place both before and teria for classifying its investment as held-for-sale after they become overdue and doubtful. In moni- were met. OTE, considering that the selling process toring credit risk, customers are grouped according and plan is driven by the GoS, concluded that it can- to their credit risk characteristics, aging profile and not reasonably assess if such sale meets the crite- existence of previous financial difficulties. Custom- rion of being highly probable, as required by IFRS ers that are characterized as doubtful are reassessed 5 and, consequently, that the criteria for classifying at each reporting date for the estimated loss that is TELEKOM SRBIJA as held-for-sale as of December expected and an appropriate impairment allowance is 31, 2010, were not met. established. Cash and cash equivalents are considered to be exposed to a high level of credit risk, in light of the macroeconomic conditions placing significant pressure on the banks. The Group and the Company fol- -17- Annual Financial Report 2010 low cash management guidelines, while both country ing strategy will combine the use the Group’s ex- and counterparty exposures are centrally monitored. cess liquidity, capital markets issuance or syndicated Most of the Group’s cash is invested in highly rated banks loan or a shareholder loan from DEUTSCHE counterparties and with a very short term tenor. TELEKOM AG (see also section G below). Financial instruments classified as available-for-sale For the monitoring of the liquidity risk, the Group and held-for-trading include listed shares, mutual prepares forecasted cash flows on a frequent basis. funds and other securities. The financial asset catego- c) Market risk ries are not considered to expose the Group and the Market risk is the risk that changes in market prices, Company to a significant credit risk. such as foreign exchange rates, interest rates and eq- Loans include loans to employees which are collected uity prices will result in fluctuations of the value of either through the payroll or are netted-off with their the Group’s and the Company’s financial instruments. retirement indemnities and loans and advances to The objective of market risk management is to man- Auxiliary Pension Fund mainly due to the Voluntary age and control exposure within acceptable levels. Leave Scheme. The above mentioned loans are not The individual risks that comprise market risk are de- considered to expose the Group and the Company to scribed in further detail and the Group’s and the Com- a significant credit risk. pany’s policies for managing them are as follows: b) Liquidity risk i. Interest rate risk Liquidity risk is the risk that the Group or the Compa- Interest rate risk is the risk that payments for interest ny will not be able to meet their financial obligations on loans fluctuate due to changes in interest rates. as they fall due. Liquidity risk is kept at low levels by ensuring that there is sufficient cash on demand The hedging of interest rate risk is managed through a and credit facilities to meet the financial obligations combination of fixed and floating rate borrowings as when due. The Group’s and the Company’s cash and well as with the use of interest rate swap agreements. cash equivalents as at December 31, 2010 amounts to As of December 31, 2010, the ratio of fixed-rate bor- Euro 1,004.3 million and Euro 189.0 million, respec- rowings to floating-rate borrowings for the Group tively and their debt amounts to Euro 5,299.8 million was 91%/9% (2009: 91%/9%). The analysis of bor- and Euro 2,834.5 million, respectively. With respect rowings by type of the interest rate is as follows: to the Notes maturing in 2011, the Group’s refinanc-

GROUP COMPANY (amounts in millions of Euro) 2010 2009 2010 2009 Floating interest rate 479.8 503.3 - - Fixed interest rate 4,820.0 4,918.6 2,834.5 2,930.1 TOTAL 5,299.8 5,421.9 2,834.5 2,930.1 -18- Annual Financial Report 2010

As of December 31, 2010, one interest rate swap between the functional currencies and other curren- agreement was outstanding, namely a fixed-to- cies. The main currencies within the Group are the floating swap with a notional amount of Euro 65.0 Euro, Ron (Romania) and the Lek (Albania). million used by OTE PLC. The post hedging fixed to Capital Management floating ratio is 90%/10%. The primary objective of the Group’s and the Compa- ny’s capital management is to ensure that it maintains The following table demonstrate the sensitivity to a a strong credit rating and healthy capital ratio in or- reasonable possible change in interest rates on loans, der to support its business and maximize shareholder deposits and derivatives to the income statement. value. Sensitivity to an interest rates increase of 1%: The Group and the Company manage their capi- GROUP COMPANY tal structure and make adjustments to it, in light of (amounts in millions changes in economic conditions. To maintain or ad- of Euro) 2010 2009 2010 2009 just the capital structure, the Group and the Company Profit before tax 5,2 4,7 1,9 2,2 may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. If interest rates were to decrease by 1%, the impact An important means of managing capital is the use of would be similar and opposite to the analysis above. the gearing ratio (ratio of net debt to equity) which is ii. Foreign currency risk monitored at a Group level. Net Debt includes inter- Currency risk is the risk that the fair values or the est bearing loans and notes, less cash and cash equiv- cash flows of a financial instrument fluctuate due to alents and other financial assets. foreign currency changes. The table below shows an increase in the gearing ratio The Group operates in Southeastern Europe and as in 2010 compared to 2009 mainly due to a decrease in a result is exposed to currency risk due to changes equity partially offset by a decrease in net debt:

Net debt

GROUP (amounts in millions of Euro) December 31 2010 2009 Borrowings 5,299.8 5,421.9 Cash and cash equivalents (1,004.3) (868.8) Other financial assets (12.5) (35.4) Net debt 4,283.0 4,517.7 Equity 1,652.6 1,884.1 Gearing ratio 2.59x 2.40x d) Other risks effectively. Under applicable laws, regulations and Regulatory framework related decisions, the Hellenic Telecommunications Regulatory and competitive pressures affect OTE’s and Post Committee (“HTPC”) has the jurisdiction to ability to set competitive retail and wholesale tariffs, assess OTE’s tariffs. Regulatory limitations imposed which may adversely affect its ability to compete on OTE’s ability to set tariffs often require it to charge -19- Annual Financial Report 2010 tariffs which are higher or, in certain cases, signifi- income statement. Given the current fiscal position cantly higher than those charged by its competitors of the Greek State, additional fiscal measures may be for the same services, as its competitors do not have taken, which could have a material adverse effect on such a significant market share and are not therefore the Group’s and the Company’s financial condition. subject to the same pricing constraints. If OTE cannot efficiently reduce the cost of providing its services E. CORPORATE GOVERNANCE and the level of its tariffs to be more competitive in a STATEMENT timely manner, it could experience a material adverse effect on its business and financial condition. This Statement covers all of the principles and practices adopted by the Company in order to ensure its Potential impairment losses efficiency, the interests of shareholders and all other In conjunction with the conditions in many markets in interested parties. The structure of this Statement of which the Group has invested, the Group faces chal- Corporate Governance focuses on the following top- lenges regarding the financial outlook of some of its ics: subsidiaries. In this respect, impairment losses may Α. Statement of compliance with the Code of Corpo- incur relating to the recognized amounts of goodwill rate Governance allocated to these subsidiaries, or even more to these Β. Deviations from the Code of Corporate Govern- subsidiaries’ assets. ance and explanations Additional contributions to pension funds C. Corporate Governance practices beyond the As previously discussed, the Ministry of Labor and requirements of the Law or the Code Social Security notified OTE that additional studies D. Board of Directors and Committees that consist will follow for the estimation of the additional finan- by members of the Board cial burden of the Insurance Funds, incurred by OTE’s Ε. General Assembly and Shareholders’ rights voluntary retirement scheme based on L. 3762/2009. F. Matters of internal control and risk management Furthermore, based on actuarial studies performed in of the Company in relation to financial reporting prior years and on current estimations, the pension process funds show (or will show in the future) increasing By strengthening its procedures and structures, the deficits. OTE does not have a legal obligation to cov- Company ensures not only the compliance with the er any future deficiencies of these funds and, accord- regulatory framework, but also the development of ing to management, neither does it voluntarily intend corporate culture, based on the values of entrepre- to cover such possible deficiencies. However, there neurship and ethics and on the protection of share- can be no assurance that OTE will not be required holders’ and other parties’ interests. (through regulatory arrangements) to make additional As a listed company in the Athens Exchange, OTE contributions in the future to cover operating deficits complies with the legislation in force and with the of these funds. Corporate Governance Code of the Hellenic Federa- Additional tax burdens tion of Enterprises (“SEV”), regarding corporate gov- As previously discussed, in 2009 and in 2010 the ernance practices. Greek State imposed special tax contributions which The principles and practices followed by the Com- materially affected the Group’s and the Company’s pany are reflected in the Articles of Incorporation, the -20- Annual Financial Report 2010

Internal Regulation of Operations, the Code of Eth- quest the convening of a meeting and include specific ics and Business Conduct and in other regulations or items in the agenda. Two (2) members of the Board policies of the Company regulating its operations as of Directors may request the convening of a meeting described here below. as provided by law. Also, there is no specific procedure whereby the Independent Vice Chairman may Α. Statement of compliance with the coordinate the communication between executive Code of Corporate Governance and non-executive members of the Board of Direc- The Company complies with the specific practices tors. Moreover, a separate meeting of non-executive for listed companies laid down in the regulation of members of the Board of Directors without the pres- SEV, which can be found on the website http://www. ence and participation of the executive members in sev.org.gr/online/index.aspx and http://www.sev.org. not provided (paragraph 3.4 of the Code). gr/Uploads/pdf/KED_TELIKO_JAN2011.pdf. (3) Other professional commitments of the members of the Board of Directors (including significant non- Β. Deviations from the Code of executive commitments to other companies and non- Corporate Governance and profit institutions) are not disclosed to the Company. explanations However, according to the law, each member must More specifically, as per today, the following devia- disclose in a timely manner their own interests, and tions should be mentioned from the above Code: any other conflict of interests with those of the Com- (1) The Board of Directors does not determine whether pany and its affiliated companies (paragraph 4.2 of a candidate fulfils the independence criteria before the Code). being proposed for election at the General Assem- (4) There is no procedure in place providing that the bly. However, there is a procedure whereby, during appointment of an executive member of the Board of the meeting of the General Assembly for the election Directors as non-executive in an affiliated company, of members of the Board of Directors, the indepen- pursuant to article 42e par.5 of the CL 2190/1920, has dence issues as provided for by L.3016/2002 and by to be approved by OTE’s Board of Directors of OTE the Code of SEV are mentioned, in order the share- (paragraph 4.3 of the Code). holders to have the necessary information for the sub- (5) There is no Committee established for the elec- mission of their proposals. Also, after the election of tion of candidates for members of the Board of Direc- independent members and the acceptance of their du- tors after submission of nominations and there is no ties to the Board of Directors and its Committees, the evaluation process of the members of the Board of independent members sign a statement confirming Directors and its Committees. Law does not provide that the impediments of article 4 of L. 3016/2002 do for the formation of this Committee and the Company not exist. In accordance with the above procedure the has not provided to establish such a Committee (para- Board of Directors has ensured that the independent graph 5.4 of the Code). members fulfill the independence criteria (paragraph (6) The Company’s Articles of Incorporation does not 2.4 of the Code). provide for electronic or by mail voting at the Gen- (2) Neither the Articles of Incorporation nor the eral Assemblies. Though, the Board of Directors has Regulation of Operations of the Board of Directors the ability to establish such a procedure, according to provide that the Independent Vice Chairman may re- the law. However, pursuant to article 28a par.8 of CL -21- Annual Financial Report 2010

2190/1920, a Ministerial Decision is required in order apply to the Group and specific procedures are strictly to define the specifications on ensuring the identity of followed. In the framework of the CMS the following the voting shareholder. This Ministerial Decision has policies have been adopted: not yet been issued (Part DII 1.2 of the Code). >> Policy on abuse of inside information of OTE For the issues referred in this Statement as deviations Group from the Code of Corporate Governance of SEV there >> Policy on donations and sponsorships of OTE are no legal requirements or regulatory provisions set Group by the Hellenic Capital Market Commission, while >> Policy on acceptance and offering of corporate the above Code has been recently issued and there gifts of OTE Group was no sufficient time to amend or supplement the >> Fraud policy of OTE Group Company’s internal rules and practices, pursuant to >> Policy on organizing corporate events of OTE the laws regulating its operations. Group >> Whistle blowing policy of OTE Group C. Corporate Governance practices >> Policy on conflict of interest beyond the requirements of the Law >> Code of conduct for the protection of individual’s or the Code right to privacy in the handling of personal data OTE Group has adopted a Compliance Management within OTE Group System (CMS), regarding the compliance with the >> Code of ethics for senior financial officers legislation in force and the internal policies, aiming at avoiding of risks and other legal consequences for D. Board of Directors and the Committees that consist by members the Company and all the personnel – employees and of the Board management. The system safeguards the Company’s, employees’, customers’, suppliers’ and shareholders’ 1. Board of Directors (Role, Composition and interests. Operation) The key elements of the CMS are a) the prevention 1.1. The Board of Directors is the top administrative of misconduct together with the compliance with body of the Company. Its aim is to safeguard the gen- the policies, in order the Company and its employ- eral interests of the Company and ensure its opera- ees to be protected from any legal consequences due tional efficiency. to this misconduct; the CMS contributes in reducing 1.2. Pursuant to the provisions of the Articles of In- the reputational risks of the Group b) the continuous corporation, as in force: training in order the employees to be informed about The Board of Directors consists of nine (9) up to the risks of corruption, fraud, misuse of personal data, eleven (11) members, which may be or not be share- manipulation of financial statements, disclose of in- holders of the Company and the exact number is side business information, etc. and c) the detection defined by the General Assembly. The members are of compliance violations, the investigation thereat distinguished between executive and non-executive and the proposal of remedies and measures deemed members; at least two of the members of the Board necessary. must be independent. The members are elected by In the framework of the CMS, specific policies have the General Assembly, which also appoints the inde- been adopted describing the principles and rules that pendent members, serving for a three (3) year term. -22- Annual Financial Report 2010

The members can always be reelected and can be are announced at the next General Assembly (ordi- revoked any time by the General Assembly. In the nary or extraordinary), which can replace the elected event of resignation, death or any other reason of one members, even if such announcement has not been or more than one members prior to the expiration of included in the agenda of such General Assembly. their term, the Board shall, with at least five (5) of 1.3 The General Assembly of 24/6/2009 has defined the remaining members, present or represented, either the number of the Board Directors to (10), which have elect substitute(s) for the remaining term of service been elected for a three year term, ending at the date of the member(s) being replaced and under the same of the Ordinary General Assembly in 2012. Four (4) capacity of executive, non-executive or independent of the above members are independent. members or continue the management of the business The table below includes the members of the Board affairs and the representation of the Company with- of Directors from 1/1/2010 until 31/12/2010: out electing such substitute(s). Any such election(s)

Date of appointment End of Name Capacity (most recent) Term Michael Tsamaz Chairman and CEO, Executive member 3/11/2010 2012 Panagis Vourloumis Chairman and CEO, Executive member 24/6/2009 3/11/2010 Dimitrios Tzouganatos Vice-Chairman, Independent Non Executive member 23/6/2010 2012 Charalambos Dimitriou Vice-Chairman, Non Executive member 24/6/2009 18/6/2010 Kevin Copp Executive member 24/6/2009 2012 Guido Kerkhoff Non Executive member 24/6/2009 2012 Rainer Rathgeber Non Executive member 19/2/2010 2012 Eustathios Anestis Non Executive member 23/6/2010 2012 Nikolaos Karamouzis Non Executive member 23/6/2010 2012 Michael Bletsas Independent Non Executive member 23/6/2010 2012 Panagiotis Tabourlos Independent Non Executive member 24/6/2009 2012 Vasileios Fourlis Independent Non Executive member 23/6/2010 2012 Hamid Akhavan-Malayeri Non Executive member 24/6/2009 19/2/2010 Iordanis Aivazis Executive member 24/6/2009 18/6/2010 Leonidas Evaggelidis Independent Non Executive member 24/6/2009 18/6/2010 Konstantinos Michalos Independent Non Executive member 24/6/2009 18/6/2010 Ioannis Benopoulos Independent Non Executive member 24/6/2009 18/6/2010

The changes in the composition of Board of Directors members Messers Iordanis Aivazis, Leonidas during 2010 can be summarized as follows: Eyaggelidis, Konstantinos Michalos and Ioan- >> Mr Hamid Akhavan-Malayeri submitted his res- nis Benopoulos submitted their resignations on ignation on 19/2/2010 and was replaced by Mr 18/6/2010 and thereafter (on 23/6/2010) were Rainer Rathgeber. replaced by Messers Nikolaos Karamouzis, Eus- >> Vice-Chairman Mr Charalambos Dimitriou and tathios Anestis, Dimitrios Tzouganatos (who was -23- Annual Financial Report 2010

appointed Vice Chairman), Vasileios Fourlis and The Board of Directors may delegate its powers to its Michael Bletsas, respectively. members, executive directors, third parties or Com- >> The Board of Directors on 3/11/2010 revoked mittees, determining the extent of that delegation for the appointment of Mr Panagis Bourloumis as the following matters (indicated but limited to): Chairman and CEO. Thereafter – on the same >> financial issues, date – Mr. Panagis Vourloumis resigned from his >> matters related to subscribers, subscribers’ composition as a member of the Board of Directors plaints – requests, and was replaced by Mr. Michael Tsamaz. >> matters of labour law, health and safety of the The CV’s of the members of the Board of Directors Company’s employees, who are employed by the are listed on the Company’s website: Company on any kind of contractual or project http://www.ote.gr/portal/page/portal/InvestorRela- basis, tion/CorporateGovernance/BoardofDirectors/com- >> matters of personal data of the Company’s per- position sonnel, on intellectual property matters in case intellectual property rights are infringed by crea- 1.4. According to the Company’s Articles of Incor- tion of archives, saving, processing, transmitting poration1: or distribution of works of intellectual property The Board of Directors as part of its responsibilities: without the permission of the creators through IT >> Convenes Ordinary or Extraordinary General systems owned or used by the Company, Assemblies of Shareholders and proposes on their >> matters related to compliance with personal data agenda. legislation and privacy of communications, >> Prepares and approves the Company’s annual >> matters related to compliance with market police financial reports and submits them to the General orders regarding the products and/or services of Assembly of Shareholders. the Company, >> Approves the Company’s strategy and decides >> matters regarding the products and/or services upon the establishment of subsidiaries or upon of the Company and/or third parties provided the Company’s participation in the share capital through the Company’s network, of other companies (domestic or foreign). >> matters regarding compliance with fire brigade >> Is informed systematically on the course of the legislation or with police orders or with any Company’s business and the implementation of administrative order concerning the operation of its plan with a view to protecting the Company’s the Company’s shops and infrastructure, techni- broader interests. cal or not. >> Decides upon share capital increases through the Finally, the Articles of Incorporation provide for spe- issuance of new shares and convertible bonds, cial matters, which cannot be further delegated as following the authorization granted by the Gen- the decisions on these matters should necessarily be eral Assembly of Shareholders. taken by the Board of Directors. >> Decides upon the issue of convertible or ex- changeable bonds. The Chairman sets the agenda of the meetings, chairs the meetings of the Board and coordinates its works. 1 http://www.ote.gr/portal/page/portal/InvestorRelation/ The Board of Directors shall meet whenever deemed CorporateGovernance/diafaneiapliroforisi/regulations necessary or upon request to the Chairman by at least -24- Annual Financial Report 2010 two (2) members. Without prejudice to the relevant refers to the powers of the Chairman and the Vice- articles of the Articles of Incorporation on specific Chairman of the Board of Directors. quorums and majorities on special matters, the Board Concisely, according to the above Regulation, the of Directors is in quorum and convenes validly when Chairman is elected by the members and may also half-plus-one of its members are present; neverthe- hold the position of the CEO. Today, Mr Michael Tsa- less, the number of members present should not be maz holds the positions of Chairman of the Board of less than three (3). Resolutions are reached by simple Directors and CEO. The Vice-Chairman, Mr. Dimi- majority, unless otherwise provided by L. 2190/1920 trios Tzouganatos is an independent non-executive as currently in force, or by the Company’s Articles of member of the Board of Directors. Incorporation. 1.6. During 2010 the Board of Directors met 22 1.5. The Regulation of Operations of the Board of times. In principle, the Board of Directors meets at Directors, which has been approved by the Board of least once a month. Directors, regulates the details of the procedure fol- The presences of each member of the Board of Direc- lowed on convening, meeting and deciding. It also tors during 2010 are described in the following table:

Number of Meetings Number of Meetings Number of Meetings Name during the term being present being represented Michael Tsamaz 5 5 - Panagis Vourloumis 18 18 - Dimitrios Tzouganatos 13 13 - Charalambos Dimitriou 9 8 1 Kevin Copp 22 21 1 Guido Kerkhoff 22 19 3 Rainer Rathgeber 20 19 1 Eustathios Anestis 13 13 - Nikolaos Karamouzis 13 11 2 Michael Bletsas 13 13 - Panagiotis Tabourlos 22 22 - Vasileios Fourlis 13 11 2 Hamid Akhavan-Malayeri 1 1 - Iordanis Aivazis 9 9 - Leonidas Evaggelidis 9 8 1 Konstantinos Michalos 9 6 2 Ioannis Benopoulos 9 8 1 -25- Annual Financial Report 2010

1.7. In accordance with the business practice, the place where the meetings will be held, for up to members of the Board of Directors are briefed on is- two overnight stays per transfer. sues related to the Company, during the meetings of 1.9. In the Code of Ethics and Business Conduct as the Board of Directors or the discussion of the items approved by the Board of Directors (article 9) and in of the agenda, as well as whenever there is a need the Group Policy on Conflict of Interest, special ref- for an update through communication between the erences are made on the issue of Conflict of Interest Chairman and the members (by relevant information of the members of the Board of Directors. The above- memos). mentioned Policies provide that the Board members 1.8. Board of Directors Compensation Policy (including employees of the Company), must refrain from any act which may give rise to a conflict of their Pursuant to the Articles of Incorporation, the terms personal interests- or members of their families -with and conditions under which the members of the Board those of OTE or its affiliated companies. Specifical- of Directors receive remuneration, compensation and ly: benefits are proposed by the Board of Directors and >> Employees and members of the Board of Direc- approved by the General Assembly. tors are not allowed to maintain, directly or In case the members of the Board of Directors are indirectly, any material economic interest (as the employed with the Company, they receive the com- latter is defined each time in the Internal Opera- pensation provided under their employment contract tions Regulations) in vendors, customers, com- and are not eligible to the compensation paid to the petitors or other undertakings, if such interest other members of the Board of Directors. may influence their business decisions. For the fiscal year 2010, the Ordinary General As- >> Employees and members of the Board of Direc- sembly of Shareholders held on June 16, 2010 has tors cannot accept or allow a member of their determined the Board of Directors members’ remu- family to accept money, gifts, loans, entertain- neration for their participation in the meeting of the ment services or favourable treatment from Board of Directors in the amount of Euro 2,250 “net” anyone maintaining business relations with OTE per month, regardless of the number of meetings. or being an OTE competitor. Moreover, the Extraordinary General Assembly, held In conjunction with the above-mentioned, the Com- on July 23, 2010, decided to cover the travel/ sojourn pany’s Internal Regulation of Operations provides for expenses of the members of the Board of Directors the monitoring of economic activities and financial for their attendance at the meetings of the Board and transactions of the members of the Board of Directors it’s Committees, from and to the country of their per- and the persons carrying out managerial duties with manent residence, provided that are not covered by significant customers or suppliers of the Company, as their employers as follows: well as the financial transactions concerning shares >> In the event of air transportation, OTE will issued by OTE, derivatives or other financial instru- assume the fare of “business class” ticket, for ments linked to them. flights with duration of more than four hours and In addition, there are relevant provisions in the poli- the fare of “economy class” ticket for flights with cies that have been prescribed in the Compliance duration of less than four hours. Management System of OTE Group, such as the Pol- >> OTE will assume the sojourn expenses, at the icy on acceptance and offering of corporate gifts of -26- Annual Financial Report 2010

OTE Group and the Policy on abuse of inside infor- Regulation of Operation of the Audit Committee, as mation of OTE Group. approved by the Board of Directors. 2. Board of Directors Committees – Composition – Concisely, the objective of the Audit Committee is Responsibilities - Compensation to support the Company’s Board of Directors in the Two Committees have been formed and operate in the exercise of the latter’s supervisory authority and the Company the members of which are members of the fulfillment of the latter’s obligations towards share- Board of Directors. These are the Audit Committee holders, the investment community and third parties, and the Compensation and Human Resources Com- especially with regards to the financial reporting pro- mittee. In particular: cess. 2.1. The Audit Committee consists of three indepen- In 2010, the Audit Committee dealt with all issues dent members of the Board of Directors, nominated provided in its Regulation including, among others: by the General Assembly of Shareholders according >> The approval and monitoring of the Company’s to article 37 of Law 3693/2008. Internal Audit activities. The Audit Committee during 2010 consisted of the >> The assessment of the accuracy and consistency following members: of Financial Statements. >> The assurance of the Certified Auditors’ inde- Until June 2010, the members were Mr Panagiotis pendence, in relation to the services provided by Tabourlos (Chairman – Expert on Financial Matters), Mr Leonidas Evaggelidis and Mr Ioannis Benopoulos. the latter to the companies of OTE group. >> As from July 2010, the members are Mr Panagiotis The monitoring of the results of management’s Tabourlos (Chairman – Expert on Financial Matters), testing, in relation to compliance with SOX 404. Mr Dimitrios Tzouganatos and Mr Vasileios Fourlis. >> The review of the annual 20-F Form which is filed with the US Securities and Exchange Com- For the fiscal year 2010, by resolution of the Ordinary mission. General Assembly held on June 16, 2010, the com- >> The expression of opinion on the appointment of pensation of the Chairman and the members of the certified auditors. Audit Committee, for their participation in its meet- >> The handling of complaints and allegations. ings was determined as follows: The Audit Committee has a frequent communication (a) Chairman: Euro 1.350 “net” per meeting. with the Internal Audit during the course of its opera- (b) Members: Euro 1.080 “net” per meeting. tions, as described above. In this context, the General 2 According to the Regulation of its Operation , the Au- Director of Internal Audit is invited and participates in dit Committee holds at least four (4) meetings every most of the meetings of the Audit Committee. The ex- year. During 2010, it held fifteen (15) meetings. ternal auditors are also invited and participate, when The Chairman and the members participated in all the semi-annual and annual financial statements of meetings during their term. The framework for the the Company are reviewed. operation of the Audit Committee is described in the 2.2. Compensation and Human Resources Commit- tee, which is appointed by the Company’s Board of

2 http://www.ote.gr/portal/page/portal/InvestorRelation/ Directors and consists of a minimum three members CorporateGovernance/diafaneiapliroforisi/regulations of the Board of Directors, at least two of them being non executive. -27- Annual Financial Report 2010

The Committee during 2010 consisted of the follow- >> Set the principles of Corporate Social Responsi- ing members: bility. Until February 2010, the members were Messers In 2010, the Committee dealt with the following is- Charalambos Dimitriou (Chairman), Hamid Akha- sues: van-Malayeri and Ioannis Benopoulos. Following the >> Determination of the bonus that should be paid resign of Mr Hamid Akhavan-Malayeri, from Febru- to the former Chairman of the Board of Directors ary and until June 2010, the members were Messers and Managing Director (CEO) for 2009, and his Charalambos Dimitriou (Chairman) Ioannis Benopo- compensation for 2010. ulos and Guido Kerkhoff. Since June 2010, the mem- >> Determination of the terms of the contract bers are Messers Nikolaos Karamouzis (Chairman), between the Company and the new Chairman of Kevin Copp και Guido Kerkhoff. the Board of Directors and Managing Director For the fiscal year 2010, by resolution of the Ordi- (CEO). nary General Assembly held on June 16, 2010, the compensation of the Chairman and the members of E. General Assembly and the Committee, for their participation in its meetings Shareholder’s Rights was determined on the amount of Euro 540 “net” per 1. General Assembly - Operation and Powers meeting. According to article 15 of the Company’s Articles of According to the Regulation of its Operation, the Incorporation, the General Assembly of Sharehold- Compensation and Human Resources Committee ers is the foremost body of the Company and has holds at least two (2) meetings every year. During the right to resolve upon all matters concerning the 2010 the Committee held four (4) meetings. Company unless otherwise specified in these Articles The Chairman and the members participated in all of Incorporation. Every shareholder of fully paid in meetings during their term. shares having the right to vote may participate in the The framework for the operation of the Committee is General Assembly of Shareholders according to the described in the Regulation of Operation of the Com- number of shares held. The resolutions of the General pensation and Human Resources Committee, which Assembly also bind those shareholders who are ab- has been approved by the Board of Directors. sent or disagree. Concisely, the objective of the Committee is to: The General Assembly of Shareholders is convened >> Set the principles of the Company’s human re- by the Board of Directors pursuant to the provisions sources policy, that will guide the decisions and of the Law and meets mandatorily at the registered actions of the management office of the Company, or the region of another mu- >> Define the Company’s compensation and remu- nicipality within the prefecture of the Company’s neration policy. registered office, or another municipality neighbor- >> Approve the schemes and plans concerning coming the Company’s registered office or in the region pensation, benefits, stock options and bonuses. of the municipality where the Stock Exchange is lo- >> Propose to the Board of Directors the compensa- cated, at least once every financial year and within tion and benefits of the Managing Director. six (6) months from the end of the financial year. The >> Study and process issues related to the Compa- Board of Directors may convoke the General Assem- ny’s human resources. -28- Annual Financial Report 2010 bly of Shareholders in an extraordinary meeting, if (e) Increase of the liability of shareholders. deemed expedient. (f) Limitation or cancellation of the preemption The notification of the ordinary or extraordinary Gen- rights of existing shareholders in the event of in- eral Assembly of Shareholders and of every repeated creases of share capital in cash or contributions General Assembly must specify the venue, the date in kind. and the time of the meeting, the items of the agenda, (g) Amendment of the special majority of the Board the shareholders that have right to participate, as well of Directors provided in Article 6 paragraph 1 of as precise instructions on how the shareholders will the Articles of Incorporation. be able to participate in the meeting and exercise their (h) Amendment of Article 20. rights. The Board of Directors decides on the items In the event that the quorum of the preceding para- of the agenda and on the convocation of the General graph is not achieved during the first assembly, the Assembly of Shareholders in the same meeting. The first repeated assembly is held, within twenty (20) notification is posted at a visible position at the Com- days of this assembly, which is in quorum and con- pany’s registered office and is published pursuant to venes validly when at least one half (1/2) of the paid the provisions in force. in share capital is represented. In the event that this The General Assembly is in quorum and convenes val- second quorum is not achieved, the General Assem- idly on the issues of the agenda when at least twenty bly convenes once again within twenty days after the (20) percent of its paid-in share capital is represented. first repeated assembly, and is in quorum and con- In the event that such quorum is not reached during venes validly when at least one third (1/5) of the paid the first convocation a new repeated assembly is held in share capital is represented. The resolutions on the within twenty (20) days. The repeated assembly is in above issues are adopted upon a majority of two thirds (2/3) of the votes represented at the assembly. quorum and convenes validly with the same agenda items, irrespectively of the percentage of the paid in 2. Participation of the Shareholders share capital represented. The resolutions of the Gen- 2.1. Any natural person or legal entity, recognized as eral Assembly are adopted upon an absolute majority a shareholder according to the registry of the Demate- of the votes represented at the assembly. rialized Securities System (managed by the Hellenic Exceptionally, according to article 20 of the Articles Exchanges S.A.) in which the shares of the Company of Incorporation, the General Assembly is in quorum are recorded, is entitled to participate in the General and convenes validly only if two thirds (2/3) of the Assembly provided that must qualify as a shareholder paid-in share capital are represented, with respect to on the Record Date, i.e. at the beginning of the fifth the following matters: day before the date of the General Assembly. (a) Merger or dissolution of the Company. Proof of qualification as a shareholder either via a (b) Increase or decrease of the share capital, with relevant written certification of the above organiza- the exception of cases which are governed by tion or, alternatively, through the direct electronic different provisions under the law or the present link of the Company with the records of the Hellenic Articles of Incorporation. Exchanges S.A. must be submitted to the Company at (c) Issuance of bond loans convertible to shares. the latest, the third day before the date of the General (d) Amendment of the manner of distribution of Assembly. profits. Only those who qualify as shareholders on the afore- -29- Annual Financial Report 2010 mentioned Record Date are entitled to participate and eral Assembly. The forms for the appointment and re- vote in the General Assembly. Shareholders who are vocation of a proxy holder are available on the Com- not in compliance with the provisions of article 28a pany’s website. The appointment form of a proxy of C.L. 2190/1920 may participate in the General As- holder, completed and signed by the shareholder must sembly only after the Assembly’s approval. be submitted to the Company at least 3 days before The exercise of the above rights does not require the date of the General Assembly. The shareholders blocking of shares or any other similar processes that are requested to ensure the successful dispatch of the would restrict the possibility of sale and transfer of form and receipt thereof by the Company. shares during the period between the Record Date and In case a shareholder appoints a bank as a proxy hold- the General Assembly. er for the exercise of his voting rights in the General The information of article 27 paragraph 3 of C.L. Assembly, the above-mentioned procedure shall be 2190/1920 including the invitation, the forms of ap- followed. pointment and revocation of a proxy holder, the pro- The Company does not provide for shareholders’ cedure of voting by proxy, the draft resolutions for the participation and voting in the General Assembly via agenda items, as well as further information regard- electronic or long-distance means. ing the exercise of minority rights of article 39, para- The proxy holder is obliged to disclose to the Compa- graphs 2, 2a, 4 and 5 of C.L. 2190/1920 are available ny, before the commencement of the General Assem- in electronic form on the Company’s website. bly, any fact which might be useful to the shareholders In line with article 27 paragraph 3, cases c, d, e of in assessing whether the proxy holder might pursue C.L. 2190/1920, all the documents, related to the ex- any interest other than the interest of the represented ercise of voting rights, will also be available in hard shareholder. A conflict of interest within this context copy at the Company’s competent department. may in particular arise where the proxy holder: 2.2. Shareholders may participate in the General As- a. Is a controlling shareholder of the Company, or is sembly and may either vote in person or by proxy another entity controlled by such shareholder; holders. Each shareholder may appoint up to 3 proxy b. Is a member of the Board of Directors or the man- holders. Legal entities may participate in the General agement of the Company, or of a controlling share- Assembly by appointing up to 3 natural persons as holder or an entity controlled by such shareholder; proxy holders. However, if a shareholder has shares c. Is an employee or an auditor of the company, or of of the Company held in more than one securities a Controlling shareholder or an entity controlled by account, the above limitation shall not prevent the such shareholder; shareholder from appointing a separate proxy holder as regards shares held in each securities account. A d. Is a spouse or close relative (of 1st degree) with a proxy holder, acting on behalf of several shareholders natural person referred to in points (a) to (c). may cast votes differently in respect of shares held by 3. Minority Shareholders Rights each shareholder so represented. (a) Shareholders representing 1/20 of the paid-in The appointment and the revocation of the appoint- share capital may request from the Board of Direc- ment of a proxy holder shall be made in writing and tors of the Company to include in the agenda of the shall be notified to the Company following the same General Assembly additional items, provided that the procedure, at least 3 days before the date of the Gen- relevant request is communicated to the Board of Di- -30- Annual Financial Report 2010 rectors at least 15 days before the General Assembly. to the General Assembly information with respect to The request for an additional item on the agenda must the course of the Company affairs and the financial be accompanied by a justification or a draft resolu- condition of the Company. The Board of Directors tion to be adopted in the General Assembly. The re- may refuse to provide this information on reasonable vised agenda is made available in the same manner grounds which must be mentioned in the minutes. as the previous agenda 13 days before the General In the aforementioned cases, the shareholders who are Assembly and at the same time, it is made available to communicating a request, must provide proof of their the shareholders on the Company’s website, together qualification as shareholders as well as the number of with the justification or the draft resolution that had shares held by them at the moment of the exercise of been submitted by the shareholders in line with ar- the relevant right. The presentation of a certification ticle 27 paragraph 3 of C.L. 2190/1920. of the Hellenic Exchanges S.A or the verification of (b) Following a request of shareholders, representing a shareholder’s qualification through the direct elec- 1/20 of the paid-in share capital, the Board of Direc- tronic link of the Hellenic Exchanges S.A and the tors makes available to the shareholders the draft res- Company, may be recognized as such proofs. olutions for the items included in the initial or revised agenda, in accordance with article 27 paragraph 3 of F. Matters of internal control and C.L. 2190/1920, at least 6 days before the General risk management of the Company Assembly, if the relevant request is communicated to in relation to financial reporting the Board of Directors at least 7 days before the Gen- process eral Assembly. ΟΤΕ Group applies specific controls over financial (c) Following the request of any shareholder, commu- reporting which aims to prevent or detect time mate- nicated to the Company at least 5 full days before the rial errors in the financial statements and ensure the General Assembly, the Board of Directors must pro- appropriateness of financial statements, the effective- vide to the General Assembly, the requested, specific ness and efficiency of operational requirements and information with respect to matters of the Company, adherence to rules, regulations and applicable laws. to the extend this information is useful for the actual Βased on both quantitative and qualitative materiality assessment of the items on the agenda. The Board of levels, those consolidated legal entities and processes Directors may refuse to provide information on the are identified and included in its scope. The process- grounds of a substantial cause, which must be men- es are documented, the responsibilities and relevant tioned in the minutes. The Board of Directors may policies are identified and controls are designed and provide an overall response to requests of sharehold- applied on a continuous basis by the management and ers of the same content. The obligation of providing the personnel. information does not exist if the relevant information Corporate Governance best principles and practices is already available on the Company’s website, espe- constitute an integral part of the Internal Control Sys- cially in a question and answer format. tem (ICS) which contributes to the effective and se- (d) Following a request of shareholders representing cure operation of the Company. Management tests 1/5 of the paid-in share capital which is communicat- and evaluates the internal controls annually and pro- ed to the Company 5 complete days before the Gen- vides a written assurance of the effectiveness of the eral Assembly, the Board of Directors must provide system. -31- Annual Financial Report 2010

The responsibility of the Internal Audit function is to formed by the Board of Directors. Indicatively, the provide an opinion on the ICS for every area under principles and policies comprise the Compliance review that result from its Annual Audit Plan. The Management System, the Compliance Function, The Annual Audit Plan approved by the Audit Commit- Compliance Committee, the Compensation and Hu- tee is the result of a risk assessment methodology of man Resources Committee, as well as the Audit Com- potential risks as well as an evaluation of the Internal mittee. Control System. The issues of article 10 paragraph 1 c) d) f of the Di- Internal Audit provides assurance on the risk man- rective 2004/25/EC of the European Parliament and of agement processes that are applied throughout all the the Council of 21 April 2004 on takeover bids and in various functions and activities of the company via particular the significant direct and indirect sharehold- a systematic disciplined approach to risk assessment ings; the holders of any securities with special control and the effectiveness and efficiency of risk manage- rights and the description of those rights; the restric- ment procedures. tions on voting rights, have already been described in Additionally, at the end of 2010 a Risk Management Chapter H of the Board of Directors Report “Informa- unit was established within the Internal Audit Func- tion pursuant to article 4.7 of L.3556/2007”. tion for the purpose of designing and implement- The issues on the rules governing the appointment and ing a framework for the identification, evaluation replacement of board members, the amendment of and quantification of potential risks managed by all the Articles of Incorporation and the powers of board Company functions. Such a framework will further members have already been described here above. contribute to the development of the risk-based audit planning process. F. MATERIAL TRANSACTIONS The risk management and internal control systems significantly focus on the mitigation and avoidance of WITH RELATED PARTIES risks related to the financial reporting processes. The OTE’s related parties have been identified based on Internal Audit function contributes to this framework the requirements of IAS 24 “Related Party Disclo- through the performance and follow-up of specific sures”. audit activities. The Company purchases goods and services from The examination of the Internal Control and risk these related parties, and provides services to them. management systems by the Board of Directors is Furthermore, OTE grants/ receives loans to/ from supported by the Audit Committee’s supervision of these related parties, receives dividends and pays the Internal Audit activities. dividends. Furthermore, there are additional mechanisms that OTE’s purchases and sales with related parties are support the examination and review process per- analyzed as follows: -32- Annual Financial Report 2010

2010 2009 (amounts in millions of Euro) Sales ΟΤΕ Purchases ΟΤΕ Sales ΟΤΕ Purchases ΟΤΕ COSMOTE 140.9 105.6 162.4 116.1 OTE INTERNATIONAL INVESTMENTS LTD 0.5 4.1 0.6 4.3 HELLAS-SAT 0.5 2.0 0.5 1.6 COSMO-ONE - 0.5 0.1 0.8 VOICENET 3.8 3.4 5.3 4.2 HELLASCOM 0.2 8.5 0.2 8.3 OTE SAT – MARITEL 1.2 2.0 1.1 2.0 ΟΤΕ PLUS 0.4 33.7 0.4 34.8 ΟΤΕ ESTATE 2.5 61.5 2.0 61.9 OTE-GLOBE 40.8 84.1 35.0 84.3 OTE ACADEMY 0.1 4.8 - 5.0 ROMTELECOM - 0.4 - - HT HRVATSKE - - 0.1 0.6 TOTAL 190.9 310.6 207.7 323.9

Purchases and sales of the Group with related parties which are not eliminated in the consolidation are analyzed as follows:

2010 2009 Group’s Group’s (amounts in millions of Euro) Group’s Sales Purchases Group’s Sales Purchases TELEKOM DEUTSCHLAND 16.0 10.4 12.6 9.1 HT HRVATSKE 0.2 0.1 0.3 0.6 COMBRIDGE 3.1 0.2 4.5 0.1 DETEKON - - - 0.6 ORBITEL 0.1 0.4 - 0.5 T-SYSTEMS - 0.1 1.2 - T-MOBILE CZECH 0.3 0.1 0.3 0.1 T-MOBILE UK 1.0 0.5 0.8 0.4 T-MOBILE AUSTRIA 0.4 0.5 0.2 0.1 T-MOBILE NETHERLANDS 0.5 0.1 0.4 0.1 T-MOBILE USA 0.3 0.3 0.3 0.4 T-MOBILE HUNGARY 0.6 0.2 0.1 0.1 T-MOBILE HRVASKA 0.2 0.4 0.1 0.1 T-MOBILE TELEKOMUNIKASYON - 0.4 - - T-MOBILE SLOVENSKO 0.1 - - - PCT POLSKA TELEFONIA 0.7 0.5 0.4 - TOTAL 23.5 14.2 21.2 12.2 -33- Annual Financial Report 2010

ΟΤΕ’s financial activities with its related parties comprise interest on loans granted and received and are analyzed as follows:

2010 2009 Finance Finance Finance Finance (amounts in millions of Euro) income ΟΤΕ expense ΟΤΕ income ΟΤΕ expense ΟΤΕ COSMOFON - - 1.1 - OTE PLC - 161.0 - 179.6 TOTAL - 161.0 1.1 179.6

OTE’s dividend income from its related parties is analyzed as follows:

(amounts in millions of Euro) 2010 2009 COSMOTE 151.2 282.2 ΟΤΕ ESTATE 37.0 18.9 OTE SAT – MARITEL 1.7 1.0 OTE PLUS - 0.4 OTE INTERNATIONAL INVESTMENTS LTD 2.0 - TOTAL 191.9 302.5

Amounts owed to and by the related parties as a result of OTE’s transactions with them are analyzed as follows:

2010 2009 Amounts Amounts Amounts Amounts (amounts in millions of Euro) owed to ΟΤΕ owed by ΟΤΕ owed to ΟΤΕ owed by ΟΤΕ COSMOTE 61.2 59.9 47.2 52.5 OTE INTERNATIONAL INVESTMENTS LTD 0.2 1.1 0.1 1.2 HELLAS-SAT 0.2 0.9 0.4 0.4 COSMO-ONE - 0.2 0.1 0.2 VOICENET 0.9 0.6 1.1 0.9 HELLASCOM - 2.0 - 1.8 OTE SAT – MARITEL 2.6 4.5 2.2 2.0 ΟΤΕ PLUS 0.2 15.6 0.1 12.3 ΟΤΕ ESTATE 1.3 13.7 1.2 0.7 OTE-GLOBE 61.5 96.3 47.3 71.5 OTE ACADEMY 0.4 0.5 0.4 - ROMTELECOM 0.2 0.1 - - TOTAL 128.7 195.4 100.1 143.5

Amounts owed to and by the related parties as a result of the Group’s transactions with them, which are not eliminated in the consolidation, are analyzed as follows: -34- Annual Financial Report 2010

2010 2009 Amounts Amounts Amounts Amounts (amounts in millions of Euro) owed to Group owed by Group owed to Group owed by Group TELEKOM DEUTSCHLAND 5.3 8.2 6.9 0.6 DETEKON - - - 0.1 COMBRIDGE 0.3 - 0.6 - ORBITEL - - - 0.1 T-SYSTEMS 0.1 - 0.1 - T-MOBILE HUNGARY 0.1 0.1 0.1 0.2 T-MOBILE CZECH 0.1 0.1 0.1 0.2 T-MOBILE UK 0.3 0.9 0.1 0.7 T-MOBILE AUSTRIA 0.1 0.1 - 0.3 T-MOBILE NETHERLANDS - 0.2 - 0.3 T-MOBILE USA 0.6 1.7 1.9 3.8 PCT POLSKA TELEFONIA 0.1 0.3 - - T-MOBILE HRVATSKA - 0.1 - - T-MOBILE INTERNATIONAL - 1.0 - - TOTAL 7.0 12.7 9.8 6.3

Amounts owed by and to OTE relating to loans advanced and received, are analyzed as follows:

2010 2009 Amounts Amounts Amounts Amounts (amounts in millions of Euro) owed to ΟΤΕ owed by ΟΤΕ owed to ΟΤΕ owed by ΟΤΕ OTE PLC - 2,938.0 - 3,038.2 TOTAL - 2,938.0 - 3,038.2

Key Management Personnel and those closely related G. SIGNIFICANT EVENTS to them are defined in accordance with IAS 24 “Re- AFTER THE YEAR END lated Party Disclosures”. Compensation includes all The most significant events after December 31, 2010 employee benefits (as defined in IAS 19 “Employ- ee Benefits”) including employee benefits to which are as follows: IFRS 2 “Share-based Payment” applies. DEBT REFINANCING Fees to the members of the Board of Directors and OTE’s key management personnel amounted to Euro Drawdown of existing Euro 332.0 million Revolving 4.3 million and Euro 5.0 million for the years 2010 Credit Facility and 2009, respectively. On January 26, 2011 OTE PLC drew in full the Euro As of December 31, 2010, 2,462,489 options under 332.0 million Revolving Credit Facility under the OTE’s share based payment plan have been granted Euro 850.0 million Syndicated Facility. The facility to the Company’s key management personnel. bears floating interest rate. -35- Annual Financial Report 2010

Intercompany loans from OTE PLC >> The ratio of Group EBITDA to Group Net Interest On January 26, 2011, OTE proceeded with the full Payable should exceed 5:1 at all times. drawdown of the amount of Euro 332.0 million under Repayments of intercompany loans granted from the intercompany loan from OTE PLC. OTE PLC New Euro 150.0 million Revolving Credit Facility On February 11, 2011, OTE proceeded with the fol- granted by DEUTSCHE TELEKOM AG lowing repayments to intercompany loans granted On January 31, 2011 OTE PLC signed a Euro 150.0 from OTE PLC: million Revolving Credit Facility with DEUTSCHE >> Repayment of the remaining outstanding balance TELEKOM AG with the guarantee of OTE, matur- of Euro 970.4 million under the intercompany ing on January 31, 2012 which remains undrawn as a facility maturing on February 13, 2011, along liquidity reserve. with accrued interest due. New Euro 900.0 million Revolving Credit Facility >> Partial prepayment of Euro 88.0 million under (Bond Loan) the intercompany loan maturing in August 2013, along with accrued interest. On February 9, 2011, OTE signed a Euro 900.0 million Revolving Credit Facility (Bond Loan) with a Bonds issued by OTE PLC consortium of banks. The facility has a tenor of 2 In February 2011, the following bonds were issued by years with a 1-year extension option at the discretion OTE PLC under its Global Medium-Term Note Pro- of the banks. The facility bears floating interest rate gram with the guarantee of OTE, amounting to Euro where the margin is dependent on OTE credit rating 146.0 million and subscribed by the following Group assigned by Moody’s and Standard & Poor’s as well companies: as on the facility’s utilization. Any undrawn amounts >> On February 2, 2011, Euro 42.1 million bond will bear a commitment fee. subscribed by HELLAS-SAT, maturing in Septem- On February 10, 2011, OTE drew Euro 600.0 mil- ber 2011, lion and used the proceeds for the repayment of the >> On February 7, 2011, Euro 53.9 million bond loan from OTE PLC maturing on February 13, 2011. subscribed by OTE INTERNATIONAL INVEST- The remaining undrawn amount Euro 300.0 million MENTS LTD, maturing in September 2011, and serves as a liquidity reserve. >> On February 9, 2011 Euro 50.0 million bond The facility contains a change of control clause which subscribed by ROMTELECOM, maturing in is triggered if an entity (other than DEUTSCHE November 2011. TELEKOM AG, DEUTSCHE TELEKOM AG to- Redemption of Euro 1,400.4 million Notes due gether with the Hellenic Republic, or any telecommu- February 2011 nication operator based in Greece or abroad with rat- In January 2011 and February 2011, OTE PLC pro- ing equivalent or better than DEUTSCHE TELEKOM ceeded with partial repurchases of total nominal AG) gains control of OTE. amount of Euro 29.7 million under the notes due Feb- The facility also includes two financial covenants, ruary 2011. The total amount paid including accruals namely: amounts to Euro 31.2 million. On February 14, 2011, >> The ratio of Group Net Borrowings to Group OTE PLC proceeded with the full redemption of the EBITDA should not exceed 3:1 at all times and remaining outstanding amount of Euro 1,370.7 mil- -36- Annual Financial Report 2010 lion notes along with the payment of accrued inter- OTE PROPERTIES DISSOLUTION AND est. LIQUIDATION In February 2011, the Extraordinary General Assem- DERIVATIVES bly of Shareholders of OTE PROPERTIES (OTE In January 2011, ROMTELECOM proceeded with ESTATE’s wholly-owned subsidiary) has decided to the conclusion of two additional Euro / Korean Won proceed with the dissolution and liquidation of OTE FX Non Deliverable Forward (NDF) agreements PROPERTIES. with the purpose of hedging the remaining exposure in Korean Won currency stemming from its outstand- H. INFORMATION ACCORDING ing loans in Korean Won. The notional amount of the TO ARTICLE 4.7 OF LAW above NDFs was equivalent to Euro 10.6 million. 3556/2007 Bond Buyback by OTE PLC (a) Share capital structure, rights and obligation of On February 21, 2011, OTE PLC repurchased Euro shareholders 5.0 million of the Euro 900.0 million 4.625% Notes The Company’s share capital amounts to one billion, due on May 20, 2016. The repurchased Notes have one hundred seventy one million, four hundred fifty- been cancelled. nine thousand, four hundred twenty-nine Euro and seventy one cents (1,171,459,429.71) and is divided CAPITAL REDUCTION OF SUBSIDIARIES into four hundred ninety million, one hundred fifty In January 2011 OTE received from its subsidiaries thousand, three hundred eighty nine (490,150,389) the amounts arising from their share capital reduc- registered shares of a nominal value of two Euro and tion reducing the carrying value of its investments by thirty nine cents (Euro 2.39) each. the equivalent amounts. Specifically, OTE received According to the Company’s share registry as of De- from HELLASCOM Euro 4.0 million, from OTE ES- cember 31, 2010 the Company’s ownership was as TATE Euro 40.9 million, from OTESAT-MARITEL follows: Euro 6.6 million, from OTE INSURANCE Euro 0.5 million and from OTE INTERNATIONAL INVEST- MENTS LTD Euro 30.0 million.

Shareholder Number of shares Percentage % Greek State 63,371,292 12.93% D.E.K.A. S.A. 15,052,773 3.07% IKA–ETAM 19,606,015 4.00% DEUTSCHE TELEKOM AG 147,045,118 30.00% Institutional Investors 195,742,035 39.94% Private Investors 49,333,156 10.06% TOTAL 490,150,389 100.00% -37- Annual Financial Report 2010

All of the Company’s shares are common, registered limited to the nominal value of shares that they have with voting rights and there are no special share- in their possession. Shareholders’ rights are the ones holder categories. The Company’s shares are listed determined by the provisions of Law 2190/1920. on the Athens Exchange under the High Capitaliza- (b) Restrictions in the transfer of the Company’s tion category. Until September 19, 2010, OTE ADRs shares (American Depositary Receipts) were also listed in The Company’s shares are intangible and freely trad- the New York Stock Exchange. Following OTE’s de- ed on the Athens Exchange and are transferred ac- listing from NYSE, OTE ADRs now trade in the US cording to the Law. OTC (Over the Counter) market. OTE GDRs (Global Exceptionally, according to article 11 of Law Depositary Receipts) are also listed on London Stock 3631/2008 (FEK A 6/2008) the acquisition by a share- Exchange. holder other than the Greek State or state related enti- Each share incorporates all rights and obligations as ties as described in article 42E of C.L. 2190/1920 or these derive from Law 2190/1920 and the Company’s by shareholders acting together in a harmonized way Articles of Incorporation the provisions of which are of voting rights of 20% and above of the share capi- in line with the provisions of the Law. tal, is subject to the approval of the Inter-ministerial Any shareholder that has in their possession any Privatization Committee of Law 3049/2002 which is number of shares has the right to participate in the granted under the requirements of this Law. General Assembly of the shareholders of the Com- According to article 4 of Law 3016/2002, the inde- pany either in person or by proxy. The Greek State, as pendent non-executive members of the Board of Di- shareholder, is represented at the General Assembly rectors of the Company cannot possess more than by the Minister of Finance or by a representative. 0.5% of the paid-in share capital. Each share is entitled to one vote. According to article 13 of Law 3340/2005, manage- The Company’s shareholders are entitled to receive ment personnel and their close relatives, without hav- dividends. According to the Company’s Articles of ing restrictions on the acquisition or transfer of the Incorporation the minimum dividend provided to all Company’s shares, are obliged to disclose their direct the shareholders is set to be the maximum amount of and indirect transactions in the Company’s shares, either six percent (6%) of share capital or thirty five exceeding the amount of Euro 5,000 on an annual ba- percent (35%) of net profits. sis. The obligation of such disclosures is dictated by According to the Company’s Articles of Incorpora- Law and the decisions of the Hellenic Capital Market tion the General Assembly may decide on the alloca- Commission. tion of the remaining profits at its own discretion; for According to article 26 of Law 3431/2006, on Elec- instance, the Assembly may decide on the distribution tronic Telecommunications, any change in control of of shares to Company employees and its affiliated the Company is approved by the Hellenic Telecom- companies. The shares for such a distribution would munications and Post Committee(“HTPC”). The ap- be derived from share capital increases through capi- proval of HTPC with respect to the change in control talization of profits or be covered by the shareholders is also required by L. 703/1977 on Monopoly and themselves. Oligopoly Control and Protection of Free Competi- The General Assembly of shareholders maintains all tion (article 12, par. f of Law 3431/2006 on Electronic its rights during liquidation. Shareholder’s liability is Communications). -38- Annual Financial Report 2010

According to the shareholders agreement of May to the Company’s Articles of Incorporation. These 14, 2008 between the Greek State and DEUTSCHE restrictions derive indirectly from the provision of TELEKOM AG (thereon “Shareholders’ agreement”), the above article 11 of Law 3631/2008, as mentioned ratified by the Law 3676/2008, no other member of above, as well as from the Shareholders agreement DEUTSCHE TELEKOM AG Group possesses OTE ratified by the law, as far as the contractual parties are shares or voting rights. concerned. (c) Significant direct or indirect investments (f) Shareholder agreements for restrictions in the Significant ownership in the share capital of the Com- transfer of shares or in exercising of voting rights pany as of December 31, 2010, according to Law On May 14, 2008, an agreement was signed between 3556/2007 (FEK A’ 91/2007), was as follows: the two shareholders the Greek State and DEUTSCHE 1. The Greek State which as shareholder holds TELEKOM AG, which was ratified by the Greek directly 12.93% of the paid-up share capital of Parliament by Law 3676/2008 and which provides the Company and indirectly 3.07% of the paid- restrictions in the transfer of shares or in the exercis- up share capital through DEKA S.A. Based on ing of voting rights regarding the shares held by the the agreement signed on March 4, 2009 for the shareholders mentioned in this agreement. transfer of 4% of OTE’s share capital from the Also in the transfer agreement signed on March 4, Greek State to IKA-ETAM, the latter undertakes 2009 between the Greek State and the public entity to exercise its voting rights corresponding to the under the name “Institute for Social Security - Uni- above shares, in coordination with the Greek fied Insurance Fund for Employees” (IKA-ETAM), State and has to instruct individuals who will be restrictions on transfer of shares (right of the Greek authorized to exercise the voting rights at any State to buy back shares of IKA-ETAM and prefer- General Assembly of the OTE’s shareholders on ence in case of sale) are provided. Also the same con- its behalf in the same way the Greek State does. tract provides restrictions on the exercise of voting 2. DEUTSCHE TELEKOM AG’s direct participa- shares held by IKA-ETAM. These limitations are im- tion in OTE’s paid-up share capital which stands posed on the contractual parties of each agreement. at 30.00%, corresponding to 147,045,118 shares, (g) Rules of appointment and replacement of with respective voting rights. members of the Board of Directors and amendment As of December 31, 2010, the Company is not aware of the Company’s Articles of Incorporation if they of any other shareholder who holds, has acquired or differ from the provisions of C.L.2190/1920. has transferred to a third person or corporate body the The provisions of the Company’s Articles of Incorpo- ownership of 5% or more of its paid-up share capital ration in relation to the appointment and replacement with the respective voting rights. of the Board of Directors members and the amend- (d) Owners of shares that offer special control rights ment of its Articles of Incorporation are not amended There are no issued shares of the Company that offer by the provisions of C.L. 2190/1920. special control rights. In particular according to the provision in the Articles (e) Restrictions on voting rights-Deadlines in of Incorporation the Board of Directors consists of exercising relating rights nine (9) up to eleven (11) members, elected by the There are no restrictions on voting rights according General Assembly, which also defines the number of members. The term of each Board Member is three -39- Annual Financial Report 2010 years and their service term commences on the day of Directors. of the member’s election by the General Assembly II. The issue of bonds up to an amount not exceeding and terminates on the Annual General Assembly of the paid-up share capital, by issuing convertible the year when the three years from their election are bonds. completed. The above authorities of the Board of Directors may In case of resignation, death or for any reason occurs be renewed by the General Assembly for a period not derogation of one or more members before the end exceeding five (5) years for each renewal. The Gen- of their term, the remaining members of the Board eral Assembly’s decision comes into force after the of Directors, either elect temporarily one or more re- end of the five-year period. placements, or they continue to exercise the manage- Exceptionally, in the event the reserves of the Com- ment or the representation of the Company, without pany exceed one fourth (1/4) of the paid-up share having elected one or more replacements. If some- capital, a resolution of the General Assembly for the one is elected by the General Assembly as temporary increase of the share capital through the issuance of member in someone else’s position, this election is a new shares or a bond convertible into shares, will announced at the next General Assembly (regular or always be required. extraordinary), which has the authorization to replace There are no resolutions of the General Assembly of the elected members even if this issue has not been Shareholders in force for the concession of the above included in the agenda of this General Assembly. authorities to the Board of Directors. By resolution of the General Assembly the members Following a resolution of the General Assembly of of the Board of Directors are ten (10). Shareholders and pursuant to the regulations that are The members of the Board of Directors may always in force, the Company may acquire own shares cor- be re-elected and can be revoked anytime by the Gen- responding to a maximum of 10% of its paid-up share eral Assembly of Shareholders. capital. Such resolutions of the General Assembly are (h) Authority of the Board of Directors or of some of effectuated by the Board of Directors’ decisions. its members for the issuance of new shares/share buy The General Assembly of Shareholders decided on backs according to article 16 of Law 2190/1920 April 7, 2009 to approve the purchase of the Compa- In accordance with article 6 of the Company’s Articles ny’s shares, according to article 16 of C.L. 2190/1920, of Incorporation, the General Assembly of Sharehold- up to one tenth (1/10) of its total paid-in share capital ers, following its decision (subject to the disclosure for a period of 24 months. The Board of Directors procedures specified by article 7b of Law 2190/1920) with its 2830/6.5.2009 decision delegated the Chief can transfer to the Board of Directors the authority Executive Officer to implement the above decision of to decide with a majority of two thirds (2/3) of its the General Assembly of buying own shares. To date no decision has been taken to effectuate the resolu- members and within five (5) years from the date of tion. the relevant decision for: I. The increase of the share capital with the issuance (i) Significant Group’s agreements that are in force/ of new shares. The amount of the increases can- amended/ terminated upon a change in control of the not exceed the total amount of the share capital Company as at the date of the transfer of the relevant The Group has entered into various loan agreements authority by the General Assembly to the Board and bond issuance agreements in which a change of -40- Annual Financial Report 2010 control clause of OTE is included. If the clause is is withdrawn or downgraded to BB+/Ba1 or activated OTE must proceed with prepayment of the their equivalent (Sub-investment grade), within a loan in line with what is contractually stipulated. specific period and with specific terms. The wording of the specific clause varies in each con- The clause is not activated if only a change in control tract text as follows: of OTE or only downgrade of the credit rating of OTE 1) Consortium loan Euro 850.0 million, maturing in occurs, but both events should simultaneously occur, September 2012 and also the downgrade of the credit rating should be a result of the change of control. In the above loan contracts, the clause is activated if there is a change of control of OTE as a consequence According to the term of the bonds, in case the change of which the credit rating of OTE or the resulting new of control of OTE clause is activated, OTE PLC must legal entity is downgraded below BBB/Baa2. The immediately notify in writing the bondholders, who clause is not activated if only a change in control of in turn have the right, within 45 days to demand from OTE or only a downgrade of the credit rating of OTE OTE PLC the prepayment of their bonds i.e. the capi- occurs, but both events should simultaneously occur, tal and the interest applicable to the date of prepay- and also the downgrade of the credit rating should be ment. The prepayment will take place at par. a result of the change of control. No such clause is included in the terms of other bonds Control is defined as the ability of the new share- of the Group. holder to control management and the procedures set 3) New Euro 900.0 million Revolving Credit Facility by OTE either through ownership of voting rights, (Bond Loan) through contractual commitment or through other On February 9, 2011, OTE signed a Euro 900.0 Re- procedures. volving Credit Facility (Bond Loan) with a consor- In the event the clause is activated, OTE PLC must tium of banks. The facility contains a change of con- notify the banks, which have the right to demand the trol clause which is triggered if an entity (other than prepayment of the loan. DEUTSCHE TELEKOM AG, DEUTSCHE TEL- 2) Bonds of OTE PLC guaranteed by OTE: EKOM AG together with the Hellenic Republic, or >> Euro 1,400.4 million maturing in February 2011 any telecommunication operator based in Greece or >> Euro 600.0 million maturing in February 2015 abroad with rating equivalent or better than DEUT- and SCHE TELEKOM AG’ rating at that point in time) >> Euro 900.0 million maturing in May 2016. gains control of OTE. According to the terms of these bonds, the clause is OTE’S CREDIT EVALUATION activated if both of the following events occur to- On May 19, 2008, Moody’s downgraded OTE’s rat- gether: ing from Baa1 to Baa2. The agreement between the a) Any person or group of persons (other than the Greek State and DEUTSCHE TELEKOM A.G., in- Hellenic Republic) acquires directly or indirectly cluded terms that may lead the Hellenic Republic’s more than 50% of the share capital or of the vot- interest in OTE to potentially decrease below 20%. ing rights of OTE and As a result of such terms, the Company’s support by b) as a consequence of (a), the rating previously the Hellenic Republic was downgraded to “low” from assigned to the bonds by international agencies “average”. This modification resulted in the long- -41- Annual Financial Report 2010 term rating of Baa2. Since the Company’s underlying ronment in Greece, which is increasingly challenging business fundamentals and financial strength remain for OTE’s performance and will focus on the extent unchanged the rest of the factors used for the Com- to which the austerity measures implemented by the pany’s rating have not been modified. Greek government might further affect domestic con- On May 27, 2010, S&P downgraded the credit rating sumption in the medium to long term and therefore of OTE from BBB to BBB-, on weak performance curtail OTE’s performance. and deteriorating metrics. The downgrade reflected (j) Compensating agreements with Board of S&P’s expectation that OTE’s operating and financial Directors members or personnel in case of performance would likely remain weak during 2010, resignation/unfair dismissal or service employment due to the expected adverse impact on domestic determination due to a public offer mand of the Greek government’s austerity program The Company has not entered into any agreements and a raft of new corporate taxes. with the members of the Board of Directors or its On December 6, 2010, S&P placed the credit rating of personnel to compensate these persons, in case that OTE on CreditWatch with negative implications. The because of a public offer for the acquisition or con- review reflects S&P’s view that the Greek telecoms cession of its shares, are forced to resign or dismissed market is deteriorating beyond their previous expec- unfairly or their services or employment are termi- tations, given a mix of macroeconomic and financial nated. pressures that S&P thinks will cause the Company’s performance to deteriorate further in 2011. Athens, February 24, 2011 On January 11, 2011, Moody’s placed the credit rating of OTE on review for possible downgrade. The ratings review process was triggered by Moody’s Michael Tsamaz increasing concerns about the macroeconomic envi- Chairman and Managing Director -42- Annual Financial Report 2010 -43- Annual Financial Report 2010

Chapter 3 AUDITORS’ REPORT OF THE FINANCIAL STATEMENTS

THIS REPORT HAS BEEN TRANSLATED FROM THE ORIGINAL VERSION IN GREEK

Independent Auditor’s Report To the Shareholders of the HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A.

Report on the separate and consolidated Financial Auditor’s Responsibility Statements Our responsibility is to express an opinion on these fi- We have audited the accompanying separate and con- nancial statements based on our audit. We conducted solidated financial statements of the Hellenic Tele- our audit in accordance with International Standards communications Organization S.A (the “Company”) of Auditing. Those standards require that we com- and its subsidiaries, which comprise the separate and ply with ethical requirements and plan and perform consolidated statement of financial position as at the audit to obtain reasonable assurance whether the December 31, 2010, the separate and consolidated financial statements are free from material misstate- income statement, statement of comprehensive in- ment. An audit involves performing procedures to ob- come, statement of changes in equity and cash flow tain audit evidence about the amounts and disclosures statement for the year then ended, and a summary of in the financial statements. The procedures selected significant accounting policies and other explanatory depend on the auditor’s judgment, including the as- information. sessment of the risks of material misstatement of the Management’s Responsibility for the Separate and financial statements, whether due to fraud or error. Consolidated Financial Statements In making those risk assessments, the auditor consid- Management is responsible for the preparation and ers internal control relevant to the entity’s prepara- fair presentation of these separate and consolidated tion and fair presentation of the financial statements financial statements in accordance with Internation- in order to design audit procedures that are appropri- al Financial Reporting Standards as adopted by the ate in the circumstances, but not for the purpose of European Union and for such internal controls as expressing an opinion on the effectiveness of the en- management determines is necessary to enable the tity’s internal control. An audit also includes evaluat- preparation of financial statements that are free from ing the appropriateness of accounting policies used material misstatement, whether due to fraud or error. and the reasonableness of accounting estimates made -44- Annual Financial Report 2010 by management, as well as evaluating the overall pre- Report on Other Legal and Regulatory Requirements sentation of the financial statements. We believe that a) The Director’s Report includes statement of Cor- the audit evidence we have obtained is sufficient and porate Governance, which comprises the infor- appropriate to provide a basis for our audit opinion. mation as defined by paragraph 3d of article 43a, Opinion of Codified Law 2190/1290. In our opinion, the accompanying separate and con- b) We confirm that the information given in the solidated financial statements present fairly, in all ma- Director’s Report is consistent with the accom- terial respects, the financial position of the Company panying separate and consolidated financial and its subsidiaries as at December 31, 2010, and of statements and complete in the context of the their financial performance and their cash flows for requirements of articles 43a, 108 and 37 of Codi- the year then ended in accordance with International fied Law 2190/1290. Financial Reporting Standards as adopted by the Eu- ropean Union.

Athens, 24 February 2011 The Certified Auditors Accountants

CHRIS PELENDRIDIS GEORGE ANASTOPOULOS R.N. ICA (GR) 17831 R.N. ICA (GR) 15451

ERNST &YOUNG (HELLAS) CERTIFIED AUDITORS ACCOUNTANTS S.A. 11th KM NATIONAL ROAD ATHENS-LAMIA 144 51 METAMORFOSI, ATTIKA SOEL REG. No. 107 -45- Annual Financial Report 2010

Chapter 4 ANNUAL FINANCIAL STATEMENTS

(TRANSLATED FROM THE GREEK ORIGINAL)

HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. ANNUAL FINANCIAL STATEMENTS (CONSOLIDATED AND SEPARATE) AS OF DECEMBER 31, 2010 In accordance with international financial reporting standards as adopted by the European Union

The Annual Financial Statements presented on pages 36-100, were approved by the Board of Directors on February 24, 2011 and are signed by:

Chairman Board Member & Group & Managing Director Chief Financial Officer OTE Chief Financial Officer Chief Accounting Officer

Michael Tsamaz Kevin Copp George Mavrakis Konstantinos Vasilopoulos

HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. REGISTRATION No S.A. 347/06/Β/86/10 99 KIFFISIAS AVE–151 24 MAROUSSI ATHENS, GREECE -46- Annual Financial Report 2010

TABLE OF CONTENTS

PAGE

ANNUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 AND FOR THE YEAR THEN ENDED

Statements of financial position (consolidated and separate)...... 48 Income statements (consolidated and separate)...... 50 Statements of comprehensive income (consolidated and separate)...... 51 Statement of changes in Equity (consolidated)...... 52 Statement of changes in Equity (separate)...... 53 Statements of cash flows (consolidated and separate)...... 54

NOTES TO THE ANNUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 AND FOR THE YEAR THEN ENDED

1. Corporate information...... 56 2. Basis of preparation...... 58 3. Significant accounting policies...... 62 4. Property, plant and equipment...... 74 5. Goodwill...... 77 6. Telecommunication licenses...... 78 7. Other intangible assets...... 79 8. Investments...... 80 9. Other non-current assets...... 85 10. Trade receivables...... 85 11. Other financial assets...... 86 12. Other current assets...... 87 13. Cash and cash equivalents...... 87 14. Share capital – share premium...... 88 15. Statutory reserve – foreign exchange and other reserves - retained earnings...... 88 16. Dividends...... 89 17. Long-term borrowings...... 89 18. Provisions for pensions, staff retirement indemnities and other employee benefits...... 92 19. Other non-current liabilities...... 102 20. Short-term borrowings...... 102 21. Income taxes – deferred taxes...... 103 22. Other current liabilities...... 109 23. Revenue...... 110 -47- Annual Financial Report 2010

PAGE

24. Other income/(expense), net...... 111 25. Other operating expenses...... 111 26. Earnings per share...... 112 27. Operating segment information...... 112 28. Related party disclosures...... 114 29. Share option plan...... 118 30. Litigation and claims – commitments...... 120 31. Financial instruments and financial risk management...... 129 32. Change in accounting policy and reclassifications...... 135 33. Events after the financial position date...... 136 -48- Annual Financial Report 2010

ANNUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 AND FOR THE YEAR THEN ENDED

STATEMENTS OF FINANCIAL POSITION (CONSOLIDATED AND SEPARATE)

GROUP COMPANY (Amounts in millions of Euro) Notes 2010 20091,2 1.1.20091 2010 20091 1.1.20091 ASSETS Non-current assets Property, plant and equipment 4 5,061.9 5,596.2 5,872.8 1,864.0 2,026.7 2,191.5 Goodwill 5 572.4 577.4 525.1 - - - Telecommunication licenses 6 331.9 365.0 329.5 2.1 2.5 3.0 Other intangible assets 7 455.5 523.5 550.7 - - - Investments 8 156.5 157.0 156.6 4,778.2 4,777.4 4,890.0 Loans and advances to pension funds 18 126.2 154.5 194.5 126.2 154.5 194.5 Deferred tax assets 21 260.4 278.7 311.2 195.2 203.6 212.4 Other non-current assets 9 154.7 127.3 120.7 120.6 83.8 112.4 Total non-current assets 7,119.5 7,779.6 8,061.1 7,086.3 7,248.5 7,603.8 Current assets

Inventories 160.8 229.1 201.3 27.9 31.1 32.2 Trade receivables 10 1,010.8 1,153.0 1,194.2 534.8 608.0 697.5 Other financial assets 11 12.5 35.4 135.9 2.1 16.3 119.6 Other current assets 12 229.9 255.6 261.6 108.6 108.7 99.8 Cash and cash equivalents 13 1,004.3 868.8 1,427.8 189.0 224.0 344.5 Total current assets 2,418.3 2,541.9 3,220.8 862.4 988.1 1,293.6 Assets classified as held for sale - - 167.7 - - - TOTAL ASSETS 9,537.8 10,321.5 11,449.6 7,948.7 8,236.6 8,897.4 EQUITY AND LIABILITIES Equity attributable to owners of the Parent Share capital 14 1,171.5 1,171.5 1,171.5 1,171.5 1,171.5 1,171.5 Share premium 14 510.6 505.1 497.9 510.6 505.1 497.9 Statutory reserve 15 347.2 344.1 330.2 347.2 344.1 330.2 Foreign exchange and other reserves 15 (147.3) (162.0) (23.9) (60.1) (102.9) (95.4) Changes in non-controlling interests 8 (3,321.5) (3,321.5) (3,315.2) - - - Retained earnings 2,539.1 2,589.2 2,559.8 1,401.2 1,430.0 1,527.9 Total equity attributable to owners of the Parent 1,099.6 1,126.4 1,220.3 3,370.4 3,347.8 3,432.1 Non-controlling interests 553.0 757.7 861.3 - - - Total equity 1,652.6 1,884.1 2,081.6 3,370.4 3,347.8 3,432.1 -49- Annual Financial Report 2010

GROUP COMPANY (Amounts in millions of Euro) Notes 2010 20091,2 1.1.20091 2010 20091 1.1.20091 Non-current liabilities Long-term borrowings 17 3,211.4 5,385.7 5,409.6 1,715.4 2,930.1 3,288.2 Provision for staff retirement indemnities 18 306.6 316.8 310.2 273.6 293.0 289.4 Provision for voluntary leave scheme 18 29.9 109.9 107.2 29.9 109.9 107.2 Provision for youth account 18 301.4 361.9 342.4 301.4 361.9 342.4 Deferred tax liabilities 21 66.3 117.9 116.7 - - - Other non-current liabilities 19 43.5 66.9 79.2 21.5 35.8 46.0 Total non-current liabilities 3,959.1 6,359.1 6,365.3 2,341.8 3,730.7 4,073.2 Current liabilities Trade accounts payable 695.2 813.2 943.9 351.5 373.1 526.1 Short-term borrowings 20 5.6 3.3 5.1 - - - Short-term portion of long-term borrowings 17 2,082.8 32.9 633.0 1,119.1 - 18.9 Income tax payable 21 70.9 133.2 58.0 1.6 41.0 4.0 Deferred revenue 249.0 256.6 228.4 233.1 225.3 158.4 Provision for voluntary leave scheme 18 189.4 149.0 275.8 189.4 149.0 275.8 Dividends payable 16 2.3 4.2 3.8 2.3 4.2 3.8 Other current liabilities 22 630.9 685.9 838.2 339.5 365.5 405.1 Total current liabilities 3,926.1 2,078.3 2,986.2 2,236.5 1,158.1 1,392.1 Liabilities directly associated with the assets classified as held for sale - - 16.5 - - - TOTAL EQUITY AND LIABILITIES 9,537.8 10,321.5 11,449.6 7,948.7 8,236.6 8,897.4

1 Adjusted due to change in accounting policy (see Note 32). As at December 31, 2009, the allocation of actuarial gains and losses resulted in an increase in “Provision for staff retirement indemnities” of Euro 50.3 for the Group and Euro 51.4 for the Company, an increase in “Provision for youth account” of Euro 79.6 for the Group and the Company and a decrease in “Other non-current liabilities” (provision for phone credits) of Euro 9.2 for the Group and the Company. The corresponding taxes recognized in “Deferred tax assets” amount to Euro 25.1 for the Group and the Company, resulting in a reduction in equity of Euro 95.6 for the Group and Euro 96.7 for the Company. As at January 1, 2009, the allocation of actuarial gains and losses resulted in an increase in “Provision for staff retirement indemnities” of Euro 55.3 for the Group and Euro 55.6 for the Company, an increase in “Provision for youth account” of Euro 56.1 for the Group and the Company and a increase in “Other non-current liabilities” (provision for phone credits) of Euro 4.6 for the Group and the Company. The corresponding taxes recognized in “Deferred tax assets” amount to Euro 24.4 for the Group and the Company, resulting in a reduction in equity of Euro 91.6 for the Group and Euro 91.9 for the Company. 2 Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). The accompanying notes on pages 56-137 form an integral part of these financial statements. -50- Annual Financial Report 2010

INCOME STATEMENTS (CONSOLIDATED AND SEPARATE)

GROUP COMPANY (Amounts in millions of Euro except per share data) Notes 2010 20091 2010 20091 Revenue Domestic telephony 23 1,394.1 1,619.6 1,037.9 1,223.4 International telephony 23 200.1 251.1 148.6 183.3 Mobile telephony 23 2,202.4 2,396.2 - - Other revenue 23 1,686.2 1,692.0 983.3 1,005.7 Total revenue 5,482.8 5,958.9 2,169.8 2,412.4

Other income/ (expense), net 24 37.0 27.9 12.5 2.3

Operating expenses Payroll and employee benefits (1,128.3) (1,190.8) (679.2) (712.6) Provision for staff retirement indemnities and youth account 18 (38.8) (53.4) (35.2) (51.0) Cost of early retirement program 18 (171.5) 30.3 (144.7) 38.9 Charges from international operators (190.3) (184.0) (109.7) (129.4) Charges from domestic operators (414.6) (516.3) (178.2) (227.6) Depreciation, amortization and impairment 4,5,6,7 (1,363.0) (1,155.3) (374.2) (424.4) Cost of telecommunications equipment (447.3) (475.1) (78.8) (88.7) Other operating expenses 25 (1,381.1) (1,399.2) (440.1) (474.2) Total operating expenses (5,134.9) (4,943.8) (2,040.1) (2,069.0)

Operating profit before financial activities 384.9 1,043.0 142.2 345.7

Income and expense from financial activities Interest expense (308.2) (358.0) (199.1) (256.8) Interest income 25.7 61.6 8.4 17.4 Foreign exchange differences, net (12.1) 10.2 (0.5) 2.7 Dividend income 8 14.2 9.6 206.1 312.1 Gains / (losses) from investments and financial assets 8,11 (4.6) 23.6 (2.3) (0.1) Impairment of investments 8 - - (2.4) (0.7) Total profit /(loss) from financial activities (285.0) (253.0) 10.2 74.6 -51- Annual Financial Report 2010

GROUP COMPANY (Amounts in millions of Euro except per share data) Notes 2010 20091 2010 20091 Profit before tax 99.9 790.0 152.4 420.3 Income tax expense 21 (238.9) (382.4) (91.5) (136.7) Profit /(loss) for the year (139.0) 407.6 60.9 283.6

Attributable to: Owners of the parent 39.6 410.9 60.9 283.6 Non-controlling interests (178.6) (3.3) - - (139.0) 407.6 60.9 283.6

Basic earnings per share 26 0.0808 0.8383 Diluted earnings per share 26 0.0808 0.8383

1Adjusted due to change in accounting policy (see Note 32). The reversal of amortization of actuarial gains and losses resulted in a decrease in “Provision for staff retirement indemnities and youth account” of Euro 9.3 for the Group and Euro 8.2 for Company. The above resulted in an increase in “Income tax expense” of Euro 2.4 for the Group and Euro 2.1 for the Company. Interest cost of an amount of Euro 32.8 for the Group and Euro 31.0 for the Company arising from the relative plans is now classified under “Interest expense” rather than in “Provision for staff retirement indemnities and youth account” previously reported. The accompanying notes on pages 56-137 form an integral part of these financial statements.

STATEMENTS OF COMPREHENSIVE INCOME (CONSOLIDATED AND SEPARATE)

GROUP COMPANY (Amounts in millions of Euro) Notes 2010 20091 2010 20091 Profit/ (loss) for the year (139.0) 407.6 60.9 283.6 Foreign currency translation (45.4) (178.4) - - Net gain/ (loss) on cash flow hedge 6.8 (0.5) - - Actuarial gains/ (losses) 57.7 (13.8) 60.1 (13.8) Deferred taxes on actuarial (gains)/ losses (12.9) 2.9 (12.5) 2.9 Net movement in available for sale financial assets 11 (5.0) 3.5 (4.8) 3.4 Other comprehensive income / (loss) for the year 1.2 (186.3) 42.8 (7.5) Total comprehensive income/ (loss) for the year (137.8) 221.3 103.7 276.1 Attributable to: Owners of the parent 54.3 272.8 103.7 276.1 Non-controlling interests (192.1) (51.5) - - (137.8) 221.3 103.7 276.1

1Adjusted due to change in accounting policy (see Note 32). The accompanying notes on pages 56-137 form an integral part of these financial statements. -52- Annual Financial Report 2010 - -

5.5 6.5 7.2 1.2 221.3 407.6 (10.0) (48.4) (105.7) (367.6) (137.8) (139.0) (186.3) 1,652.6 1,884.1 2,081.6 1,884.1 Total equity Total ------

(8.4) (3.3) Non- 553.0 757.7 861.3 757.7 (43.7) (12.6) (13.5) (51.5) (48.2) (192.1) (178.6) Interest controlling - -

5.5 6.5 7.2 54.3 14.7 39.6 (1.6) (4.7) Total 272.8 410.9 (93.1) (367.6) (138.1) 1,099.6 1,126.4 1,220.3 1,126.4 ------

6.5 39.6 39.6 (3.1) 410.9 410.9 (93.1) (13.9) (367.6) 2,539.1 2,589.2 2,559.8 2,589.2 earnings Retained ------

(1.6) (4.7) (3,321.5) (3,321.5) (3,315.2) (3,321.5) Changes in non-control - ling interests ------

14.7 14.7 (23.9) (147.3) (138.1) (138.1) (162.0) (162.0) Foreign other reserves exchange and ------

3.1 13.9 347.2 344.1 330.2 344.1 reserve Statutory ------

5.5 7.2 510.6 505.1 497.9 505.1 Share premium Attributed to equity holders of the parent ------

Share capital 1,171.5 1,171.5 1,171.5 1,171.5 1 1 Adjusted due to change in accounting policy (see Note 32). Balance as at December 31, 2010 Balance as at December 31, 2009 payment Share-based Obligation to acquire non-controlling interests non-controlling Obligation to acquire Withholding tax related to dividend paid out of tax related Withholding dividend income subject to withholding tax Net change of participation in subsidiaries Dividends Share-based payment Share-based to statutory reserve Transfer Dividends Total comprehensive income / (loss) Total Transfer to statutory reserve Transfer Other comprehensive income / (loss) Other comprehensive Total comprehensive income / (loss) Total Profit / (loss) for the year Profit Other comprehensive income / (loss) Other comprehensive Balance as at January 1, 2010 Profit for the year1 Profit Balance as at January 1, 2009 STATEMENT OF CHANGES IN E Q UITY (CONSOLIDATED) (Amounts in millions of Euro) 1 The accompanying notes on pages 56-137 form an integral part of these financial statements. -53- Annual Financial Report 2010 - - 7.2 5.5 6.5 42.8 60.9 (7.5) Total 103.7 276.1 283.6 (93.1) equity (367.6) 3,370.4 3,347.8 3,432.1 3,347.8 - - - - 6.5 60.9 60.9 (3.1) (93.1) 283.6 283.6 (13.9) 1,401.2 1,430.0 (367.6) 1,527.9 1,430.0 earnings Retained ------42.8 42.8 (7.5) (7.5) (60.1) (95.4) (102.9) (102.9) Foreign exchange and other reserves ------3.1 13.9 347.2 344.1 330.2 344.1 reserve Statutory ------7.2 5.5 510.6 505.1 497.9 505.1 Share premium ------Share capital 1,171.5 1,171.5 1,171.5 1,171.5 1 1 1 Adjusted due to change in accounting policy (see Note 32). Balance as at December 31, 2009 Balance as at December 31, 2010 Share-based payment Share-based Share-based payment Share-based Withholding tax related to dividend paid out of tax related Withholding dividend income subject to withholding tax Dividends Dividends Transfer to statutory reserve Transfer Transfer to statutory reserve Transfer Total comprehensive income Total Other comprehensive income Other comprehensive Total comprehensive income / (loss) Total Profit for the year Profit Profit for the year Profit Balance as at January 1, 2010 Other comprehensive income / (loss) Other comprehensive Balance as at January 1, 2009 STATEMENT OF CHANGES IN E Q UITY (SEPARATE) (Amounts in millions of Euro) 1 The accompanying notes on pages 56-137 form an integral part of these financial statements. -54- Annual Financial Report 2010

STATEMENTS OF CASH FLOWS (CONSOLIDATED AND SEPARATE)

GROUP COMPANY (Amounts in millions of Euro) Notes 2010 20091 2010 20091 Cash flows from operating activities Profit before tax 99.9 790.0 152.4 420.3 Adjustments for: Depreciation, amortization and impairment 1,363.0 1,155.3 374.2 424.4 Share-based payment 29 5.5 7.2 2.4 2.9 Cost of early retirement program 18 171.5 (30.3) 144.7 (38.9) Provision for staff retirement indemnities and youth account 18 38.8 53.4 35.2 51.0 Provisions for doubtful accounts 25 125.6 107.0 25.9 28.0 Other provisions (3.4) - (4.3) - Foreign exchange differences, net 12.1 (10.2) 0.5 (2.7) Interest income (25.7) (61.6) (8.4) (17.4) Dividend income 8 (14.2) (9.6) (206.1) (312.1) (Gains)/losses and impairments of investments 8,11 4.6 (23.6) 4.7 0.8 Release of EDEKT fund prepayment 18 35.2 35.2 35.2 35.2 Interest expense 308.2 358.0 199.1 256.8 Working capital adjustments: Decrease/ (increase) in inventories 68.3 (27.3) 3.2 1.1 Decrease / (increase) in accounts receivable 32.9 (75.7) 12.9 39.9 (Decrease) in liabilities (except borrowings) (212.3) (72.1) (36.5) (92.0) Plus/(Minus): Payment for early retirement programs 18 (205.0) (130.3) (178.2) (121.7) Payment of staff retirement indemnities and youth account, net of employees’ contributions 18 (85.4) (88.3) (83.9) (87.1) Interest and related expenses paid (256.0) (276.4) (161.7) (208.4) Income taxes paid (353.2) (299.3) (129.6) (83.7) Settlement of receivables due from disposed subsidiaries - 16.6 - - Net cash flows from operating activities 1,110.4 1,418.0 181.7 296.4 -55- Annual Financial Report 2010

GROUP COMPANY (Amounts in millions of Euro) Notes 2010 20091 2010 20091 Cash flows from investing activities

Acquisition of non-controlling interest 8 (7.9) (48.4) - - Acquisition of subsidiary net of cash acquired 8 (2.0) (197.8) - - Purchase of financial assets 11 (69.8) (308.0) - (290.6) Sale or maturity of financial assets 11 84.0 412.2 7.1 397.3 Loans granted 18 (30.0) - (30.0) - Repayments of loans receivable 9.7 9.7 9.7 55.9 Loans proceeds in conjunction with disposal of subsidiaries - 78.5 - - Purchase of property plant and equipment and intangible assets (751.1) (890.9) (224.9) (272.6) Proceeds from disposal of subsidiaries - 86.1 - - Interest received 23.5 61.6 6.5 14.6 Dividends received 10.1 6.9 203.0 308.4 Return of capital invested in subsidiary - - - 116.2 Settlement of other current liabilities - (168.5) - - Net cash flows from/(used in) investing activities (733.5) (958.6) (28.6) 329.2 Cash flows from financing activities Proceeds from short-term borrowings 20 2.3 - - - Repayment of loans 17 (139.7) (637.1) (99.6) (378.9) Dividends paid to Company’s owners (88.5) (367.2) (88.5) (367.2) Dividends paid to non-controlling interests (12.6) (1.2) - - Net cash flows from/(used in) financing activities (238.5) (1,005.5) (188.1) (746.1) Net increase/(decrease) in cash and cash equivalents 138.4 (546.1) (35.0) (120.5) Cash and cash equivalents, at the beginning of the year 868.8 1,427.8 224.0 344.5 Net foreign exchange differences (2.9) (14.8) - - Cash and cash equivalents classified as held for sale / disposed of - 1.9 - - Cash and cash equivalents, at the end of the year 13 1,004.3 868.8 189.0 224.0

1Adjusted due to change in accounting policy (see Note 32). The accompanying notes on pages 56-137 form an integral part of these financial statements. -56- Annual Financial Report 2010

NOTES TO THE ANNUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 AND FOR THE YEAR THEN ENDED

1. CORPORATE INFORMATION and holds a 30.00% plus one share interest in OTE as of December 31, 2010. Hellenic Telecommunications Organization S.A. (“Company”, “OTE” or “parent”), was incorporated The OTE Group (“Group”) includes other than the as a société anonyme in Athens, Greece in 1949, and parent Company, all the entities which OTE controls is listed in the Greek Register of Sociétés Anonymes directly or indirectly. (M.A.E.) with the unique number (ΑΡ. ΜΑΕ) The Annual Consolidated and Separate Financial 347/06/Β/86/10. The registered office is located at 99 Statements (“financial statements”) as of December Kifissias Avenue – 151 24 Maroussi Athens, Greece, 31, 2010 and the year then ended, were approved for and the website is www.ote.gr. The Company is listed issuance by the Board of Directors on February 24, on the Athens Exchange. Until September 19, 2010, 2011, although they are subject to the final approval OTE ADRs (American Depositary Receipts) were to OTE’s General Assembly. also listed on the New York Stock Exchange. Fol- The total numbers of Group and Company employees lowing OTE’s delisting from NYSE, OTE ADRs now as of December 31, 2010 and 2009 were as follows: trade in the US OTC (Over the Counter) market. OTE GDRs (Global Depositary Receipts) are also listed on GROUP COMPANY the London Stock Exchange. December 31, 2010 31,088 10,925 OTE’s principal activities are the provision of tele- December 31, 2009 32,864 11,369 communications and related services. Effective February 6, 2009, the financial statements are included in the consolidated financial statements The consolidated financial statements include the fi- of DEUTSCHE TELEKOM AG (full consolidation nancial statements of OTE and the following subsid- method), which has its registered office in Germany iaries which OTE controls directly or indirectly: -57- Annual Financial Report 2010

2010 2009 Group’s Ownership COMPANY NAME Line of Business Country interest

COSMOTE MOBILE TELECOMMUNICATIONS S.A. Mobile telecommunications (“COSMOTE”) services Greece 100.00% 100.00% OTE INTERNATIONAL INVESTMENTS LTD Investment holding company Cyprus 100.00% 100.00% HELLAS SAT CONSORTIUM LIMITED (“HELLAS-SAT”) Satellite communications Cyprus 99.05% 99.05% COSMO-ONE HELLAS MARKET SITE S.A. (“COSMO-ONE”) E-commerce services Greece 61.74% 61.74% VOICENET S.A. (“VOICENET”) Telecommunications services Greece 100.00% 100.00% HELLASCOM S.A. (“HELLASCOM”) Telecommunication projects Greece 100.00% 100.00% OTE PLC Financing services U.K. 100.00% 100.00% OTE SAT-MARITEL S.A. Satellite telecommunications (“OTE SAT – MARITEL”) services Greece 94.08% 94.08% OTE PLUS S.A. (“OTE PLUS”) Consulting services Greece 100.00% 100.00% ΟΤΕ ESTATE S.A. (“ΟΤΕ ESTATE”) Real estate Greece 100.00% 100.00% OTE INTERNATIONAL SOLUTIONS S.A. (“OTE-GLOBE”) Wholesale telephony services Greece 100.00% 100.00% HATWAVE HELLENIC-AMERICAN TELECOMMUNICATIONS WAVE LTD. (“HATWAVE”) Investment holding company Cyprus 52.67% 52.67% OTE INSURANCE AGENCY S.A. (“OTE INSURANCE”) Insurance brokerage services Greece 100.00% 100.00% ΟΤΕ ACADEMY S.A. (“OTE ACADEMY”) Training services Greece 100.00% 100.00% ROMTELECOM S.A. (“ROMTELECOM”) Fixed line telephony services Romania 54.01% 54.01% S.C. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS S.A. Mobile telecommunications (“COSMOTE ROMANIA”) services Romania 86.20% 86.20% COSMO BULGARIA MOBILE EAD Mobile telecommunications (“GLOBUL”) services Bulgaria 100.00% 100.00% COSMO-HOLDING ALBANIA S.A. (“CHA”) Investment holding company Greece 97.00% 97.00% ALBANIAN MOBILE Mobile telecommunications COMMUNICATIONS Sh.a (“AMC”) services Albania 97.21% 95.03% COSMOHOLDING CYPRUS LTD (“COSMOHOLDING CYPRUS”) Investment holding company Cyprus 100.00% 100.00% GERMANOS S.A. (“GERMANOS”) Retail services Greece 100.00% 100.00% E-VALUE S.A. Marketing Services Greece 100.00% 100.00% GERMANOS TELECOM ROMANIA S.A. Retail services Romania 100.00% 100.00% SUNLIGHT ROMANIA S.R.L. FILIALA Retail services Romania 100.00% 100.00% GERMANOS TELECOM BULGARIA A.D.Retail services Bulgaria 100.00% 100.00% MOBILBEEEP LTD Retail services Greece 100.00% 100.00% OTE PROPERTIES Real estate Greece 100.00% 100.00% -58- Annual Financial Report 2010

2010 2009 Group’s Ownership COMPANY NAME Line of Business Country interest

HELLAS SAT S.A. Satellite communications Greece 99.05% 99.05% ΟΤΕ INVESTMENT SERVICES S.A. Investment holding company Greece 100.00% 100.00% OTE PLUS BULGARIA 1 Consulting services Bulgaria - 100.00% COSMOHOLDING ROMANIA LTD Investment holding company Cyprus 100.00% 100.00% Mobile telecommunications TELEMOBIL S.A. (“ZAPP”) services Romania 100.00% 100.00% E-VALUE DEBTORS AWARENESS ONE PERSON LTD (“E-VALUE LTD”) Overdue accounts Greece 100.00% 100.00%

1 The liquidation process of OTE-PLUS BULGARIA was finalized on January 11, 2010.

2. BASIS OF PREPARATION tingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those The financial statements have been prepared in accor- related to legal contingencies, allowance for doubt- dance with International Financial Reporting Stan- ful accounts, the estimated useful life of non financial dards (“IFRS”) as adopted by the European Union assets, impairment of property, plant and equipment, (“EU”). impairment of goodwill and intangible assets, reserve The financial statements have been prepared on a his- for staff retirement indemnities and youth account, torical cost basis, except for financial assets at fair recognition of revenues and expenses and income value through profit and loss, available-for-sale finan- taxes. Management bases its estimates on historical cial assets and derivative financial instruments which experience and on various other assumptions that are have been measured at fair values in accordance with believed to be reasonable, the results of which form IFRS. The carrying values of recognized assets and the bases for making judgments about the carrying liabilities that are hedged items in fair value hedges value of assets and liabilities that are not readily that would otherwise be carried at amortized cost, are available from other sources. Actual results may dif- adjusted to record changes in the fair values attrib- fer from these estimates under different assumptions utable to the risks that are being in effective hedge or conditions. relationships. The key assumptions concerning the future and other The financial statements are presented in millions of key sources of estimation uncertainty at the reporting Euro, except when otherwise indicated. date, that have a significant risk of causing material Significant accounting judgments, estimates and adjustment to the carrying amounts of assets and li- assumptions abilities within the next financial year are discussed The preparation of the financial statements requires below: management to make estimates and judgments that Impairment of goodwill affect the reported amount of assets, liabilities, rev- The Group determines whether goodwill is impaired enues and expenses and related disclosures of con- at least on an annual basis. This requires an estima- -59- Annual Financial Report 2010 tion of the value in use of the cash generating units to extent that it is probable that taxable profit will be which the goodwill is allocated. Estimating the value available against which the deductible temporary dif- in use requires the Group to make an estimate of the ferences and the carry forward of unused tax credits expected future cash flows from the cash generating and unused losses can be utilized. The Group and the unit and also to choose a suitable discount rate in or- Company have considered future taxable income and der to calculate the present value of those cash flows. followed ongoing feasible and prudent tax planning Further details on impairment testing are disclosed in strategy in the assessment of the recoverability of Note 5. deferred tax assets. The accounting estimate related Provision for income taxes to deferred tax assets requires management to make assumptions regarding the timing of future events, The provision for income taxes in accordance with including the probability of expected future taxable IAS 12 “Income taxes”, are the amounts expected to income and available tax planning opportunities. Fur- be paid to the taxation authorities and includes provi- ther details are provided in Note 21. sion for current income taxes reported and the potential additional tax that may be imposed as a result of Allowance for doubtful trade receivables audits by the taxation authorities. Group entities are The Group and the Company establish an allowance subject to income taxes in various jurisdictions and for doubtful accounts sufficient to cover reasonably significant management judgment is required in de- estimable loss for these accounts. Because of the num- termining provision for income taxes. Actual income ber of accounts, it is not practical to review the col- taxes could vary from these estimates due to future lectibility of each account; therefore, at each report- changes in income tax law, significant changes in the ing date all accounts receivable are assessed based on jurisdictions in which the Group and the Company historical trends, statistical information, future expec- operate, or unpredicted results from the final deter- tations regarding suspended or cancelled customers, mination of each year’s liability by taxing authorities. reactivation rates for suspended customers and col- These changes could have a significant impact on the lection rates for amounts due from cancelled custom- Group’s and the Company’s financial position. Where ers. Other operators are examined and assessed on an the actual additional taxes payable are different from individual basis. The balance of such allowance for the amounts that were initially recorded, these dif- doubtful accounts is adjusted by recording a charge ferences will impact the income tax and deferred tax to the income statement of the reporting period. Any provisions in the period in which such a determina- amount written off with respect to customer account tion is made. Further details are provided in Note 21. balances is charged against the existing allowance for Deferred tax assets doubtful accounts. Additional details are provided in Note 10 and Note 31. Deferred income tax assets and liabilities have been provided for the tax effects of temporary differences Post retirement and other defined benefit plans between the carrying amount and tax base of such as- Staff Retirement Indemnities and Youth Account sets and liabilities, using enacted tax rates in effect obligations are calculated at the discounted present in the years in which the differences are expected value of the future retirement benefits and benefits to reverse. Deferred tax assets are recognized for to children of employees deemed to have accrued at all deductible temporary differences, carry forward year-end, based on the assumption that employees of unused tax credits and unused tax losses, to the earn Retirement and Youth Account benefits uniform- -60- Annual Financial Report 2010 ly throughout the working period. Retirement and information available at the reporting date. As addi- Youth Account obligations are calculated on the ba- tional information becomes available, the Group and sis of financial and actuarial assumptions that require the Company reassess the potential liability related to management to make assumptions regarding discount pending claims and litigation and may revise assess- rates, pay increases, mortality and disability rates, ments of the probability of an unfavorable outcome retirement ages and other factors. Changes in these and the related estimate of potential loss. Such revi- key assumptions can have a significant impact on the sions in the estimates of the potential liabilities could obligation and pension costs for the period. Net pen- have a material impact on the Group’s or the Com- sion costs for the period consist of the present value pany’s financial position and results of operations. of benefits earned in the year, interest costs on the Impairment of property, plant and equipment benefits obligation, prior service costs and actuarial The determination of impairment of property, plant gains or losses. The Staff Retirement Indemnities and and equipment involves the use of estimates that in- Youth Account benefit obligations are not funded. clude, but are not limited to, the cause, timing and Due to the long term nature of these defined benefit amount of the impairment. Impairment is based on plans these assumptions are subject to a significant a large number of factors, such as changes in cur- degree of uncertainty. Further details are provided in rent competitive conditions, expectations of growth Note 18. in the telecommunications industry, increased cost of Estimating the useful life of non financial assets capital, changes in the future availability of financ- The Group and the Company must estimate the use- ing, technological obsolescence, discontinuance of ful life of property, plant and equipment and intan- services, current replacement costs, prices paid in gible assets recognized at acquisition or as a result of comparable transactions and other changes in cir- a business combination. These estimates are revisited cumstances that indicate an impairment exists. The at least on an annual basis taking into account new recoverable amount is typically determined using a developments and market conditions. discounted cash flow method. The identification of Contingent liabilities impairment indicators, as well as the estimation of future cash flows and the determination of fair values The Group and the Company are currently involved for assets (or groups of assets) require management in various claims and legal proceedings. Periodically, to make significant judgments concerning the identi- the Group and the Company review the status of each fication and validation of impairment indicators, ex- significant matter and assess potential financial expo- pected cash flows, applicable discount rates, useful sure, based in part on the advice of legal counsel. If lives and residual values. the potential loss from any claim or legal proceeding is considered probable and the amount can be reliably Customer activation fees estimated, the Group and the Company recognize a li- Installation and activation fees are received from new ability for the estimated loss. Significant judgment is customers. These fees (and related directly attribut- required in both the determination of probability and able costs) are deferred and amortized over the ex- the determination as to whether an exposure is rea- pected duration of the customer relationship. If man- sonably estimable. With respect to the retail custom- agement estimates of the duration of the customer ers, and because of uncertainties related to these mat- relationship are revised, significant differences may ters, provisions are based only on the most accurate result in the timing of revenue for any period. -61- Annual Financial Report 2010

New pronouncements and amendments ment relates to the rights issues offered for a fixed The following new and amended IFRS and IFRIC amount of foreign currency which were treated as interpretations have been issued but are not effec- derivative liabilities by the existing standard. The tive for the financial year beginning January 1, 2010. amendment states that if certain criteria are met, these They have not been early adopted and the Group and should be classified as equity regardless of the cur- the Company are in the process of assessing their im- rency in which the exercise price is denominated. The pact, if any, on the financial statements: amendment is to be applied retrospectively. >> IFRIC 19 Extinguishing Financial Liabilities >> IAS 24 Related Party Disclosures (Revised): The with Equity Instruments: The interpretation is ef- revision is effective for annual periods beginning on fective for annual periods beginning on or after July or after January 1, 2011. This revision relates to the 1, 2010. This interpretation addresses the accounting judgment which is required so as to assess whether a treatment when there is a renegotiation between the government and entities known to the reporting entity entity and the creditor regarding the terms of a finan- to be under the control of that government are consid- cial liability and the creditor agrees to accept the en- ered a single customer. In assessing this, the reporting tity’s equity instruments to settle the financial liabil- entity shall consider the extent of economic integra- ity fully or partially. IFRIC 19 clarifies such equity tion between those entities. Early application is per- instruments are “consideration paid” in accordance mitted and adoption shall be applied retrospectively. with paragraph 41 of IAS 39. As a result, the financial >> In May 2010 the IASB issued its third omnibus of liability is derecognized and the equity instruments amendments to its standards, primarily with a view issued are treated as consideration paid to extinguish to removing inconsistencies and clarifying wording. that financial liability. The effective dates of the improvements are various >> IFRIC 14 Prepayments of a Minimum Funding and the earliest is for the financial year beginning on Requirement (Amended): The amendment is effec- July 1, 2010. Early application is permitted in all cas- tive for annual periods beginning on or after January es and this annual improvements project has not yet 1, 2011. The purpose of this amendment was to per- been endorsed by the EU. mit entities to recognize as an asset some voluntary >> IFRS 3 Business Combinations, effective for prepayments for minimum funding contributions. annual periods beginning on or after July 1, 2010. Earlier application is permitted and must be applied This improvement clarifies that the amendments to retrospectively. IFRS 7 Financial Instruments: Disclosures, IAS 32 >> IFRS 9 Financial Instruments – Phase 1 finan- Financial Instruments: Presentation and IAS 39 Fi- cial assets, classification and measurement: The new nancial Instruments: Recognition and Measurement, standard is effective for annual periods beginning on that eliminate the exemption for contingent consid- or after January 1, 2013. Phase 1 of this new IFRS eration, do not apply to contingent consideration that introduces new requirements for classifying and mea- arose from business combinations whose acquisition suring financial assets. Early adoption is permitted. dates precede the application of IFRS 3 (as revised This standard has not yet been endorsed by the EU. in 2008). Moreover, this improvement limits the >> IAS 32 Classification on Rights Issues (Amend- scope of the measurement choices (fair value or at the ed): The amendment is effective for annual periods present ownership instruments’ proportionate share beginning on or after February 1, 2010. This amend- of the acquiree’s identifiable net assets) only to the -62- Annual Financial Report 2010 components of non-controlling interest that are pres- value of award credits is measured based on the value ent ownership interests that entitle their holders to a of the awards for which they could be redeemed, the proportionate share of the entity’s net assets. Finally, amount of discounts or incentives otherwise granted it requires an entity (in a business combination) to to customers not participating in the award credit account for the replacement of the acquiree’s share- scheme, is to be taken into account. based payment transactions (whether obliged or vol- >> IFRS 7 Financial Instruments, effective for an- untarily), i.e. split between consideration and post nual periods beginning on or after July 1, 2011. The combination expenses. purpose of this amendment is to allow users of fi- >> IFRS 7 Financial Instruments: Disclosures, ef- nancial statements to improve their understanding of fective for annual periods beginning on or after Janu- transfer transactions of financial assets (e.g. securiti- ary 1, 2011. This improvement gives clarifications of zations), including understanding the possible effects disclosures required by IFRS 7 and emphasizes the of any risks that may remain with the entity which interaction between quantitative and qualitative dis- transferred the assets. The amendment also requires closures and the nature and extent of risks associated additional disclosures if a disproportionate amount of with financial instruments. transfer transactions are undertaken around the end of >> IAS 1 Presentation of Financial Statements, ef- a reporting period. fective for annual periods beginning on or after Jan- uary 1, 2011. This amendment clarifies that an en- 3. SIGNIFICANT ACCOUNTING tity will present an analysis of other comprehensive income for each component of equity, either in the POLICIES statement of changes in equity or in the notes to the The financial statements have been prepared using financial statements. accounting policies consistent with those of the pre- >> IAS 27 Consolidated and Separate Financial vious year, except for: Statements, effective for annual periods beginning on - the change in accounting policy concerning provi- or after July 1, 2010. This improvement clarifies that sions for pensions and other employee benefits (see the consequential amendments from IAS 27 made to Note 32) IAS 21 The Effect of Changes in Foreign Exchange - the adoption of the following new and amended Rates, IAS 28 Investments in Associates and IAS 31 IFRS and IFRIC interpretations which became effec- Interests in Joint Ventures apply prospectively for an- tive for the accounting periods beginning on January nual periods beginning on or after July 1, 2009 or ear- 1, 2010: lier when IAS 27 is applied earlier. >> IFRIC 17 Distributions of Non-cash Assets to >> IAS 34 Interim Financial Reporting, effective for Owners annual periods beginning on or after January 1, 2011. >> IFRS 3 Business Combinations (Revised) and IAS This improvement provides guidance to illustrate 27 Consolidated and Separate Financial State- how to apply disclosure principles in IAS 34 and add ments (Amended) disclosure requirements. >> IAS 39 Financial Instruments: Recognition and >> IFRIC 13 Customer Loyalty Programs, effective Measurement (Amended) – eligible hedged items for annual periods beginning on or after January 1, >> IFRS 2 Group Cash-settled Share-based Payment 2011. This improvement clarifies that when the fair Transactions (Amended) -63- Annual Financial Report 2010

>> In May 2008, the Board issued its first omnibus policies. All intercompany balances, transactions and of amendments to its standards. All amendments any intercompany profit or loss are eliminated in the issued are effective as at December 31, 2009, consolidated financial statements. Subsidiaries are apart from the amendment of IFRS 5 Non-current fully consolidated from the date on which control is Assets Held for Sale and Discontinued Opera- transferred to the Group and cease to be consolidated tions which is applied prospectively. from the date on which control is transferred out of >> In April 2009 the IASB issued its second omnibus the Group. An inter company loan to a foreign subsid- of amendments to its standards, primarily with a iary for which settlement is neither planned nor likely view to removing inconsistencies and clarifying to occur in the foreseeable future, is considered to be wording. The effective dates of the improvements part of the net investment in that foreign operation. In are various and the earliest is for the financial the consolidated financial statements the foreign ex- year beginning on or after July 1, 2009. change gains and losses arising are recorded in other The adoption of the above new and amended IFRS comprehensive income. and IFRIC interpretations did not have an impact on Associates the financial statements or performance of the Group Associates are those entities in which the Group has or the Company, however IFRS 3 (Revised) introduc- significant influence upon, but not control over their es significant changes in the accounting for business financial and operating strategy. Significant influence combinations occurring after January 1, 2010. Chang- is presumed to exist when the Company has the right es affect the valuation of non-controlling interest, the to participate in the financial and operating policy accounting for transaction costs, the initial recognition decisions, without having the power to govern these and subsequent measurement of a contingent consid- policies. Investments in associates in which the Group eration and business combinations achieved in stages. has significant influence are accounted for using the These changes will impact the amount of goodwill equity method. Under this method the investment is recognized, the reported results in the period that an carried at cost, and is adjusted to recognize the inves- acquisition occurs and future reported results. tor’s share of the earnings or losses of the investee The significant accounting policies applied for the from the date that significant influence commences preparation of the financial statements are as fol- until the date that significant influence ceases and lows: also for changes in the investee’s net equity. Gains or 1. Basis of Consolidation and Investments losses from transactions with associates are eliminat- Subsidiaries ed to the extent of the interest in the associate. Divi- The consolidated financial statements are comprised dends received from associates are eliminated against of the financial statements of the Company and all the carrying value of the investment. The associate’s subsidiaries controlled by the Company directly or value is adjusted for any accumulated impairment indirectly. Control exists when the Company has the loss. When the Group’s share of losses exceeds the power to govern the financial and operating policies carrying amount of the investment, the carrying value of the subsidiaries so as to obtain benefits from their of the investment is reduced to nil and recognition of activities. The financial statements of the subsidiar- further losses is discontinued, except to the extent the ies are prepared as of the same reporting period as Group has created obligations or has made payments the parent company, using consistent accounting on behalf of the associate. -64- Annual Financial Report 2010

Transactions between companies under common or losses are recognized directly in other comprehen- control sive income while upon sale or impairment gains or Transactions between companies under common con- losses are recognized in the income statement. The trol are excluded from the scope of IFRS 3. Therefore fair values of quoted investments are based on quoted the Group (implementing the guidance of IAS 8 “Ac- market bid prices. For investments where there is no counting policies, changes in accounting estimates quoted market price, fair value is determined using and errors” for similar cases) accounts for such trans- valuation techniques, unless the range of reasonable actions using a method like “pooling of interests”. fair value estimates is significant and the probabili- Based on this principle, the Group consolidates the ties of the various estimates cannot be reasonably as- book values of the combined entities (without revalu- sessed, where the entity is precluded from measuring ation to fair values). The financial statements of the these investments at fair value. Purchase or sales of Group or the new entity after the transaction are pre- financial assets that require delivery of assets within pared on the basis as if the new structure was in effect a time frame established by regulation or convention since the beginning of the first period which is pre- in the market place are recognized on the settlement sented in the financial statements and consequently date (i.e. the date that the asset is transferred or deliv- the comparative figures are adjusted. The difference ered to the Group or the Company). between the purchase price and the book value of the Offsetting of financial assets and liabilities percentage of the net assets acquired is recognized di- Financial assets and liabilities are offset and the net rectly in equity. amount is presented in the statement of financial In the separate financial statements, investments in position only when the Group or the Company has subsidiaries and associates are accounted for at cost a legally enforceable right to set off the recognized adjusted for any impairment where necessary. amounts and intends either to settle such asset and liability on a net basis or to realize the asset and settle 2. Financial Assets – Investments the liability simultaneously. Financial assets are initially measured at their fair Impairment of financial assets value, which is normally the acquisition cost, plus, in the case of investments not at fair value through The Group and the Company assess at each reporting profit and loss, directly attributable transaction costs. date, whether a financial asset or group of financial Financial assets are classified as being at fair value assets is impaired as follows: through profit and loss, held to maturity, or available- (i) Assets held to maturity: for-sale as appropriate. The Group and the Company If there is objective evidence that an impairment loss determine classification of its financial assets at ini- on loans and receivables carried at amortized cost has tial recognition. Financial assets at fair value through been incurred, the amount of the loss is measured as profit or loss are measured at fair value and gains or the difference between the asset’s carrying amount losses are recognized in the income statement. Held- and the present value of estimated future cash flows to-maturity investments are measured at amortized (excluding future credit losses that have not been cost using the effective interest method and gains incurred) discounted at the financial asset’s original or losses through the amortization process are rec- effective interest rate (i.e. the effective interest rate ognized in the income statement. Available-for-sale computed at initial recognition). The amount of the financial assets are measured at fair value and gains loss is recognized in the income statement. -65- Annual Financial Report 2010

(ii) Available-for-sale financial assets: ment in the asset. Continuing involvement that takes If an available-for-sale asset is impaired, an amount the form of a guarantee over the transferred asset is comprising the difference between its acquisition cost measured at the lower of the original carrying amount (net of any principal payment and amortization) and of the asset or the maximum amount of consideration its current fair value, less any impairment loss pre- that the Company or the Group could be required to viously recognized in the income statement is trans- repay. Where continuing involvement takes the form ferred from other comprehensive income to the in- of a written and/or purchase option (including a cash- come statement. Reversals of impairment in respect settled option or similar provision) on the transferred of equity instruments classified as available-for-sale asset, the extent of the Group’s or the Company’s con- are not recognized in the income statement. Reversals tinuing involvement is the amount of the transferred of impairment losses on debt instruments are reversed asset that the Group or the Company may repurchase, through the income statement if the increase in fair except that in the case of a written put option (includ- value of the instrument can be objectively related to ing a cash-settled option or similar provision) on an an event occurring after the impairment losses were asset measured at fair value, the extent of the Group’s recognized in the income statement. or the Company’s continuing involvement is limited to the lower of the fair value of the transferred asset Derecognition of financial assets and the option exercise price. A financial asset (or, a part of a financial asset or part Derecognition of financial liabilities of a group of similar financial assets) is derecognized when: A financial liability is derecognized when the obli- >> the rights to receive cash flows from the asset gation under the liability is discharged or cancelled have expired; or expired. Where an existing financial liability is re- >> the Group or the Company retains the right to replaced by another from the same lender on substan- ceive cash flows from the asset, but has assumed tially different terms, or the terms of an existing li- an obligation to pay them in full without material ability are substantially modified, such an exchange delay to a third party under a “pass-through” or modification is treated as a derecognition of the arrangement; or original liability and the recognition of a new liability, >> the Group or the Company has transferred its and the difference in the respective carrying amounts rights to receive cash flows from the asset and is recognized in the income statement. either (a) has transferred substantially all the Non-current Assets Held for Sale risks and rewards of the assets, or (b) has neither The Group classifies a non-current asset (or disposal transferred nor retained substantially all the risks group) as held for sale if its carrying amount will be and rewards of the asset, but has transferred recovered principally through a sale transaction rather control of the asset. than through continuing use. Where the Group or the Company have transferred The basic preconditions to classify a non-current asset their rights to receive cash flows from an asset and (or a disposal group) as held for sale are that it must have neither transferred nor retained substantially all be available for immediate sale in its present condi- the risks and rewards of the asset nor transferred con- tion subject only to terms that are usual and custom- trol of the asset, the asset is recognized to the extent ary for sales of such assets or groups and its sale must of the Group’s or the Company’s continuing involve- be highly probable. For the sale to be highly probable, -66- Annual Financial Report 2010 the appropriate level of management must be com- transaction. Non-monetary items denominated in mitted to a plan to sell the asset (or disposal group) foreign currencies that are measured at fair value are and an active program to locate a buyer and complete retranslated at the exchange rates at the date that the the plan must have been initiated. Further, the asset fair value was determined. The foreign currency dif- (or disposal group) must be actively marketed for sale ferences arising from the change in the fair value of at a price that is reasonable in relation to its current these items are recognized in the income statement or fair value. In addition, the sale should be expected directly in other comprehensive income depending on to qualify for recognition as a completed sale within the underlying item. one year from the date of classification, and actions Each entity in the Group determines its own func- required to complete the plan should indicate that it tional currency and items included in the financial is unlikely that significant changes to the plan will be statements of each entity are measured using the made or that the plan will be withdrawn. functional currency. Assets and liabilities of these Immediately before the initial classification of a non entities, including goodwill and the fair value adjust- current asset (or a disposal group) as held for sale, the ments to the carrying amounts of assets and liabilities asset (or the assets and liabilities included in the dis- arising on acquisition, are translated into Euro using posal group) is measured in accordance with the ap- exchange rates ruling at the reporting date. Revenues plicable IFRS. Non-current assets (or disposal group) and expenses are translated at rates prevailing at the classified as held for sale are measured at the lower date of the transaction. All resulting foreign exchange of their carrying amount and fair value less costs to differences are recognized in other comprehensive in- sell and any possible resulting impairment losses are come and are recognized in the income statement on recognized in the income statement. Any subsequent the disposal of the foreign operation. increase in fair value is recognized, but not in excess 4. Goodwill and Business Combinations of the cumulative impairment loss which was previ- Business combinations from January 1, 2010 ously recognized. Business combinations are accounted for using the While a non-current asset (or non-current assets that acquisition method. The cost of an acquisition is are included in a disposal group) is classified as held measured as the aggregate of the consideration trans- for sale it is not depreciated or amortized. ferred, measured at acquisition date fair value and 3. Foreign Currency Translation the amount of any non-controlling interest in the ac- OTE’s functional currency is the Euro. Transactions quiree. For each business combination, the acquirer involving other currencies are translated into Euro at measures the non-controlling interest in the acquiree the exchange rates, ruling on the date of the trans- either at fair value or at the proportionate share of the actions. At the reporting date, monetary assets and acquiree’s identifiable net assets. Acquisition costs liabilities, which are denominated in foreign curren- are expensed as incurred. When the Group acquires a cies, are retranslated at the exchange rates at that date. business, it assesses the financial assets and liabilities Gains or losses resulting from foreign currency trans- assumed for appropriate classification and designa- lation are recognized in the income statement. tion in accordance with the contractual terms, eco- Non-monetary items denominated in foreign curren- nomic circumstances and pertinent conditions as at cies that are measured at historical cost are retrans- the acquisition date. If the business combination is lated at the exchange rate at the date of the initial achieved in stages, the acquisition date fair value of -67- Annual Financial Report 2010 the acquirer’s previously held equity interest in the goodwill is recorded at the carrying value at the date acquiree is remeasured to fair value at the acquisition of transition, based on previous GAAP. Goodwill is date through profit or loss. Any contingent consider- not amortized but is tested for impairment at least ation to be transferred by the acquirer will be recog- annually and when circumstances indicate that the nized at fair value at the acquisition date. Goodwill carrying value may be impaired. Impairment is de- is initially measured at cost being the excess of the termined for goodwill by assessing the recoverable aggregate of the consideration transferred and the amount for each cash generating unit to which good- amount recognized for non-controlling interest over will relates. Where the recoverable amount of the the net identifiable assets acquired and liabilities as- cash generating unit is less than the carrying amount sumed. If this consideration is lower than the fair an impairment loss is recognized. Thus, after initial value of the net assets of the subsidiary acquired, the recognition, goodwill is measured at cost less any difference is recognized in the income statement. Af- accumulated impairment losses. An impairment loss ter initial recognition, goodwill is measured at cost recognized for goodwill is not reversed in a subse- less any accumulated impairment losses. For the pur- quent period. Goodwill on acquisition of subsidiaries pose of impairment testing, goodwill acquired in a is presented as an intangible asset. Negative goodwill business combination is, from the acquisition date, on acquisition of subsidiaries is recorded directly in allocated to each of the Group’s cash-generating units the income statement. Goodwill recognized on acqui- that are expected to benefit from the combination, ir- sition of associates is included in the carrying amount respective of whether other assets or liabilities of the of the investment. The difference between the cost of acquiree are assigned to those units. Where goodwill acquisition and the non-controlling interest acquired, forms part of a cash-generating unit and part of the arising on the acquisition of non-controlling interests operation within that unit is disposed of, the goodwill in a subsidiary where control already exists, is record- associated with the operation disposed of is included ed directly in equity. When non-controlling interests in the carrying amount of the operation when deter- are disposed of, but control is retained, any difference mining the gain or loss on disposal of the operation. between the amount by which the non-controlling in- Goodwill disposed of in this circumstance is mea- terests are adjusted and the fair value of the consider- sured based on the relative values of the operation ation paid or received is recognized directly in equity disposed of and the portion of the cash-generating and attributed to the owners of the parent. unit retained. 5. Property, Plant and Equipment Business combinations prior to January 1, 2010 Items of property, plant and equipment are measured The acquisition of subsidiaries is accounted for using at cost, net of subsidies received, plus interest costs the acquisition method of accounting that measures incurred during periods of construction, less accumu- the acquiree’s assets and liabilities and contingent li- lated depreciation and any impairment in value. abilities at their fair value at the date of acquisition. Subsidies are presented as a reduction of the cost of For business combinations occurring subsequent to property, plant and equipment and are recognized in the date of transition to IFRS, goodwill is the excess the income statement over the estimated life of the of the purchase price over the fair value of the net assets through reduced depreciation expense. identifiable assets acquired. For business combina- Construction in progress is recorded as part of prop- tions occurring prior to the date of transition to IFRS, erty, plant and equipment and depreciation on the -68- Annual Financial Report 2010 self constructed assets commences when the asset is When significant parts of the property, plant and available for use. The cost of self-constructed assets equipment are required to be replaced at intervals, the includes the cost of materials, direct labor costs, bor- Group recognizes such parts as individual assets with rowing costs capitalized and relevant general over- specific useful lives and depreciation. head costs. Investment supplies comprise of assets to Investment property consists of all property held to be utilized in the construction of assets. earn rentals or for capital appreciation and not used in The present value of the expected retirement costs, the production or for administrative purposes. for a relevant asset, is included in the cost of the re- 6. Depreciation spective asset if the recognition criteria for a provision are met and are depreciated accordingly. Depreciation is recognized on a straight-line basis Repairs and maintenance costs are expensed as in- over the estimated useful lives of property, plant and curred. The cost and related accumulated deprecia- equipment, which are periodically reviewed. The es- tion of assets retired or sold are removed from the timated useful lives and the respective rates are as fol- corresponding accounts at the time of sale or retire- lows: ment, and any gain or loss is included in the income statement.

Estimated Useful Life Depreciation Rates

Buildings – building installations 20-40 years 2.5% - 5% Telecommunication equipment and installations: Telephone exchange equipment 8-12 years 8.3% - 12.5% Radio relay stations 8 years 12.5% Subscriber connections 10 years 10% Local and international network 8-17 years 6% - 12.5% Other 5-10 years 10% - 20% Transportation equipment 5-8 years 12.5% - 20% Furniture and fixtures 3-5 years 20% - 33%

7. Employee Benefits benefits are discounted to their present value after Defined Contribution Plans taking any adjustments for past service cost. The Obligations for contributions to defined contribution discount rate is the yield of high quality European plans are recognized as an expense as incurred. There corporate bonds with maturity that approximates the are no legal or constructive obligations to pay any term of the obligations. These obligations are calcu- further amounts. lated on the basis of financial and actuarial assump- Defined Benefit Plans tions which are carried out by independent actuaries Obligations derived from defined benefit plans are using the Projected Unit Credit Method. Net pension calculated separately for each plan by estimating the cost for the period is recognized in the income state- amount of future benefits employees have earned in ment and consists of the present value of the accrued return for their service as of the reporting date. These benefits, interest cost on the benefits obligation, prior -69- Annual Financial Report 2010 service cost and actuarial gains or losses. For post which the deductible temporary differences and the employment plans, prior service costs are recognized carry forward of unused tax credits and unused tax on a straight-line basis over the average period until losses can be utilized except: the benefits become vested. Following the change in >> where the deferred tax asset relating to the accounting policy as described in Note 32, actuarial deductible temporary differences arises from gains or losses are recognized directly in other com- the initial recognition of goodwill of an asset or prehensive income in the period in which they occur liability in a transaction that is not a business and are not reclassified to income statement in a sub- combination and, at the time of the transaction, sequent period. For other long term benefits, actuarial affects neither the accounting profit nor taxable gains and losses and past service costs are recognized profit or loss; and immediately in the income statement. >> in respect of taxable temporary differences as- 8. Taxes sociated with investment in subsidiaries and as- Income taxes include current and deferred taxes. Cur- sociates, deferred tax assets are recognized only rent tax is measured on the taxable income for the to the extent that it is probable that the temporary year using enacted or substantively enacted tax rates differences will reverse in the foreseeable future at the reporting date in the countries where the Group and taxable profit will be available against which operates and generates taxable income. the temporary differences can be utilized. Deferred taxes are provided on all temporary differ- Deferred tax is measured at the tax rates that are ex- ences arising between the carrying amounts of assets pected to apply in the year when the asset is realized and liabilities for financial reporting purposes and the or liability is settled based on tax rates (and tax laws) amounts used for taxation purposes. that have been enacted or substantively enacted at the Deferred tax liabilities are recognized for all taxable reporting date. The carrying amount of deferred tax temporary differences except: assets is reviewed at each reporting date and reduced >> where the deferred tax liability arises from the to the extent that it is no longer probable that suffi- initial recognition of goodwill of an asset or cient taxable profits will be available to allow all or liability in a transaction that is not a business part of the deferred tax asset to be utilized. combination and, at the time of the transaction, Income tax (current and deferred) relating to items affects neither the accounting profit nor taxable recognized directly in equity is recognized directly in profit or loss; and equity and not in the income statement. >> in respect of taxable temporary differences as- 9. Cash and Cash Equivalents sociated with investment in subsidiaries and For purposes of the cash flow statement, time depos- associates, where the timing of the reversal of the its and other highly liquid investments with original temporary differences can be controlled and it is maturities of three months or less are considered to be probable that the temporary differences will not cash and cash equivalents. reverse in the foreseeable future. 10. Advertising Costs Deferred tax assets are recognized for all deductible All advertising costs are expensed as incurred. temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that is 11. Research and Development Costs probable that taxable profit will be available against Research costs are expensed as incurred. Develop- -70- Annual Financial Report 2010 ment costs which do not fulfill the criteria for recog- cluded in the Group’s prepaid services packages, are nition as an asset are expensed as incurred. recognized based on usage. Such discounts represent 12. Recognition of Revenues and Expenses the difference between the wholesale price of prepaid cards and boxes (consisting of handsets and prepaid Fixed revenues primarily consist of connection charg- airtime) to the Group’s Master Dealers and the retail es, monthly network services fees, exchange network sale price to the ultimate customers. Unused airtime and facilities usage charges, other value added com- is included in “Deferred revenue” in the statement of munication services fees, and sales of handsets and financial position. Upon the expiration of prepaid air- accessories. Revenues are recognized as follows: time cards, any unused airtime is recognized in the Connection charges income statement. Connection charges for the fixed network are deferred Commissions paid for each contract subscriber ac- and amortized to income over the average customer quired by the master dealers as well as bonuses paid retention period. Connection costs, up to the amount to master dealers in respect of contract subscribers of deferred connection fees are recognized over the who renew their annual contracts, are deferred and average customer retention period. No connection amortized as expenses over the contract period. Air- fees are charged for mobile services. time commissions due to the Group’s master dealers Monthly network service fees for each subscriber acquired through their network Revenues related to the monthly network service fees are expensed as incurred. are recognized in the month that the telecommunica- Sales of telecommunication equipment tion service is provided. Revenues from the sale of handsets and accessories, Usage Charges and Value Added Services Fees net of discounts allowed, are recognized at the point- Call fees consist of fees based on airtime and traffic of-sale, when the significant risks and rewards of generated by the caller, the destination of the call and ownership have passed to the buyer. the service utilized. Fees are based on traffic, usage of Dividend income airtime or volume of data transmitted for value added Dividend income is recognized when the right to re- communication services. Revenues for usage charges ceive payment is established with the approval for and value added communication services are recog- distribution by the General Assembly of sharehold- nized in the period when the services are provided. ers. Revenues from outgoing calls made by OTE’s sub- Interest income scribers to subscribers of mobile telephony operators Interest income is recognized as the interest accrues are presented at their gross amount in the income (using the effective interest method). statement as the credit and collection risk remains solely with OTE. Interconnection fees for mobile-to- Revenues from construction projects mobile calls are recognized based on incoming traf- Revenues from construction projects are recognized fic generated from other mobile operators’ networks. in accordance with the percentage of completion Unbilled revenues from the billing cycle date to the method. end of each period are estimated based on traffic. Principal and agency relationship Revenues from the sale of prepaid airtime cards and In a principal and agency relationship, amounts col- the prepaid airtime, net of discounts allowed, in- lected by the agent on behalf of the principal do not -71- Annual Financial Report 2010 result in increases in equity of the agent and thus, 16. Non-Current Financial Assets they are not revenues for the agent. Revenue for the Non-current financial assets, which mainly comprise agent is the amount of commission received by the of loans, are initially recorded at their fair value, less principal. On the other hand, the principal’s revenues any transaction costs. Subsequent to the initial recog- consist of the gross amounts described above and the nition, they are measured at amortized cost and the commission paid to the agent is recognized as an ex- differences between that cost and the amount of re- pense. ceipt/payment are recognized in the income statement 13. Earnings per Share over the life of the asset using the effective interest Basic earnings per share are computed by dividing rate method. the profit for the year attributable to the Company’s 17. Share Capital Issuance Costs owners by the weighted average number of shares Share capital issuance costs, net of related tax, are re- outstanding during each year. Diluted earnings per flected as a deduction from Share Premium. share are computed by dividing the profit for the year 18. Treasury Shares attributable to the Company’s owners by the weighted Treasury shares consist of OTE’s own equity shares, average number of shares outstanding during the year which are reacquired and not cancelled. Treasury adjusted for the impact of share based payments. shares do not reduce the number of shares issued but 14. Operating Segments reduce the number of shares in circulation. Treasury Operating segments are determined based on the shares are recognized at cost as a deduction from Group’s legal structure, as the Group’s chief oper- equity. Upon derecognition, the cost of the treasury ating decision makers review financial information share reduces the Share Capital and Share Premium separately reported by the Company and each of the and any difference is charged to Retained Earnings. consolidated subsidiaries or the sub-groups included 19. Leases in the consolidation. The reportable segments are de- A lease that transfers substantially all of the rewards termined using the quantitative thresholds required and risks incidental to ownership of the leased item by the respective Standard. Information for operat- is accounted for by the lessee as the acquisition of an ing segments that do not constitute reportable seg- asset and the incurrence of a liability, and by the les- ments is combined and disclosed in the “All Other” sor as a sale and/or provision of financing. Lease pay- category. The accounting policies of the segments are ments are apportioned between finance charges (in- the same with those followed for the preparation of terest) and a reduction of the lease liability. Finance the financial statements. Management evaluates seg- charges are recognized directly as an expense. The ment performance based on operating profit before asset capitalized at the commencement of a finance depreciation, amortization, impairment and cost of lease is recognized at fair value of the leased property, early retirement program, operating profit and profit or if lower, the present value of the minimum lease for the year. payments. Its carrying value is subsequently reduced 15. Dividends by the accumulated depreciation and any impairment Dividends declared to the shareholders are recog- losses. If the lease does not transfer substantially all nized and recorded as a liability in the period they are of the rewards and risks incidental to ownership of approved by the General Assembly of shareholders. property, it is classified as an operating lease by the -72- Annual Financial Report 2010 lessee and the rental payments are recognized as an cost, while those acquired from a business combina- expense as incurred. tion are measured at fair value on the date of acquisi- 20. Related Parties tion. Subsequently, they are measured at that amount less accumulated amortization and accumulated im- Related party transactions and balances are disclosed pairment losses. The useful lives of the intangible as- separately in the financial statements based on the re- sets are assessed to be either finite or indefinite. In- quirements of IAS 24 “Related Party Disclosures”. tangible assets with a finite useful life are amortized 21. Telecommunication Licenses on a straight-line basis over their useful life. Amor- Telecommunication licenses are recognized at cost, tization of intangible assets with a finite useful life are amortized over their useful life and they are as- begins when the asset is available for use. The useful sessed for impairment at least annually. lives of intangible assets are reviewed on an annual 22. Inventories basis, and adjustments, where applicable, are made Inventories are measured at the lower of cost and net prospectively. realizable value. The cost is based on the weighted 25. Borrowing Costs average cost method. Net realizable value is the esti- Borrowing costs directly attributable to the acquisi- mated selling price in the ordinary course of business, tion, construction or production of a qualifying asset less estimated costs of completion and the estimated that necessarily takes a substantial period of time to costs necessary to make the sale. When there is any get ready for its intended use or sale are capitalized as subsequent increase of the net realizable value of in- part of the cost of the respective assets. All other bor- ventories that have been previously written-down, the rowing costs are expensed in the period they occur. amount of the write-down is reversed. Borrowing costs consist of interest and other costs 23. Trade Receivables and Allowance for Doubtful that an entity incurs in connection with the borrowing Accounts of funds. Trade receivables are initially recognized at their fair 26. Borrowings value which is equal to the transaction amount. Subse- All loans and borrowings are initially recognized quently they are measured at fair value less an allow- at fair value, net of direct costs associated with the ance for any probable uncollectible amounts. At each borrowing. After initial recognition, borrowings are reporting date, trade receivables are either assessed measured at amortized cost using the effective inter- individually for debtors such as other providers or est rate method. Gains and losses are recognized in collectively based on historical trends and statistical the income statement through the amortization pro- information and a provision for the probable and rea- cess. sonably estimated loss for these accounts is recorded. 27. Provisions The balance of such allowance for doubtful accounts Provisions are recognized when the Group or the is adjusted by recording a charge to the income state- Company have a present obligation (legal or construc- ment at each reporting period. Any customer account tive) as a result of a past event, it is probable that an balances written-off are charged against the existing outflow of resources embodying economic benefits allowance for doubtful accounts. will be required to settle the obligation and a reliable 24. Other Intangible Assets estimate can be made of the amount of the obligation. Intangible assets acquired separately are measured at If the effect of the time value of money is material, -73- Annual Financial Report 2010 provisions are measured by discounting the expected dividually, the recoverable amount is determined for future cash flows at a pre-tax rate that reflects current the cash generating unit to which the asset belongs. market assessments of the time value of money and At each reporting date the Group and the Company the risks specific to the liability. Where discounting assess whether there is an indication that an impair- is used, the increase of the provision due to the pas- ment loss recognized in prior periods may no longer sage of time is recognized as a borrowing cost. Provi- exist. If any such indication exists, the Group and the sions are reviewed at each reporting date, and if it is Company estimate the recoverable amount of that as- no longer probable that an outflow of resources em- set and the impairment loss is reversed, increasing the bodying economic benefits will be required to settle carrying amount of the asset to its recoverable amount, the obligation, they are reversed. Provisions are used to the extent that the recoverable amount does not ex- only for expenditures for which they were originally ceed the carrying value of the asset that would have recognized. No provisions are recognized for future been determined (net of amortization or depreciation) operating losses. Contingent assets and contingent li- had no impairment loss been recognized for the asset abilities are not recognized. Provisions for restructur- in prior years. ing are recognized when the Group or the Company 29. Share-Based Payment Transactions have an approved, detailed and formal restructuring Certain employees (including senior executives) of plan, which has either started to be implemented or the Group receive remuneration in the form of share- has been publicly announced to those affected by it. based payment transactions, whereby employees ren- Future operating costs are not provided for. Contribu- der services as consideration for equity instruments tions that are related to employees, who retire under (“equity settled transactions”). The cost of equity voluntary retirement programs, are recognized when settled transactions is measured by reference to the employees accept the offer and the amounts can be fair value at the date on which they are granted. The reasonably estimated. fair value is determined at the grant date, using an 28. Impairment of Non- Financial Assets (excluding appropriate pricing model, and is allocated over the goodwill) period in which the conditions are fulfilled. The cost of equity settled transactions is recognized, together The carrying values of the Group’s or the Company’s with a corresponding increase to equity over the vest- non-financial assets are tested for impairment, when ing period. there are indications that their carrying amount is not recoverable. In such cases, the recoverable amount Where the terms of an equity settled transaction is estimated and if the carrying amount of the asset awards are modified, the minimum expense recog- exceeds its estimated recoverable amount, an impair- nized is the expense as if terms had not been modi- ment loss is recognized in the income statement. The fied, if the original terms of the award are met. An recoverable amount of an asset is the higher of its additional expense is recognized for any modification fair value less costs to sell and its value in use. In that increases the total fair value of the share based measuring value in use, estimated future cash flows payment transaction, or is otherwise beneficial to the are discounted to their present value using a pre-tax employee as measured at the date of modification. discount rate that reflects current market assessments 30. Derivative Financial Instruments and Hedging of the time value of money and the risks specific to Instruments that asset. If an asset does not generate cash flows in- Derivative financial instruments include interest rate -74- Annual Financial Report 2010 swaps, currency swaps and other derivative instru- instrument that is determined to be effective is recog- ments. nized directly in other comprehensive income and the Derivatives for trading purposes ineffective portion is recognized in the income state- Derivatives that do not qualify for hedging are con- ment. sidered as derivatives for trading purposes. Initially, 31. Reclassifications these derivatives are recognized at their fair value Certain reclassifications have been made to prior (which is essentially the transaction cost) at the com- year balances to conform to current year classifica- mencement date. Subsequent to the initial recogni- tions. In addition certain reclassifications have been tion, they are measured at fair value based on quoted made within the Notes for comparability purposes. market prices, if available, or based on valuation These reclassifications did not have any impact on techniques such as discounted cash flows. These de- the Group‘s or the Company’s equity or income state- rivatives are classified as assets or liabilities depend- ment. Further details of the nature of these reclassifi- ing on their fair value, with any changes recognized cations are disclosed in Note 32. in the income statement. 32. Financial Guarantee Contracts Hedging Financial guarantee contracts issued by the Group or For hedge accounting purposes, hedges are classi- the Company are those contracts that require a pay- fied either as fair value hedges, where the exposure ment to be made to reimburse the holder for a loss it to changes in the fair value of a recognized asset or incurs because the specified debtor fails to make a liability is being hedged, or as a cash flow hedge, payment when due in accordance with the terms of where the exposure to variability in cash flows as- a debt instrument. Financial guarantee contracts are sociated with a specifically identified risk which may recognized initially as a liability at fair value, adjust- be directly related to the recognized asset or liability. ed for transaction costs that are directly attributable to When hedge accounting is applied, at the inception the issuance of the guarantee. Subsequently, the lia- of the hedge there is formal documentation which in- bility is measured at the higher of the best estimate of cludes identification of the hedging instrument, the the expenditure required to settle the present obliga- hedged item, the hedging relationship, the nature of tion at the reporting date and the amount recognized the risk being hedged and the risk strategy. less cumulative amortization. In a fair value hedge, the gain or loss from re-measuring the hedging instrument at fair value is recognized 4. PROPERTY, PLANT in the income statement and the carrying amount of the hedged item is adjusted to fair value with respect AND EQUIPMENT to the risk being hedged and the fair value adjustment Property, plant and equipment is analyzed as fol- is recognized in the income statement. lows: In a cash flow hedge, the portion of the gain or loss arising from the fair value movement on the hedging -75- Annual Financial Report 2010

Telecom Transportation Furniture Construction Investment GROUP Land Buildings Equipment Means & Fixtures in Progress Supplies TOTAL 31/12/2008

Cost 50.1 913.5 12,645.2 54.4 472.4 534.3 136.8 14,806.7 Accumulated depreciation - (311.1) (8,254.5) (36.8) (331.5) - - (8,933.9) Net book value 31/12/2008 50.1 602.4 4,390.7 17.6 140.9 534.3 136.8 5,872.8 Additions - 49.4 654.4 5.0 23.8 431.2 55.9 1,219.7 Acquisition of subsidiary - cost1 0.2 1.7 48.3 1.3 0.4 2.6 - 54.5 Disposals and transfers – cost (1.0) (0.1) (136.1) (7.6) (12.3) (447.0) (84.9) (689.0) Disposals and transfers – accumulated depreciation - 0.1 286.8 7.3 22.2 - - 316.4 Exchange differences - cost (0.3) (31.6) (276.5) (2.5) (10.0) (11.3) (2.1) (334.3) Exchange differences - accumulated depreciation - 18.1 167.5 1.9 7.4 - - 194.9 Depreciation charge for the year - impairment - (56.4) (936.1) (6.2) (40.1) - - (1,038.8) Net book value 31/12/2009 49.0 583.6 4,199.0 16.8 132.3 509.8 105.7 5,596.2

31/12/2009 Cost 49.0 932.9 12,935.3 50.6 474.3 509.8 105.7 15,057.6 Accumulated depreciation - (349.3) (8,736.3) (33.8) (342.0) - - (9,461.4) Net book value 31/12/2009 49.0 583.6 4,199.0 16.8 132.3 509.8 105.7 5,596.2

Additions 0.6 32.9 609.8 1.8 3.5 362.7 41.3 1,052.6 Disposals and transfers - cost - 7.8 (205.6) (1.9) (19.9) (394.2) (56.3) (670.1) Disposals and transfers - accumulated depreciation 0.4 1.4 334.0 4.8 20.0 - - 360.6 Exchange differences - cost (0.5) (7.4) (56.7) (0.2) (1.9) (1.6) - (68.3) Exchange differences - accumulated depreciation - 5.2 40.4 0.3 1.6 - - 47.5 Depreciation charge for the year - impairment (0.4) (84.5) (1,141.9) (5.9) (23.9) - - (1,256.6) Net book value 31/12/2010 49.1 539.0 3,779.0 15.7 111.7 476.7 90.7 5,061.9 31/12/2010 Cost 49.1 966.2 13,282.8 50.3 456.0 476.7 90.7 15,371.8 Accumulated depreciation - (427.2) (9,503.8) (34.6) (344.3) - - (10,309.9) Net book value 31/12/2010 49.1 539.0 3,779.0 15.7 111.7 476.7 90.7 5,061.9

1 Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8) -76- Annual Financial Report 2010

Property, plant and equipment includes investment Impairment test of ROMTELECOM property of Euro 86.0 as of December 31, 2010 (De- As at December 31, 2010, an impairment test was cember 31, 2009: Euro 83.2), the fair value of which performed by ROMTELECOM with respect to its exceeds the above mentioned carrying amount. property, plant and equipment as there were indica- Borrowing costs capitalized during the year ended tions that its carrying value exceeds the recoverable December 31, 2010 and 2009 by the Group as part of amount. The impairment test was performed based on the cost of qualifying assets amount to Euro 10.3 and a discounted cash-flow model, using cash-flow pro- Euro 10.0, respectively. The amounts were calculated jections from financial budgets approved by manage- based on an average rate of capitalization for the year ment and a discount rate of 9.75%. Αs a result of the ended December 31, 2010 and 2009 which was 5.5% impairment test mentioned above, an impairment loss and 5.9% respectively. of Euro 244.5 was charged in the 2010 consolidated For the acquisition of the assets above, the Group has income statement and is included in the line “Depre- received government grants in the past the unamor- ciation, amortization and impairment”. tized amount of which at December 31, 2010 is Euro 13.6 (December 31, 2009: Euro 22.9).

Telecommunication Transportation Furniture Construction Investment COMPANY Buildings Equipment Means & Fixtures in Progress Supplies TOTAL 31/12/2008 Cost 44.4 7,654.5 39.1 155.5 293.1 101.5 8,288.1 Accumulated depreciation (8.9) (5,908.2) (33.9) (145.6) - - (6,096.6) Net book value 31/12/2008 35.5 1,746.3 5.2 9.9 293.1 101.5 2,191.5 Additions 9.3 230.8 3.3 2.2 259.5 40.9 546.0 Disposals and transfers – cost - (175.4) (0.7) (16.6) (228.1) (58.5) (479.3) Disposals and transfers – accumulated depreciation - 175.2 0.7 16.5 - - 192.4 Depreciation charge for the year (3.2) (413.3) (2.0) (5.4) - - (423.9) Net book value 31/12/2009 41.6 1,563.6 6.5 6.6 324.5 83.9 2,026.7 31/12/2009 Cost 53.7 7,709.9 41.7 141.1 324.5 83.9 8,354.8 Accumulated depreciation (12.1) (6,146.3) (35.2) (134.5) - - (6,328.1) Net book value 31/12/2009 41.6 1,563.6 6.5 6.6 324.5 83.9 2,026.7 Additions 4.6 257.6 - 2.3 209.7 41.4 515.6 Disposals and transfers - cost - (248.7) (1.3) (7.1) (249.9) (53.9) (560.9) Disposals and transfers – accumulated depreciation - 248.0 1.3 7.1 - - 256.4 Depreciation charge for the year (3.5) (364.3) (2.0) (4.0) - - (373.8) Net book value 31/12/2010 42.7 1,456.2 4.5 4.9 284.3 71.4 1,864.0 -77- Annual Financial Report 2010

Telecommunication Transportation Furniture Construction Investment COMPANY Buildings Equipment Means & Fixtures in Progress Supplies TOTAL 31/12/2010 Cost 58.3 7,718.8 40.4 136.3 284.3 71.4 8,309.5 Accumulated depreciation (15.6) (6,262.6) (35.9) (131.4) - - (6,445.5) Net book value 31/12/2010 42.7 1,456.2 4.5 4.9 284.3 71.4 1,864.0

There are no restrictions on title on property, plant and equipment.

Borrowing costs capitalized during the year ended amount of which at December 31, 2010 is Euro 10.5 December 31, 2010 and 2009 as part of the cost of (December 31, 2009: Euro 18.4). There are no un- qualifying assets amount to Euro 10.3 and Euro 10.0, fulfilled conditions or contingencies attached to these respectively. The amounts were calculated based on grants. an average rate of capitalization for the year ended December 31, 2010 and 2009 which was 5.5% and 5. GOODWILL 5.9% respectively. Goodwill is analyzed as follows: For the acquisition of the assets above, OTE has received government grants in the past the unamortized

GROUP 2010 2009 Carrying value January 1 577.4 525.1 Foreign exchange differences (4.6) (6.8) Acquisition of subsidiary - preliminary adjustment (see Note 8) - 33.5 Acquisition of subsidiary - final adjustment (see Note 8) (0.4) 25.6 Acquisition of subsidiary 1.5 - Impairment (1.5) - Carrying value December 31 572.4 577.4

The movement of the goodwill and its allocation to each cash generating unit is analyzed as follows:

Foreign exchange COUNTRY 2009 Adjustments 2009 Adjusted1 differences Adjustments 2010 Greece 376.6 - 376.6 - - 376.6 Albania 55.5 - 55.5 (0.5) - 55.0 Romania 59.4 25.6 85.0 (4.1) (0.4) 80.5 Bulgaria 60.3 - 60.3 - - 60.3 TOTAL 551.8 25.6 577.4 (4.6) (0.4) 572.4

1 Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). -78- Annual Financial Report 2010

The recoverable amount of the above cash generating by management, with these cash flows initially pro- units was determined using the value in use method. jected over ten years and then to infinity. The value in use was determined based on the project- The basic assumptions used in determining the value ed cash flows derived from three year plans approved in use of the cash generating units as of December 31, 2010 are as follows:

Assumptions Greece Albania Romania Bulgaria Discount rate 8.76% 9.88% 10.21% 8.08% Rate of increase/(decrease) of revenue (0.65)% (1.87)% 4.86% 0.10% EBITDA margin 36.1%-38.5% 53.5%-43.3% 15.9%-32.0% 39.9%-43.8%

For the projection of cash flows beyond a ten years to take into consideration expected variances in period, a growth rate of 2% was assumed for all cash operating profitability. generating units. The basic assumptions used are consistent with inde- The main assumptions used by management in pro- pendent external sources of information. jecting cash flows as part of the annual impairment Based on the results of the impairment test as of De- test of goodwill are the following: cember 31, 2010, no impairment losses were identi- >> Risk-free rate: The risk free rate was determined fied in the recorded amounts of goodwill. on the basis of external figures derived from the relevant market of each country. 6. TELECOMMUNICATION >> Budgeted profit margin: Budgeted operating profit and EBITDA were based on actual histori- LICENSES cal experience from the last few years adjusted Telecommunication licenses are analyzed as follows:

GROUP 2010 20091 Net book value January 1 365.0 329.5 Additions 8.3 - Acquisition of subsidiary (see Note 8) - 76.2 Transfer from other intangible assets, cost - 13.3 Transfers, cost (1.6) - Exchange differences, cost 0.3 (7.5) Exchange differences, accumulated amortization (0.4) 6.4 Amortization charge for the year (36.6) (51.0) Write-offs, cost (37.4) (1.9) Write-offs, accumulated amortization 34.3 - Net book value December 31 331.9 365.0 December 31 Cost 580.7 611.1 Accumulated amortization (248.8) (246.1) Net book value 331.9 365.0

1 Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). -79- Annual Financial Report 2010

COMPANY 2010 2009 Net book value January 1 2.5 3.0 Amortization charge for the year (0.4) (0.5) Net book value December 31 2.1 2.5 December 31 Cost 6.2 6.2 Accumulated amortization (4.1) (3.7) Net book value 2.1 2.5

Telecommunication licenses comprise of licenses ac- 7. OTHER INTANGIBLE ASSETS quired primarily from the Group’s mobile operations. The movement of other intangible assets is as follows: These licenses are amortized on a straight line basis over their useful lives being between 5 and 25 years.

GROUP 2010 20091 Net book value January 1 523.5 550.7 Additions 14.2 31.3 Acquisition of subsidiary (see Note 8) - 24.9 Disposals, cost (33.3) (0.4) Disposals, accumulated amortization 33.3 0.1 Transfer to telecommunication licenses, cost - (13.3) Transfers, cost (8.5) - Exchange differences, cost (5.8) (8.1) Exchange differences, accumulated amortization 0.4 3.8 Amortization charge for the year (68.3) (65.5) Net book value December 31 455.5 523.5 December 31 Cost 682.5 715.9 Accumulated amortization (227.0) (192.4) Net book value 455.5 523.5

1 Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8).

Other intangible assets in the Group’s statement of and customer relationships and computer software. financial position are comprised mainly of the iden- The brand name was initially determined to have an tifiable assets recognized as a result of the acquisi- indefinite useful life. During the fourth quarter of tion of GERMANOS during 2006. These identifiable 2008, the Group revised its estimate of the GERMA- assets recognized relate mainly to the GERMANOS NOS brand name’s useful life which it determined to brand name, but also include franchise agreements be 15 years from the end of October 2008, the date -80- Annual Financial Report 2010 of the reassessment. The related amortization charged There are no intangible assets with indefinite useful to the 2010 and 2009 consolidated income statement life as of December 31, 2010 and 2009. amounted to Euro 27.5 and Euro 27.6, respectively, and the net book value of the GERMANOS brand name as of December 31, 2010 (considering also the 8. INVESTMENTS effect of exchange differences of Euro 3.8), amounted Investments are analyzed as follows: to Euro 345.5 (December 31, 2009: Euro 376.8).

GROUP COMPANY 2010 2009 2010 2009 (a) Investments in subsidiaries - - 4,622.0 4,621.1 (b) Other investments 156.5 157.0 156.2 156.3 TOTAL 156.5 157.0 4,778.2 4,777.4

(a) Investments in subsidiaries are analyzed as follows:

OTE’s direct Country of ownership interest incorporation 2010 2009 COSMOTE 100.00% Greece 3,513.3 3,510.1 OTE INTERNATIONAL INVESTMENTS LTD 100.00% Cyprus 483.9 483.9 HELLAS-SAT 99.05% Cyprus 194.7 194.7 COSMO-ONE 30.87% Greece 0.5 0.6 VOICENET 100.00% Greece 3.1 3.7 HELLASCOM 100.00% Greece 8.4 8.4 OTE SAT- MARITEL 94.08% Greece 11.2 11.2 OTE PLC 100.00% U.K. - - ΟΤΕ PLUS 100.00% Greece 3.8 3.8 ΟΤΕ ESTATE 100.00% Greece 234.1 234.1 OTE GLOBE 100.00% Greece 163.7 163.7 OTE INSURANCE 100.00% Greece 0.6 0.6 OTE ACADEMY 100.00% Greece 4.7 6.3 TOTAL 4,622.0 4,621.1

The movement of investments in subsidiaries is as follows:

COMPANY 2010 2009 Balance at January 1 4,621.1 4,733.6 Share options granted to management of subsidiaries (see Note 29) 3.2 4.4 Impairment (2.3) (0.7) Reduction of share capital of subsidiaries - (116.2) Balance at December 31 4,622.0 4,621.1 -81- Annual Financial Report 2010

The movement of investments during the year depict- duction of its share capital by Euro 4.0 as a result of a ed in the table above can be summarized as follows: reduction in nominal amount of its shares from Euro COSMOTE 9.5 to Euro 1.5 (absolute amounts). As at Decem- ber 31, 2010, the return of capital had not yet taken As described in Note 29, OTE has implemented a place. Share Option Plan for executives, including executives of COSMOTE Group. The Share Option Plan In December 2010, OTESAT-MARITEL’s Extraordi- grants to these executives the opportunity, subject nary General Assembly of Shareholders approved the to vesting conditions, to purchase OTE’s shares at a reduction of its share capital by Euro 7.0 as a result of potentially preferential purchase price. COSMOTE’s a reduction in nominal amount of its shares from Euro related expense for the Share Option Plan for 2010 3.54 to Euro 1.55 (absolute amounts). As at Decem- is Euro 3.2 (2009: Euro 4.4) and in OTE’s separate ber 31, 2010, the return of capital had not yet taken financial statements has been recorded in equity with place. an equal increase of the carrying value of OTE’s in- In December 2010, OTE INSURANCE’s Extraor- vestment in COSMOTE. dinary General Assembly of Shareholders approved IMPAIRMENT OF INVESTMENTS IN the reduction of its share by Euro 0.5 as a result of a SUBSIDIARIES reduction in nominal amount of its shares from Euro 2.93 to Euro 0.43 (absolute amounts). As at Decem- During 2010, an impairment test was carried out on ber 31, 2010, the return of capital had not yet taken OTE’s participation in COSMOONE, OTE ACAD- place. EMY and VOICENET as there were indications that the carrying values were not recoverable. The results In November 2010, OTE INTERNATIONAL IN- of the impairment test showed that the recoverable VESTMENTS LTD’s Extraordinary General As- amounts were below the carrying amounts, therefore sembly of Shareholders approved the reduction of its an impairment loss of Euro 0.1, Euro 1.6 and Euro share capital by Euro 31.5 as a result of a reduction in 0.6, respectively, was recognized in the 2010 separate nominal amount of its shares from Euro 1.71 to Euro income statement in the line “Impairment of invest- 1.58 (absolute amounts). As at December 31, 2010, ments” (2009: an impairment loss of Euro 0.1, Euro the return of capital had not yet taken place. 0.3 and Euro 0.3 was recognized for COSMOONE, The above mentioned capital reductions were com- OTE ACADEMY and VOICENET respectively). pleted after December 31, 2010 (see Note 33). CAPITAL REDUCTION OF SUBSIDIARIES The following transactions occurred or completed In December 2010, OTE ESTATE’s Extraordinary during the current year which impacted the Group’s General Assembly of Shareholders approved the re- participation in its subsidiaries: duction of its share capital by Euro 40.9 as a result of AMC a reduction in nominal amount of its shares from Euro As of December 31, 2010 COSMOTE, holds directly 2.43 to Euro 2.23 (absolute amounts). As at Decem- a 14.76% stake in AMC’s share capital after buying a ber 31, 2010, the return of capital had not yet taken further 2.18% for an amount of approximately Euro place. 7.9. As a result of the above transaction, COSMOTE In December 2010, HELLASCOM’s Extraordinary holds directly or indirectly 97.21% of AMC. General Assembly of Shareholders approved the re- -82- Annual Financial Report 2010

ZAPP the December 31, 2009 consolidated financial state- On July 1, 2009, OTE announced that its subsidiary ments were based on a provisional assessment of fair COSMOTE (through its wholly owned subsidiary value. The valuation of the net assets acquired was Cosmoholding Romania Ltd) had signed on June completed in June 2010. The adjustment to the provi- 30, 2009, a share purchase agreement for the acqui- sional valuation is shown in the table below and the sition of ZAPP in Romania. The acquisition which 2009 comparatives have been restated to reflect this was subject, among other conditions, to the approval information. The impact on the depreciation charge of the relevant Romanian authorities, was completed on the non-current assets from the acquisition date to on October 31, 2009. The net assets recognized in December 31, 2009 was not significant.

Changes in Preliminary Preliminary adjustments Final Book value adjustments fair value due to final PPA fair value Assets Non-current assets Property, plant and equipment 83.4 - 83.4 (28.9) 54.5 Telecommunication licenses (see Note 6) 21.0 52.4 73.4 2.8 76.2 Intangible assets (see Note 7) - 22.0 22.0 2.9 24.9 Other non-current assets 0.3 - 0.3 - 0.3 Total 104.7 74.4 179.1 (23.2) 155.9 Current assets Inventories 2.1 - 2.1 - 2.1 Trade receivables 2.4 - 2.4 - 2.4 Other current assets 2.9 - 2.9 - 2.9 Cash and cash equivalents 0.8 - 0.8 - 0.8 Total 8.2 - 8.2 - 8.2 TOTAL ASSETS 112.9 74.4 187.3 (23.2) 164.1 Liabilities Non-current liabilities Deferred tax liabilities - - - 4.2 4.2 Borrowings 122.4 - 122.4 - 122.4 Other non-current liabilities 7.6 1.8 9.4 (1.8) 7.6 Total 130.0 1.8 131.8 2.4 134.2 Current liabilities Trade accounts payable 6.8 - 6.8 - 6.8 Borrowings 7.2 - 7.2 - 7.2 Other current liabilities 4.0 - 4.0 - 4.0 Total 18.0 - 18.0 - 18.0 TOTAL LIABILITIES 148.0 1.8 149.8 2.4 152.2 -83- Annual Financial Report 2010

Changes in Preliminary Preliminary adjustments Final Book value adjustments fair value due to final PPA fair value NET ASSETS ACQUIRED (35.1) 72.6 37.5 (25.6) 11.9

Purchase price 67.5 (0.4) 67.1 Expenses of acquisition 3.5 - 3.5 Goodwill (see Note 5) 33.5 25.2 58.7

The adjustment to intangible assets of Euro 24.9 re- Changes in non-controlling interests lates to the recognition of this company’s customer The total difference arising from the acquisition of base. non-controlling interests in companies which the As of December 31, 2009, the outstanding amount re- Group already controls and which have been record- lating to expenses of acquisition was Euro 2.0, which ed directly in equity are analyzed as follows: was fully paid within 2010.

2010 2009 COSMOTE 3,132.2 3,132.2 GERMANOS 171.7 171.7 ΟΤΕNET 12.3 12.3 HELLASCOM (3.3) (3.3) HELLAS-SAT 1.2 1.2 VOICENET 1.1 1.1 AMC 6.3 6.3 TOTAL 3,321.5 3,321.5

(b) Other investments are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 TELEKOM SRBIJA 155.1 155.1 155.1 155.1 Other 1.4 1.9 1.1 1.2 TOTAL 156.5 157.0 156.2 156.3

Until December 31, 2009, with respect to its invest- and OTE did not have availability to timely updated ment in TELEKOM SRBIJA, OTE had concluded financial information required for a reliable measure- that, primarily because of the 80% interest of the Ser- ment of its investment in TELEKOM SRBIJA, such bian government, it did not exercise significant influ- investment was carried at cost. ence over TELEKOM SRBIJA. Furthermore, since In 2010, OTE re-assessed its position as to whether TELEKOM SRBIJA’s shares are not publicly traded it can exercise significant influence over TELEKOM -84- Annual Financial Report 2010

SRBIJA and concluded that, for the same reasons re- to OTE a “minimum reference price” based on which ferred to above, its position remained unchanged. the GoS would be willing to sell a controlling stake Furthermore, OTE re-assessed its position with re- in TELEKOM SRBIJA. On January 26, 2011, OTE’s spect to its ability to reliably measure the fair value Board of Directors decided that, should the reference of its investment in TELEKOM SRBIJA, considering price as set by the GoS (or higher) be reached, then all the developments that occurred during the year as OTE would agree to sell its stake at that price. If the described below. selling price were set at a lower level, OTE would re- consider its position. During the third quarter of 2010, the Government of Serbia (“GoS”) initiated the sale process of a 51% Furthermore, OTE examined if, following the de- stake in TELEKOM SRBIJA, out of the GoS stake cision of its Board of Directors to sell its stake in or jointly with OTE’s 20% stake, if OTE would be in- TELEKOM SRBIJA as referred to above, the cri- terested. OTE’s Board of Directors, on December 17, teria for classifying its investment as held-for-sale 2010, decided that it would agree to sell OTE’s stake were met. OTE, considering that the selling process in TELEKOM SRBIJA, subject to a satisfactory price and plan is driven by the GoS, concluded that it can- and certain other conditions. The process is on-going not reasonably assess if such sale meets the crite- and the GoS is expecting to receive binding bids by rion of being highly probable, as required by IFRS March 21, 2011. 5 and, consequently, that the criteria for classifying TELEKOM SRBIJA as held-for-sale as of December In the context of the above sale process, OTE has 31, 2010, were not met. been allowed access to additional financial information relating to TELEKOM SRBIJA and, with the The Group’s dividend income is analyzed as fol- assistance of external advisors appointed by OTE lows: to support it during the sale process, proceeded with GROUP 2010 2009 evaluating such information for the purpose of inter TELEKOM SRBIJA 14.1 9.3 alia, making a reliable measurement of TELEKOM Other available for sale SRBIJA’s fair value. The outcome of this exercise investments 0.1 0.3 so far has been a materially wide range of fair value TOTAL 14.2 9.6 estimates, primarily due to the significant variability in various market and economic assumptions and OTE’s dividend income is analyzed as follows: uncertainties on various parameters affecting the future performance of TELEKOM SRBIJA dependent COMPANY 2010 2009 on the GoS actions. Consequently, OTE concluded COSMOTE 151.2 282.2 that it cannot, so far, reasonably assess probabilities ΟΤΕ ESTATE 37.0 18.9 on the derived fair value estimates and, therefore, as OTE SAT- MARITEL 1.7 1.0 of December 31, 2010, its investment in TELEKOM OTE PLUS - 0.4 SRBIJA remained at cost. It is noted that the lower OTE INTERNATIONAL INVESTMENTS LTD 2.0 - end of the above mentioned fair value estimates ex- TELEKOM SRBIJA 14.1 9.3 ceeds the carrying amount of TELEKOM SRBIJA in Other available for sale OTE’s financial statements. investments 0.1 0.3 TOTAL 206.1 312.1 In early January 2011, the GoS formally announced -85- Annual Financial Report 2010

Pursuant to Law 3697/2008, dividends approved by Movement in other investments is analyzed as fol- General Meetings convened after January 1, 2009 are lows: subject to 10% withholding tax.

GROUP COMPANY 2010 2009 2010 2009 Balance at January 1 157.0 156.6 156.3 156.4 Impairment - - (0.1) - Other movements through income statement (0.5) 0.4 - (0.1) Balance at December 31 156.5 157.0 156.2 156.3

9. OTHER NON-CURRENT ASSETS Other non-current assets are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Loans and advances to employees 119.7 82.8 119.6 82.7 Accrued income / Deferred expenses (long-term) 15.8 21.9 - - Derivative financial instruments (see Note 17) 6.8 7.4 - - Other 12.4 15.2 1.0 1.1 TOTAL 154.7 127.3 120.6 83.8

Loans and advances to employees are comprised 2010 and 2009, respectively. The discount factor is mainly of loans granted to employees with service the rate used for the actuarial valuation of staff retire- period exceeding 25 years against the accrued indem- ment indemnities which is 4.6% for 2010 and 2009 nity payable to them upon retirement. The effective (see Note 18). interest rate on these loans is 1.67% and 1.79% for 10. TRADE RECEIVABLES Trade receivables are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Subscribers 1,605.7 1,737.8 845.0 996.5 International traffic 52.2 85.5 38.3 68.7 Due from subsidiaries - - 128.7 100.1 Unbilled revenue 86.5 99.2 34.8 52.4 1,744.4 1,922.5 1,046.8 1,217.7 Less: Allowance for doubtful accounts (733.6) (769.5) (512.0) (609.7) TOTAL 1,010.8 1,153.0 534.8 608.0 -86- Annual Financial Report 2010

The movement in the allowance for doubtful accounts is as follows:

GROUP COMPANY 2010 2009 2010 2009 Balance at January 1 (769.5) (887.4) (609.7) (701.1) Charge for the year (see Note 25) (125.6) (107.0) (25.9) (28.0) Write-offs 159.9 228.8 123.6 119.4 Balance from newly acquired subsidiary - (7.7) - - Foreign exchange differences 1.6 2.9 - - Reversal of provision - 0.9 - - Balance at December 31 (733.6) (769.5) (512.0) (609.7)

The aging analysis of trade receivables is as follows:

GROUP COMPANY 2010 2009 2010 2009 Not impaired and not past due 624.5 634.8 405.1 333.0 Not impaired and past due: Less than 30 days 108.7 129.3 44.3 77.0 Between 31 and 180 days 126.2 216.4 55.6 135.2 More than 180 days 151.4 172.5 29.8 62.8 TOTAL 1,010.8 1,153.0 534.8 608.0

11. OTHER FINANCIAL ASSETS Other financial assets are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Marketable securities: Held to maturity – Bonds - 8.1 - - Held for trading - Bonds 3.5 3.2 - - Available for sale – Shares 0.1 14.3 - 14.0 Available for sale – Mutual funds 3.6 4.0 2.1 2.3 Non – marketable securities: Available for sale – Securities 5.3 5.8 - - TOTAL 12.5 35.4 2.1 16.3 -87- Annual Financial Report 2010

The movement of other financial assets can be analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Balance at January 1 35.4 135.9 16.3 119.6 Additions 69.8 308.0 - 290.6 Sales – maturities (84.0) (412.2) (7.1) (397.3) Foreign exchange differences 0.4 0.6 - - Realized loss from sales (2.3) - (2.3) - Fair value adjustments through income statement (1.8) (0.4) - - Fair value adjustments through equity (5.0) 3.5 (4.8) 3.4 Balance at December 31 12.5 35.4 2.1 16.3

12. OTHER CURRENT ASSETS Other current assets are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Advances to EDEKT, short-term portion (see Note 18) 35.2 35.2 35.2 35.2 Loan to Auxiliary fund, short-term portion (see Note 18) 10.1 10.1 10.1 10.1 Due from ΟΤΕ Leasing customers (see Note 30) 25.5 25.6 25.5 25.6 Loans and advances to employees 8.1 6.6 8.1 6.6 VAT recoverable 8.3 5.0 - - Income tax receivable 14.0 6.8 - - Other prepayments 48.7 52.4 22.1 21.9 Deferred expenses 18.2 10.0 1.5 1.6 Other 61.8 103.9 6.1 7.7 TOTAL 229.9 255.6 108.6 108.7

13. CASH AND CASH EQUIVALENTS Cash and cash equivalents are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Cash in hand 3.1 3.1 1.0 1.0 Short-term bank deposits 1,001.2 865.7 188.0 223.0 TOTAL 1,004.3 868.8 189.0 224.0 -88- Annual Financial Report 2010

14. SHARE CAPITAL – and Euro 505.1, respectively, the increase (Euro 5.5) SHARE PREMIUM being the amount charged to the 2010 consolidated income statement under the Group’s Share Option OTE’s share capital as of December 31, 2010, amounted to Euro 1,171.5, divided into 490,150,389 Plan (see Note 29). registered shares, with a nominal value of Euro 2.39 The following is an analysis of the ownership of (absolute amount) per share. The share premium as of OTE’s shares as of December 31, 2010: December 31, 2010 and 2009 amounted to Euro 510.6

Shareholder Number of shares Percentage % Greek State 63,371,292 12.93% D.E.K.A. S.A. 15,052,773 3.07% IKA–ETAM (see Note 18) 19,606,015 4.00% DEUTSCHE TELEKOM AG 147,045,118 30.00% Institutional investors 195,742,035 39.94% Private investors 49,333,156 10.06% TOTAL 490,150,389 100.00%

15. STATUTORY RESERVE – of the issued share capital. As of December 31, 2010 FOREIGN EXCHANGE AND and 2009, this reserve amounted to Euro 347.2 and Euro 344.1, respectively. This statutory reserve can- OTHER RESERVES - RETAINED not be distributed to shareholders. Retained earnings EARNINGS include undistributed taxed profits as well as untaxed Under Greek Corporate Law, entities are required to and specially taxed reserves which, upon distribution, transfer on an annual basis a minimum of five per- will be subject to income tax. cent of their annual profit (after income taxes) to a The analysis of foreign exchange and other reserves statutory reserve, until such reserve equals one-third is as follows:

GROUP COMPANY 2010 20091 2010 20091 Available for sale reserve 0.2 5.2 - 4.8 Net loss on cash flow hedge - (6.8) - - Foreign currency translation (85.3) (51.7) - - Cumulative amount of actuarial losses recognized in equity (80.3) (139.7) (78.2) (138.3) Deferred taxes on cumulative amount of actuarial losses recognized in equity 18.1 31.0 18.1 30.6 Balance at December 31 (147.3) (162.0) (60.1) (102.9)

1Adjusted due to change in accounting policy (see Note 32). -89- Annual Financial Report 2010

16. DIVIDENDS OTE’s Board of Directors has not yet decided on the proposed dividend distribution from the 2010 prof- Under Greek Corporate Law, each year companies its. are required to distribute to their owners dividends of at least 35% of net profits which result from their accounting books and records (published financial 17. LONG-TERM BORROWINGS statements), after allowing for the statutory reserve. Long-term borrowings are analyzed as follows: However, companies can waive such dividend payment requirement a) by a General Assembly deci- GROUP 2010 2009 sion with a majority of 65% of share capital, where (a) Syndicated loans 474.2 500.0 (b) Global Medium-Term the undistributed amount up to 35% of net profits is Note Program 4,781.1 4,876.5 transferred to a special reserve or b) by a General As- (c) Other bank loans 38.9 42.1 sembly decision with a majority of 70% of share capi- Total long-term debt 5,294.2 5,418.6 tal without a requirement for establishing a special Short-term portion (2,082.8) (32.9) reserve. Long-term portion 3,211.4 5,385.7 According to the Company’s Articles of Incorpora- tion, the minimum dividend provided to sharehold- (a) Syndicated Loans ers (after allowing for the statutory reserve) is set to On September 2, 2005, OTE PLC signed a Euro 850.0 be the maximum amount of either thirty five percent Syndicated Credit Facility with banks, guaranteed by (35%) of net profits or six percent (6%) of share capi- OTE. The facility had a five year term with an exten- tal, limited to the amount of the net profits of the year. sion option of 1+1 year subject to lenders’ consent. In order not to distribute the excess amount (accord- The facility consists of: a) a Euro 500.0 Term Loan ing to the Articles of Incorporation) over the 35% of with floating interest of three month Euribor plus net profits required by Law, the following is required margin and b) a Euro 350.0 Revolving Credit Facility a) either the amendment of the Articles of Incorpora- with a commitment fee for the undrawn amount. The tion by a General Assembly decision with increased loan bears a “margin adjustment clause” whereby the quorum and majority, b) or a General Assembly de- margin is adjustable based on OTE’s long-term credit cision with the consent of shareholders representing rating. The loan agreement includes a change of con- 100% of share capital. trol clause which is triggered when there is a change On June 16, 2010, the General Assembly of OTE’s of control in OTE which will result in a credit rating Shareholders approved the distribution of a dividend of OTE or the new legal entity at a level lower than from 2009 profits of a total amount of Euro 93.1 or BBB/Baa2. In the event this clause is triggered, OTE Euro 0.19 (in absolute amount) per share. Pursuant PLC is obliged to notify the banks, who can request to Law 3697/2008, dividends approved by General the immediate repayment of the loan. Meetings convened after January 1, 2009, are subject to 10% withholding tax which will be borne by With OTE PLC’s exercise of the extension option and the beneficiary, however, the related law provides for following the consent of most of the banks, the matu- certain exceptions. The amount of dividends payable rity of the loan was adjusted as follows: as of December 31, 2010, amounted to Euro 2.3 (De- a) Euro 25.8 (Term Loan) and Euro 18.0 (Revolving cember 31, 2009: Euro 4.2). Credit Facility) on September 2, 2010 -90- Annual Financial Report 2010 b) Euro 29.0 (Term Loan) and Euro 20.3 (Revolving February 12, 2015. As of December 31, 2010 the Credit Facility) on September 2, 2011 and outstanding balance is Euro 597.4 (2009: Euro c) Euro 445.2 (Term Loan) and Euro 311.7 (Revolv- 596.7). ing Credit Facility) on September 2, 2012. >> Euro 900.0 notes (nominal value) at a fixed rate of 4.625%, issued in November 2006, maturing Following the repayment on September 2, 2010 of on May 20, 2016. As of December 31, 2010 the the above maturing portion of the Term Loan and outstanding balance is Euro 893.5 (2009: Euro the expiration of the respective undrawn portion of 892.5). the Revolving Credit Facility, the nominal available amounts under the Term Loan and the Revolv- These bonds are listed on the Luxembourg Stock Ex- ing Credit Facility amounted to Euro 474.2 and Euro change. 332.0, respectively. The outstanding amount drawn In February 2010, the Euro 1,500.0 (nominal value as under the Term Loan at December 31, 2010 is Euro of February 2010) 5,375% notes maturing in Febru- 474.2. Up to December 31, 2010, no draw-downs had ary 2011 were reclassified to the “Short-term portion been made from the Revolving Credit Facility, which of long-term borrowings” in the consolidated state- was fully drawn on January 26, 2011 (see Note 33). ment of financial position. In May and December (b) Global Medium Term-Note Program 2010, OTE PLC proceeded with partial buybacks of notes of a total nominal amount of Euro 99.6 under OTE PLC has a Global Medium-Term Note Program the aforementioned notes. The repurchased notes guaranteed by OTE. have been cancelled. As of December 31, 2010, the total nominal value In November 2010, the Euro 650.0 nominal value of the outstanding bonds under the Global Medium- 3.75% notes maturing in November 2011 were re- Term Note Program was Euro 4,793.4 and is analyzed classified to the “Short-term portion of long-term as follows: borrowings” in the consolidated statement of finan- >> Euro 1,400.4 notes (nominal value) at a fixed cial position. rate of 5.375%, issued in February 2008, maturing on February 14, 2011. As of December 31, With respect to the Notes maturing in 2011, the Group’s refinancing strategy will combine the use 2010 the outstanding balance is Euro 1,400.2 the Group’s excess liquidity, capital markets issuance (2009: Euro 1,496.8). or syndicated banks loan or a shareholder loan from >> Euro 650.0 notes (nominal value) at a fixed rate DEUTSCHE TELEKOM AG (see Note 33). of 3.75%, issued in November 2005, maturing on November 11, 2011. As of December 31, 2010 the In relation to the shareholder loan from DEUTSCHE outstanding balance is Euro 645.1 (2009: Euro TELEKOM AG, OTE’s ordinary General Assembly 639.7). has approved the granting of special permission pur- >> Euro 1,243.0 notes (nominal value) at a fixed suant to article 23a, paragraph 2 of C.L.2190/1920, rate of 5.0%, issued in August 2003, maturing for the conclusion of a loan offered by DEUTSCHE on August 5, 2013. As of December 31, 2010 the TELEKOM AG to OTE, under financial terms and outstanding balance is Euro 1,244.9 (2009: Euro conditions equal to or better than the financial terms 1,250.8). and conditions offered by a third party. >> Euro 600.0 notes (nominal value) at a fixed rate On July 16, 2010, OTE PLC repurchased Euro 7.0 of of 6.0%, issued in February 2008, maturing on -91- Annual Financial Report 2010 the Euro 1,250.0 5.0% Notes due on August 5, 2013. 31, 2009: 42.1). The first of these loans is in Euro, The repurchased Notes have been cancelled. has an outstanding balance of Euro 8.0, and matures The Euro 900.0, the Euro 1,400.4 and Euro 600.0 in 2012. The remaining three loans have outstand- notes include a change of control clause applicable ing balances of Euro 6.2, Euro 13.5, and Euro 11.2, to OTE which is triggered if both of the following are denominated in Korean Won and mature in 2014, events occur: 2018 and 2020, respectively. All loans have principal a) any person or persons acting in concert (other repayment schedules, according to which an amount than the Hellenic Republic) at any time directly of Euro 8.5 in total for all the loans will be repaid in or indirectly come (s) to own or acquire (s) more 2011 (short-term portion). All loans bear a fixed in- than 50% of the issued ordinary share capital or terest rate. During 2010, ROMTELECOM repaid an of the voting rights of OTE, and amount of Euro 7.3 out of its long-term loans though b) as a consequence of (a), the rating previously the outstanding balance was affected by the Euro de- assigned to the bonds by any international rating preciation against the Korean Won during 2010. agency is withdrawn or downgraded to BB+/Ba1 The weighted average interest rate of the Group’s or their respective equivalents (non-investment long-term borrowings for the years ended Decem- grade), within a specific period and under spe- ber 31, 2010 and 2009 was approximately 4.8% and cific terms and conditions. 4.7%, respectively. In the event that the clause is triggered OTE PLC is Derivatives obliged to notify the bondholders, who can request On July 21, 2008, OTE PLC entered into an inter- (within 45 days) the repayment of the loan. est rate swap for Euro 65.0 maturing on August 5, The terms of the abovementioned bonds of Euro 2013. The swap has been designated as the hedging 1,400.4 and Euro 600.0 include a step-up clause trig- instrument in the fair value hedge of a portion of OTE gered by changes in the credit rating of OTE (“step PLC’s Euro 1,243.0 bond, which bears a fixed rate of up clause”). The bond coupon may be increased by 5.0% and matures in 2013. The gain from the change 1.25% in the event that: in the fair value of the swap is recorded in the line a) one or both of the two credit rating agencies “Interest expense” in the 2010 consolidated income (Moody’s and Standard and Poor’s) downgrades statement and is offset by the loss from the change in the rating to BB+ or Ba1 and under (sub-invest- fair value of the loan. Any ineffectiveness arising is ment grade), or not material. The mark-to-market value of the swap b) both rating agencies (Moody’s and Standard and was Euro 6.8 in favor for OTE PLC as of December Poor’s) cease or are unable to perform the credit 31, 2010 (see Note 9). rating of OTE. On October 1, 2008, the Group had designated a swap The coupon can be increased only once during the that already existed from COSMOTE, for Euro 200.0 whole bond duration and only for the period the credit and which matured on September 2, 2010 as the hedg- rating of OTE remains at sub-investment grade. ing instrument on Group level in a cash flow hedge (c) Other bank loans for the cash flows of a portion of the syndicated loan ROMTELECOM has obtained four long-term loans of Euro 500.0 which was bearing a floating interest in Euro and Korea Won, with an outstanding balance rate. From October 31, 2009 this swap did not meet of Euro 38.9 as of December 31, 2010 (December the criteria for hedge accounting set out in IAS 39. -92- Annual Financial Report 2010

As a result of the maturity of the above swap a loss of interest rate, granted in February 2008, maturing Euro 6.8 was transferred from other comprehensive in February 2015. The outstanding balance as of income and recorded in the line “Interest expense” in December 31, 2010 is Euro 597.4 (2009: Euro the 2010 consolidated income statement. 596.8). In December 2010, ROMTELECOM proceeded with In February 2010, OTE’s intercompany loan of Euro the conclusion of three Euro / Korean Won FX Non 1,070.0 (nominal value as of February 2010) matur- Deliverable Forward (“NDF”) agreements with the ing in February 2011 was reclassified to the “Short- purpose of hedging part of the exposure in Korean term portion of long-term borrowings” in the separate Won stemming from the ROMTELECOM outstand- statement of financial position. In May and December ing loans in Korean Won. The notional amount of the 2010, OTE proceeded with partial repayments of a above NDFs is equivalent to Euro 20.0. The mark-to- total nominal amount of Euro 99.6 under the afore- market value of the NDFs as of December 31, 2010 mentioned intercompany loan. was Euro 0.3 negative for ROMTELECOM. In November 2010, OTE’s intercompany loan of nominal value Euro 150.0 maturing in November COMPANY 2010 2009 2011 was reclassified to the “Short-term portion of Intercompany loans from ΟΤΕ PLC 2,834.5 2,930.1 long-term borrowings” in the separate statement of Total long-term debt 2,834.5 2,930.1 financial position. Short-term portion (1,119.1) - The weighted average interest rate of the Company’s Long-term portion 1,715.4 2,930.1 long-term borrowings for the years ended December 31, 2010 and 2009, was approximately 5.5% for both Intercompany loans from OTE PLC years. The intercompany loans from OTE PLC as of De- cember 31, 2010 are analyzed as follows: 18. PROVISIONS FOR >> Loan of nominal value Euro 970.4, with a fixed PENSIONS, STAFF interest rate, granted in February 2008, matur- RETIREMENT INDEMNITIES ing in February 2011. The outstanding balance AND OTHER EMPLOYEE as of December 31, 2010 is Euro 970.2 (2009: 1,067.6). BENEFITS >> Loan of nominal value Euro 150.0 with a fixed OTE employees are covered by various pension, med- interest rate, granted in November 2005, matur- ical and other benefit plans as summarized below: ing in November 2011. The outstanding balance as of December 31, 2010 is Euro 148.9 (2009: Defined Contribution Plans: Euro 147.6). (a) Main Pension Fund (TAP-OTE) / IKA-ETAM >> Loan of nominal value Euro 1,118.0 with a fixed The TAP-OTE Fund, a multi-employer fund to which interest rate, granted in August 2003, maturing OTE contributes, was the main fund providing pen- in August 2013. The outstanding balance as of sion and medical benefits to OTE employees. The December 31, 2010 is Euro 1,118.0 (2009: Euro employees of the National Railway Company and 1,118.1). the Hellenic Post Office were also members of this >> Loan of nominal value Euro 600.0, with a fixed Fund. -93- Annual Financial Report 2010

According to Law 2257/1994, OTE was liable to (b) Auxiliary Pension Fund/ TAYTEKO cover the annual operating deficit of TAP-OTE up The Auxiliary Fund-Lump Sum segment provides to a maximum amount of Euro 32.3, which could be members with a lump sum benefit upon retirement or adjusted with the Consumer Price Index. Pursuant to death. The Auxiliary Pension Benefit Fund provides Greek legislation (Law 2768/1999), a fund was incor- to those members, who were members prior to 1993, porated on December 8, 1999, as a société anonyme with a pension of 20% of salary after 30 years service. under the name of EDEKT-OTE S.A. (“EDEKT”), Law 2084/92 has fixed minimum contributions and for the purpose of administering contributions to be maximum benefits, after 35 years of service, for new made by OTE, the Greek State and the Auxiliary Pen- entrants from 1993. As a result of Law 3655/2008, the sion Fund, in order to finance the TAP-OTE deficit. two segments of the Auxiliary fund (the Lump – Sum The Greek State’s and the Auxiliary Pension Fund’s Payment segment and the Additional Pension seg- contributions to EDEKT were set to Euro 264.1 and ment) were incorporated from October 1, 2008 into Euro 410.9, respectively. Pursuant to Law 2937/2001, TAYTEKO. OTE’s contribution was set at Euro 352.2, represent- Based on actuarial studies performed in prior years ing the equivalent to the net present value of ten (10) and on current estimations, these pension funds show years’ (2002-2011) contributions to TAP-OTE. This (or will show in the future) increasing deficits. OTE amount was paid on August 3, 2001 and is being am- does not have a legal obligation to cover any future ortized over the ten-year period, the annual amortiza- deficiencies of these funds and, according to manage- tion charge being Euro 35.2 and included in “Payroll ment, neither does it voluntarily intend to cover such and employee benefits”. Pursuant to Law 2843/2000, possible deficiencies. However, there can be no assur- any deficits incurred by TAP-OTE are covered by the ance that OTE will not be required (through regulato- Greek State. ry arrangements) to make additional contributions in As a result of Law 3655/2008, the pension segment the future to cover operating deficits of these funds. of TAP-OTE was incorporated into IKA-ETAM (the Loans and advances to pension funds are analyzed as main social security of Greece) from August 1, 2008, follows: with a gradual reduction of contributions from TAP- 2010 2009 OTE to those of IKA, which is expected to com- Loans and advances to: mence in 2013 and conclude in 2023 in three equal EDEKT 35.2 70.4 installments. At the same time, the medical segment Auxiliary Fund 2.1 2.4 of TAP-OTE was incorporated from October 1, 2008 Interest bearing loan to into TAYTEKO. In conjunction with the new Law, the Auxiliary Fund (L. 3371/2005) 122.2 127.0 shares of TAP-OTE in the share capital of EDEKT, Interest-free loan to Auxiliary Fund (L. 3762/2009) 12.0 - are passed to IKA-ETAM from the date this Section TOTAL 171.5 199.8 was transferred to IKA-ETAM. Furthermore, according to Law 3655/2008 (article Loans and advances to: 2, paragraph 8) the deficits of the pension segments EDEKT 35.2 35.2 which were incorporated into IKA-ETAΜ are cov- Auxiliary Fund 0.5 0.5 ered by the Greek State. Interest bearing loan to Auxiliary Fund (L. 3371/2005) 9.6 9.6 Short-term portion 45.3 45.3 Long-term portion 126.2 154.5 -94- Annual Financial Report 2010

Loans to pension funds are reflected in the financial ment was signed in June 2010 for a nominal amount statements at amortized cost, having been discounted, of Euro 30.0, being an interest free loan with a dura- using appropriate Greek market rates, on initial rec- tion of 22 years. At the date of the contractual com- ognition to their present values. Based on article 74 mitment, the loan was discounted to its present value of Law 3371/2005 and the provisions of the related and as a result an amount of approximately Euro 18.6 Ministerial Decision, OTE should grant an interest was charged as a finance expense in the 2010 income bearing loan to the Auxiliary Fund in order to cover statement, out of which Euro 0.6 was unwinded until the Lump Sum benefits due to participants of the Vol- December 31, 2010. As of December 31, 2010 the to- untary Leave Scheme. On October 23, 2006, the loan tal amount of Euro 30.0 had been drawn down. agreement was signed and its main terms are as follows: the total amount of the loan is up to Euro 180.0, Defined Benefit Plans: which would be granted partially in accordance with (a) Provision for Staff Retirement Indemnities the Fund’s needs, as determined by the above men- Under Greek labor law, employees are entitled to ter- tioned Law and the related Ministerial Decision. If mination payments in the event of dismissal or retire- the Lump Sum benefits exceeded the amount of ment with the amount of payment varying in relation Euro 180.0, OTE would grant the additional amount, to the employee’s compensation, length of service which could not exceed the amount of Euro 10.0. In and manner of termination (dismissal or retirement). this case, the above mentioned agreement would be Employees who resign (except those with over fif- amended in order to include the final amount of the teen years of service) or are dismissed with cause are loan and to update the repayment schedule. not entitled to termination payments. The indemnity Following the above mentioned terms, on October payable in case of retirement is equal to 40% of the 30, 2007 and on May 21, 2008 two amendments to amount which would be payable upon dismissal. In the loan agreement were signed based on which ad- the case of OTE employees, the maximum amount ditional amounts of Euro 8.0 and Euro 1.3, respec- is limited to a fixed amount (Euro 0.02 and is ad- tively were granted and the repayment schedule was justed annually according to the inflation rate), plus updated so that as of December 31, 2010, the total 9 months’ salary. In practice, OTE employees receive loan granted amounted to Euro 189.3. The loan is re- the lesser amount between 100% of the maximum lia- payable in 21 years including a two year grace pe- bility and Euro 0.02 plus 9 months’ salary. Employees riod, meaning that the repayment started on October with service exceeding 25 years are entitled to draw 1, 2008 through monthly installments. The loan bears loans against the indemnity payable to them upon re- interest at 0.29%. tirement. The provision for staff retirement indemnity Based on L. 3762/2009 (Voluntary Leave Scheme pro- is reflected in the financial statements in accordance gram for 600 employees) OTE was required to grant with IAS 19 “Employee Benefits” and is based on an an interest-free long-term loan to TAYTEKO for the independent actuarial study. Lump Sum benefits that TAYTEKO will be required The components of the staff retirement indemnity ex- to pay to these employees. The respective loan agree- pense are as follows: -95- Annual Financial Report 2010

GROUP COMPANY 2010 20091 2010 20091 Current service cost 19.5 19.0 16.4 16.8 Amortization of past service cost 8.3 8.0 7.8 7.8 P&L effect recorded in “Provision for staff retirement indemnities and youth account ” 27.8 27.0 24.2 24.6 P&L effect recorded in “Interest expense” 16.6 20.2 14.5 18.4 Total P&L effect 44.4 47.2 38.7 43.0

1Adjusted due to change in accounting policy (see Note 32). Changes in the present value of the staff retirement indemnities are as follows:

GROUP COMPANY 2010 20091 2010 20091 Defined benefit obligation - beginning of the year 358.0 359.2 334.2 338.4 Current service cost 19.5 19.0 16.4 16.8 Interest cost 16.6 20.2 14.5 18.4 Actuarial loss/(gain) (30.5) (2.3) (32.8) (2.4) Past service cost - 0.7 - - Foreign exchange differences (0.1) (0.8) - - Prior service cost arising during the year 3.7 0.2 - - Benefits paid (26.8) (38.2) (25.3) (37.0) Defined benefit obligation - end of the year 340.4 358.0 307.0 334.2 Unrecognized past service costs (33.8) (41.2) (33.4) (41.2) Liability in the statement of financial position 306.6 316.8 273.6 293.0

1Adjusted due to change in accounting policy (see Note 32). The assumptions underlying the actuarial valuation of the staff retirement indemnities for the Group and the Company are as follows:

GROUP COMPANY 2010 2009 2010 2009 Discount rate 4.6-8.7% 4.6-10.0% 4.6% 4.6% Assumed rate of future salary increases 2.2-7.0% 3.5-4.5% 2.2-3.2% 4.5%-5.5%

(b) Youth Account contributions which can reach up to a maximum 10 The Youth Account provides OTE’s employees’ chil- months’ salary of the total average salary of OTE em- dren a lump sum payment generally when they reach ployees depending on the number of years of contri- the age of 25. The lump sum payment is made up of butions. The provision for benefits under the Youth employees’ contributions, interest thereon and OTE’s Account is based on an independent actuarial study. -96- Annual Financial Report 2010

The total actuarial liability is split into two parts; one at the time when their children will be eligible for the is treated as “post employment employee benefit” and lump sum benefit. The remaining part of the liability the other as “other long-term employee benefit”. The is being classified as “post employment benefit”. part of the total Youth Account liability that is being The amount of the Youth Account provision recog- classified as “other long-term employee benefit” re- nized in the income statement is as follows: lates to employees who will still be active employees

2010 20091 Post employ- Other long Post employ- Other long COMPANY ment benefit term benefit TOTAL ment benefit term benefit TOTAL Current service cost 14.5 6.7 21.2 13.5 5.8 19.3 Actuarial (gain)/ loss - (12.4) (12.4) - 4.8 4.8 Amortization of past service cost 2.2 - 2.2 2.3 - 2.3 P&L effect recorded in “Provision for staff retirement indemnities and youth account ” 16.7 (5.7) 11.0 15.8 10.6 26.4 P&L effect recorded in “Interest expense” 7.3 3.1 10.4 8.8 3.8 12.6 Total P&L effect 24.0 (2.6) 21.4 24.6 14.4 39.0

1Adjusted due to change in accounting policy (see Note 32).

The reconciliation of the total defined benefit obligation regarding the Youth Account to the benefit liability is as follows:

2010 20091 Post employ- Other long Post employ- Other long COMPANY ment benefit term benefit TOTAL ment benefit term benefit TOTAL Projected benefit obligation - beginning of the year 207.0 87.3 294.3 194.4 83.3 277.7 Service cost-benefits earned during the year 14.5 6.7 21.2 13.5 5.8 19.3 Interest cost on projected benefit obligation 7.3 3.1 10.4 8.8 3.8 12.6 Actuarial (gain) / loss (19.5) (12.4) (31.9) 30.0 4.8 34.8 Benefits paid (46.8) (11.8) (58.6) (39.7) (10.4) (50.1) Projected benefit obligation - end of the year 162.5 72.9 235.4 207.0 87.3 294.3 Unrecognized past service costs (1.5)- (1.5) (3.7) - (3.7) Benefit liability 161.0 72.9 233.9 203.3 87.3 290.6 Employee’s accumulated contributions 67.5 71.3 Liability in the statement of financial position 301.4 361.9

1Adjusted due to change in accounting policy (see Note 32). The assumptions underlying the actuarial valuation of the Youth Account are as follows: -97- Annual Financial Report 2010

required for the employees to be entitled to pen- 2010 2009 sion Discount rate 3.7% 3.9% Assumed rate of future salary >> The amount of pensions the Auxiliary Fund will increases 2.5% 4.5% be required to prepay to these employees >> The total cost of employees’ contributions to Aux- Voluntary Leave Scheme iliary Fund for the Lump-Sum benefit >> On May 25, 2005, the management of OTE and OME- The total cost of bonuses based on the collective OTE (the personnel union body) signed a Collective labor agreement signed on July 20, 2005 and >> Labor Agreement which stipulates the staff hiring The termination payments upon retirement of the procedures. In accordance with this agreement, all employees (staff retirement indemnities). new recruits by OTE will be covered with indefinite Because of the periodical payments of the majority service agreements. The agreement became effective of the above mentioned costs (payments through to from the date the relevant law for the voluntary leave 2012), the nominal amounts of these liabilities were of OTE staff came into force. discounted at their present values. The enactment of Article 74 of Law 3371/2005 and Based on the provisions of Law 3371/2005, the Greek the Collective Labor Agreement signed between OTE State would contribute a 4% stake in OTE’s share cap- and OME-OTE on July 20, 2005, instituted the frame- ital to TAP-OTE for the portion of the total cost that work for the voluntary retirement scheme. Pursuant relates to employer’s and employees’ contributions to to this Law and the collective labor agreement, the TAP-OTE and to the amount of pensions TAP-OTE voluntary retirement scheme was applicable to per- would be required to prepay, subject to EU approval. manent employees who would complete the number In May 2007, the European Commission by its rel- of years of service required for retirement up to De- evant decision with reference number C 2/2006 (ex L cember 31, 2012 would be entitled to full pension and 405/2005) judged that the Greek State’s proposal to other benefits. Employees that desired to come under grant 4% of its stake to TAP-OTE, according to arti- the provisions of the above mentioned Law, with the cle 74 of L.3371/2005 was not against common mar- decision of TAP OTE, such fictitious time insured as ket regulations as defined in article 87 paragraph 3. the one required for the vesting of the retirement right The total contribution of the Greek State to TAP-OTE was recognized. The same decision for the recogni- according to the above decision could not exceed the tion of fictitious time was also taken by the Auxiliary amount of Euro 390.4. The exact amount would de- Fund. pend on the timing and the procedures that would be The cost components of the Voluntary Leave Scheme followed by the Greek State for the implementation were as follows: of the decision. >> The cost of employer’s and employees’ contribu- On March 4, 2009, the Greek State and IKA-ETAM tions to TAP-OTE for the period required for the (general successor of TAP-OTE) signed a transfer employees to be entitled to pension agreement of 19,606,015 ordinary shares held by >> The amount of pensions TAP-OTE will be re- the Greek State to IKA-ETAM without cash con- quired to prepay to these employees sideration. These shares represent 4% of OTE’s >> The total cost of employer’s and employees’ share capital, in accordance with articles 74 par. 4a contributions to the Auxiliary Fund for the period of L.3371/2005 and articles 1 and 2 par. 4 and 5 of -98- Annual Financial Report 2010

L.3655/2008, in combination with the decision of date (i.e. Euro 10.30 (in absolute amount) per May 10, 2007 of the European Community Commit- share). tee (C 2/2206). The fair value of the transaction was >> If IKA-ETAM sells the shares to a third party set at Euro 10.30 (closing price of the OTE’s share on without complying with all the afore-mentioned the Athens Exchange the date the transfer was signed) terms, IKA-ETAM is obliged to pay to the Greek per share. State an amount equal to 10 times the considera- The above transfer is subject to the following terms: tion received from the sale to the third party as >> The Greek State retains the option to repurchase a financial penalty and compensation which is a part or the total of the transferred shares. This agreed as fair. option can be exercised at any time, following a >> If OTE decides to increase its share capital with written declaration to IKA-ETAM, stating at a a preference right in favor of the existing own- minimum the number of shares that will be repur- ers, or issues convertible bonds and IKA-ETAM chased and the time period, as one or a series of decides to exercise these rights, IKA-ETAM is transactions. required to inform the Greek State in writing. >> If IKA-ETAM, for any reason, decides to sell all The Greek State retains the right to request IKA- or a part of the shares, it is obliged to communi- ETAM to transfer, through an over the counter cate this intention in writing to the Greek State. transaction, the additional shares obtained. In The Greek State retains the right to repurchase this case IKA-ETAM is obliged to transfer the part or the whole of the shares that IKA-ETAM shares obtained at the price obtained, otherwise intends to sell. To exercise this right, the Greek it is obliged to pay compensation equal to 10 State must provide written notice of its intentions times the consideration invested for participating within one month from notification. If the Greek in the share capital increase and terms mentioned State does not wish to exercise its right or does in the preceding paragraph will apply. not exercise its rights within one month, then >> IKA-ETAM undertakes to exercise its voting IKA-ETAM can sell freely those shares. rights corresponding to the above shares, in coor- >> The Greek State has the exclusive obligation dination with the Greek State and has to instruct to repurchase the shares that IKA-ETAM in- individuals who will be authorized to exercise the tends to sell if the reason for the sale is to fund voting rights at any General Assembly of OTE’s the pensions of the participants in OTE’s Vol- shareholders on its behalf in the same way the untary Leave Scheme based on article 74 of Greek State does. Otherwise, IKA-ETAM has L.3371/2005. In this instance, IKA-ETAM must to pay to the Greek State a penalty equal to the provide specific economic analysis that evidences listed price of the transferred shares at the date its inability to fulfill its obligation to disburse of the General Assembly of OTE’s shareholders pensions to the above mentioned participants as well as any other compensation for any conse- without the sale of the shares. quential loss the Greek State suffers. >> In all the afore-mentioned cases (call option and/ On May 15, 2009, Law 3762/2009 was enacted pro- or put option) the value of the total of the trans- viding the following: ferred shares will be calculated based on the >> OTE’s employees who: (i) have submitted a writ- closing price of the share of OTE at the signing ten application to participate in the Voluntary -99- Annual Financial Report 2010

Leave Scheme, within the deadlines defined in >> The cost that will arise from the employer’s par.2, article 74 of Law 3371/2005 and, (ii) do and the employee’s contributions to TAYTEKO not submit an irrevocable application within one (Health Insurance Sector for OTE Personnel) for (1) month from the law’s enactment that would the fictitious time recognized to these employees, recall the initial application submitted, are con- will be covered by OTE. sidered to be retired based on the article 74 of >> For the Lump Sum benefits that TAYTEKO will be Law 3371/2005 within three (3) months from the required to pay to these employees, OTE should expiration of the deadline described in ii) above. grant a long-term loan to TAYTEKO. >> The cost that will arise from a) the employer’s Based on the recent developments and the new Law and the employee’s contributions to IKA-ETAM 3845/2010 “Measures for the application of the sup- (both for the sections of pensions and medical port scheme of the Greek Economy by the Members of benefits) for the fictitious time recognized to these the Euro Zone and the International Monetary Fund”, employees and b) the pensions that IKA-ETAM’s certain changes have been made to the assumptions pension section will be required to pay to these used in the calculation of OTE’s outstanding liabil- employees based on the above, will be covered by ity for the Voluntary Leave Scheme programs. The OTE. adjustment was estimated to be approximately Euro >> The cost that will arise from the employer’s and 21.6 positive and is included in the line “Cost of ear- the employee’s contributions to TAYTEKO for the ly retirement program”, in the income statement of fictitious time recognized to these employees as 2010. The movement of the provision for the cost of well as the pensions that TAYTEKO (Auxiliary the Voluntary Leave Scheme is as follows: Insurance Sector for OTE Personnel) will be required to pay to these employees based on the above, will be covered by OTE.

2010 2009 Balance at January 1 258.9 383.0 Payments during the year (154.0) (96.1) Release of liability due to transfer of 4% to IKA-ETAM - (201.9) Voluntary Leave Scheme cost - 152.0 Payments related to provision for staff retirement indemnities - (13.9) Adjustments due to changes in assumptions (21.6) - Adjustment due to time value of money 6.2 35.8 Obligation arising from the actuarial study of IKA-ETAM (see below) 129.8 - Balance at December 31 219.3 258.9

The table below describes the components included Scheme and the early retirement programs described in the line “Cost of early retirement program” of the above: income statement relating to the Voluntary Leave -100- Annual Financial Report 2010

GROUP COMPANY 2010 2009 2010 2009 Release of liability due to transfer of 4% to IKA-ETAM - 201.9 - 201.9 Voluntary Leave Scheme cost - (152.0) - (152.0) Other early retirement programs’ cost (63.3) (19.6) (36.5) (11.0) Adjustments due to changes in assumptions 21.6 - 21.6 - Obligation arising from the actuarial study of IKA-ETAM (see below) (129.8) - (129.8) - TOTAL (171.5) 30.3 (144.7) 38.9

Based on the estimated period of payment, the provi- result of the Voluntary Leave Scheme it has estimated sion relating to the Voluntary Leave Scheme is clas- that IKA-ETAM has foregone contributions and pen- sified as follows: sions of approximately Euro 340.0. Furthermore, it also noted that the relevant outstanding contributions 2010 2009 currently paid by OTE on a monthly basis, should be Short-term portion 189.4 149.0 settled in full. Long-term portion 29.9 109.9 OTE examined the Ministry’s position, however, its TOTAL 219.3 258.9 view is that this position is unsubstantiated, given that ΟΤΕ has fulfilled and continues to fulfill in their to- ΙΚΑ-ETAΜ tality all the financial obligations it has towards all By his letter dated January 19, 2010, the Minister of social security funds, paying all contributions, as they Labor and Social Security informed OTE that IKA- are due, both in the context of its normal course of ETAM has incurred significant deficits attributable to business, as well as the ones related to the company’s the incorporation of the pension segment of TAP-OTE voluntary retirement plans, strictly following all rel- from August 1, 2008 into IKA-ETAM, and that fur- evant laws, rules and regulations. ther deficits are also anticipated for 2010. In his letter Therefore, in reply to the above mentioned letter, on the Minister further explained that such deficits are March 9, 2010, OTE, in a letter to the Ministry, re- currently covered primarily by the Greek State and sponded to all the specific issues included therein and partially absorbed by IKA-ETAM, he indicated that reiterated its position that OTE fulfils in their totality OTE should also contribute funds towards these defi- all the financial obligations arising from L. 3371/2005 cits and requested a meeting with OTE’s Chief Ex- and the relevant Ministerial Decision, and requested ecutive Officer in order to discuss the relevant issues. that the Ministry address the pending issue regarding The meeting was held on January 26, 2010 where the the issuance of the necessary decisions by the pen- two parties agreed to establish a committee to discuss sion funds, in order to enable the participants of the the issues raised. A first meeting of this committee Voluntary Leave Scheme of L. 3762/2009 to receive took place on February 11, 2010 and OTE requested their pension entitlements. the Ministry of Labor and Social Security’s (“Min- Based on article 3 of the F/10051/27177/2174 Minis- istry”) official positions in writing. On February 23, terial Decision issued at the end of March 2010, the 2010, the Ministry formally advised OTE that as a additional financial burden of the Pension Sector of -101- Annual Financial Report 2010

IKA-ETAM, the Auxiliary Insurance Sector for OTE 10051/27177/2174, for the estimation of the ad- personnel of TAYTEKO and the Medical Segment ditional financial burden of the pension funds, in- of TAYTEKO as derives from articles 2 and 4 of the curred by OTE’s Voluntary Leave Scheme based Collective Labor Agreement signed between OTE on L. 3371/2005, stating that additional studies will and OME-OTE on July 20, 2005, should be paid for follow for the estimation of the additional financial by OTE in a lump-sum to the above sectors by the burden of the pension funds, incurred by OTE’s Vol- last working day of September 2010. The amount of untary Retirement Scheme based on L. 3762/2009. this additional financial burden would be determined The additional financial burden that the above men- by an actuarial study that would be performed by the tioned actuarial studies state that incurred based on L. Directorate of Actuarial Studies of the General Secre- 3371/2005, amounts to Euro 129.8. tariat for Social Security in conjunction with the Di- OTE has a legal right and considers the option to file rectorate of Actuarial Studies and Statistics of IKA- a new petition requesting suspension of enforcement ETAM by August 31, 2010. of article 3 of the Ministerial Decision based on new On May 11, 2010 ΟTE filed an appeal against this legal grounds, once it has received a payment demand Ministerial Decision before the Administrative Court from the pension funds. At this stage, no reliable es- of First Instance of Athens, requesting the annulment timate can be made whether the suspension (fully or of article 3 as based on the Legal Department’s as- partially) will be granted or not. sessment, it is in contravention of article 34 of L. The fact that the announcement of the results of the 3762/2009 and consequently, there are valid grounds actuarial study eliminates the uncertainty regarding for the annulment of this article. On May 15, 2010 the amount of the obligation, together with the above OTE also filed an appeal requesting the suspension mentioned inability to assess whether it is probable of enforcement of this Ministerial Decision before to take the suspension (given the first rejection) led the same Court. The hearing for the suspension of to the conclusion that at this stage the existing con- enforcement was held on June 8, 2010, before the tingent liability has crystallized. Furthermore, based Athens Administrative Court and the Court with its on the provisions of IAS 10, this development should decision dated September 16, 2010 rejected OTE’s be treated as an adjusting subsequent event and there- request. Following this decision, subject to a positive fore the amount of the actuarial study should be outcome of a second request for suspension of en- recorded in the 2010 financial statements. With re- forcement that is OTE’s right after the announcement spect to the additional studies that will be performed of the actuarial study, OTE will be legally obliged (based on the Ministry’s notification), OTE has not to pay the disputed amount of the actuarial study in recorded any provision in its financial statements, advance of legal proceedings, irrespective of the fact as the amount cannot be reliably estimated until the that the Company’s position is that there are good announcement of such studies. As a result of all the grounds that OTE will finally win this case in court. above, the amount of Euro 129.8 was recorded in the consolidated and separate income statement of 2010 By its letter dated January 21, 2011 and received and is included in the line “Cost of early retirement by OTE on January 28, 2011, the Ministry notified program”. OTE of the completion of the actuarial studies and handed over to OTE a copy of such actuarial stud- Early Retirement Programs ies, pursuant to article 3 of the Ministerial Decision On December 23, 2009, the management of OTE -102- Annual Financial Report 2010 approved an early retirement program according to within the company. During 2010, 1,136 employees which employees who would complete the number of voluntarily terminated their employment contracts years required for retirement by December 29, 2010, and an amount of Euro 24.2, which was fully paid, would be entitled to benefits in order to retire by De- is included in the line “Cost of early retirement pro- cember 30, 2010. The deadline for the applications for gram” in the consolidated income statement for the participating in this early retirement program was due year 2010. on January 15, 2010. The respective cost amounted A total of 350 employees of ZAPP (COSMOTE’s to Euro 36.5 and is included in the line “Cost of early subsidiary) voluntarily terminated their employment retirement program” in the consolidated and separate contracts and an amount of Euro 2.6, representing the income statement for the year 2010. Amounts paid relative costs, which was fully paid, is included in the during the year 2010 in relation to the above program line “Cost of early retirement program” in the con- and prior years’ early retirement programs were Euro solidated income statement for 2010. 24.2 and are fully provided for. ROMTELECOM’s and ZAPP’s restructuring plans 19. OTHER NON-CURRENT By virtue of decisions by ROMTELECOM’s CEO, dated February and April 2010, ROMTELECOM LIABILITIES announced the restructuring of specific departments Other non-current liabilities are analyzed as follows:

GROUP COMPANY 2010 20091,2 2010 20091 Asset retirement obligation 9.1 8.5 - - Provision for obligation of phone credits 17.7 26.9 17.7 26.9 Deferred revenue (long-term) 6.9 8.0 - - Unpaid balance of 3G license 5.0 6.9 - - Derivative financial instrument - 4.3 - - Other 4.8 12.3 3.8 8.9 TOTAL 43.5 66.9 21.5 35.8

1Adjusted due to change in accounting policy (see Note 32). 2Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8).

20. SHORT-TERM loan as of December 31, 2010 amounts to Euro BORROWINGS 2.0 (December 31, 2009: Euro 2.0). >> Loan of OTE PLUS of Euro 3.0 with a floating The outstanding balance of short-term borrowings interest rate and loan of OTE PLUS of Euro 0.6 as of December 31, 2010 for the Group amounted to with a floating interest rate. The outstanding Euro 5.6 (December 31, 2009: Euro 3.3), and is ana- balance of these loans as of December 31, 2010 lyzed as follows: amounts to Euro 3.6 (December 31, 2009: Euro >> Loan of E-VALUE S.A. of Euro 2.0, with a float- 1.3). ing interest rate. The outstanding balance of this -103- Annual Financial Report 2010

The weighted average interest rate of the short-term >> Distributed profits are taxed at a tax rate of 40%. borrowings for the years ended December 31, 2010 >> No further withholding tax is imposed on divi- and 2009, was approximately 2.9% and 2.8%, respec- dends. tively. The new tax law applies to profits arising from the fiscal year 2010 onwards or to the profits of previous 21. INCOME TAXES – accounting periods distributed after December 31, DEFERRED TAXES 2010. The distribution of profits of previous accounting periods within 2010 is still taxed under the current In accordance with the Greek tax regulations (Law regime (i.e. withholding tax of 10% is applicable). 3296/2004), the income tax rate was 25% for 2007 Taxation of 40% on distributed profits of the legal onwards. In accordance with article 19 of Law entities exhausts the tax liability in case the benefi- 3697/2008 the income tax rate will gradually reduce ciaries are legal entities. In cases where such legal as follows: 24% for 2010, 23% for 2011, 22% for entities proceed to the distribution of profits, in which 2012, 21% for 2013 and 20% for 2014 onwards. dividends from other legal entities are included, the Greek tax regulations and related clauses are subject part of tax already paid for those dividends is deduct- to interpretation by the tax authorities and administra- ed from the 40% tax imposed on distributed profits. tive courts of law. Special contribution Law 3808/2009 Tax returns are filed annually but the profits or losses Following the enactment of Law 3808/2009, a spe- declared for tax purposes remain provisional until cial, one time contribution of social responsibility such time as the tax authorities examine the returns was charged to the Greek profitable entities calcu- and the records of the tax payer and a final assess- lated on their total net income of the fiscal year 2008, ment is issued. Net operating losses which are tax if it exceeded the amount of Euro 5.0, based on a pro- deductible, can be carried forward against taxable gressive scale. Therefore income tax payable as of profits for a period of five years from the year they December 31, 2009 for the Group and the Company are generated. (Euro 133.2 and Euro 41.0 respectively) included the Under Greek tax regulations, an income tax advance liability arising from the special one off contribution calculation on each year’s current income tax liability of social responsibility (Euro 113.1 and Euro 51.6 re- is paid to the tax authorities. Such advance is then spectively). These amounts were paid to the Greek netted off with the following year’s income tax liabil- authorities in January 2010. ity. Any excess advance amounts are refunded to the Special contribution Law 3845/2010 companies following a tax examination. According to Law 3845/2010 “Measures for the ap- New tax law plication of the support scheme of the Greek Econo- The new Law 3842/23-4-2010 introduces two sepa- my by the Members of the Euro Zone and the Inter- rate corporate income tax rates for distributed and national Monetary Fund” a special contribution was undistributed profits of legal entities. More specifi- imposed on Greek profitable entities calculated on cally: their total net income for the fiscal year 2009 based >> Non-distributed profits are taxed at a tax rate of on a progressive scale up to 10% of their total net 24% (reduced annually by 1 percentage point income. The contribution was initially estimated to until it reaches 20% by 2014). approximately Euro 99.4 and Euro 46.0 for the Group -104- Annual Financial Report 2010 and the Company, respectively and it was charged COMPANY Open Tax Years to the consolidated and separate income statement OTE From 2009 in the second quarter of 2010. The amount would be COSMOTE From 2009 finalized after the receipt of the respective notifica- OTE INTERNATIONAL tions by the tax authorities. The Company evaluated INVESTMENTS LTD From 2003 the possibility (after the payment of the above men- HELLAS SAT From 2008 tioned contribution) of requesting a refund of ap- COSMO-ONE From 2010 proximately Euro 30.1 of such special contribution VOICENET From 2004 relating to dividend income derived from its subsid- HELLASCOM From 2010 iaries’ 2008 profits, on which a special contribution OTE PLC From 2005 has already been imposed based on the requirements OTE SAT-MARITEL From 2007 OTE PLUS From 2008 of L. 3808/2009. Based on the instructions/clarifica- ΟΤΕ ESTATE From 2008 tions given in December 2010 from the Ministry of OTE GLOBE From 2007 Finance with respect to the special contribution im- OTE INSURANCE From 2010 posed with L. 3845/2010, the amount of the special OTE ACADEMY From 2007 contribution which derives from the dividend income HATWAVE From 1996 received from a subsidiary from profits of this subsid- OTE INVESTMENTS SERVICES S.A. From 2005 iary on which a special contribution has been paid (ei- ROMTELECOM From 2006 ther from L. 3845/2010 or L. 3808/2009) is refunded AMC From 2008 to the Company. As a result, the amount of Euro 30.1 GLOBUL From 2005 was deducted from the special contribution of the COSMOTE ROMANIA From 2007 Group and the Company, and the total charge for the GERMANOS From 2008 year 2010 amounted to Euro 69.3 for the Group and E-VALUE S.A. From 2010 Euro 15.9 for the Company. The special contribution GERMANOS TELECOM ROMANIA will be paid in 2011 in twelve monthly installments. S.A. From 2003 SUNLIGHT ROMANIA S.R.L. The Company and its subsidiaries have not been au- -FILIALA From 2005 dited by the tax authorities for the years described be- GERMANOS TELECOM BULGARIA A.D. From 2010 low and, therefore, the tax liabilities for these open MOBILBEEEP LTD From 2005 years have not been finalized: HELLAS SAT S.A. From 2008 CHA From 2007 COSMO-HOLDING CYPRUS From 2006 From 2009 COSMOHOLDING ROMANIA LTD (incorporation) ZAPP From 2009 From 2008 OTE PROPERTIES (incorporation) From 2010 E-VALUE LTD (incorporation) -105- Annual Financial Report 2010

>> The tax audit of the Company for the fiscal claims from tax authorities of Euro 4.4 and as a years 2006-2008 was completed in early May result OTE paid Euro 0.6. 2010 and the tax authorities imposed additional >> The tax audit of COSMOTE for the fiscal years taxes amounting to Euro 57.7. The Company has 2006 – 2008 was completed in May 2010, without accepted a partial settlement for an amount of any significant impact for the Group. The tax Euro 37.7. Furthermore, based on the findings audit for the fiscal year 2009 is in progress. of the tax audit, the Company has reassessed >> The tax audit of OTE SAT - MARITEL for the the income tax expense for the year 2009 and an fiscal years 2004 - 2006 was completed in June additional tax expense of Euro 6.3 was required. 2010 without any significant impact for the The amount settled with the tax authorities, the Group. additional estimate for 2009, less the previously >> E-VALUE S.A. has settled the unaudited years established provision for open tax years of Euro 2003-2009 according to L. 3888/2010 without 14.0 resulted in an amount of Euro 30.0 being any significant impact for the Group. charged to the income statement of 2010. The >> HELLASCOM has settled the unaudited years remaining amount of taxes imposed (Euro 20.0) 2006-2009 according to L. 3888/2010 without relates to costs associated with OTE’s Voluntary any significant impact for the Group. Leave Scheme and the early retirement programs. >> The tax audit of GERMANOS TELECOM BUL- OTE decided not to include this particular item in GARIA A.D. for the fiscal years 2005-2009 was the partial settlement and has appealed against completed in June 2010, without any significant the tax authorities’ position before the adminis- impact for the Group. trative courts. Based on the respective law, the >> COSMOONE has settled the unaudited years Company was required to pay an advance of ap- 2007-2009 according to L. 3888/2010 without proximately Euro 5.0 (25% of the assessed taxes any significant impact for the Group. and penalties) in order to appeal, which will >> OTE INSURANCE has settled the unaudited be reimbursed to the Company in the event of a years 2007-2009 according to L. 3888/2010 with- favorable court outcome. Based on the manage- out any significant impact for the Group. ment’s assessment, OTE considers there are good The major components of income tax expense for grounds to believe that OTE will win this case the years ended December 31, 2010 and 2009 are as in court. The amount was partially offset with follows:

GROUP COMPANY 2010 20091 2010 20091 Current income tax 168.1 203.1 30.7 43.2 Special contribution (Law 3845/2010) 69.3 - 15.9 - Special contribution (Law 3808/2009) - 113.1 - 51.6 Tax on dividends (Law 3697/2008) 19.0 30.3 19.0 30.3 Differences arising from tax audits 30.0 - 30.0 - Reversal of provision (Law 3888/2010) (5.5) - - - Deferred income tax (42.0) 35.9 (4.1) 11.6 Total income tax 238.9 382.4 91.5 136.7

1Adjusted due to change in accounting policy (see Note 32). -106- Annual Financial Report 2010

Considering the impact of the special contribution de- ments of unpaid taxes from already audited years, as scribed above, income tax payable for the Group and well as settlements of cases that are pending before the Company as of December 31, 2010 amounted to the administrative courts. On October 22, 2010, OTE Euro 70.9 and Euro 1.6, respectively. ESTATE’s Board of Directors decided to use the pro- During 2008 the tax authorities imposed to OTE ES- visions of L.3888/2010 for the above mentioned dis- TATE taxes of Euro 4.5 and penalties of Euro 9.4 pute and as a result, OTE ESTATE paid the amount of relating to the share capital increase in 2001. The taxes (Euro 4.5) and has been released from the total company has set up a provision of Euro 10.0 which amount of penalties imposed. Since the case meets all was charged to the 2008 income statement against the the criteria that the Law sets, the unused portion of amount of penalties imposed. The company has filed a the established provision (Euro 5.5) was reversed. lawsuit against the tax authorities’ decision before the A reconciliation between the income tax expense and administrative courts. The new tax Law (3888/2010) the accounting profit multiplied by tax rates in force covers tax settlements for the unaudited years, settle- (2010:24%, 2009:25%) is as follows:

GROUP COMPANY 2010 20091 2010 20091 Profit before tax 99.9 790.0 152.4 420.3 Statutory tax rate 24% 25% 24% 25% Tax at statutory rate 24.0 197.5 36.6 105.1 Non-taxable and specially taxed income - - (46.1) (75.7) Effect of different rates in different countries 16.9 (17.3) - - Effect of changes to tax rates 5.1 12.6 4.7 11.2 Expenses non-deductible for tax purposes 53.5 29.9 26.1 4.0 Losses from consolidated subsidiaries not deductible 15.1 11.6 - - Special contribution (Law 3808/2009) 69.3 113.1 15.9 51.6 Tax on dividends (Law 3697/2008) 19.0 30.3 19.0 30.3 Differences arising from tax audits 30.0 - 30.0 - Reversal of provision (Law 3888/2010) (5.5) - - - Other 11.5 4.7 5.3 10.2 Income tax 238.9 382.4 91.5 136.7

1Adjusted due to change in accounting policy (see Note 32).

Deferred taxes are recognized on the temporary dif- and the amounts recognized for taxation purposes and ferences arising between the carrying amounts of as- are analyzed as follows: sets and liabilities for financial reporting purposes -107- Annual Financial Report 2010

Statement of financial position Income statement GROUP 2010 20091,2 2010 20091 Voluntary leave scheme 52.3 61.2 (8.9) (34.4) Staff retirement indemnities 56.7 57.0 7.0 3.1 Youth account 49.2 63.3 (10.0) (4.5) Employee benefits 16.9 20.4 (2.0) (22.7) Property, plant and equipment 82.0 81.5 0.5 (2.4) Provisions 86.2 92.3 (6.1) 13.1 Carry forward tax losses 21.5 20.9 0.6 0.5 Deferred income 5.7 8.3 (2.6) 2.9 Fair value adjustment on acquisitions - 24.2 (24.4) (17.2) Other 21.2 22.0 (0.8) 7.9 Deferred tax asset (before offset) 391.7 451.1 Offset of deferred tax liabilities (131.3) (172.4) Deferred tax asset (after offset) 260.4 278.7

Deferred tax liabilities (before offset) Property, plant and equipment (91.1) (166.9) 75.4 (0.6) Capitalized interest (20.6) (22.1) 1.5 5.0 Unbilled revenue (0.2) (0.2) - 5.4 Loan fees (1.1) (2.3) 1.2 1.2 Fair value adjustment on acquisition (80.9) (83.5) (0.4) 9.7 Other (3.7) (15.3) 11.0 (2.9) (197.6) (290.3) To be offset against deferred tax asset 131.3 172.4 Deferred tax liabilities (after offset) (66.3) (117.9) Deferred tax income/(expense) 42.0 (35.9) Deferred tax assets, net 194.1 160.8

1Adjusted due to change in accounting policy (see Note 32). 2Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). -108- Annual Financial Report 2010

Statement of financial position Income statement COMPANY 2010 20091 2010 20091 Voluntary leave scheme 52.3 61.2 (8.9) (34.4) Staff retirement indemnities 54.3 55.0 6.2 5.2 Youth account 49.2 63.3 (10.0) (4.5) Employee benefits 16.9 18.0 0.4 (24.6) Provisions 75.9 74.1 1.8 23.1 Deferred income 5.0 5.4 (0.4) 1.0 Other 0.2 - 0.2 - Deferred tax assets (before offset) 253.8 277.0 Offset of deferred tax liabilities (58.6) (73.4) Deferred tax assets (after offset) 195.2 203.6 Property, plant and equipment (38.4) (50.9) 12.5 13.6 Capitalized interest (19.6) (21.1) 1.5 4.8 Unbilled revenue - - - 3.3 Loan fees (0.6) (1.4) 0.8 0.9 Deferred tax liabilities (58.6) (73.4) Το be offset against deferred tax assets 58.6 73.4 Deferred tax income/(expense) 4.1 (11.6) Deferred tax assets, net 195.2 203.6

1Adjusted due to change in accounting policy (see Note 32). The movement in deferred tax of the Group and the Company is as follows:

GROUP COMPANY 2010 20091,2 2010 20091 Deferred tax (net) – beginning of the year 160.8 194.5 203.6 212.3 Deferred tax charged to the income statement 42.0 (35.9) 4.1 (11.6) Deferred tax through equity (12.9) 2.9 (12.5) 2.9 Foreign exchange differences 4.2 3.5 - - Acquisition of subsidiary - (4.2) - - Deferred tax (net)- end of the year 194.1 160.8 195.2 203.6

1Adjusted due to change in accounting policy (see Note 32). 2Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). -109- Annual Financial Report 2010

The Group does not recognize deferred tax asset on Year Amount the following accumulated tax losses due to the un- 2011 49.5 certainty of the timing of available taxable profits 2012 84.3 against which these losses could be offset. The ac- 2013 57.8 cumulated tax losses expire as follows: 2014 - 2015 and onwards 88.5 TOTAL 280.1

22. OTHER CURRENT LIABILITIES Other current liabilities are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Employer contributions 70.4 63.8 53.1 43.8 Payroll 48.9 47.6 24.9 21.6 Other taxes - duties 98.3 111.9 36.3 34.5 Interest payable 153.4 158.2 103.5 108.1 Provisions for litigation and other liabilities 92.3 109.8 91.3 108.8 Customer advances 29.2 46.9 22.1 40.2 Liability of acquiring non-controlling interests - 10.0 - - Accrued expenses 77.1 81.2 3.1 3.0 Other 61.3 56.5 5.2 5.5 TOTAL 630.9 685.9 339.5 365.5

The movement in the provision for litigation and other liabilities is as follows:

GROUP COMPANY 2010 2009 2010 2009 Balance at January 1 109.8 110.5 108.8 109.4 Addition during the year 2.8 - 2.8 - Foreign exchange differences - (0.1) - - Utilized (16.0) (0.6) (16.0) (0.6) Unused amounts reversed (4.3) - (4.3) - Balance at December 31 92.3 109.8 91.3 108.8 -110- Annual Financial Report 2010

23. REVENUE Revenue is analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Domestic Telephony Monthly network service fees 751.2 845.9 500.9 566.9 Local and long-distance calls -Fixed to fixed 401.9 461.9 357.1 415.7 -Fixed to mobile 170.9 249.5 120.0 174.8 572.8 711.4 477.1 590.5 Other 70.1 62.3 59.9 66.0 1,394.1 1,619.6 1,037.9 1,223.4 International Telephony International traffic 70.9 84.9 46.1 58.3 Dues from international operators 89.2 113.3 62.1 75.7 Dues from mobile operators 40.0 52.9 40.4 49.3 200.1 251.1 148.6 183.3

MOBILE TELEPHONY 2,202.4 2,396.2 - - Other revenue Prepaid cards 24.2 37.3 23.8 33.2 Leased lines and Data ATM communications 295.5 319.4 138.8 179.5 Integrated Services Digital Network (ISDN) 130.8 141.7 118.5 128.3 Sales of telecommunication equipment 412.0 438.0 36.3 42.8 Internet/ ADSL 311.6 297.7 222.6 210.9 Co-location/ Local Loop 170.5 122.1 164.8 116.4 Metro Ethernet & IP CORE 42.5 31.9 34.7 24.9 Provision for services 124.9 116.4 137.0 150.9 Interconnection charges 80.2 88.9 72.7 87.6 Miscellaneous 94.0 98.6 34.1 31.2 1,686.2 1,692.0 983.3 1,005.7 Total revenue 5,482.8 5,958.9 2,169.8 2,412.4 -111- Annual Financial Report 2010

24. OTHER INCOME / (EXPENSE), NET Other income/ (expense), net is analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Forfeiture of letters of guarantee 13.9 - 13.9 - Rents 10.7 10.7 0.5 0.4 Income from penalties 6.8 9.2 - - Other 5.6 8.0 (1.9) 1.9 TOTAL 37.0 27.9 12.5 2.3

The Board of Directors on April 23, 2010 declared OTE called in guarantees, amounting to Euro 12.6, one of OTE’s suppliers to be in breach of its contrac- which have been recorded in “Other income/ (ex- tual obligations relating to prior years. As a result, pense), net”.

25. OTHER OPERATING EXPENSES Other operating expenses are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Third party fees 251.8 234.2 113.5 127.0 Cost of telecommunication materials, repairs and maintenance 156.1 182.2 63.2 73.5 Advertising and promotion costs 175.7 216.8 37.8 47.2 Utilities 185.7 163.7 82.9 70.8 Provision for doubtful accounts (see Note 10) 125.6 107.0 25.9 28.0 Travel costs 15.2 18.0 7.0 8.7 Commissions to independent commercial distributors 233.3 238.4 - - Payments to Audiotex providers 4.0 9.5 3.1 6.8 Rents 110.7 101.8 72.3 72.7 Taxes, other than income tax 54.9 56.2 14.4 13.6 Transportation costs 11.3 11.2 6.2 5.5 Other 56.8 60.2 13.8 20.4 TOTAL 1,381.1 1,399.2 440.1 474.2 -112- Annual Financial Report 2010

26. EARNINGS PER SHARE number of own shares that the Company possessed during the year and including (for the diluted earn- Earnings per share (after income taxes,) are calculated ings per share) the number of share options outstand- by dividing the profit attributable to the owners of the ing at the end of the year that have a dilutive effect on Company by the weighted average number of shares earnings per share. outstanding during the year, excluding the average Earnings per share are analyzed as follows:

GROUP 2010 20091 Profit attributable to owners of the parent 39.6 410.9 Weighted average number of shares for basic earnings per share 490,150,389 490,150,389 Share options - - Weighted average number of shares adjusted for the effect of dilutions 490,150,389 490,150,389 Basic earnings per share 0.0808 0.8383 Diluted earnings per share 0.0808 0.8383

(Earnings per share are in absolute amounts) 1Adjusted due to change in accounting policy (see Note 32).

For 2010 and 2009 the outstanding options did not category. The types of services provided by the re- have a dilutive effect on earnings per share and, there- portable segments are as follows: fore, are not included in the earnings per share calcu- >> OTE is a provider of local, long-distance and lation. international fixed-line voice telephony and internet access services in Greece. 27. OPERATING SEGMENT >> COSMOTE group is a provider of mobile tel- INFORMATION ecommunications services in Greece, Albania, The following information is provided for the report- Bulgaria and Romania (and in FYROM until May able segments, which are separately disclosed in the 2009). financial statements and which are regularly reviewed >> ROMTELECOM is a provider of local, long-dis- by the Group’s chief operating decision makers. Seg- tance and international fixed-line voice telephony ments were determined based on the Group’s legal and internet access services in Romania. structure, as the Group’s chief operating decision Accounting policies of the operating segments are the makers review financial information separately re- same as those followed for the preparation of the fi- ported by the parent company and each of the Group’s nancial statements. Intersegment revenues are gener- consolidated subsidiaries, or the sub groups included ally reported at values that approximate third-party in the consolidation. selling prices. Management evaluates segment perfor- Using the quantitative thresholds OTE, COSMOTE mance based on operating profit before depreciation, group and ROMTELECOM have been determined to amortization, impairment and cost of early retirement be reportable segments. Information about operating program; operating profit and profit for the year. segments that do not constitute reportable segments Segment information and reconciliation to the Group’s has been combined and disclosed in an “All Other” consolidated figures are as follows: -113- Annual Financial Report 2010

COSMOTE ROM- 2010 OTE GROUP TELECOM OTHER TOTAL Eliminations GROUP Revenue from external customers 1,978.9 2,626.8 694.7 182.4 5,482.8 - 5,482.8 Intersegment revenue 190.9 170.4 22.2 266.7 650.2 (650.2) - Interest income 8.4 6.6 6.8 250.3 272.1 (246.4) 25.7 Interest expense (199.1) (94.6) (1.1) (257.2) (552.0) 243.8 (308.2) Depreciation, amortization and impairment (374.2) (492.0) (446.8) (52.5) (1,365.5) 2.5 (1,363.0) Dividend income 206.1 - - 14.8 220.9 (206.7) 14.2 Income tax expense (91.5) (149.0) 19.4 (17.8) (238.9) - (238.9) Operating profit/ (loss) 142.2 479.9 (292.1) 54.8 384.8 0.1 384.9 Profit / (loss) for the year 60.9 232.2 (263.5) 46.5 76.1 (215.1) (139.0) Operating profit before depreciation, amortization, impairment and cost of early retirement program 661.1 974.5 178.9 107.3 1,921.8 (2.4) 1,919.4 Segment assets 7,948.7 4,303.9 1,399.9 6,892.1 20,544.6 (11,006.8) 9,537.8 Segment liabilities 4,578.3 3,315.5 219.1 5,659.2 13,772.1 (5,886.9) 7,885.2 Expenditures for segment assets 224.9 372.8 126.1 27.3 751.1 - 751.1

COSMOTE ROM- 20091,2 OTE GROUP TELECOM OTHER TOTAL Eliminations GROUP Revenue from external customers 2,204.8 2,843.3 765.1 145.7 5,958.9 - 5,958.9 Intersegment revenue 207.6 192.6 17.4 271.0 688.6 (688.6) - Interest income 17.4 24.5 15.4 283.7 341.0 (279.4) 61.6 Interest expense (256.8) (115.8) (1.8) (263.1) (637.5) 279.5 (358.0) Depreciation, amortization and impairment (424.4) (458.3) (227.9) (45.5) (1,156.1) 0.8 (1,155.3) Dividend income 312.1 - - - 312.1 (302.5) 9.6 Income tax expense (136.7) (180.9) (31.4) (33.4) (382.4) - (382.4) Operating profit 345.7 611.9 24.6 61.4 1,043.6 (0.6) 1,043.0 Profit /(loss) for the year 283.6 377.7 (18.4) 50.4 693.3 (285.7) 407.6 Operating profit before depreciation, amortization, impairment and cost of early retirement program 731.2 1,070.2 261.1 106.9 2,169.4 (1.4) 2,168.0 Segment assets 8,236.6 4,362.9 1,737.2 6,955.9 21,292.6 (10,971.1) 10,321.5 Segment liabilities 4,888.8 3,440.4 261.3 5,765.6 14,356.1 (5,918.7) 8,437.4 Expenditures for segment assets 272.6 399.2 187.2 31.9 890.9 - 890.9

1Adjusted due to change in accounting policy (see Note 32). 2Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8). -114- Annual Financial Report 2010

GEOGRAPHIC INFORMATION from external customers and non-current assets is as Geographic information for the Group’s revenues follows:

Revenues from external customers Non–current assets 2010 20091 2010 20091 Greece 3,819.1 4,189.6 3,952.1 4,075.5 Albania 106.9 125.3 156.2 160.6 Bulgaria 388.4 423.9 538.7 644.8 Romania 1,146.3 1,181.2 1,689.3 2,086.1 Other 22.1 38.9 85.4 95.1 TOTAL 5,482.8 5,958.9 6,421.7 7,062.1

1Adjusted due to finalization of ZAPP’s purchase price allocation (see Note 8).

The revenue information presented above is based the requirements of IAS 24 “Related Party Disclo- on the location of the entity. Non-current assets for sures”. this purpose consist of property, plant and equipment, The Company purchases goods and services from goodwill, telecommunication licenses and other in- these related parties, and provides services to them. tangible assets. Furthermore, OTE grants/ receives loans to/ from these related parties, receives dividends and pays 28. RELATED PARTY dividends. DISCLOSURES OTE’s purchases and sales with related parties are OTE’s related parties have been identified based on analyzed as follows:

2010 2009 Sales ΟΤΕ Purchases ΟΤΕ Sales ΟΤΕ Purchases ΟΤΕ COSMOTE 140.9 105.6 162.4 116.1 OTE INTERNATIONAL INVESTMENTS LTD 0.5 4.1 0.6 4.3 HELLAS-SAT 0.5 2.0 0.5 1.6 COSMO-ONE - 0.5 0.1 0.8 VOICENET 3.8 3.4 5.3 4.2 HELLASCOM 0.2 8.5 0.2 8.3 OTE SAT – MARITEL 1.2 2.0 1.1 2.0 ΟΤΕ PLUS 0.4 33.7 0.4 34.8 ΟΤΕ ESTATE 2.5 61.5 2.0 61.9 OTE-GLOBE 40.8 84.1 35.0 84.3 OTE ACADEMY 0.1 4.8 - 5.0 ROMTELECOM - 0.4 - - HT HRVATSKE - - 0.1 0.6 TOTAL 190.9 310.6 207.7 323.9 -115- Annual Financial Report 2010

Purchases and sales of the Group with related parties which are not eliminated in the consolidation are analyzed as follows:

2010 2009 Group’s Sales Group’s Purchases Group’s Sales Group’s Purchases TELEKOM DEUTSCHLAND 16.0 10.4 12.6 9.1 HT HRVATSKE 0.2 0.1 0.3 0.6 COMBRIDGE 3.1 0.2 4.5 0.1 DETEKON - - - 0.6 ORBITEL 0.1 0.4 - 0.5 T-SYSTEMS - 0.1 1.2 - T-MOBILE CZECH 0.3 0.1 0.3 0.1 T-MOBILE UK 1.0 0.5 0.8 0.4 T-MOBILE AUSTRIA 0.4 0.5 0.2 0.1 T-MOBILE NETHERLANDS 0.5 0.1 0.4 0.1 T-MOBILE USA 0.3 0.3 0.3 0.4 T-MOBILE HUNGARY 0.6 0.2 0.1 0.1 T-MOBILE HRVASKA 0.2 0.4 0.1 0.1 T-MOBILE TELEKOMUNIKASYON - 0.4 - - T-MOBILE SLOVENSKO 0.1 - - - PCT POLSKA TELEFONIA 0.7 0.5 0.4 - TOTAL 23.5 14.2 21.2 12.2

ΟΤΕ’s financial activities with its related parties comprise interest on loans granted and received and are analyzed as follows:

2010 2009 Finance income Finance expense Finance income Finance expense ΟΤΕ ΟΤΕ ΟΤΕ ΟΤΕ COSMOFON - - 1.1 - OTE PLC - 161.0 - 179.6 TOTAL - 161.0 1.1 179.6

OTE’s dividend income from its related parties is analyzed as follows:

2010 2009 COSMOTE 151.2 282.2 ΟΤΕ ESTATE 37.0 18.9 OTE SAT – MARITEL 1.7 1.0 OTE PLUS - 0.4 OTE INTERNATIONAL INVESTMENTS LTD 2.0 - TOTAL 191.9 302.5 -116- Annual Financial Report 2010

Amounts owed to and by the related parties as a result of OTE’s transactions with them are analyzed as follows:

2010 2009 Amounts owed Amounts owed Amounts owed Amounts owed to ΟΤΕ by ΟΤΕ to ΟΤΕ by ΟΤΕ COSMOTE 61.2 59.9 47.2 52.5 OTE INTERNATIONAL INVESTMENTS LTD 0.2 1.1 0.1 1.2 HELLAS-SAT 0.2 0.9 0.4 0.4 COSMO-ONE - 0.2 0.1 0.2 VOICENET 0.9 0.6 1.1 0.9 HELLASCOM - 2.0 - 1.8 OTE SAT – MARITEL 2.6 4.5 2.2 2.0 ΟΤΕ PLUS 0.2 15.6 0.1 12.3 ΟΤΕ ESTATE 1.3 13.7 1.2 0.7 OTE-GLOBE 61.5 96.3 47.3 71.5 OTE ACADEMY 0.4 0.5 0.4 - ROMTELECOM 0.2 0.1 - - TOTAL 128.7 195.4 100.1 143.5

Amounts owed to and by the related parties as a result of the Group’s transactions with them, which are not eliminated in the consolidation, are analyzed as follows:

2010 2009 Amounts owed Amounts owed Amounts owed Amounts owed to Group by Group to Group by Group TELEKOM DEUTSCHLAND 5.3 8.2 6.9 0.6 DETEKON - - - 0.1 COMBRIDGE 0.3 - 0.6 - ORBITEL - - - 0.1 T-SYSTEMS 0.1 - 0.1 - T-MOBILE HUNGARY 0.1 0.1 0.1 0.2 T-MOBILE CZECH 0.1 0.1 0.1 0.2 T-MOBILE UK 0.3 0.9 0.1 0.7 T-MOBILE AUSTRIA 0.1 0.1 - 0.3 T-MOBILE NETHERLANDS - 0.2 - 0.3 T-MOBILE USA 0.6 1.7 1.9 3.8 PCT POLSKA TELEFONIA 0.1 0.3 - - T-MOBILE HRVATSKA - 0.1 - - T-MOBILE INTERNATIONAL - 1.0 - - TOTAL 7.0 12.7 9.8 6.3 -117- Annual Financial Report 2010

Amounts owed by and to OTE relating to loans advanced and received, are analyzed as follows:

2010 2009 Amounts owed Amounts owed Amounts owed Amounts owed to ΟΤΕ by ΟΤΕ to ΟΤΕ by ΟΤΕ OTE PLC - 2,938.0 - 3,038.2 TOTAL - 2,938.0 - 3,038.2

Key Management Personnel and those closely related OTE ESTATE to them are defined in accordance with IAS 24 “Re- OTE ESTATE earns rental income from OTE and its lated Party Disclosures”. Compensation includes all subsidiaries. employee benefits (as defined in IAS 19 “Employ- OTE invoices OTE ESTATE for additions or improve- ee Benefits”) including employee benefits to which ments made to the land and buildings that belong to IFRS 2 “Share-based Payment” applies. OTE ESTATE. The related costs of these additions, Fees to the members of the Board of Directors and representing labor and materials costs, are included OTE’s key management personnel amounted to Euro in OTE’s income statement. 4.3 and Euro 5.0 for the years 2010 and 2009, respec- ΟΤΕ INTERNATIONAL INVESTMENTS LTD tively. OTE INTERNATIONAL INVESTMENTS LTD in- As of December 31, 2010, 2,462,489 options under voices OTE and its subsidiaries for the administration OTE’s share based payment plan have been granted services provided to foreign subsidiaries. to the Company’s key management personnel. COSMO-ONE The main transactions between the Group companies COSMO-ONE invoices OTE and its subsidiaries for are described below: e-commerce services. ΟΤΕ-GLOBE OTE SAT – MARITEL OTE-GLOBE provides international telephony ser- ΟΤΕ invoices ΟΤΕ SAT- MARITEL for the usage of vices on behalf of OTE to international providers and OTE’s facilities for INMARSAT services. invoices OTE with its fees. OTE-GLOBE invoices OTE SAT - MARITEL invoices ΟΤΕ for fixed to mo- OTE, and OTE invoices OTE-GLOBE for the tele- bile connection, which is invoiced by INMARSAT to communication traffic which passes through inter- OTE SAT - MARITEL. national networks of OTE-GLOBE or international telephone networks of OTE as the case may be. In OTE PLUS addition, the two entities have commercial transac- OTE PLUS provides consulting services to OTE. tions in relation to leased lines. COSMOTE VOICENET OTE invoices COSMOTE with commissions for mo- OTE invoices VOICENET for the lease of its lines. bile connections made through OTE. OTE and VOICENET have income and expenses ΟΤΕ invoices COSMOTE for leased lines. from interconnection depending on which of the two OTE and COSMOTE have income and expenses for entities network the calls terminate including interna- interconnection depending to which of the two enti- tional telephony traffic which passes through the two ties network the codes terminate, including interna- networks. tional telephony traffic which passes through the two networks. -118- Annual Financial Report 2010

COSMOTE provides OTE with mobile equipment. delisting of COSMOTE’s shares from the Athens Ex- OTE ACADEMY change on April 1, 2008. The modification of OTE’s OTE ACADEMY subleases to OTE its training cen- Plan and the replacement of COSMOTE’s plans took ter facilities in Athens and Thessaloniki. place on the same date. OTE ACADEMY leases the premises from OTE ES- The nature and the main terms of the Modified Share TATE. Option Plan are as follows: >> The Modified Share Option Plan is comprised of OTE ACADEMY provides training services to the Basic options (i.e. those granted when a par- employees of OTE and its subsidiaries. ticipant first enters the scheme) and Additional HELLASCOM options (i.e. those granted on an annual basis to HELLASCOM provides consulting services of tech- participants). The Share options are granted by nical nature to OTE and construction studies to its the Board of Directors. subsidiaries. >> Options under the Modified Share Option Plan HELLAS- SAT are granted at a preferential price. For options HELLAS SAT invoices OTE for transmitter’s rental granted for year 2009 the preferential price is and the provision of satellite capacities. Euro 19.49 (absolute amount). ΟΤΕ invoices HELLAS SAT with a commission on >> The executives of the Group, to whom Share op- the rental of satellite capacities. tions are granted, may acquire the shares at the OTE PLC preferential grant price or at a discount (percentage) on the preferential grant price, depending ΟΤΕ PLC has granted interest bearing long-term on the executive’s hierarchical level at the time of loans to ΟΤΕ and subsidiaries. exercising the Rights, and (i) the achievement of DEUTSCHE TELEKOM AG certain targets of both the entity employing them OTE has income and expenses which arise from trans- and the Group and (ii) high individual perform- actions with incoming, outgoing and transit traffic to ance by the eligible executive. and from DEUTSCHE TELEKOM AG’s network. >> For top level management, the potential discount is 15%, 20% or 25% if the targets have been 29. SHARE OPTION PLAN achieved (otherwise no discount) and for middle On July 9, 2008, OTE’s 56th Repeating Ordinary level management, the potential discount is 10%, General Assembly approved the adoption of a Share 15% or 20% if the targets have been achieved Option Plan for executives of OTE and of other enti- (otherwise no discount). ties of the Group, in accordance with article 42e of the On January 28, 2010, OTE’s Board of Directors de- Codified Law 2190/1920. This plan replaced the pre- cided on and approved granting 1,259,078 Additional existing Share Option Plan of OTE. In addition, basic Options to the executives of OTE and its subsidiar- and additional share options already granted by COS- ies, 672,018 Basic Options to the executives of OTE MOTE in 2005, 2006 and 2007 under COSMOTE’s and 336,780 Basic and 2,403,560 Additional Options existing share option plans were replaced by options to the executives of COSMOTE group for the year on OTE’s shares under the modified plan. The reason 2009. The preferential purchase price is equal to Euro for the replacement of COSMOTE’s plans was the 11.26 (absolute amount). -119- Annual Financial Report 2010

The Options vest as follows: >> In case the above vested Rights are not exercised >> The Basic options vest gradually (40% upon the within the aforementioned time frames they are completion of the year of the grant, 30% upon the lost. According to the terms of the plan, vesting of completion of the second year and 30% upon the the options depends on the participant remaining completion of the third year). Following a modifi- in the service of the company. The total number cation to the plan on July 10, 2009, Basic vested of Share Option Rights, which may be granted Rights may be exercised by the eligible executive under the Modified Share Option Plan, cannot in their entirety or partially during April and Oc- exceed 15,500,000 Rights, which corresponds to tober of each calendar year following the vesting approximately 3.16% of OTE’s shares outstand- year (and up to October of the 7th calendar year ing at the time of its approval. (instead of the 4th) from the date of their grant). The range of exercise prices of all the options granted >> Following a modification to the plan on July 10, assuming the minimum discount at least is achieved 2009 the Additional vested Rights may be exer- is Euro 8.44-19.49 (absolute amount). cised by the eligible executive in their entirety or The fair value of the options is reflected in the income partially during April and October of up to the statement during the vesting period. The amounts are 3rd calendar year (instead of the first calendar recorded in the line “Payroll and employee benefits” year) following the vesting year. with a corresponding entry in the Share Premium.

GROUP COMPANY 2010 2009 2010 2009 Expense arising from share-based payment transactions 5.5 7.2 2.4 2.9

Further details of the plan are as follows:

2010 2009 Number Weighted average Number Weighted average of options exercise price of options exercise price Outstanding at the beginning of the year 8,674,600 15.59 6,008,060 15.66 Granted 4,671,436 9.32 3,225,670 16.21 Forfeited (665,549) 12.57 (559,130) 16.23 Outstanding at the end of the year 12,680,487 13.44 8,674,600 15.59

Exercisable at the end of the year 6,712,896 15.00 4,485,370 15.05

Options Share price at Plan Year of issuance granted grant date Comments Original grant dates range modified on 09/07/08 Plans of COSMOTE group from 27/10/05-31/10/07 3,440,290 15.48 and on 10/07/09 modified on 09/07/08 2008 OTE plan 06/02/08 3,141,620 21.38 and on 10/07/09 2009 OTE plan 06/03/09 3,225,670 10.40 modified on 10/07/09 2010 OTE plan 28/01/2010 4,671,436 9.90 -120- Annual Financial Report 2010

The weighted average remaining contractual term fair value of the modified plan and that of the original outstanding as of December 31, 2010 and 2009 is 3.5 plan, both estimated as at the date of the modifica- years and 3.9 years, respectively. tion) is attributed as an expense in the period from the The options granted are measured at fair value at the modification date up to the vesting date. grant date. At the date of modification of July 10, The fair values were determined by using a Monte 2009 the fair value of the options before and after the Carlo simulation option pricing model taking into ac- modification was calculated. The modification in- count the effects of early exercise. Key inputs deter- creased the fair value of the options by increasing the mined at each grant date and calculations results of exercise period, therefore, the difference (being the the model are presented below: incremental fair value or the difference between the

2010 2009 Weighted average share price 9.90 10.40 Weighted average exercise price 9.57 16.57 Weighted average expected volatility 25.6% 24.0% Weighted average exercise period 4.7 years 3.5 years Weighted average risk free rate 2.25% 2.5% Weighted average expected dividend 0.50 - 0.75 0.75 Weighted average option value 1.65 0.28

30. LITIGATION AND sees for contracts signed through to the date of sale of CLAIMS – COMMITMENTS OTE Leasing. The conditions under which a lessee’s contract will be characterized as non-performing are described in detail in the sale agreements. OTE’s ob- Α. OUTSTANDING LEGAL CASES ligation is in force for a period between 3-5.5 years, The most significant outstanding legal cases as at De- depending on the nature of the lease contracts. On cember 31, 2010, are as follows: September 28, 2007, Piraeus Financial Leasing S.A CIVIL PROCEEDINGS filed a law suit against OTE, claiming Euro 3.4 from Lease agreements (OTE Leasing): On December OTE. The hearing which had been scheduled for Feb- 11, 2001, OTE disposed of its wholly owned subsid- ruary 26, 2009 in the Athens Multi-Member Court iary, OTE Leasing, to Piraeus Financial Leasing S.A., was postponed. The hearing is rescheduled for Febru- a subsidiary of Piraeus Bank S.A. for a consideration ary 21, 2013. of Euro 21.0. From the sale proceeds, Euro 5.9 was Hellenic Radio and Television S.A. (“ERT”): Dur- collected in cash and the balance of Euro 15.1 in the ing May 2002, ERT filed a lawsuit against OTE before form of shares in Piraeus Bank S.A., based on their the Athens Multi-Member Court, claiming an amount fair value at that date. As prescribed in the agreements of Euro 42.9 plus interest for damages incurred by it signed for the sale of OTE Leasing, OTE is commit- as a result of an alleged infringement by OTE of the ted to indemnify Piraeus Financial Leasing S.A. up to terms of a memorandum of understanding signed by an amount of approximately Euro 28.0, for possible the two parties. The Court judged in 2005 that the losses to be incurred from the non-performance of les- case should be referred to arbitration. In November -121- Annual Financial Report 2010

2003 ERT filed a lawsuit against OTE claiming Euro lawsuits against OTE before the Athens Multi Mem- 1.5 for restitution of moral damage which was sched- ber Court of First Instance, claiming approximately uled to be heard by the Athens Multi-Member Court Euro 11.0 plus interest in damages, due to suspension on June 3, 2010 but the hearing was postponed and a of its subscriber’s number portability and due to al- new hearing is scheduled for December 13, 2012. On leged breach of contractual obligations arising out of January 28, 2011, ERT announced to OTE the with- disconnection of telecommunication services. For two drawal from both its lawsuits and its claims. lawsuits of Euro 4.6, the Court rejected Teledome’s Forthnet S.A.: In 2002, Forthnet S.A. filed a civil claims. Teledome appealed the decision before the Court of Appeals, which rejected it on January 25, claim, claiming an amount of Euro 26.7 plus interest 2007. Teledome S.A. appealed against this adverse for damages incurred by it due to loss of customers as decision and its appeal was discussed on November a result of OTE’s allegedly discriminatory policy in 27, 2008 by the Court of Appeals and it was rejected. favor of OTENET. The hearing which was scheduled A lawsuit of Euro 0.9 was rejected by the Court on for April 19, 2007, was suspended and rescheduled for January 25, 2007. Teledome appealed against it and June 5, 2008 and was again suspended and resched- its appeal was heard on November 26, 2009 but no uled for January 28, 2010, when was again suspended decision was issued and the hearing was rescheduled and rescheduled for February 28, 2013. Furthermore, for November 4, 2010, when it was rejected. The law- Forthnet S.A. filed a lawsuit against OTE before the suit of Euro 4.4 was heard on March 6, 2008 and was Athens Multi-Member court of First Instance, claim- rejected by the court. Regarding the lawsuit of Euro ing Euro 4.1 for economic and moral damages, due to 0.5, the Court ordered factual investigation. The fac- suspension of its subscriber’s number portability. The tual investigation was filed and after the hearing on hearing scheduled for May 3, 2006 was suspended. December 9, 2009 at the same Court, the appeal was Teledome S.A.: Teledome S.A. filed five lawsuits partially accepted for an amount of Euro 0.1. The law- against OTE before the Athens Multi Member Court suit of Euro 0.6 was heard on September 26, 2007 and of First Instance, claiming an aggregate amount of the Court concluded that the claim up to an amount Euro 8.1 plus interest for alleged damages incurred of Euro 0.3 was valid. However, both OTE and Tele- by it as a result of OTE’s delay in delivering to it dome S.A. have appealed against the decision, which leased lines and the application of non cost oriented appeal, was heard on December 4, 2008 and the Court interconnection charges by OTE. The hearings of the accepted OTE’s appeal and rejected Teledome’s ap- above lawsuits were scheduled for various dates in peal. Finally, Teledome filed a law suit against OTE 2007. The first lawsuit (Euro 1.6) was heard before the before the Athens Multi Member Court claiming Euro Court on June 6, 2007 and the hearing was postponed, 54.1 plus interest for damages for so called unlawful the second lawsuit (Euro 1.0) was rejected, regard- termination of its leased lines by ΟΤΕ which resulted ing the third lawsuit (Euro 0.3) the Court postponed in Teledome S.A.’s bankruptcy. This claim was heard the hearing, the fourth lawsuit (Euro 1.6) was heard on March 18, 2009 and March 26, 2009. According on February 7, 2007 and the Court rejected it and for to Court’s decision the hearing was postponed and the fifth lawsuit (Euro 3.6) the Court ordered factual Teledome S.A. is required to deposit a guarantee investigation. The investigator has already been ap- amounting Euro 1.1 for court expenses. Teledome pointed and the completion of the factual investiga- S.A. has appealed against this decision and the appeal tion is expected. Furthermore, Teledome S.A. filed six was heard before the Athens Multi Member of First -122- Annual Financial Report 2010

Instance Court on September 29, 2010 and the deci- Court of First Instance, claiming an aggregate amount sion is pending. Because of Teledome S.A.’s denial to of approximately Euro 0.9 plus interest in damages deposit the guarantee, OTE applied for withdrawal of due to suspension of its subscriber’s number portabil- Teledome S.A.’s order. Finally, Bank of Cyprus has ity. The hearing of the first lawsuit for the amount of appealed additional intervention in favor of Teledome Euro 0.4 was held and the Court rejected the claim, S.A. before the Athens Multi Member Court of First while the hearing of the second lawsuit initially sched- Instance. Both appeals were heard on September 29, uled for February 8, 2006, has been suspended. 2010. For these cases a decision was issued, by which FASMA ADVERTISING TECHNICAL AND the appeal of Teledome S.A. and the additional inter- COMMERCIAL S.A.: FASMA ADVERTISING vention of Bank of Cyprus were rejected, while the TECHNICAL AND COMMERCIAL S.A. filed a appeal of OTE was accepted. lawsuit against OTE before the Athens Multi Member TELLAS S.A.: TELLAS S.A. filed three lawsuits Court of First Instance, claiming an aggregate amount against OTE before the Athens Multi Member Court of Euro 9.1 plus interest for breach of contract. The of First Instance, claiming an aggregate amount of hearing was scheduled for November 8, 2007. Sub- Euro 16.6 plus interest in damages due to suspension sequently, the company filed with the Multi Member of its subscriber’s number portability. The hearings Court of First Instance a new lawsuit against OTE for were heard on May 2, 2007 and were rejected. TEL- Euro 8.7 plus interest withdrawing its previous law- LAS filed two new claims against OTE totaling Euro suit. The hearing by the Court, initially scheduled for 6.2 for the triggering of penalty clauses for the loss November 8, 2007 was rescheduled to October 23, suffered for the delayed delivery of leased lines and 2008, when the case was heard and a decision was is- for claims relating to non compliance of OTE with sued rejecting the lawsuit. FASMA ADVERTISING costing obligations. The cases were scheduled to be TECHNICAL AND COMMERCIAL S.A. appealed heard by the Athens Multi Member Court on Septem- against this decision and the hearing was scheduled ber 16, 2010 but were postponed for March 7, 2013. for November 3, 2011. LAN-NET S.A.: LAN-NET S.A. filed a lawsuit Franchisees lawsuits: against OTE before the Athens Multi Member Court 1. Helias Koutsokostas & Company Limited Part- of First Instance, claiming an amount of approximate- nership filed a lawsuit against OTE claiming alleged ly Euro 0.7 plus interest in damages due to suspen- damages for an amount of Euro 7.9. OTE filed a law- sion of its subscriber’s number portability. The lawsuit against this company before the Multi-Member suit was heard on March 21, 2007 and was rejected Court of First Instance for an amount for Euro 0.7. by the Court. In May 2009, LAN-NET filed a claim The hearing, initially scheduled for October 13, 2005 against OTE before the Court of First Instance for an was suspended and a new hearing was scheduled for aggregate amount of Euro 175.6, claiming restitution February 21, 2008, but was adjourned. The applicant for alleged illegal termination of services. The hear- has not performed any action since then. ing of this case was scheduled for February 17, 2011, 2. K. Prinianakis S.A. filed a lawsuit against OTE when it was postponed and rescheduled for May 30, claiming Euro 10.9 in damages. The case was heard 2013. on November 15, 2007 and the Court partially ac- ALGO-NET S.A.: ALGO-NET S.A. filed two law- cepted the claim for the amount of Euro 0.1. Against suits against OTE before the Athens Multi Member this decision OTE has filed an appeal which is sched- -123- Annual Financial Report 2010 uled for September 29, 2011. OTE filed a counter- OTE if the outcome of that case will be favorable to claim against K. Prinianakis for an amount of Euro the Company. OTE’s appeals for years 1999-2000 0.3 in damages. This claim was heard on November were rejected. The courts held in OTE’s favor for 13, 2008 and the Court partially accepted it. Against the year 2001 in the first and second instance. The this decision K. Prinianakis S.A. has filed an appeal Municipality of Thessaloniki has filed appeals before which is scheduled for September 29, 2011. the Council of State, which are pending. No duties 3. DEP INFO Limited filed a lawsuit against OTE and penalties have been charged for 2008-2009. For claiming Euro 7.0 for damages. OTE has filed its own 2010 duties and penalties amounting to Euro 1.9 were lawsuit against this company claiming Euro 1.7 in charged, against which OTE intends to appeal. damages. Both hearings were held on March 9, 2006 Timeapply Ltd: Timeapply Ltd, has filed a claim and the court rejected DEP INFO Limited lawsuit, against OTE in the Court of First Instance for Euro while it accepted OTE’s lawsuit. DEP INFO Limited 17.3 for restitution due to damage caused by alleged filed an appeal against this decision which was heard patent infringement, as a result of our sale and ad- on January 24, 2008 and the court rejected the com- vertisement of a prepaid telephone card called “Pro- pany’s appeal and ordered a factual investigation for mocard”. The case was heard on January 22, 2009 the accurate determination of OTE’s claim. and the Court concluded that it was not authorized to 4. Infoshop S.A. filed a lawsuit against OTE claiming issue a decision. Timeapply Ltd came back with the alleged damages for the amount of Euro 7.0. A hear- claim which was scheduled to be heard on April 14, ing scheduled for November 15, 2007 was suspended 2010 but was cancelled and rescheduled for October and a new hearing was scheduled for November 13, 26, 2011. In addition, Timeapply filed a claim against 2008 and the decision of the Court rejected the entire OTE in the Court of First Instance for Euro 68.4 for claim. alleged breach of a decision of the Court of First In- 5. S.P. COM S.A. filed a lawsuit against OTE before stance granting an injunction prohibiting distribution the Athens Multi-Member Court of First Instance re- of “Promocard”. The Court of First Instance rejected questing the annulment of the termination from OTE the claim and Timeapply filed an appeal, which was of their franchise contract, claiming an amount of heard on May 12, 2009 and rejected. Euro 7.3 in damages plus interest. The hearing of this KONSTANTZA S.A.: KONSTANTZA S.A. filed a case is scheduled for March 14, 2012. claim against OTE before the Athens Court of First Employees’ Claims: ΟΤΕ’s current employees and Instance alleging Euro 1.3 plus interest. The amicable pensioners have filed a number of lawsuits against resolution of the dispute which was scheduled for OTE with a wide variety of claims. June 11, 2009 failed and the hearing was scheduled Payphones Duties: From 1999 to 2007, the Munici- for March 18, 2010 but was cancelled and is resched- pality of Thessaloniki charged OTE with duties and uled for September 20, 2012. penalties of a total amount of Euro 15.0 for the in- Athanasios Fekas: Athanasios Fekas filed a claim stallation and operation of payphones within the area against OTE before the Court of First Instance of La- of its responsibility. OTE strongly disputed the above mia alleging Euro 1.2 plus interest. The hearing was assessments and filed appeals before the competent scheduled for February 20, 2009 but was adjourned administrative courts and prepaid 40% of the above for November 20, 2009 when the case was heard duties and penalties, amount that will be refunded to and rejected. On January 18, 2011, Athanasios Fekas -124- Annual Financial Report 2010 has appealed against this decision and the hearing is the decision which imposed a fine of Euro 1.0 on scheduled for May 10, 2011. each company (COSMOTE, WIND (former ΤΙΜ) FLT HELLAS METAFORIKH S.A: FLT HELLAS and VODAFONE) for concerted practice contrary to METAFORIKH S.A filed a lawsuit against OTE be- competition law. COSMOTE appealed against this fore the Multi-Member Court of First Instance claim- decision before the Administrative Court of Appeals. ing an amount of Euro 12.4 plus interest for alleged The hearing initially scheduled for September 27, damages caused by OTE from breach of contract 2006, after postponements, was held on October 17, and reputational damage. The hearing of this case is 2007 and a decision was issued which accepted COS- scheduled for February 8, 2012. MOTE’s appeal and annulled HTPC’s decision, say- PAN DACOM HELLAS S.A.: PAN DACOM HEL- ing that COSMOTE has not proceeded to concerted LAS S.A. filed a lawsuit against OTE Athens Multi- practice contrary to competition law. The HTPC has Member Court of First Instance claiming an amount appealed against this decision before the Council of of Euro 1.9 for alleged illegal termination of the con- State which is scheduled for March 29, 2011. tract from OTE and for moral damages. The hearing HTPC imposed a fine against COSMOTE of Euro 2.0 of this case is scheduled for December 6, 2012. for violation of the law in relation to the information ROMTELECOM’S CUSTOM AUTHORITIES of subscribers of the increase of the minimum airtime. AUDIT COSMOTE has appealed against this decision before ROMTELECOM is currently subject to a custom au- the Athens Administrative Court of Appeals. thorities’ audit focusing on import transactions during GLOBUL 2007-2009. A final decision of the customs authori- In December 2009, OFFICEL, former agent of ties on this issue is expected within 2011. GLOBUL, filed a lawsuit against GLOBUL claiming The most significant lawsuits and administrative dis- an amount of Euro 2.0 for unpaid airtime, bonus etc. putes regarding COSMOTE and its subsidiaries, as of for the period May 2007 – September 2009. The same December 31, 2010 are the following: agent in March 2010 filed a lawsuit against GLOBUL COSMOTE arguing that the agency contract was terminated by the fault of GLOBUL and claiming compensation of COSMOTE is a party to various lawsuits and admin- approximately Euro 10.0. The next hearing is sched- istrative disputes the majority of which are related to the operation of base stations. The most significant uled for March 1, 2011. disputes of the rest are the following: TELECOM SLOVENIJE NOTICES OF CLAIMS Hellenic Telecommunications and Post Commis- On May 12, 2010 Telecom Slovenije, the purchaser of sion (“HTPC”) has summoned COSMOTE as well COSMOFON, sent to COSMOTE notices of claims as WIND (former TIM) and VODAFONE to a hear- relating to alleged breaches of warranties and indem- ing on May 18, 2005, to investigate whether the an- nity provisions under the Share Purchase Agreement nounced increases on tariffs for the SMS service concluded on March 30, 2009, for an amount of ap- are contrary to the provisions of telecommunication proximately Euro 9.3. On November 10, 2010, Tele- law and law for the protection of free competition. com Slovenije appealed before the High Court of Jus- The hearing was held on May 23, 2005 and a new tice in London asking for compensation of Euro 2.5. hearing took place on November 3, 2005 due to the COSMOTE will take all necessary actions to oppose change of the members of HTPC. The HTPC issued eventual unsubstantiated and unfounded claims. -125- Annual Financial Report 2010

AMC these cases are scheduled within 2010 and 2011 ex- On December 12, 2005 the Albanian Competition cept for one case which was heard in January 2009 Commission imposed a fine on AMC of approximate- and the Court rejected the claim. ly Euro 1.4 (1% of the company’s turnover for 2004) In April 2009, the claim of a former agent of GER- on the grounds of allegedly delaying a response to a MANOS of Euro 1.1 plus interest, regarding breach request for information and provision of documents. of conditions of payment of airtime commissions On January 4, 2006 AMC filed two lawsuits before following the termination of the contract between the Tirana District Court against the Competition GERMANOS and VODAFONE, was rejected by the Authority, demanding the annulment of the decision Court. The applicant appealed against this decision requesting information and opening of investigation and the appeal was be heard in January 2011 and a procedure as well as of the decision imposing the decision is pending. fine, since the requested information had timely been CRIMINAL PROCEEDINGS dispatched to the Competition Authority. On July 7, GERMANOS acquisition case. In 2007, the District 2006, the Tirana District Court rejected the requests Attorney of Athens commenced a preliminary inves- of AMC and AMC presented an appeal regarding the tigation with respect to the propriety of the acquisi- decision imposing the fine. The Appeal Court has an- tion of GERMANOS by COSMOTE following the nulled the decision of the Tirana District Court and submission of a report by a number of members of the ordered that the case should be examined again. AMC opposition party of the Hellenic Parliament, which has also submitted recourse to the Supreme Court. claimed among other things that the acquisition was The case is ongoing. not in the business interest of COSMOTE and that the On November 9, 2007 the Albanian Competition Au- price paid for the acquisition was too high. During thority imposed to AMC a fine amounting to approxi- the course of the preliminary investigation, members mately Euro 1.7 for an alleged breach of the competi- of the board of directors of COSMOTE at the time tion legislation during the period 2004-2005. AMC of the acquisition of GERMANOS were called and considers the Albanian Competition Authority’s deci- requested to submit explanations in connection with sion unfounded and has appealed before the Courts in this case. Following the completion of the prelimi- order to protect its legal rights. Tirana District Court nary investigation, an investigating judge (the 20th has ruled to reject AMC’s claim. AMC has appealed Investigating Judge of Athens) was appointed to lead against this decision before the Tirana Appeal Court, a formal criminal investigation in connection with the which validated the decision of the district court, potential perpetration of offences. The investigating which is final. AMC has appealed before the Supreme judge initiated criminal proceedings against the mem- Court for the suspension of this decision and its ap- bers of the board of directors of COSMOTE at the peal is ongoing. time of the acquisition of GERMANOS, investigating GERMANOS alleged abuse of trust (“Apistia”). Three of the then GERMANOS is a party to certain lawsuits before members of the board of directors of COSMOTE, the Court of First Instance regarding franchise agree- are still members of the current board of COSMOTE ments between GERMANOS and the franchisees and two of them are currently senior executives of of the chain GERMANOS. The applicants claim an the Group. The former Chairman and CEO of OTE amount of approximately Euro 35.4. The hearings of was also a member of the board of directors of COS- -126- Annual Financial Report 2010

MOTE at the time. In addition, the investigating judge ing its signing and up to 2004. The substance of these ordered the appointment of two independent account- allegations, is that certain individuals, including em- ing firms to conduct an expert investigation in order ployees of OTE, were given corrupt payments, in ex- to assess whether the consideration for the acquisi- change for failing to carry out appropriate benchmark- tion of GERMANOS (of approximately Euro 1.5 ing of the price paid by OTE for equipment supplied billion for 99.03% of the share capital of GERMA- under this contract. Framework contract 8002/1997 NOS) was reasonable in view of business judgment was signed on December 12, 1997 and related to the and internationally accepted and customary financial supply to OTE by Siemens AG of equipment for the and contractual practices, and whether the acquisition digitalization of the network. In connection with this resulted in financial detriment to COSMOTE, and, in preliminary investigation, the Company has provided that event, to assess the amount of such detriment. to the investigating authorities certain documents The Group has cooperated fully in relation to this in- requested. Following the conclusion of the prelimi- vestigation. nary investigation, criminal charges were filed and an investigating judge was appointed to lead a formal As part of the investigation process, the expert’s re- criminal investigation. To the extent so requested, the port prepared by the independent accounting firms Group has cooperated and intends to continue to co- was submitted to the Investigating Judge on March operate with the competent authorities in relation to 17, 2010 and concluded that the price paid by COS- this investigation. The Group has also taken the nec- MOTE for the acquisition of GERMANOS was fair essary legal action before the investigating judge in and that COSMOTE did not suffer loss or damage as order to assert the Group’s civil rights with respect a result of the acquisition (rather the acquisition was to any damages the Group may have incurred as a to the corporate benefit of COSMOTE). Within 2011, result of any criminal offences committed by either the investigation process was completed and the Dis- third parties, or former and current employees of the trict Attorney’s decision is pending. It is estimated Group. It is understood that, as part of the same in- that the case will be dismissed given that the inves- vestigation, a former senior executive of OTE, was tigation process has indicated that the acquisition of charged for certain criminal offences, including re- GERMANOS was in favor of COSMOTE. ceipt of bribes, and that in May 2009, was remanded Siemens AG case. The District Attorney of Athens in custody pending his trial for the same charge, until has conducted a preliminary investigation in connec- September 2009 when he was released. The allega- tion with allegations of bribery, money laundering and tions concerned relate to this former senior executive other criminal offences committed in Germany and of OTE in his personal capacity, and OTE is not sub- Greece by employees of Siemens AG and a number ject to any civil or criminal proceedings against it in of Greek government officials and other individuals, connection with these allegations. As a result, OTE relating to the award of supply contracts to Siemens was recently permitted access to the documents relat- AG. In connection with the investigation, the District ing to the case, which it is in the process of review- Attorney has investigated, among other matters, the ing. OTE has also instructed independent accountants propriety of, and allegations of criminal conduct in to carry out a analysis of the amount of any possible connection with, a framework contract 8002/1997 claim, and is awaiting the results of their report. In with Siemens AG, and various equipment orders pur- connection with the same matter, OTE has also com- suant to that framework contract in the period follow- menced an action for damages before German Courts -127- Annual Financial Report 2010 and (following OTE’s evaluation of information and OTE has filed an appeal before the Athens Court of documents disclosed by Siemens), an oral hearing is Appeals against this fine which partially accepted expected to occur in mid February 2011 to determine it reducing the fine to Euro 1.0. OTE has appealed the merits of OTE’s claim. against this decision before the Council of State Maintenance contracts case. Following the conclu- which will be heard on November 8, 2011. sion of a preliminary investigation on the matter, an On July 26, 2007 HTPC imposed a fine amounting investigating judge (the 2nd Investigating Judge of Euro 20.1, for alleged abuse of its dominant position Athens) was appointed to lead a formal criminal in- in broadband market in the form of margin squeeze. vestigation into the potential perpetration of offences OTE has filed an appeal before the Athens Court of in connection with the propriety of a technical main- Appeals against this fine which was partially accept- tenance contract with three of OTE’s suppliers. In ed reducing the fine to Euro 10.1. Against this deci- June 2009, the investigating judge initiated criminal sion both OTE and HTPC have appealed before the proceedings against members of OTE’s Board of Di- Council of State which will be heard on November rectors and a member of OTE’s senior management 22, 2011. serving at the time of signing of the relevant contract, On July 26, 2007, HTPC imposed a fine amounting in 2004 and 2005, investigating alleged abuse of Euro 4.0, for violations of the existing legislation trust (“Apistia”). On December 27, 2009, the District concerning compliance with HTPC‘s cost control de- Attorney of Athens proposed to the Judicial Coun- cisions for the year 2003, having as proof wholesale cil that, among others, OTE’s former CEO and the leased lines (including interconnection leased lines). Chairman of OTE’s Audit Committee shall be heard OTE has filed an appeal before the Athens Court of from a court. Appeals against this fine which partially accepted The Judicial Council of Athens accepted the pro- it reducing the fine to Euro 2.5. OTE has appealed posal of the District Attorney of Athens and by the against this decision before the Council of State, 1693/2010 ruling, referred the former CEO of OTE which will be heard on May 10, 2011. (acting in this position until November 3, 2010), and On July 26, 2007, HTPC imposed a fine amounting the CEO of ROMTELECOM (acting in the past as Euro 1.0 for violations in the existing legislation con- OTE’s General Director of Technology) to a first cerning breaches in the obligation to pay penalties for instance hearing before the Three Member Court of delivery delays and repair of leased lines. OTE has Appeal of Athens. Furthermore, for the rest of the ac- filed an appeal before the Athens Court of Appeals cused ordered the cessation of the prosecution. The against this fine which partially accepted it reducing date of the trial has not yet been confirmed. the fine to Euro 0.7. OTE has appealed against this OTE has instructed an independent accountant’s re- decision before the Council of State, which will be port into the pricing of the relevant contracts, and heard on September 20, 2011. based on the accountant’s findings, remains confident On July 26, 2007, HTPC imposed a fine amounting that the allegations are without merit. Euro 1.2, for non-compliance with regard to OTE’s Fines of HTPC against OTE: obligations relating to the Local Loop Unbundling On November 29, 2006, HTPC imposed a fine against (L.L.U). OTE has filed an appeal before the Athens OTE of total amount of Euro 3.0, due to violation of Court of Appeals against this fine which was heard on Number Portability Rules and Competition Rules. March 18, 2009, and a decision was issued reducing -128- Annual Financial Report 2010 the fine to Euro 0.5. OTE has appealed against this Unbundling (L.L.U). OTE appealed against this deci- decision before the Council of State. sion before the Athens Administrative Court of Ap- On October 5, 2007, HTPC imposed a fine for a to- peal demanding its suspension, which was accepted tal amount of Euro 3.0 for alleged non-compliance by the Court and the fine was cancelled. with regard to OTE’s obligations relating to the Local On February 3, 2009, HTPC imposed a fine of Euro Loop Unbundling (L.L.U). Against this decision OTE 2.0 to OTE, for the alleged refusal to provide the in- has filed an appeal demanding its annulment which formation requested for the purpose of price squeez- was heard before the Athens Administrative Court of ing control over the price margins for voice telepho- Appeals on January 20, 2009 but no decision was is- ny. OTE has appealed against this decision, before sued and the hearing was rescheduled for April 12, the Athens Administrative Court of Appeals and the 2011. The payment to the fine has been suspended by appeal was partially accepted reducing the fine to a ruling of the Athens Administrative Court of Ap- Euro 0.8. OTE intends to appeal against this decision peals pending the court’s decision on OTE’s appeal. before the Council of State. On July 4, 2008, HTPC with its relevant decisions On March 17, 2009, HTPC imposed a fine of Euro 7.0 imposed a fine, aggregating to Euro 1.0, for alleged to OTE for allegedly delayed delivery of lease lines late and improper provision of necessary informa- to Hellas On Line S.A. OTE has appealed against this tion related to the combined service “All in 1”. OTE decision, before the Athens Administrative Court of appealed against these decisions before the Athens Appeals and the hearing was rescheduled for April Administrative Court of Appeals requesting their an- 14, 2011. nulment which appeal was accepted and the fine was On March 17, 2009, HTPC imposed a fine of Euro cancelled. 0.5 to OTE for non-compliance with its decision of On July 4, 2008, HTPC imposed a fine, aggregating provisional measures, regarding the delivery of leased to Euro 2.0, for denial of providing information asked circuits to Hellas On Line S.A. OTE has appealed by HTPC. OTE has filed an appeal before the Athens against this decision, before the Athens Administra- Court of Appeals against this fine which partially active Court of Appeals and the hearing was resched- cepted it reducing the fine to Euro 0.1. uled for April 14, 2011. On July 25, 2008, HTPC imposed a fine on OTE for On April 8, 2009, HTPC imposed a fine of Euro 1.5 an amount of Euro 9.0 for alleged obstacles to the to OTE for allegedly delaying the provision of infor- business promotion of the “Double play” service by mation requested from OTE for the purpose of the TELLAS S.A. (fixed telephony with fast Internet cost audit. OTE has appealed against this decision, combination). OTE appealed against this decision before the Athens Administrative Court of Appeals. before the Athens Administrative Court of Appeals On March 23, 2010 a decision was issued reducing which was partially accepted reducing the fine to the fine to Euro 1.0. Euro 5.7. OTE has appealed against this decision be- On May 5, 2009, HTPC imposed a fine of Euro 2.0 fore the Council of State. to OTE for violation of telecommunications law and On October 3, 2008, HTPC imposed a series of fines specifically on the Company’s obligation, as a com- to OTE amounting to approximately Euro 11.0, al- pany with significant market power (SMP) in the rel- leging that OTE has only partially conformed with evant market, to maintain maximum price level at the regard to its obligations relating to the Local Loop retention fee for calls from subscribers of its network -129- Annual Financial Report 2010 to subscribers of mobile network providers. OTE has provisions in relation to litigations and claims, when appealed against this decision, before the Athens Ad- it is probable an outflow of recourses will be required ministrative Court of Appeals. The appeal has been to settle the obligations and it can be reasonably es- postponed and was heard on May 13, 2010. Similar- timated. ly, the above mentioned decision was announced to OTE again and OTE has appealed against it, before B. COMMITMENTS the Athens Administrative Court of Appeals and the Capital commitments for the acquisition of property, appeal will be heard after postponement on May 11, plant and equipment and operating commitments for 2011. rentals, rights of use, repair and maintenance services The Group and the Company have made appropriate and other services are analyzed as follows:

GROUP COMPANY 2010 2009 2010 2009 Capital commitments 163.8 305.5 59.0 44.2 Operating commitments 854.9 721.6 211.3 189.7 TOTAL 1,018.7 1,027.1 270.3 233.9

Further to the above, the Company has operating com- The maturity of these commitments per year are ana- mitments for rental with its wholly owned subsidiary lyzed as follows: OTE ESTATE maturing in September 2013 with an annual rental rate of Euro 61.3, adjustable according to the contractual provisions.

GROUP COMPANY 2010 2009 2010 2009 Up to 1 year 319.0 416.8 87.8 66.4 1 to 5 years 461.3 399.7 151.4 125.1 Over 5 years 238.4 210.6 31.1 42.4 TOTAL 1,018.7 1,027.1 270.3 233.9

31. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT IFRS 7 “Financial Instruments: Disclosures” intro- a) Credit risk duces additional disclosures in order to improve the b) Liquidity risk quality of information provided in order to assess c) Market risk the importance of the financial instruments on the fi- The following tables compare the carrying amount of nancial position of the Group and the Company. The the Group’s and the Company’s financial instruments Group and the Company are exposed to the following to their fair value: risks from the use of their financial instruments: -130- Annual Financial Report 2010

Carrying Amount Fair value GROUP 2010 2009 2010 2009 Financial Assets Available-for-sale 9.0 24.1 9.0 24.1 Held for trading 3.5 3.2 3.7 3.2 Held to maturity - 8.1 - 8.1 Trade receivables 1,010.8 1,153.0 1,010.8 1,153.0 Loans to Auxiliary Fund 136.3 129.4 150.0 132.3 Other loans 127.8 89.4 127.8 89.4 Cash and cash equivalents 1,004.3 868.8 1,004.3 868.8 Derivative financial instruments 6.8 7.4 6.8 7.4 Financial Liabilities Long-term borrowings 3,211.4 5,385.7 3,001.3 5,520.0 Short-term borrowings 2,088.4 36.2 2,081.9 35.5 Trade accounts payable 695.2 813.2 695.2 813.2 Derivative financial instruments 0.3 4.3 0.3 4.3

Carrying Amount Fair value COMPANY 2010 2009 2010 2009 Financial Assets Available-for-sale 2.1 16.3 2.1 16.3 Trade receivables 534.8 608.0 534.8 608.0 Loans to Auxiliary Fund 136.3 129.4 150.0 132.3 Other loans 127.7 89.3 127.7 89.3 Cash and cash equivalents 189.0 224.0 189.0 224.0 Financial Liabilities Long-term borrowings 1,715.4 2,930.1 1,639.8 3,035.1 Short-term borrowings 1,119.1 - 1,117.7 - Trade accounts payable 351.5 373.1 351.5 373.1

The fair value of cash and cash equivalents, trade Fair value hierarchy receivables and trade accounts payable approximate The Group uses the following hierarchy for determin- their carrying amounts. The fair value of quoted ing and disclosing the fair value of financial instru- shares and bonds is based on price quotations at the ments by valuing technique: reporting date. The fair value of unlisted financial in- Level 1: quoted (unadjusted) prices in active markets struments is determined by discounting future cash for identical assets or liabilities. flows. Level 2: other techniques for which all inputs which -131- Annual Financial Report 2010 have a significant effect on the recorded fair value are between level 1 and level 2 fair value measurement, observable, either directly or indirectly. and no transfers into and out of level 3 fair value mea- Level 3: techniques which use inputs which have a surement. significant effect on the recorded fair value that are As at December 31, 2010, the Group and the Compa- not based on observable market data. ny held the following financial instruments measured During the reporting period there were no transfers at fair value:

Fair value GROUP 2010 2009 Fair value hierarchy Financial Assets Available-for-sale shares 0.1 14.3 Level 1 Available-for-sale mutual funds 3.6 4.0 Level 1 Available-for-sale securities 5.3 5.8 Level 3 Held for trading bonds 3.7 3.2 Level 1 Other loans 127.8 89.4 Level 2 Derivative financial instruments 6.8 7.4 Level 2 Financial Liabilities Derivative financial instruments 0.3 4.3 Level 2

Fair value COMPANY 2010 2009 Fair value hierarchy Financial Assets Available-for-sale shares - 14.0 Level 1 Available-for-sale mutual funds 2.1 2.3 Level 1 Other loans 127.7 89.3 Level 2 a) Credit risk amounts receivable from the telecommunication ser- Credit risk is the risk of financial loss to the Group vice providers, due to their relatively small number and the Company if counterparty fails to meet its con- and the high level of transactions they have with the tractual obligations. Group and the Company. For this category the Group The carrying value of financial assets at each report- and the Company assess the credit risk following the ing date is the maximum credit risk to which the established policies and procedures and make the ap- Group and the Company are exposed. propriate provision for impairment (see Note 10). Trade receivables could potentially adversely affect The Group and the Company have established spe- the liquidity of the Group and the Company. How- cific credit policies under which customers are ana- ever, due to the large number of customers and the lyzed for creditworthiness and there is an effective diversification of the customer base, there is no con- management of receivables in place both before and centration of credit risk with respect to these receiv- after they become overdue and doubtful. In moni- ables. Concentration of risk is considered to exist for toring credit risk, customers are grouped according -132- Annual Financial Report 2010 to their credit risk characteristics, aging profile and due to the Voluntary Leave Scheme (see Note 18). existence of previous financial difficulties. Custom- The above mentioned loans are not considered to ers that are characterized as doubtful are reassessed expose the Group and the Company to a significant at each reporting date for the estimated loss that is credit risk. expected and an appropriate impairment allowance is b) Liquidity risk established. Liquidity risk is the risk that the Group or the Compa- Cash and cash equivalents are considered to be ex- ny will not be able to meet their financial obligations posed to a high level of credit risk, in light of the as they fall due. Liquidity risk is kept at low levels by macroeconomic conditions placing significant pres- ensuring that there is sufficient cash on demand and sure on the banks. The Group and the Company fol- credit facilities to meet the financial obligations when low cash management guidelines, while both country due. The Group’s and the Company’s cash and cash and counterparty exposures are centrally monitored. equivalents as at December 31, 2010 amounts to Euro Most of the Group’s cash is invested in highly rated 1,004.3 and Euro 189.0 respectively and their debt counterparties and with a very short term tenor. amounts to Euro 5,299.8 and Euro 2,834.5, respec- Financial instruments classified as available-for-sale tively. With respect to the Notes maturing in 2011, and held-for-trading include listed shares, mutual the Group’s refinancing strategy will combine the use funds and other securities. The financial asset catego- the Group’s excess liquidity, capital markets issuance ries are not considered to expose the Group and the or syndicated banks loan or a shareholder loan from Company to a significant credit risk. DEUTSCHE TELEKOM AG (see Note 33). Loans include loans to employees which are collected For the monitoring of the liquidity risk, the Group either through the payroll or are netted-off with their prepares forecasted cash flows on a frequent basis. retirement indemnities (see Notes 9, 12 and 18) and The analysis of the undiscounted contractual pay- loans and advances to Auxiliary Pension Fund mainly ments of the Group and the Company is as follows:

GROUP

December 31, 2010 Less than 1 year 1 to 2 years 2 to 5 years Over 5 years Total Medium term bonds OTE PLC 2,290.2 140.1 2,138.4 941.6 5,510.3 Syndicated loan OTE PLC 34.4 450.0 - - 484.4 Borrowings - ROMTELECOM 9.8 9.5 12.4 11.3 43.0 Other borrowings 5.6 - - - 5.6 Trade accounts payable 695.2 - - - 695.2 TOTAL 3,035.2 599.6 2,150.8 952.9 6,738.5

December 31, 2009 Less than 1 year 1 to 2 years 2 to 5 years Over 5 years Total Medium term bonds OTE PLC 245.1 2,395.1 1,607.9 1,619.3 5,867.4 Syndicated loan OTE PLC 30.8 33.8 448.7 - 513.3 Borrowings - ROMTELECOM 8.4 9.1 16.9 12.6 47.0 Other borrowings 3.3 - - - 3.3 Trade accounts payable 813.2 - - - 813.2 TOTAL 1,100.8 2,438.0 2,073.5 1,631.9 7,244.2 -133- Annual Financial Report 2010

The Group has excluded derivative financial instru- Guarantees ments from the above analysis. ΟΤΕ has guaranteed the borrowings of its subsidiary, OTE PLC as follows: >> As at December 31, 2010: Euro 5,267.6 >> As at December 31, 2009: Euro 5,400.0 COMPANY

December 31, 2010 Less than 1 year 1 to 2 years 2 to 5 years Over 5 years Total Intercompany loans (ΟΤΕ PLC) 1,273.1 94.5 1,884.7 - 3,252.3 Trade accounts payable 351.5 - - - 351.5 TOTAL 1,624.6 94.5 1,884.7 - 3,603.8

December 31, 2009 Less than 1 year 1 to 2 years 2 to 5 years Over 5 years Total Intercompany loans (ΟΤΕ PLC) 158.1 1,378.0 1,343.1 636.1 3,515.3 Trade accounts payable 373.1 - - - 373.1 TOTAL 531.2 1,378.0 1,343.1 636.1 3,888.4 c) Market risk i. Interest rate risk Market risk is the risk that changes in market prices, Interest rate risk is the risk that payments for interest such as foreign exchange rates, interest rates and eq- on loans fluctuate due to changes in interest rates. uity prices will result in fluctuations of the value of The hedging of interest rate risk is managed through a the Group’s and the Company’s financial instruments. combination of fixed and floating rate borrowings as The objective of market risk management is to man- well as with the use of interest rate swap agreements. age and control exposure within acceptable levels. As of December 31, 2010, the ratio of fixed-rate bor- The individual risks that comprise market risk are de- rowings to floating-rate borrowings for the Group scribed in further detail and the Group’s and the Com- was 91%/9% (2009: 91%/9%). The analysis of bor- pany’s policies for managing them are as follows: rowings by type of the interest rate is as follows:

GROUP COMPANY 2010 2009 2010 2009 Floating interest rate 479.8 503.3 - - Fixed interest rate 4,820.0 4,918.6 2,834.5 2,930.1 TOTAL 5,299.8 5,421.9 2,834.5 2,930.1

As of December 31, 2010, one interest rate swap The following table demonstrate the sensitivity to a agreement was outstanding, namely a fixed-to-float- reasonable possible change in interest rates on loans, ing swap with a notional amount of Euro 65.0 used deposits and derivatives to the income statement. by OTE PLC. The post hedging fixed to floating ratio Sensitivity to an interest rates increase of 1%: is 90%/10%. -134- Annual Financial Report 2010

GROUP COMPANY 2010 2009 2010 2009 Profit before tax 5.2 4.7 1.9 2.2

If interest rates were to decrease by 1%, the impact cember 31, 2009: Euro 500.0) which are treated as would be similar and opposite to the analysis above. part of the net investment of the foreign operation as ii. Foreign currency risk settlement is neither planned nor probable in the fore- Currency risk is the risk that the fair values or the seeable future. cash flows of a financial instrument fluctuate due to Capital Management foreign currency changes. The primary objective of the Group’s and the Com- The Group operates in Southeastern Europe and as a pany’s capital management is to ensure that it main- result is exposed to currency risk due to changes be- tains a strong credit rating and healthy capital ratio tween the functional currencies and other currencies. in order to support its business plans and maximize The main currencies within the Group are the Euro, shareholder value. Ron (Romania) and the Lek (Albania). The following The Group and the Company manage their capi- table demonstrates the sensitivity to a reasonably pos- tal structure and make adjustments to it, in light of sible change in the functional currency exchange rate, changes in economic conditions. To maintain or ad- with all other variables held constant, of the Group’s just the capital structure, the Group and the Company profit before tax (due to changes in the fair value of may adjust the dividend payment to shareholders, re- monetary assets and liabilities): turn capital to shareholders or issue new shares. An important means of managing capital is the use of Effect on profit before tax Change in functional the gearing ratio (ratio of net debt to equity) which is currency exchange rate 2010 2009 monitored at a Group level. Net Debt includes inter- +10% 32.5 12.4 est bearing loans and notes, less cash and cash equiv- -10% (32.5) (12.4) alents and other financial assets. The table below shows an increase in the gearing ratio As of December 31, 2010, COSMOTE ROMANIA in 2010 compared to 2009 mainly due to a decrease in had Euro 590.0 loans payable to COSMOTE (De- equity, partially offset by a decrease in net debt:

GROUP December 31 Net debt 2010 20091 Borrowings 5,299.8 5,421.9 Cash and cash equivalents (1,004.3) (868.8) Other financial assets (12.5) (35.4) Net debt 4,283.0 4,517.7 Equity 1,652.6 1,884.1 Gearing ratio 2.59x 2.40x

1Adjusted due to change in accounting policy (see Note 32). -135- Annual Financial Report 2010

32. CHANGE IN hidden reserves and liabilities are realized and the fi- ACCOUNTING POLICY AND nancial statements thus provide more relevant infor- RECLASSIFICATIONS mation. The corresponding prior-year comparatives have been adjusted accordingly. Effective January 1, 2010 OTE changed its account- In addition, interest cost arising from the benefit plans ing policy concerning provisions for pensions and will be classified in “Interest expense” rather than in other employee benefits and adopted the third op- “Provision for staff retirement indemnities and youth tion available under IAS 19.93A, which allows for actuarial gains and losses to be recognized directly in account” as inclusion in finance costs better reflects equity. This step is a voluntary change in accounting the nature of that component of pension cost. policies (IAS 8.14). OTE believes that fully recogniz- The impact of the change in accounting policies on ing actuarial gains and losses when they occur results profit for the year, equity, and provisions for pensions in a better presentation of the financial position, since in prior years is analyzed as follows:

2009 Profit FOR THE YEAR GROUP COMPANY Profit before change in accounting policy 400.7 277.5 Reversal of actuarial (gains) / losses previously recognized in the income statement 9.3 8.2 Adjustment of income taxes (2.4) (2.1) Profit after change in accounting policy 407.6 283.6

GROUP COMPANY EQUITY 31/12/2009 1/1/2009 31/12/2009 1/1/2009 Equity before change in accounting policy 1,979.7 2,173.2 3,444.5 3,524.0 Allocation of unrecognized actuarial gains / (losses) to retained earnings (130.0) (124.2) (130.0) (122.7) Reversal of actuarial gains / (losses) recognized in the income statement 9.3 8.2 8.2 6.4 Change in deferred tax assets recognized in retained earnings 27.5 26.4 27.2 25.9 Change in deferred tax assets recognized in the income statement (2.4) (2.0) (2.1) (1.5) Equity after change in accounting policy 1,884.1 2,081.6 3,347.8 3,432.1

GROUP COMPANY PROVISION FOR STAFF RETIREMENT INDEMNITIES 31/12/2009 1/1/2009 31/12/2009 1/1/2009 Provision before change in accounting policy 266.5 254.9 241.6 233.8 Allocation of unrecognized actuarial gains / (losses) to retained earnings 53.1 58.1 53.1 56.6 Reversal of actuarial gains / (losses) recognized in the income statement (2.8) (2.8) (1.7) (1.0) Provision after change in accounting policy 316.8 310.2 293.0 289.4 -136- Annual Financial Report 2010

GROUP COMPANY PROVISION FOR YOUTH ACCOUNT 31/12/2009 1/1/2009 31/12/2009 1/1/2009 Provision before change in accounting policy 282.3 286.3 282.3 286.3 Allocation of unrecognized actuarial gains / (losses) to retained earnings 86.1 61.5 86.1 61.5 Reversal of actuarial gains / (losses) recognized in the income statement (6.5) (5.4) (6.5) (5.4) Provision after change in accounting policy 361.9 342.4 361.9 342.4

GROUP COMPANY

PROVISION FOR PHONE CREDITS 31/12/2009 1/1/2009 31/12/2009 1/1/2009 Provision before change in accounting policy 36.1 37.0 36.1 37.0 Allocation of unrecognized actuarial gains / (losses) to retained earnings (9.2) 4.6 (9.2) 4.6 Provision after change in accounting policy 26.9 41.6 26.9 41.6

In the consolidated income statement for 2009, an drawdown of the amount of Euro 332.0 under the in- amount of Euro 25.2 which was included in “Other tercompany loan from OTE PLC. revenue” and an amount of Euro 2.7 which was in- New Euro 150.0 Revolving Credit Facility granted cluded in “Other operating expenses” were reclassi- by DEUTSCHE TELEKOM AG fied to the new line “Other income/ (expense), net”. On January 31, 2011 OTE PLC signed a Euro In the separate income statement for 2009, an amount 150.0 Revolving Credit Facility with DEUTSCHE of Euro 2.3 which was included in “Other operating TELEKOM AG with the guarantee of OTE, matur- expenses” was reclassified to the new line “Other in- ing on January 31, 2012 which remains undrawn as a come/ (expense), net”. liquidity reserve. New Euro 900.0 Revolving Credit Facility (Bond 33. EVENTS AFTER THE Loan) FINANCIAL POSITION DATE On February 9, 2011, OTE signed a Euro 900.0 Re- The most significant events after December 31, 2010 volving Credit Facility (Bond Loan) with a consor- are as follows: tium of banks. The facility has a tenor of 2 years with a 1-year extension option at the discretion of the DEBT REFINANCING banks. The facility bears floating interest rate where Drawdown of existing Euro 332.0 Revolving Credit the margin is dependent on OTE credit rating assigned Facility by Moody’s and Standard & Poor’s as well as on the On January 26, 2011 OTE PLC drew in full the Euro facility’s utilization. Any undrawn amounts will bear 332.0 Revolving Credit Facility under the Euro 850.0 a commitment fee. Syndicated Facility. The facility bears floating inter- On February 10, 2011, OTE drew Euro 600.0 and est rate. used the proceeds for the repayment of the loan from Intercompany loans from OTE PLC OTE PLC maturing on February 13, 2011. The re- On January 26 2011, OTE proceeded with the full -137- Annual Financial Report 2010 maining undrawn amount Euro 300.0 serves as a li- Redemption of Euro 1,400.4 Notes due February quidity reserve. 2011 The facility contains a change of control clause which In January 2011 and February 2011, OTE PLC pro- is triggered if an entity (other than DEUTSCHE ceeded with partial repurchases of total nominal TELEKOM AG, DEUTSCHE TELEKOM AG to- amount of Euro 29.7 under the notes due Febru- gether with the Hellenic Republic, or any telecom- ary 2011. The total amount paid including accruals munication operator based in Greece or abroad with amounts to Euro 31.2. On February 14, 2011, OTE rating equivalent or better than DEUTSCHE TEL- PLC proceeded with the full redemption of the re- EKOM AG) gains control of OTE. maining outstanding amount of Euro 1,370.7 notes The facility also includes two financial covenants, along with the payment of accrued interest. namely: DERIVATIVES >> The ratio of Group Net Borrowings to Group In January 2011, ROMTELECOM proceeded with EBITDA should not exceed 3:1 at all times and the conclusion of two additional Euro / Korean Won >> The ratio of Group EBITDA to Group Net Interest FX Non Deliverable Forward (NDF) agreements Payable should exceed 5:1 at all times. with the purpose of hedging the remaining exposure Repayments of intercompany loans granted from in Korean Won currency stemming from its outstand- OTE PLC ing loans in Korean Won. The notional amount of the >> In January and February 2011, OTE proceeded above NDFs was equivalent to Euro 10.6. with the gradual repayment of the remaining Bond Buyback by OTE PLC outstanding balance of Euro 970.4 under the On February 21, 2011, OTE PLC repurchased Euro intercompany facility maturing on February 13, 5.0 of the Euro 900.0 4.625% Notes due on May 20, 2011, along with accrued interest due. 2016. The repurchased Notes have been cancelled. >> On February 11, 2011 OTE proceeded with a partial prepayment of Euro 88.0 under the inter- CAPITAL REDUCTION OF SUBSIDIARIES company loan maturing in August 2013, along In January 2011 OTE received from its subsidiaries with accrued interest. the amounts arising from their share capital reduction Bonds issued by OTE PLC reducing the carrying value of its investments by the equivalent amounts. Specifically, OTE received from In February 2011, the following bonds were issued HELLASCOM Euro 4.0, from OTE ESTATE Euro by OTE PLC under its Global Medium-Term Note 40.9, from OTESAT-MARITEL Euro 6.6, from OTE Program with the guarantee of OTE, amounting to INSURANCE Euro 0.5 and from OTE INTERNA- Euro 146.0 and subscribed by the following Group TIONAL INVESTMENTS LTD Euro 30.0. companies: >> On February 2, 2011, Euro 42.1 bond subscribed OTE PROPERTIES DISSOLUTION AND by HELLAS-SAT, maturing in September 2011, LIQUIDATION >> On February 7, 2011, Euro 53.9 bond subscribed In February 2011, the Extraordinary General Assem- by OTE INTERNATIONAL INVESTMENTS LTD, bly of Shareholders of OTE PROPERTIES (OTE maturing in September 2011, and ESTATE’s wholly-owned subsidiary) has decided to >> On February 9, 2011 Euro 50.0 bond subscribed proceed with the dissolution and liquidation of OTE by ROMTELECOM, maturing in November 2011. PROPERTIES. -138- Annual Financial Report 2010 -139- Annual Financial Report 2010

Chapter 5 FINANCIAL DATA AND INFORMATION

HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. ΑR.ΜΑΕ 347/06/Β86/10 REGISTERED OFFICE: 99 KIFFISIAS AVE - 15124 MAROUSI, ATHENS FINANCIAL DATA AND INFORMATION FOR THE PERIOD FROM JANUARY 1, 2010 TO DECEMBER 31, 2010 (Published in accordance with law 2190/1920, art.135 for Companies preparing annual consolidated and separate financial statements, in accordance with I.F.R.S.)

The purpose of the following information and financial data is to provide users with general financial information about the financial position and the results of operations of HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A (“Company”) and the OTE Group (“Group”). Therefore, we recommend the users of the financial data and information, before making any investment decision or proceeding to any transaction with the Group or the Company, to obtain the necessary information from the website, where the consolidated and separate financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the E.U., are available, together with the auditors’ report, when required Supervising Authority : Ministry of Development, Societe Composition of the Board of Directors: Anonyme and Credit Division 1. Michael Tsamaz, Company's Web Site : www.ote.gr Chairman and Managing Director, Executive Member Date of approval of financial statements 2. Dimitrios Tzouganatos, from the Board of Directors: February 24, 2011 Vice-Chairman, Independent Non-Executive Member 3. Kevin Copp, The Certified Auditors: Executive Member Chris Pelendridis RN ICA(GR): 17831 4. Guido Kerkhoff, George Anastopoulos RN ICA(GR): 15451 Non - Executive Member 5. Rainer Martin Maximilian Rathgeber, Auditing Company: Non - Executive Member ERNST & YOUNG (HELLAS) Certified Auditors 6. Eustathios Anestis, Accountants S.A. SOEL REG: No 107 Non - Executive Member Type of Auditor's Opinion: Unqualified 7. Nikolaos Karamouzis, Non - Executive Member 8. Michael Bletsas, Independent, Non - Executive Member 9. Panagiotis Tabourlos, Independent, Non - Executive Member 10. Vasileios Fourlis, Independent, Non - Executive Member -140- Annual Financial Report 2010

DATA FROM STATEMENT OF FINANCIAL POSITION (CONSOLIDATED AND SEPARATE)

Amounts in millions of Euro GROUP COMPANY 31.12.2010 31.12.2009 31.12.2010 31.12.2009 ASSETS Property, plant and equipment 5.061,9 5.596,2 1.864,0 2.026,7 Intangible assets 1.359,8 1.465,9 2,1 2,5 Other non current assets 697,8 717,5 5.220,2 5.219,3 Inventories 160,8 229,1 27,9 31,1 Trade receivables 1.010,8 1.153,0 534,8 608,0 Other current assets 242,4 291,0 110,7 125,0 Cash and cash equivalents 1.004,3 868,8 189,0 224,0 TOTAL ASSETS 9.537,8 10.321,5 7.948,7 8.236,6

EQUITY AND LIABILITIES Share capital 1.171,5 1.171,5 1.171,5 1.171,5 Other equity items (71,9) (45,1) 2.198,9 2.176,3 Equity attributable to shareholders of the parent (a) 1.099,6 1.126,4 3.370,4 3.347,8 Non-controlling interests (b ) 553,0 757,7 - - Total equity (c) = (a) + (b) 1.652,6 1.884,1 3.370,4 3.347,8 Long-term borrowings 3.211,4 5.385,7 1.715,4 2.930,1 Provisions / Other non current liabilities 747,7 973,4 626,4 800,6 Short-term borrowings 2.088,4 36,2 1.119,1 - Other current liabilities 1.837,7 2.042,1 1.117,4 1.158,1

Total liabilities (d) 7.885,2 8.437,4 4.578,3 4.888,8 TOTAL EQUITY AND LIABILITIES (c) + (d) 9.537,8 10.321,5 7.948,7 8.236,6 -141- Annual Financial Report 2010

DATA FROM STATEMENT OF COMPREHENSIVE INCOME (CONSOLIDATED AND SEPARATE)

Amounts in millions of Euro GROUP COMPANY 01.01- 01.01- 01.01- 01.01- 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Total revenue 5.482,8 5.958,9 2.169,8 2.412,4 Profit before taxes, investment and financial activities 384,9 1.043,0 142,2 345,7 Profit before tax 99,9 790,0 152,4 420,3 Profit / (loss) after tax (A) (139,0) 407,6 60,9 283,6 Attributable to: - Owners of the parent 39,6 410,9 60,9 283,6 - Non controlling interests (178,6) (3,3) - - Other comprehensive income / (loss) after tax (B) 1,2 (186,3) 42,8 (7,5) Total comprehensive income / (loss) after tax (A)+(B) (137,8) 221,3 103,7 276,1 Attributable to: - Owners of the parent 54,3 272,8 103,7 276,1 - Non controlling interests (192,1) (51,5) - - Basic earnings per share (in €) 0,0808 0,8383 Proposed dividend per share (in €) Not available 0,19 Profit before taxes, investment, financial activities and depreciation, amortization and impairment 1.747,9 2.198,3 516,4 770,1

DATA FROM STATEMENT OF CHANGES IN EQUITY (CONSOLIDATED AND SEPARATE)

Amounts in millions of Euro GROUP COMPANY 01.01- 01.01- 01.01- 01.01- 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Total equity at the beggining of the year (01.01.2010 and 01.01.2009) 1.884,1 2.081,6 3.347,8 3.432,1 Total comprehensive income / (loss) after tax (137,8) 221,3 103,7 276,1 Share-based payments 5,5 7,2 5,5 7,2 Dividends (105,7) (367,6) (93,1) (367,6) Withholding tax related to dividend paid out of dividend income subject to withholding tax 6,5 - 6,5 - Net change of participation in subsidiaries - (48,4) - - Obligation to acquire non-controlling interests - (10,0) - - Total equity at the end of the year (31.12.2010 and 31.12.2009) 1.652,6 1.884,1 3.370,4 3.347,8 -142- Annual Financial Report 2010

DATA FROM STATEMENT OF CASH FLOWS (CONSOLIDATED AND SEPARATE)

Amounts in millions of Euro GROUP COMPANY 01.01- 01.01- 01.01- 01.01- 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Cash flows from operating activities Profit before tax 99,9 790,0 152,4 420,3 Adjustments for: Depreciation, amortization and impairment 1.363,0 1.155,3 374,2 424,4 Share-based payment 5,5 7,2 2,4 2,9 Cost of early retirement program 171,5 (30,3) 144,7 (38,9) Provisions for staff retirement indemnities and youth account 38,8 53,4 35,2 51,0 Provisions for doubtful accounts 125,6 107,0 25,9 28,0 Other provisions (3,4) - (4,3) - Foreign exchange differences, net 12,1 (10,2) 0,5 (2,7) Interest income (25,7) (61,6) (8,4) (17,4) Dividend income (14,2) (9,6) (206,1) (312,1) (Gains) / losses and impairments of investments 4,6 (23,6) 4,7 0,8 Release of EDEKT fund prepayment 35,2 35,2 35,2 35,2 Interest expense 308,2 358,0 199,1 256,8 Working capital adjustments: Decrease / (increase) in inventories 68,3 (27,3) 3,2 1,1 Decrease / (increase) in accounts receivable 32,9 (75,7) 12,9 39,9 (Decrease) in liabilities (except borrowings) (212,3) (72,1) (36,5) (92,0) Plus/ (Minus): Payment of early retirement programs (205,0) (130,3) (178,2) (121,7) Payment of staff retirement indemnities and youth account, net of employees’ contributions (85,4) (88,3) (83,9) (87,1) Interest and related expenses paid (256,0) (276,4) (161,7) (208,4) Income taxes paid (353,2) (299,3) (129,6) (83,7) Settlement of receivables due from disposed subsidiaries - 16,6 - - Net cash flows from operating activities (a) 1.110,4 1.418,0 181,7 296,4 -143- Annual Financial Report 2010

Amounts in millions of Euro GROUP COMPANY 01.01- 01.01- 01.01- 01.01- 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Cash flows from investing activities Acquisition of non-controlling interest (7,9) (48,4) - - Acquisition of subsidiary net of cash acquired (2,0) (197,8) - - Purchase of financial assets (69,8) (308,0) - (290,6) Sale or maturity of financial assets 84,0 412,2 7,1 397,3 Loans granted (30,0) - (30,0) - Repayments of loans receivable 9,7 9,7 9,7 55,9 Loans proceeds in conjunction with disposal of subsidiaries - 78,5 - - Purchase of property, plant and equipment and intangible assets (751,1) (890,9) (224,9) (272,6) Proceeds from disposal of subsidiaries - 86,1 - - Interest received 23,5 61,6 6,5 14,6 Dividends received 10,1 6,9 203,0 308,4 Return of capital invested in subsidiary - - - 116,2 Settlement of other current liabilities - (168,5) - - Net cash flows from / (used in) investing activities (b) (733,5) (958,6) (28,6) 329,2

Cash flows from financing activities Proceeds from short-term borrowings 2,3 - - - Repayment of loans (139,7) (637,1) (99,6) (378,9) Dividends paid to Company’s owners (88,5) (367,2) (88,5) (367,2) Dividends paid to non-controlling interests (12,6) (1,2) - - Net cash flows from / (used in) financing activities (c) (238,5) (1.005,5) (188,1) (746,1) Net increase / (decrease) in cash and cash equivalents (a) + (b) + (c) 138,4 (546,1) (35,0) (120,5)

Cash and cash equivalents at the beginning of the year 868,8 1.427,8 224,0 344,5 Net foreign exchange differences (2,9) (14,8) - - Cash and cash equivalents classified as held for sale/ disposed of - 1,9 - - Cash and cash equivalents at the end of the year 1.004,3 868,8 189,0 224,0 -144- Annual Financial Report 2010

ADDITIONAL DATA AND INFORMATION As for the Company, it relates to € 47.6 million 1) The companies which are included in the annual (net of deferred taxes) and the net movement of financial statements (consolidated and separate), available for sale securities € (4.8) million. their country, the Group’s participating interest 7) Effective February 6, 2009, the financial state- direct and indirect) and the method of consolida- ments are included in the consolidated financial tion, are presented in Notes 1 and 8 of the finan- statements of DEUTSCHE TELEKOM AG (full cial statements. consolidation method), which has its registered 2) The fiscal years that are unaudited by the tax office in Germany and holds a 30.00% plus one authorities for the Company and the Group’s share interest in OTE as of December 31, 2010. subsidiaries and the results of the tax audits com- 8) The Company’s transactions with its related par- pleted, are presented in Note 21 of the financial ties as defined in IAS 24, are analyzed as follows: statements. Sales and purchases of goods and services for 3) The event relating to acquisitions and disposals the year 2010, amounted to € 190.9 million and for the Group and the Company that occurred € 310.6 million, respectively. Interest expense during 2010 is presented below: In July 2010, for the year 2010 amounted to € 161.0 million. COSMOTE acquired a further 2.18% of AMC for The outstanding balance of receivables and an amount of approximately Euro 7.9 million. As payables from/to related parties as of Decem- a result of the above transaction, as of December ber 31, 2010 derived from current transactions 31, 2010, COSMOTE holds directly a 14.76% amounted to € 128.7 million and € 195.4 million, stake in AMC’s share capital and directly or indi- respectively. The outstanding balance of € 195.4 rectly 97.21% of AMC. million, respectively. The outstanding balance 4) The outcome of pending litigation and claims is of payables to related parties from the loans not expected to have a material impact on the granted amounted to € 2,938.0 million. Fees paid financial statements. The amount of provisions to the members of the Board of Directors of the that have been established as of December 31, Company and the Company’s key management 2010 for litigations and other risks, as well as personnel compensation charged to the Income for unaudited tax years are as follows: a) for the Statement for the year 2010, amount to € 4.3 Group € 92.3 million and € 23.4 million respec- million. Based on OTE’s share option plan, until tively and b) for the Company € 91.3 million and December 31, 2010, 2,462,489 stock options € 12.0 million respectively. have been granted to key management person- 5) Number of employees at the end of the year: nel. At Group level sales and purchases of goods Group 31,088 (31.12.2009: 32,864), Company and services, between related parties which are 10,925 (31.12.2009: 11,369). not eliminated, or the year 2010 amounted to € 6) Other comprehensive income / (loss) after tax for 23.5 million and € 14.2 million, respectively. The the year 2010 which was recognized directly in outstanding balance of receivables and payables, equity for the Group, relates to foreign currency between related parties which are not eliminated, translation € (45.4) million, actuarial gains € as of December 31, 2010 derived from operat- 44.8 million (net of deferred taxes), net movement ing transactions amounted to € 7.0 million and € of available for sale investments € (5.0) million 12.7 million, respectively. and the impact of cash flow hedge € 6.8 million. 9) Basic earnings per share were calculated based -145- Annual Financial Report 2010

on the weighted average number of shares out- of pension cost. The impact of the change in ac- standing. counting policy is presented in Note 32 of the fi- 10)Effective January 1, 2010 OTE changed its nancial statements. In June 2010 the valuation of accounting policy concerning provisions for pen- the net assets of ZAPP, which has been acquired sions and other employee benefits and adopted on October 31, 2009 was completed. The impact the third option available under IAS 19.93A, of the adjustment due to the finalization of the which allows for actuarial gains and losses to purchase price allocation of ZAPP is presented in be recognized directly in equity. The correspond- Note 8 of the financial statements. ing prior-year comparatives have been adjusted 11) OTE’s Board of Directors has not yet decided on accordingly. In addition interest cost arising the proposed dividend distribution from the 2010 from the benefit plans are classified in “inter- profits. est expense” rather than in “provision for staff 12)The most signicant events that have occurred af- retirement indemnities and youth account” as ter December 31, 2010 are presented in the Note this better reflects the nature of that component 33 of the financial statements.

Athens, February 24, 2011

CHAIRMAN AND BOARD MEMBER AND OTE CHIEF FINANCIAL CHIEF ACCOUNTING MANAGING DIRECTOR GROUP OFFICER OFFICER

MICHAEL TSAMAZ KEVIN COPP GEORGE MAVRAKIS KONSTANTINOS VASILOPOULOS I.D. Number AB 516212 I.D. Number 446059212 I.D. Number T 004893 I.D.Number Π 529399 License Number 032033

-146- Annual Financial Report 2010

Chapter 6 INFORMATION PURSUANT TO ARTICLE 10 OF LAW 3401/2005

The table below incorporates by reference the infor- during year 2010, as well as during the first months of mation of Article 10 of Law 3401/2005 regarding the 2011, in compliance with its obligations under Com- Company, its shares and the securities market, which munity and National Legislation. have been published and made available to the public

Resolutions of General Assemblies of Shareholder 23/12/2010 Extraordinary General Assembly Resolutions. 23/07/2010 Extraordinary General Assembly EGM Resolutions. 28/06/2010 Repeated Annual Ordinary General Assembly Resolutions. 16/06/2010 Annual Ordinary General Assembly Resolutions. Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

Invitations to General Assemblies of Shareholder 02/12/2010 Invitation for Extraordinary General Assembly to be held on December 23, 2010. 30/06/2010 Invitation for Extraordinary General Assembly to be held on July 23, 2010. 25/05/2010 Invitation for Annual Ordinary General Assembly to be held on June 16, 2010. Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

Dividend 06/07/2010 Dividend Payment. 17/06/2010 Dividend Information. 07/06/2010 OTE’s Board of Directors dividend proposition to the Annual Ordinary General Assembly. Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

Corporate Actions 11/02/2011 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on February 9, 2011 sold 70,000 shares of OTE. 10/02/2011 Announcement of Regulated Information: OTE announces that, it signed an agreement for a 900 million Euros Revolving Credit Ordinary Bond Loan facility with a consortium of 8 Greek and 8 International Banks. -147- Annual Financial Report 2010

07/12/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on December 3, 2010 sold 30,000 shares of OTE. 06/12/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the Bod, on December 1, 2010 purchased 30,702 shares of OTE and on December 2, 2010 purchased 80,000 shares of OTE. 06/12/2010 Announcement of Regulated Information: Mr Michael Tsamaz, Chairman of the Board of Directors and CEO of OTE, on December 3, 2010 purchased 10,000 shares of OTE. 02/12/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on November 30, 2010 purchased 49,710 shares of OTE. 01/12/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on November 29, 2010 purchased 30,000 shares of OTE. 30/11/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on November 25, 2010 purchased 41,683 shares of OTE and on November 26, 2010 purchased 27,905 shares of OTE. 03/11/2010 Announcement of Regulated Information- The Board of Directors during its meeting on November 3, 2010 elected Michael Tsamaz as member in replacement of Panagis Vourloumis. 27/10/2010 Announcement of Regulated Information: EFG Eurobank Ergasias SA, where Mr Karamouzis, member of the Board of Directors of OTE SA, is Deputy CEO and Executive Member of the BoD, on October 25, 2010 sold 265,000 shares of OTE. 31/08/2010 Announcement of Regulated Information: Mr Panagis Vourloumis, Chairman of the Board of Directors and CEO of OTE, on August 27, 2010 purchased 10,000 shares of OTE. 14/06/2010 Announcement of Regulated Information: Mr Konstantinos Christopoulos, member of management of OTE, on June 10, 2010 purchased 2,000 shares of OTE. 10/06/2010 Announcement of Regulated Information: Mr Panagis Vourloumis, Chairman of the Board of Directors and CEO of OTE, on June 9, 20210 purchased 45,580 shares of OTE. 04/06/2010 Announcement of Regulated Information: Mr Konstantinos Christopoulos, member of management of OTE, on May 21, 2010 purchased 7,500 shares of OTE and on May 25, 2010 purchased 4,500 shares of OTE. 25/05/2010 Announcement of Regulated Information: Mr Dimitrios Vasileiou, member of management of OTE, on May 19, 2020 purchased 8,000 shares of OTE. Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

Press Releases 21/02/2011 Financial Calendar 2011 16/02/2011 Announcement of Regulated Information: The Hellenic Telecommunications Organization SA (OTE SA) announces organizational changes effective February 17, 2011. 11/02/2011 Q4 2010 Financial Results announcement - Conference call details. 10/02/2011 OTE SA announces that, it signed an agreement for a 900 million Euros Revolving Credit Ordinary Bond Loan facility with a consortium of 8 Greek and 8 International Banks. 09/02/2011 The Extraordinary General Meeting of Shareholders of OTE Properties REIC, subsidiary of OTE Estate decided to proceed with its dissolution and liquidation. -148- Annual Financial Report 2010

31/01/2011 The Ministry of Labor and Social Insurance notified OTE on 28.1.2011 that the results of the actuarial studies conducted with the purpose of estimating the additional burden of the Pension Funds of OTE’s 2005-2006 voluntary retirement programs concluded at 129.8 million Euros. The company evaluates the new data, without prejudice to exercising any legal right in order to defend its interest. 19/01/2011 Announcement of Regulated Information: Mrs Irini Nikolaidi assumes the new position of OTE Group Legal Counsel-Executive Director of Legal and Regulatory Affairs of OTE Group. She also assumes the position Legal Counsel of OTE and General Director of Legal Affairs. She will continue to hold the position of Legal Counsel, Competition and Legal Affairs Director at Cosmote. Mr Paraskevas Passias who held the position of Legal Counsel of OTE left the Company. 14/01/2011 Announcement of Regulated Information: Mr Iordanis Aivazis, who held the position of Chief Operating Officer of OTE SA left the company on December 31, 2010. 27/01/2011 2010 Fourth Quarter Results under IFRS to be released on February 25, 2011. 02/12/2010 Mr Dimitris Blatsios was appointed CEO of AMC, COSMOTE Group’s subsidiary in Albania. 29/11/2010 The State Secretary of the Romanian Ministry of Communications & Information Society informed CEOs of OTE, and Romtelecom as well as the member of the BoD of Deutsche Telekom responsible for Europe, for the intention of the Romanian government to sell the 46% of shares that the Romanian State holds in Romelecom. 03/11/2010 Announcement of Regulated Information: Mr Michael Tsamaz was elected as member of the Board of Directors in replacement of Mr Panagis Vourloumis. 22/10/2010 Q3 2010 financial results announcement - Conference call details. 22/10/2010 Mr Michael Tsamaz will assume the position of Chairman and CEO of OTE. 11/10/2010 Announcement of the Q3 2010 financial results under IFRS. 30/08/2010 Notice to NYSE-OTE announced its intention to delist its ADSs from the New York Stock Exchange. 05/08/2010 Q210 Financial Results under IFRS. 27/07/2010 Thomson Reuters Extel Award: OTE won the award “ Best Firm for Investor Relations in Greece” for the year 2010. 16/07/2010 Announcement of the Q2 2010 Financial Results under IFRS. 23/06/2010 New Board of Directors members: Five new Board of Directors members in replacement of five resigned. 07/06/2010 OTE announces its estimate of the one-off special contribution for FY 2009. 04/06/2010 Two awards for the OTE Investor Relations at Capital Link’s Annual Greek IR Awards Ceremony. 12/05/2010 OTE announces intention to delist from the NYSE. 04/05/2010 Q110 Results announcement details. 20/04/2010 2010 First Quarter Results under IFRS to be released on May 12, 2010. 03/03/2010 OTE wins award for best corporate governance in Greece. OTE won the award for best corporate governance in Greece, in 2010 by the World Finance Magazine. 25/02/2010 Financial Calendar 2010. 19/02/2010 New member in OTE Board of Directors: Mr Hamid Akhavan, member of OTE Board of Directors submitted his resignation and Mr Rainer Rathgeber was elected in replacement. 18/02/2010 Q409 Results announcement details. 04/02/2010 2009 Fourth Quarter Results under IFRS to be released on February 25, 2010. 28/01/2010 Chief Compliance Officer in OTE Group: Mr Aristodimos Dimitriadis assumed the position of Chief Compliance Officer in OTE Group, on January 18, 2010. 20/01/2010 Response to ASE’s Question concerning obligations of OTE towards the IKA pension fund. 13/01/2010 New CEO in OTE Estate: Since January 11, 2010 Mrs Christini Spanoudaki holds the position of Chief Executive Officer of OTE Estate. -149- Annual Financial Report 2010

Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

Transactions Notifications of the liable persons in compliance with L3340/2005 and 3/347/12.7.2005 Decision of the Hellenic Capital Market Commission

Location on the Company’s website : www.ote.gr/ Investor Relations/Corporate Governance/Transparency and In- formation Disclosure/ Transactions Notifications in compliance with L3340/2005 Financial Results 04/11/2010 Third Quarter 2010 Financial Results under IFRS. 05/8/2010 Second Quarter 2010 Financial Results under IFRS. 12/5/2010 First Quarter 2010 Financial Results under IFRS. 25/2/2010 Fourth Quarter and Full Year 2009 Financial Results under IFRS. Location on the Company’s website: www.ote.gr/ Investor Relations/ Newsroom

IFRS Reports- Figures and Information 04/11/2010 Financial Data and Information in accordance with IFRS - Third Quarter 2010. 04/11/2010 Financial Statements in accordance with IFRS – Interim Condensed Financial Statements (01/01/10- 30/09/10). 05/08/2010 Financial Data and Information in accordance with IFRS - Second Quarter 2010. 05/08/2010 Financial Statements in accordance with IFRS –OTE Six Months Financial Report 30.06.10. 12/05/2010 Financial Data and Information in accordance with IFRS - First Quarter 2010. 12/05/2010 Financial Statements in accordance with IFRS – First Quarter 2010. 25/02/2010 Financial Data and Information in accordance with IFRS - Fourth Quarter 2009. 25/02/2010 Financial Statements in accordance with IFRS - Annual Financial Report 2009. Location on the Company’s website: www.ote.gr/ Investor Relations/ Financial Results/ Financial Statements of OTE Group and OTE S.A.

Note: The Financial Statements, the Independent Auditor’s Reports and the Reports of the Board of Directors of the Group companies are uploaded at the web page based on their respective timetable: www.ote.gr/ Investor Relations/ Financial Results/ Financial Statements of OTE Group Companies, both in English and Greek. ΟΤΕ SA

Project Manager Dimitris Tzelepis Head of Investor Relations

Editor-in-Chief Daria Kozanoglou

Editorial Preparation Eftychia Tourna Christina Chatzigeorgiou Eleni Agoglossaki Dimitris Tsatsanis

Editorial Preparation of Annual Financial Report Kostas Vasilopoulos Tassos Kapenis

Creative Concept - Design mnp www.mnpdesign.gr

Formation of Annual Financial Report

Labrouli’s c r e a t i v e

Production Baxas SA, Graphic Arts

Printing May 2011 Copies of the OTE Annual Report 2010 are available at OTE’s Registry, Stadiou str. 15, 105 61, Athens, Greece

The OTE Annual Report 2010 is also available electronically at: http://www.ote.gr/portal/page/portal/InvestorRelation 99, Kifissias Ave. 151 24 Marousi, Greece