sign in sign up
<<
Home , Demofest, HT Eronet, Serbia Broadband, Telekom Srbija

Consolidated Annual Business Report for 2015 CONSOLIDATED ANNUAL BUSINESS REPORT OF A.D. BEOGRAD FOR 2015 TABLE OF CONTENT

01 Summary report

Telecommunications Company Telekom Srbija a.d. and related legal entities...... 7. Introductory note by the Director General...... 10.

02 Development and business environment

Background...... 13. Market...... 18.

03 Corporate management

Corporate bodies and Corporate management system...... 31.

04 Business operations

Strategy...... 39. Services ...... 41. Investments...... 49. Customers...... 53. Employees...... 60. Report on Corporate and Social Responsibility...... 67. Risk management...... 74.

05 Financial results

Consolidated financial statement...... 77. Financial statements of the Parent Company and related legal entities...... 82. Consolidated Annual Business Report for 2015

The Company has had the mobile telephony licence (GSM/GSM1800 and UMTS/IMT-2000) since 2006. In 2007, the Company renewed the fixed telephony COMPANY ’’TELEKOM licence. Since 2009, the Company has been in SRBIJA’’ a.d., BEOGRAD possession of a fixed wireless access licence (CDMA). AND RELATED LEGAL Beside the above mentioned Licences, the Company ENTITIES has been entered into the Register of Operators 01 maintained by the Regulatory Agency for Electronic Communications and Postal Services (Ratel) and for the services of access to the broadband network, TELECOMMUNICATIONS Internet services, services of distribution of media COMPANY ’’TELEKOM SRBIJA’’ a.d., content and, since March 2015, for the network. BEOGRAD Summary In keeping with the Law on Electronic Communications (Official Gazette of RS no. 44, of On 23 May 1997, the Public Enterprise of PTT Traffic 30 June 2010, No. 60 of 10 July 2013 – Decision ’’Srbija“, Beograd (PE PTT or PE of PTT Traffic ’’Srbija“) of the Constitutional Court and No. 62 of 13 June established the Telecommunications Company 2014), and within the activities on encouraging competition in the telecommunications market of ‘’Telekom Srbija“ a.d., Beograd (hereinafter: Telekom the Republic of , applying the instruments of Srbija or the Company or the Parent Company) when report market regulation, on 7 July 2011, Ratel passed the it assigned to the Company all telecommunications Decision on designating the markets that are subject assets, including real estate and some other assets and to prior regulation, whereunder it defined nine liabilities. The Company was registered on 29 May 1997 markets subject to prior regulation (PRM). Based on as a joint stock company, incorporated for an indefinite the analyses of these PRM, Ratel rendered some period of time. resolutions in late 2011 whereunder the Company was declared as an operator with significant market In accordance with the Law on Business Companies power (SPM) in 8, out of 9 PRM, as follows: I –retail (Official Gazette of RS, no. 36 of 27 May 2011 and no. 99 market for access to the public telephone network of 27 December 2011), the Company’s General Meeting on a fixed location, II – wholesale market for call adopted the Articles of Association in 2012, defining origination in the public telephone network on a fixed the following management bodies in the Company: location, III – wholesale market for call termination in the General Meeting, the Supervisory Board and the the public fixed network, IV – wholesale market for Executive Board. (physical) access to the network elements and the accompanying facilities (including the shared and The Company’s core activity is the provision of full unbundled access to local loop, V – wholesale telecommunications services, the most important being market for broadband access, VI – wholesale the services of local and international telephone traffic, market for leased lines, VII – wholesale market for fixed telephone services, traffic transit, data transfer, call termination in mobile network and VIII – retail lease of lines, services in the entire network area, add-on market of the publicly available telephone service services in the field of mobile telephony, fixed services, from a fixed location. For each of the above TPM, the Internet and multimedia services. The Company’s Telekom Srbija assumed the relevant regulatory predominant activity, according to the applicable activity obligations, such as: publishing the relevant data classification, is the cable telecommunications activity. in the form of a standard offer, non-discriminatory actions, enabling access and using the network The Company also provides services in the area of elements and associated facilities, price control, lease, construction, management and protection of application of cost-based accounting, prohibition on telecommunications infrastructure, it issues telephone excessive pricing, tariff control, etc. Telekom Srbija is directories, provides operator-assisted call services a joint stock company whose registered, authorised, and e-directory services in the field of fixed telephone issued and paid-in capital consists of 1,000,000,000 services. ordinary shares.

7 Summary report Consolidated Annual Business Report for 2015

As at 31 December 2015, Telekom Srbija had a share being the services of national and international BUSINESS COMPANY FOR THE Having finished the procedure for simultaneous in capital in the following related legal entities: telephone traffic. Besides, Mtel offers a wide portfolio MAINTENANCE AND SECURITY OF decrease and increase in the share capital of mts of other telecommunications services, including other FACILITIES, PROPERTY AND OTHER banka by the bank’s General Meeting, based on the • Telekomunikacije Republike Srpske a.d. Banja fixed and mobile telephony services, data transfer, SERVICES “TELUS“ A.D., BEOGRAD Subscription Agreement entered into on December Luka, , i.e. Mtel a.d. Banja lease of lines, private lines, services in the entire 2014 with Dunav osiguranje and Dunav RE and Luka (65% share capital); network area, add-on services in mobile telephony, Within its registered activity, the Business Company after the payment effected within the procedure of the Internet and multimedia services. Mtel also for the Maintenance and Security of Facilities, Property increase of share capital, acquired ownership over • Telecommunications Company mtel DOO, provides services in the field of lease, construction, and Other Services “Telus“ a.d. (hereafter: Telus), is 55.79% of shares in mts banka. , (51% capital); management and protection of telecommunications engaged in the provision of the following services: infrastructure. The corporate bodies of the Company approved • Business Company for Providing Maintenance • security of facilities and property (FTO- additional acquisition of 1,190,700 shares formerly and Security of Facilities, Property and Other physical and technical security, PPZ- fire owned by Dunav osiguranje a.d.o. Beograd, whereby Services Telus a.d., Beograd, Republic of Serbia Telekom Srbija acquired ownership of 76.05% of the TELECOMMUNICATIONS COMPANY mtel DOO., protection and money escort services), (100% share capital); total number of shares of mts banka. Podgorica • maintenance of hygiene in business premises • TS: B.V., Amsterdam, the Netherlands In 2007, in a consortium with Ogalar B.V., Amsterdam, and buildings, and In February 2015, the additional 137.947 i.e. 2.1% (100% share capital); shares were acquired. Telekom Srbija a.d. was granted a special licence • hiring staff to perform auxiliary and physical • mts d.o.o., Kosovska Mitrovica (100% share for the construction, possession and operation jobs. In this way, conditions were created for commencing capital); of the public mobile telecommunications network the provision of mobile banking services to the user and provision of public mobile telecommunications TS:NET, B.V., AMSTERDAM (the Netherlands) of the Company’s telecommunications services. • Telecommunications Company HD-WIN d.o.o., services and licence for the provision of public Beograd, Republic of Serbia (51% capital); telecommunications services via fixed wireless The core activity of Business Company TS:NET, DIMEDIA GROUP SA, GENEVE, SWITZERLAND access (WIMAX) in Montenegro. B.V., with the seat in Amsterdam, the Netherlands • mts banka a.d. Beograd, Republic of Serbia (hereinafter: TS:NET, B.V. or the company) is the lease (76.05% share capital); For the purpose of creating conditions for the of telecommunications equipment and performance Dimedia Group SA, Geneve, Switzerland (hereafter: Dimedia) is engaged in various activities in the field provision of services subject to the licence granted, of other related activities for the purpose of creating • Dimedia Group SA, Geneve (Switzerland) (50% of telecommunications and multimedia, including on 4 April 2007, a new legal entity was incorporated conditions for the construction and operation of share capital); software sale and production, investments and under the name: “Društvo za telekomunikacije “mtel“ the international transport network of the Parent Company. holding interests in various other companies, Swiss • GO4YU D.O.O. , Republic of Serbia DOO, Podgorica“ (hereafter: mtel) and foreign, that operate in the same field. (50% stake in the initial capital); mts d.o.o. Kosovska Mitrovica, Republic of Serbia After the operating licence had been obtained, the Having entered into the share sale agreement • FiberNet DOO, Podgorica, Montenegro ceased mobile telephony network was constructed within 77 Business Company mts d.o.o. Kosovska Mitrovica in March 2014, the Company acquired 50% of to operate on 30 September 2015 due to the days. (hereafter: mts d.o.o.) was founded in October 2015 ownership shares in Dimedia for the purpose of status change merger by absorption, when this to conduct the telecommunications activity in the enabling an efficient access to potential markets company merged with mtel d.o.o. Podgorica, The core activity of mtel is provision of territory of and Metohija. and increasing the number of users of advanced Montenegro. telecommunications services in the field of the mobile telecommunications services. and fixed wireless telephony and Internet services. Telekom Srbija is the founder and the only member of said business company with a 100% stake. RELATED LEGAL ENTITIES The core activity of telecommunications company GO4YU D.O.O., BEOGRAD FiberNet DOO, Podgorica is construction, TELECOMMUNICATIONS COMPANY GO4YU D.O.O. Beograd (hereafter: GO4YU) was possession, operation and maintenance of the HD-WIN d.o.o., BEOGRAD founded during 2014 by Dimedia Group SA, Geneva. TELECOMMUNICATIONS OF REPUBLIC OF transport and telecommunications network and SRPSKA a.d. provision of telecommunications services. The Telecommunications Company HD-WIN d.o.o. Telekom Srbija acquired in August 2015 the purpose of the constructed communications (hereafter: HD-WIN or the company or Arenasport) ownership over 50% of the share capital of GO4YU. Joint Stock Company Telekomunikacije Republike network is the provision of transport capacities for Srpske, Banja Luka (hereafter: Mtel) has a seat in is engaged in production and broadcasting of TV the providers of communications services in the Banja Luka, Republika Srpska. The company’s channel and production of sports events The prevailing activity of GO4YU is: wireless full name is Telekomunikacije Republike Srpske territory of Montenegro and connection with foreign in the region. communications. akcionarsko društvo Banja Luka, and two additional telecommunications networks. short commercial names are also used: Mtel a.d. mts banka a.d., BEOGRAD, Republika Srbija FiberNet DOO, Podgorica, Montenegro ceased to Banja Luka and Telekom Srpske a.d. Banja Luka. operate on 30 September 2015 due to the status mts banka a.d. Beograd, formerly: Dunav banka Mtel’s core activity is the provision of change: merger by absorption, when it merged with a.d. Beograd (hereafter: mts banka) s engaged in telecommunications services, the most important mtel. banking operations– other monetary intermediation.

8 9 Summary report Consolidated Annual Business Report for 2015

mobile hand sets and devices with the improvement projects designed and consistently achieving the set INTRODUCTORY NOTE BY of the network and service quality. strategic goals. We are going to increase the volume of investments for the purpose of further improving THE DIRECTOR GENERAL As for the fixed telephony, we faced the global the quality of the network and business processes declining trend in the number of customers, traffic and continually increasing the experience of the users Dear Sirs/Madams, and revenues, and number portability effects, but we of our services. Of great importance is to provide managed to overcome this trend to a great extent by continuity in the development employees as the most In the dynamic and challenging market and introducing a new tariff system and enriching the offer valuable asset of the company, particularly in view of microeconomic environment in which we operated in of integrated service packages (BOX) designed for performing more complex operating tasks. 2015, we continued to accomplish ambitious business various customer needs. goals. The process of privatization definitely marked It would be necessary to invest additional efforts to the previous year setting new challenges before the We maintained the stable growth in the number of improve corporate management at the level of the employees and the management, but that process broadband customers while the number of IPTV Group for the purpose of building a higher synergy did not prevent us from working and achieving the users significantly increased owing to the improved with our subsidiaries in the key segments of operation. set goals. Looking at the results that we achieved, IPTV and add-on service offer and acquisition of the We expect to have synergic benefits from the we can be moderately satisfied and encouraged to cable providers in Montenegro. rationalization in the fields of joint operation, unification continue to work in the forthcoming period aimed of business processes and practices, and reduction at increasing the satisfaction of the customers, the We are particularly satisfied with the results of sale of costs and operating risks for improving the overall employees and the shareholders. of BOX packages where we reached nearly half a business results and, consequently, maintaining million users and thus managed to make the most the investors’ trust and increasing the values of the During 2015, we continued the implementation of the of the potentials in having a single offer and a single companies in the interest of the shareholders and the Strategic Business Plan that we had adopted in 2014 Owing to the voluntary employee layoff program, brand named BOX, which makes us different from the organization. setting the business strategy and goas in all fields of we reduced the number of employees by more than competitor companies. As in the previous period, the ambitious goals that we have also set in all the segments of operation operation for the purpose of strengthening the market 500 and thus created conditions for rationalization of We notably increased the level of investments in 2015 will require high commitment of employees and position, improving the organizational effectiveness operating costs in the next period. and upgrading the operating performances. We with the aim of enhancing the quality of the network particularly the management skills to provide the and IT system, improving the existing services and optimal use of available resources and efficiency in launched the initiative for the optimization of office In 2015, we commenced provision of mobile premises and concentration of employees on a less creating conditions for introducing new services, decision making on all levels of management. We are telephony services in Austria through the related entity as well as for transforming the business processes confident that only such approach, commitment and number of locations in Belgrade thus creating the “Mtel Austria“ with the aim of using the potentials conditions for reducing the rental costs of business so as to offer a better experience to the users of consistency in work can help us keep the position of for expansion to other markets and other fields of our services, reducing the costs and increasing the the leading regional telecommunications operator. premises. We continued with the initiatives that refer business. to the transformation of the OSS/BSS system by operating efficiency. We provided the technological prerequisites for implementing the 4G mobile We are going to maintain the continuity in the implementing ERP, CRM, billing and other advanced We carried out the acquisition of the cable operators application solutions. We actively implemented the telephony, obtained all licences and frequencies activities related to corporate social responsibility on in Montenegro and, by capital increase we enabled necessary for the provision of broadband services via all the markets on which we operate through active initiatives for transformation of human resources integration of these operators in mtel, whereby mobile access and expanded the LTE network. We cooperation and community support. management and other processes of key importance conditions were created for consolidating the made significant investments to enable provision of I would like to take this opportunity to say that I for a more efficient operation. We introduced ISO operation and strengthening the market position of the state-of-the-art multimedia and ICT services. appreciate the trust of our customers who are the 20000 and ISO 9001 standards in the IT organization, mtel owing to the provision of convergent services on In the course of 2015, we made a notable progress most important part of our success and ambition. I launched a new mts brand and a corporate portal. the Montenegrin market. with respect to expansion to other markets and entry also thank all our employees, shareholders, business After creating the necessary technical preconditions in new fields of operation. We began to offer different partners and all those who share our vision to be the and frequency bands, in April 2015 we commenced We maintained a continued growth in operating services to our Diaspora by using different business first choice of the customers on all the markets on the commercial provision of services via the LTE revenues, but the higher growth in business expenses models. which we operate providing the top quality services in network. We recorded a high growth in the number resulted in the lower overall operating results. At the keeping with the latest technological trends. of IPTV users after introducing the advanced mts same time, we significantly reduced the indebtedness, After the acquisition of mts banka, we launched a TV service and started up the promotional provision increased the investments by more than 50%, timely project for developing a spectrum of new services I believe that we are going to share the same goals of multiscreen services in response to the highly settled all the liabilities towards creditors, paid out the based on the synergy between the banking and and values in the period to come. competitive OTT market. After the acquisition of dividends to the shareholders and ensured financial telecommunications services and the first results are mts bank, we entered a new sphere of business stability of the company. expected during 2016. and we worked hard to create the conditions for building a synergy between the banking and As for the mobile telephony, we maintained the The fierce market competition in all segments telecommunications services. The first results are revenue growth, achieved a mild growth in the number of operations and the general macroeconomic Sincerely, expected during 2016. We also improved the ICT of customers and recorded the same changing trend environment impose new and bigger challenges in service offer and worked on developing new business in terms of customer structure in favour of postpaid front of us. We are ready to face these challenges Predrag Ćulibrk models on this challenging and complex market. customers thanks to the service offer and offer of by investing maximum efforts in implementing the Director General of Telekom Srbija a.d. Beograd

10 11 Consolidated Annual Business Report for 2015

Government on the Free Transfer of Shares to the BACKGROUND Citizens – Right Holders and Employees and Former Employees of Telecommunications Company Telekom Srbija a.d., Beograd Telekom Srbija a.d. Beograd of 27 April 2012, and in accordance with the Law on the Right to Free Shares May 1997 – PE PTT founded Telekom Srbija as a and a Monetary Compensation Exercised by Citizens single-member joint-stock company. in the Privatization Procedure (the Official Gazette of RS, No. 123/07 and 30/10), the procedure for and June 1997 - Within the privatization of a part of the manner of the transfer of shares of Telekom the capital, 49% of shares were sold to STET Srbija to the citizens as the holders of such right and 02 INTERNATIONAL NETHERLANDS .V., affiliation of employees and former employees of Telekom Srbija, the Italian Telecommunications Company Telecom including the employees and former employees of Italia in the Netherlands (29% of shares) and to PE PTT and their legal predecessors was defined, Greek Telecommunications Company HELLENIC and based on such procedure the distribution of TELECOMMUNICATIONS ORGANIZATION S.A. free shares was carried out. After the distribution Development (OTE) (20% of shares). of free shares, the structure of Telekom Srbija’s equity changed, so that the stake of the Republic of February 2003 - An agreement was concluded Serbia was 58.11%, the stake of Telekom Srbija was whereunder PE PTT bought back the full package 20%, the Serbian citizens acquired 14.95% and the of Telekom Srbija’s shares owned by Telecom Italia, employees and former employees acquired 6.94% and thus acquired a total of 80% shares in Telekom of shares in Telekom Srbija. Srbija, while the remaining 20% of shares stayed in and business the ownership of OTE. January 2015 – The Law amending the Law on Business Companies entered into force (Off. Gazette September 2010 – Based on the Conclusion of of RS, No. 5/2015) stipulating the obligation of a the Serbian Government 05 number 023-6816 of company to have its treasury shares disposed of / 21 September 2010 and Decision of the Managing cancelled. In compliance therewith, the Company Board of PE PTT of 20 September 2010 on the free may dispose of treasury shares after the expiry of the transfer of shares in Telekom Srbija to the Republic period set forth by the Law on Business Companies environment of Serbia, the PE PTT and the Serbian Government (three years after the acquisition of treasury shares). concluded the Agreement on the Free Transfer of Telekom Srbija’s Shares – Gift on 24 September February 2015 – The Company announced an 2010. By virtue of this agreement, the Republic of invitation to bid for the provision of management Serbia became the majority owner of Telekom Srbija consulting services related to the professional and acquired the ownership right to 80% of the assistance in establishing the privatization model. shares in Telekom Srbija, while 20% of the shares remained in the ownership of OTE. March –December 2015 – In this period, the activities were carried out in connection with the procedure December 2011 – On 16 December 2011, the General for sale of the Company’s share capital through the Meeting of Telekom Srbija passed the Decision on disposal of shares owned by the Republic of Serbia the Acquisition of Own Shares, previously owned through public invitation to bid. The Privatization by OTE, as the Company’s minority shareholder, Agency passed Decision on 11 December 2015 whereunder the General Meeting approved the number 10-3945/15-124/04 on cancellation of said conclusion of the Share Sale Agreement between procedure. Telekom Srbija and OTE, , which was eventually signed on 30 December 2011.

January 2012 – On 25 January 2012, Telekom Srbija Telecommunications of Republic paid in full the funds against the stake of the minority of Srpska a.d. Banja Luka shareholder OTE in the capital of Telekom Srbija. Since that day, Telekom Srbija has been the owner The Basic Public Telecommunications Company of 20% of company shares (treasury shares). of Republika Srpska, Banja Luka – Mtel was registered on 20 December 1996, and it operated by May 2012 - Under the Decision of the Serbian 12 December 2002 as a fully state-owned company,

13 Development and business environment Consolidated Annual Business Report for 2015

whereafter, following the ownership transformation, Mtel is the owner of a 49% stake in Telecomm- Later on, during 2003, Logosoft started the increase in capital, dated 12 March 2010, additional it was set up as a joint stock company and its name unications Company mtel d.o.o. Podgorica. construction of own fiber optic infrastructure in capitalization was carried out in the amount of EUR changed to Telekomunikacije Republike Srpske, the territory of which currently covers 40,000,000. The funds for additional capitalization a.d. Banja Luka. Mtel was the owner of a 100% stake in the related individuals and legal entities located in the wide were paid by the owners by and inclusive of 15 March legal entity “TT Inžinjering d.o.o. Banja Luka” area of the city and is also connected with 2010, relative to their respective stake in mtel. By the end of 1996, the postal, telegraph and until 31 January 2014, when the status change: and Zenica. In the years that followed, Logosoft telephone services in Republika Srpska were merger by way of absorption of the related legal developed its business to network integrations, In June 2015, the founders increased the share capital rendered by a single enterprise – Single Public entity “TT Inženjering d.o.o. Banja Luka” with Parent software solutions, business solutions, education in the amount of EUR 17,346,939 of which Telekom Enterprise of PTT traffic of Republika Srpska. Company Mtel a.d. Banja Luka was registered and telephone services. Srbija contributed EUR 7,500,000 with the transfer under the decision of the district commercial court of ownership over the stakes in Fibernet d.o.o and On 1 January 1997, in keeping with the provisions in Banjaluka. In early 2012, Logosoft d.o.o. Sarajevo announced Mtel in the amount of EUR 8,500,000 by the transfer of the Law on communications, radio-traffic and the commercial launch of the VDSL-based services of ownership over the stakes in “Cabling“ d.o.o. To postal, telegraph and telephone traffic, the enterprise and today, it is the sole provider in B&H who enable the owners to retain the percentages of their was divided into two separate enterprises: JODP Related parties possesses this type of broadband Internet service stakes in mtel, Telekom Srbija conducted a capital Telekom Srpske and JODP Srpske Pošte. for individuals. Logosoft is also the first private ISP increase by EUR 1,346,939. On 31 December 2015, Mtel a.d. Banja Luka had which started the provision of services via own During 2002, based on the Privatization Law of two related legal entities: Mtel Austria with a seat xDSL and fiber optic network and, today, it has a During 2015, mtel purchased 100% of the stakes Republika Srpska and Decision of the Government of in Vienna and Logosoft d.o.o. Sarajevo. large number of satisfied subscribers in Sarajevo, of legal entities Media Net d.o.o. and Elta Mont Republika Srpska, 20.0% of the state-owned capital with the plan to expand the service to is Zenica and d.o.o. Nikšić. In addition to the companies which Tuzla. had already been handed over by their founders to in the Company was privatized by way of a voucher Mtel Austria Vienna privatization scheme, where the Privatization and mtel, mtel performed merger by absorption of all Investment Funds took over 10.5%, and individuals On 1 October 2014, Mtel effected the payment for the companies into mtel on 30 September 2015 in On 1 July 2014, Mtel incorporated a new business 65% of share capital in Logosoft d.o.o. Sarajevo keeping with the Company Law. took over 9.5%. The remaining 80.0% (the state- company: Mtel Austria with the seat in Vienna with owned capital - 65.0%, Pension and Disability Fund assuming the obligation to pay the remaining a 100% ownership share with the aim of providing The core activity is the provision of telecommunications – 10.0% and Restitution Fund – 5.0%) were privatized amount to gain the full 100% ownership until the telecommunications services in that country. services and other business activities as envisaged in under the Special Privatization Program of the end of 2016. Mtel Austria is going to operate as a MVNO the registration sheet, while the commercial operation Government of Republika Srpska, in accordance (mobile virtual network operator) and render the In mid-December 2014, the integrated service with with the Law on the privatization of state-owned officially commenced on 9 July 2007. mobile telephony services: voice, SMS and data mobile telephony was offered on the market of B&H capital in enterprises. Under the Resolution of the transmission services. The service includes the Federation. Basic Court in Banjaluka of 12 December 2002, the offer of multimedia content from the ex-Yugoslav Absorbed legal entities change of the name (to Telekomunikacije RS, a.d. republics - Live TV and web- based music streaming Banja Luka) and the relevant status change were services, intended primarily for the people who live Telecommunications Company Based on the Agreement on merger by absorption entered into the register. Pursuant to the Resolution and work in Austria. no. 26468 of 28 September 2015, mtel merged the of the Basic Court in Banjaluka of 28 June 2007, the mtel DOO Podgorica following companies under its control: following status change was entered:– ownership The model of operation of MVNO Mtel Austria mtel was registered on 4 April 2007 in the Central transformation by way of sale of the full amount includes the offer of tariff packages with additional • Cabling d.o.o. Budva; of the state-owned capital to Telekom Srbija, a.d. benefits towards the networks of Telekom Srbija Registry of the Commercial Court in Podgorica, • FiberNet d.o.o. Podgorica; Beograd. Group in , Serbia and in keeping with the Law on Business Companies of Montenegro under registration number Montenegro in a form of a free traffic package • Elta Mont d.o.o. Nikšić; By purchasing 65.0% of the state-owned capital, offer, lower prices of traffic towards the networks 5-0368574/001. Telekom Srbija became the majority owner of Mtel of Telekom Group, lower prices of roaming in the • Media Net d.o.o. Podgorica. and that resulted in the following capital structure: networks of Telekom Group and content offer mtel’s founders were: adjusted to ethnic community. On 30 September 2015, the merger by absorption 1. Telekom Srbija with the seat in Belgrade, Republic • Telekom Srbija, a.d. Beograd, Srbija – 65.0%; took place and said legal entities were deleted from of Serbia with a 51% ownership stake; and the Central Registry of business entities held with Logosoft d.o.o. Sarajevo • Pension and Disability Fund a.d., Banja Luka the Tax Administration. The process of merger by 2. Ogalar B.V., with the seat in Amsterdam, the – 10.0%; absorption was conducted by a simplified merger Logosoft d.o.o. Sarajevo was founded in 1995 as a Netherlands, with a 49% ownership stake. company for IT and communication engineering. At procedure, in compliance with the provisions of • Zepter fond, a.d. Banja Luka – 5.1%; the Company Law of Montenegro (Off.Gazette of first, it engaged in the sale of computers and system Ogalar B.V., Amsterdam, the Netherlands, the Montenegro 40/11) and upon the prior fulfilment of • Restitution Fund of Republika Srpska, a.d. integrations. During 1998, the company started to minority founder of mtel, sold its stake to Mtel on 1 all legally prescribed conditions governing merger provide Internet services and as early as in 2000, it February 2010. Banja Luka – 5.0%; by absorption, incorporation documents and commenced rendering wireless broadband Internet • Other shareholders – 14.9%. In accordance with the Decision of mtel’s owner on an articles of association of all companies that were access to individuals and legal entities. subject to merger by absorption.

14 15 Development and business environment Consolidated Annual Business Report for 2015

The assets and liabilities of the companies merged Media Net d.o.o. Podgorica of optical fibers on certain routes in the territory of and purchase agreement, the acquisition of Agency by absorption became the assets and liabilities of Montenegro, which has been in place since May SportsADD Limited, Nicosia, Cyprus (minority mtel as the acquirer company as at 30 September Media Net d.o.o. was founded in 2011 by a natural 2014. shareholders of HD-WIN-a) was carried out by 2015. person. Media Net d.o.o. possessed the licences Agency MYD Sports SA, Geneve, Switzerland, for cable electronic communications networks and In September 2015, the merger of FiberNet and where a 9% share in HD-WIN d.o.o. was transferred After registering the merger by absorption with the the licence for distribution of radio and television other companies (Cabling, Medianet and Elta Mont) to Myd Sports SA, so that the current ownership Central Registry of business companies, mtel as the programs to end users. Media Net d.o.o. was the into mtel was entered into the Central Register of structure is as follows: Acquirer Company continued to operate with the operator of public electronic communications Business entities of Montenegro. same business name, seat and prevailing activity, services and operator of public electronic • 51% share held by Telekom Srbija, in compliance with its incorporation memorandum communications services of Internet access and and articles of association; the founder’s interest in telephony on different platforms. Media Net d.o.o. Telus a.d. Beograd • 40% share held by Goran Đaković and the share capital of mtel as the Acquirer Company based its operations on the HFC (Hybrid Fiber Telus was founded pursuant to the Decision of the remained unchanged so that the stake of Telekom Coax) technology. • 9% share held by MYD Sports SA of Srbija is 51% and the stake of Mtel is 49%. Before Telekom Srbija Managing Board and it launched Switzerland. the merger by absorption, Cabling d.o.o. Budva, Media Net d.o.o. provided services in the territory of its operations in May 2005 as a closed joint stock Elta-Mont d.o.o. Nikšić, FiberNet d.o.o. Podgorica Cetinje and the Municipality of Berane. company, 100% owned by its founder – Telekom After the fulfilment of all conditions precedent and Media Net d.o.o. Podgorica operated as Srbija. referred to in the Accession Agreement, Telekom separate legal entities. On 30 September 2015, after completing the Srbija paid in the capital in 1 August 2011. process of restructuring – by merger of Elta Mont Since 2008, Telus has possessed a certificate for Elta-Mont d.o.o. Nikšić and Media Net d.o.o. d.o.o. Nikšić, FiberNet d.o.o. Podgorica, Cabling implementation and application of Standard SRPS Podgorica was in a 100% ownership of mtel. d.o.o. Podgorica, Media Net d.o.o. Podgorica into ISO 9001 – Quality Management System and, since FiberNet d.o.o. Podgorica was in a 100% ownership mtel, the capital increase took place so that on 31 2012, Standard OHSAS 18001 – Health and Safety- mts banka a.d., BEOGRAD at Work Management System. of Telekom Srbija a.d. Beograd, while Cabling d.o.o. December 2015, it amounted to EUR 62,472,440, of mts banka was founded on 28 December 1990 upon Budva was in a 100% ownership of Telekomunikacije which the pecuniary capital was EUR 46,472,440 obtaining the consent from the National Bank of Republike Srpske a.d. Banja Luka, until 8 June 2015 and the non-pecuniary capital was EUR 16,000,000. TS:NET B.V., AMSTERDAM Serbia under the name KOSOVSKO METOHIJSKA when they became a 100% owner of mtel. BANKA a.d. Zvečan. FiberNet DOO, Podgorica February 2010 - TS:NET B.V. was registered as a Cabling d.o.o. Budva closed joint stock company with limited liability. After the change in the ownership structure in the July 2008 - the Parent Company concluded with May 2013 – the Supervisory Board of the Parent procedure for the increase in share capital, the Bank Cabling d.o.o. Budva was founded on 1998 by the Montenegro Railways (Željeznica Crne Gore) a Company passed Decision no. 152744/14-2013 has started to operate, since October 2010, under natural persons. Mtel became the owner of Cabling Joint Venture Agreement for the purpose of laying on 23 May 2013, whereby consent was granted to the current name, still with the seat at Zvečan, and d.o.o. in March 2015. The prevailing activity of down, operating and maintaining optical and power the adoption of the Decision on reducing the initial since December 2012, with the seat in Belgrade. Cabling d.o.o. is provision of cable and analogue supply cable along the Bar-Vrbnica railway. capital of TS:NET B.V., for the purpose of recovering television services, Internet and fixed telephony available funds in favour of the Parent Company. In December 2014, the Parent Company effected in the territory of Montenegro to legal entities and December 2008 – For the purpose of implementing the payment in the procedure for the increase of individuals. Cabling d.o.o. had no bundled services the said Agreement, the Managing Board of the September 2013 – the Supervisory Board of the share capital thereby acquiring the ownership of in its offer. Cabling d.o.o. provided cable TV services Parent Company rendered the Decision on the Parent Company passed Decision no. 288253/11- 55.79% of shares in mts banka. Telekom Srbija’s and Internet in the territory of Montenegro where it Incorporation of FiberNet. 2013 on 19 September 2013, whereby consent stake in mts banka as a related entity in early 2015 covered the municipalities of Budva and Podgorica. was granted regarding the amount of the approved increased to 57.89% after submitting a take-over The services of are used via the April 2013 – for the purpose of enabling recovery decrease in capital of TS:NET B.V. bid. cards which need to be installed in the receiver of of a part of the initial capital, the Supervisory each TV set. Board of the Parent Company passed Decision no. At the session of the Shareholders Meeting held 125658/11-2013 on 25 April 2013, whereby consent TELECOMMUNICATIONS on 29 October 2015, mts banka passed a decision was granted for the adoption of the Decision on on withdrawing the shares from Beogradska Berza Elta-Mont d.o.o. Nikšić COMPANY HD-WIN d.o.o., reducing the initial capital of Fibernet. BEOGRAD (Belgrade Stock Exchange) Multilateral Trade Elta-Mont d.o.o. possessed own network in Nikšić Platform – MTP Belex, whereby, based on the July 2013 – On 30 July 2013, the competent decision rendered by Beogradska Berza, it ceased which was developed first by making a conceptual Telecommunications Company ’’HD-WIN“ d.o.o corporate body of FiberNet passed the Decision on was founded on 13 September 2009. Since 3 to operate as a public joint stock company on 16 design during 2006 and 2007 and then by reducing the initial capital. November 2015. construction works which began in October 2007. September 2010, it has been 100% owner of HD- WIN ARENA SPORT in , which possesses The basic service of Elta Mont d.o.o. was provision March 2014 – an Agreement on business and Under the decisions of the Company’s corporate of cable TV services. In July 2012, Elta Mont d.o.o. a broadcasting licence for the territory of Croatia. technical cooperation was signed with the Under Accession Agreement No. 226414 of 21 July bodies in December 2015, an approval was granted commenced provision of cable Internet in the Montenegrin Electric Transmission System (CGES) 2011, the ownership structure and capital were for the acquisition of 1,190,700 shares of mts banka territory of the Municipality of Nikšić. for the purpose of exchanging i.e. mutual utilization changed. On 4 July 2014, based on the share sale previously owned by the company Dunav osiguranje

16 17 Development and business environment Consolidated Annual Business Report for 2015

a.d.o. Beograd, so that the ownership structure of 2017. The growth should be based on investments attributed to the role of domestic factors and low in increased tax liabilities and introduction of mts banka is as follows: while the share of net export will most probably be prices of primary products on the world’s market solidarity aid tax at the rate of 3%. In order to avoid neutral. 1 and, generally, the low inflation in other countries. shifting the entire burden on the businessmen, it • Telekom Srbija 76.05% shares, instead of was prescribed that such liability be shared by the 57.89% shares, The industrial production in the Republic of Serbia After the long-lasting declining trends, the YOY employer and the employees at 1.5% each. Wishing in December 2015 was higher by 11.0% then in inflation rate should start growing from the mid-2016 to help the devastated economy of B&H, Germany • Dunav osiguranje a.d.o 14.60%, December 2014 and, as compared to the 2014 and go back within the targeted limits. It is estimated and Great Britain launched an initiative aimed at average, it is higher by 18.3%. The industrial that it will continue to grow in 2017, but at a slower introducing the social and economic reforms as • Dunav Re A.D. 3.63 %, production in 2015 versus 2014 is higher by 8.2%. pace, and that will be on the level of some 3.0%. a the country’s top-priority goal. This initiative The inflation growth should be a result of gradual was later formally adopted by the EU and finally • Other shareholders 5.72%. Viewed per sector, in December 2015, as compared weakening of disinflation pressures on grounds signed in February 2015 by 14 political leaders to the same month in 2014, the following trends of the expected growth in the prices of primary of Bosnia and Herzegovina as a Reform Agenda. have been recorded: products on the world’s market, the local demand The document envisages some significant reforms DIMEDIA GROUP SA, GENEVA and the inflation in other countries.4 that will be conducted in the field of business and • Sector of electric power supply, gas, steam labour, labour legislation, direct taxation, rule of 7 Dimedia was incorporated on 19 March 2013 and and air-conditioning – a 44.5% growth, The unemployment rate in the Republic of Serbia law and improvement of entrepreneurship. it has a seat in Geneve, Switzerland. The Parent in 4Q of 2015 amounted to 17.9%, in particular, Company acquired in March 2014 the ownership over • Mining industry – a 37.0% growth, and 17.4% for male and 18.4% for female population.5 The major concern of the international community 50% of shares in Dimedia, while the remaining 50% and the monetary institutions is how to keep the is owned by another, foreign business company. • Processing industry– a 0.6% growth.2 The average salary net of taxes and contributions paid social and political order in B&H. The IMF tried in December 2015 was RSD 51,485. As compared to support the entity budgets by granting a new to the average salary net of taxes and contributions stand-by facility, but entity governments failed GO4YU D.O.O., BEOGRAD The total foreign trade commodity exchange of the paid in November 2015, it is higher in nominal terms to meet the IMF requirements during 2015 which Republic of Serbia for the January – December by 16.6% and higher in real terms by 16.8%. caused a delayed disbursement of new tranches, GO4YU was founded during 2014 by Dimedia. 2015 amounts to: for which reason the governments were forced to The average salary net of taxes and contributions search for some other sources of finance. In August 2015, Telekom Srbija acquired ownership paid in December 2015 is higher in nominal terms by over 50% of share capital of GO4YU. • 31,581.4 million dollars – decline by 10.9% as compared to the same period in the last year; 3.0% and higher in real terms by 1.5% as compared The projected 2016 GDP growth is 4.00%, which to the average salary net of taxes and contributions is better than 3.5% in 2015.8 The activities of GO4YU were redesigned for the • 28,421.2 million euros – increase by 6.6% as paid in December 2014. provision of telecommunications services to the compared to the same period in the last year. The disinflation trends are expected in 2016, as users in the Diaspora living in South America. The average salary net of taxes and contributions well, however, a mild increase in prices is also paid in the January–December 2015 period, relative expected so that that the projected inflation rate mts d.o.o. Kosovska Mitrovica The deficit amounts to 4,851.0 mil. dollars, which is to the average salary net of taxes and contributions increased from -1.8% to -1.2%. a 15.8% decrease relative to the same period in the paid in the January–December 2014 is lower in mts d.o.o. was founded in October 2015 with the aim last year. Expressed in euros, the deficit amounts nominal terms by 0.2% and lower in real terms by The labour market will remain one of the major 6 challenges of the B&H economy, because the of conducting telecommunications activities in the to 4,364.4 million, which is a 0.6% increase relative 2.1%. unemployment rate in 2016 is projected at 42.80% territory of Kosovo and Metohija by Telekom Srbija, to the same period in the last year. which is the sole member holding a 100% stake. BOSNIA AND HERZEGOVINA which is somewhat better than in 42.81% in 2015. Yet, the economy of Bosnia and Herzegovina in The export/import coverage index equals 73.4% The economy of Bosnia and Herzegovina is still 2016 is expected to continue the growing trend and is higher than the coverage index in the same 9 the relatively small and mostly import oriented despite the unstable political situation. MARKET period of the previous year, when it accounted for 3 economy. The unemployment rate and public 72.0%. spending are rather high and amount to some MONTENEGRO Macroeconomic data 50% of GDP. The YOY inflation rate in December 2015 was 1.4% According to the data contained in the mostly due to the higher prices of electric energy The year of 2015 in Bosnia and Herzegovina passed November-2015 Report issued by the Ministry of REPUBLIC OF SERBIA and cigarettes. The inflation pressures remained on in the attempts to repair the damage caused by Finance for in the first 11 months of 2015 relative a low level also in the last quarter of 2015 which is the floods in 2014. In Republika Srpska, it resulted to the same period in 2014, growth has been Overall economic activities in 2015 in the Republic recorded in the following industries: of Serbia measured by GDP increased, in real 1. http://www.nbs.rs/export/download/pdf_ioi/ioi_02_2016.pdf 4. http://www.nbs.rs/export/download/pdf_ioi/ioi_02_2016.pdf terms, by 0.8% as compared to the previous year. 2. http://webrzs.stat.gov.rs/WebSite/public/PublicationView.aspx?p- 5. http://webrzs.stat.gov.rs/WebSite/public/PublicationView.aspx?p- 7. Foreign & Commonwealth Office: „Guidance – Overseas Business Risk – It is expected that the gross domestic product in Key=41&pLevel=1&pubType=2&pubKey=3411 Key=41&pLevel=1&pubType=2&pubKey=3470 Bosnia and Herzegovina“ 2016 go up by 1.8% and reach around 2.2 % in 3. http://webrzs.stat.gov.rs/WebSite/public/PublicationView.aspx?p- 6. http://webrzs.stat.gov.rs/WebSite/public/PublicationView.aspx?p- 8. http://www.bhas.ba/tematskibilteni/TB_BDP_2015_bh.pdf Key=41&pLevel=1&pubType=2&pubKey=3408 Key=41&pLevel=1&pubType=2&pubKey=3402 9. http://www.tradingeconomics.com/bosnia-and-herzegovia/forecast

18 19 Development and business environment Consolidated Annual Business Report for 2015

• Industrial production 10.9%, Regulation services, data packet transfer and concurrent Telekomunikacije Republike Srpske a.d. voice and data transfer (CDMA licence). The Banja Luka • Processing industry 22.1%, licence was issued for a 10-year period, where the provision of commercial services was to begin The regulation of the telecommunications • Number of overnight stays in tourism 15.6%, Telekom Srbija a.d. Beograd within six months from the Licence effective date. market in Bosnia-Herzegovina falls within the competence of the Communications Regulatory • Retail transactions 4.3%. 10 In accordance with the Law on Electronic Apart from the above Licences, the Company was Agency (hereinafter: Agency), and based on the The annual inflation rate in November 2015 was Communications (Official Gazette of RS no. 44/10, also entered in the register of operators maintained Law on Communications (Official Gazette of B&H 1.4%, while a 0.2% deflation was recorded on 60/13 – Decision of the Constitutional Court by RATEL for the broadband network access no. 31/03, 75/06, 32/10 and 98/12) and the Policy the monthly level. The average inflation rate in the and 62/14 – hereafter: the Law on Electronic services and media content distribution services. of the Telecommunications Sector and relevant January – November period was unchanged as Communications) and the licences issued by the by-laws. Republic Agency for Electronic Communications compared to the ten months and as compared to Of the activities related to the regulatory and Postal Services, as the competent regulatory The current regulatory framework in B-H is the previous year, it amounted 1.6%. framework, with the implications on the operation body, (hereinafter: RATEL), Telekom Srbija a.d. based on the regulatory framework of the EU. of the Company in 2015, the following are the most Beograd performs the activity of electronic The telecommunications market of B-H was As for the labour market in November 2015 relative important: to November 2014, a mild increase was recorded in communications, which includes: construction liberalized at the beginning of 2006 and at the end the employment rate (1.2%), but the unemployment and installation, maintenance, using and granting of 2015 the following were active on the market: • In 2015, public competitions at RATEL were rate significantly increased (9.2%). The number of the use of public communications networks and conducted as follows: employed persons was 174,402 and it decreased relevant facilities, as well as the provision of • 3 SMP (Significant Market Power) operators; publicly available electronic services. according to the list of SMP operators by 0.2% relative to October 2015 and increased by 1. For the frequencies of the issue of individual 1.2% versus the same month of the previous year. (Official Gazette of B-H no. 73/12) Mtel a.d. licences for the use of radio frequencies in The number of unemployed persons was 37,930 In keeping with the Law on Telecommunications, Banja Luka, BH Telekom d.d. Sarajevo and the Rules on the number and period for which the 1710-1785/1805-1880 MHz range for the and it increased by 4.3% relative to October 2015. HT d.o.o. were proclaimed SMP the licence for public mobile telecommunications In the January – November 2015 period, the cash territory of the Republic of Serbia, which operators on the market of fixed and mobile networks and services is issued, and minimum budget deficit in the amount of 266 million euros is valid for ten years, with a possibility services and leased lines; requirements and minimum amount of a one-off was recorded. The state debt (including deposits) of extension for a period of two years, fee for licence issuance (Official Gazette of RS no. at the end of September 2015 amounted to which provides for the introduction of 4G • 13 holders of the Licence for the provision of 29/06 and 77/06), in a procedure of replacing the technology in Serbia. The licence was fixed public telephone services; 2,150.8M euros or 58.8% of the projected GDP. The existing GSM/GSM1800 licence, RATEL issued foreign debt is 1,975.1M euros, the domestic debt granted in March 2015; to the Company, on 28 July 2006, the Licence for • 85 holders of the Licence for the conduct is 329.2M euros, while the deposits are covered by public mobile telecommunications network and 153.5M euros. 2. For the frequencies for the issue of individual of the activities of public electronic services of public mobile telecommunications licences for the use of radio frequencies communications network operators; network, in keeping with GSM/GSM 1800 and The foreign trade exchange in the 11 months of in the 791-801/832-842 MHz range for the UMTS/IMT-2000 standards, which was issued for • 71 holders of the Licence for the conduct of 2015 was 1,948.1M euros which is 1.0% more territory of the Republic of Serbia which a 10-year period. After the expiry of the relevant the activities of an Internet Access Provider. relative to the relevant period in 2014. period, the Licence validity is to be extended for is valid for ten years, with a possibility of an additional 10-year period, without a demand extension for a period of five years. Mtel operates in accordance with the applicable In the January – October 2015, the increased net by Telekom Srbija, provided that the Licence licences granted thereto by the Agency, as • Telekom Srbija submitted to RATEL the inflow of direct foreign investments continued and requirements have been met. follows: finally reached 556.4M euros, which is 90.2% more Regulatory Report for 2014 as the basis for than in the relevant period in 2014. The DFI growth On 13 April 2007, in accordance with the Law the prescription of the prices of regulatory • The licence for a public fixed telephony is attributed to a significant increase in cash-ins on Telecommunications, the Company was services by the regulatory agency. According operator as of 1 June 2002, against investments in the national companies and granted by RATEL, in a replacement procedure, to the independent auditor’s opinion, the banks and decrease in cash outs against direct a Licence for construction, possession and regulatory financial reports of the Operator • The licence for the conduct of the activity of foreign investments. operation of the public fixed telecommunications with ZTS with the balance as at 31 December an Internet Access Provider as of 15 March network and provision of services of public fixed 2014 and for the year ended that day, were 2013, telecommunications network, issued for the period compiled with all substantive aspects, in • The licence for the provision of the GSM until 9 June 2017. After the expiry of the relevant line with the Rules on the application of the services as of 12 October 2004, deadline, Telekom Srbija may file a request for cost-based principle, separate accounts extending the Licence validity, no later than six and reports by the operator with significant months prior to the expiry of this Licence. • The licence for the provision of the market power in the sphere of electronic On 16 June 2009, the Company was granted mobile services in the universal mobile the Licence for the public fixed wireless communications (Official Gazette of RS no. telecommunications systems UMTS as of 10. http://www.mf.gov.me/rubrike/prezentacije/157428/Monthly -macroeco- telecommunications network (FWA) and voice 52/11). 26 March 2009, nomic-indicators-December-2015.html

20 21 Development and business environment Consolidated Annual Business Report for 2015

• The licence for the distribution of the audio- Fees for licences in radio communications in • The licence for the conduct of the activity of 1180 may be made by all end users of electronic visual media services and radio media Bosnia-Herzegovina. Article 11 of the Rule the fixed public telephone service provider communications services. By calling 1180 one services as of 16 March 2010. (Exceptions from the fee payment obligation) no.: 05/13 can obtain information about all phone numbers was amended. Namely, as of 17 June 2015, used by a certain subscriber. The mtel offer also An annex and the Licence for the Provision TV stations using radiofrequencies for • The licence for the distribution of audio- defines the price of a printed Universal Telephone of Mobile Services in the Universal Mobile analogue terrestrial broadcasting of the TV visual media services and media radio Directory and that the same be free of charge for Telecommunications Systems of December 2010 programme in B-H were exempt from the services no.: 355-DP socially vulnerable persons and persons with stipulate that Mtel may provide the UMTS services obligation of paying the prescribed fees for disabilities. The price of the electronic CD/DVD in the GSM frequency range, too. The Annex and • The Decision on the registration of a mobile licences in radio communications (Official version of the Universal Telephone Directory is the Licence for the provision of the GSM services Gazette of B-H no. 94/15). telephone service provider. stipulates that Mtel may use the E-GSM additional also defined, and the same shall be free of charge frequency range of as of June 2012. for socially vulnerable persons and persons with The regulation of the telecommunications disabilities. market in Austria falls within the competence Telecommunications Company mtel DOO The most important regulatory activities in the of the Rundfunk&Telekom Regulirungs Podgorica The relevant markets on which mtel operates are course of 2015 are as follows: regulatory agency (RTR), and is based on the as follows: Communications Law of the Republic of Austria. The operations of mtel is primarily governed by • In June 2015, the Agency Council enacted RTR granted to the Mtel Austria subsidiary the the Law on Electronic Communications (Official • Wholesale regulated segments / markets in the Rule amending Rule 56/2011 on the following: Gazette of Montenegro no 40/13) effective as of licences for the distribution of audio-visual 21 August 2013, whereas the full application of the fixed network – wholesale access to the network infrastructure on a fixed location, media services and media radio service • Network code 0667 the law commenced on 21 February 2014 after wholesale broadband access, call retention (Official Gazette of B-H no. 52/15), the expiry of the deadline for aligning business in public telephone networks provided on a • Mobile Network code 20 operations with the new law. • In June 2015, the Agency Council adopted fixed location, commencing a call from the Rule 75/2015 on the use of the 11,7-12,5 GHz public telephone networks provided on a • Numbering 0667 77xx xxx and 0667 66xx After conducting a public competition, the Agency radiofrequency range for MVDS/MMDS. fixed location, wholesale terminal and trunk xxx for Electronic Communications and Postal This Rule determines the method of using segments of leased lines and wholesale Activity designated Crnogorski Telekom and mtel this radiofrequency range for the one-way • National signalling codes: 11 from 9376 to lease of WLR lines as new operators of the Universal Service in the distribution of TV channels in the MVDS/ 9383 sphere of electronic communications. These MMDS system in Bosnia-Herzegovina • Retail regulated segments / markets – (Official Gazette of B-H no. 52/15). • Mobile number portability routing numbers operators will, as of 25 January 2016, replace the public telephone network access on a fixed 94 48 and 97 48 Universal Service operators so far and location for private and business customers, • In June 2015, the Agency Council adopted Teleinfo. Crnogorski Telekom was designated retail market of publically available services the Decision on determining maximum • Non-geographic numbers 0800 667 667, Universal Service operator that will provide of local and long-distance calls for prices for the roaming services in the 0800 667 000 and 0800 667 777. access to the public electronic communications individuals and legal persons provided on public mobile communications networks. network, provide telephone call services and Mtel Austria was also approved the General and a fixed location, retail market of publically This Decision defines the bearers of the Internet access services. mtel was designated Special Terms for the Provision of Prepaid and available services and international calls for obligation, method and dynamics of Universal Service operator that will provide the Post-paid mobile services, including prepaid legal persons and individuals provided on reducing the prices of the roaming service in services of the universal service for the provision and post-paid tariff plans. a fixed location and the retail market of the the public mobile communications network of information about phone numbers and the broadband Internet access, and between the ministries in charge of electronic universal telephone directory. The Logosoft d.o.o Sarajevo subsidiary operates communications: Bosnia-Herzegovina, • Wholesale regulated segments/markets in accordance with the applicable licences and Montenegro, Republic of Macedonia and The price of a call towards the Universal in mobile networks – call termination in decisions granted by the Regulatory Agency for Republic of Serbia, signed on 29 September Information Service will, as of 25 January 2016, individual mobile networks and call initiation Communications as follows: 2014 in Budva. be substantially reduced. from public mobile telephone networks. • The licence for the conduct of the activity • In November 2015, the Agency Council The Universal Information Service (number 1180) The wholesale and retail prices of roaming in the of an operator of public electronic adopted the Rule amending Rule 62/2012 offers the data about fixed and region are regulated. communications networks (national licence) on number portability (Official Gazette of numbers of all subscribers that have not requested no.:14/13 B-H no. 94/15). a ban on publication and disclosure of such data as per subscriber number or number owner. A • In November 2015, the Agency Council • The licence for the conduct of the activity of call to the Universal Information Service number adopted the Rule amending Rule 59/2011 the the Internet access provider no.: 007/13

22 23 Development and business environment Consolidated Annual Business Report for 2015

TELUS a.d. Beograd DIMEDIA GROUP SA, GENEVE of the migration of these customers to bundle services. Serbia At the same time, the share of bundle, multimedia There is no special legal regulation which governs Dimedia is operating in accordance with the and M2N services will substantially increase, so that The telecommunications market in the Republic the hygiene maintenance services. Swiss law. the revenues from these segments are expected to of Serbia has been regulated and gradually compensate for a drop in the revenues from fixed liberalized per operating segment since 2006. telephony. When it comes to the physical and technical, and GO4YU D.O.O., BEOGRAD According to internal estimates, the total share of fire protection services, this sphere is regulated telecommunications in the GDP of the Republic of by the Law on Weapons and Ammunition The common characteristic of all three basic markets GO4YU is operating in accordance with the Serbia in 2015 remains on a stable level of over 5%. (Off. Gazette of RS . 9/92, 53/93, 67/93, of the Parent Company and related legal entities, applicable regulations of the Republic of Serbia. Investments in this sector in Serbia amount to tens, 48/94, 44/98, 39/2003, 85/2005-state law, Serbia, Bosnia-Herzegovina and Montenegro, in and over the last one hundred years, even millions 101/2005-state law, 27/2011 – US and 104/12), mobile telephony, is a firmly established competition the Law on Private Security (Off. Gazette of RS with at least three operators, as well as full liberalization of EUR a year. of operations based on technology, with the no. 104/13 and 42/15), the Fire Protection Law Telecommunications market introduction of a new, more advanced LTE and/or 4G (Off. Gazette of RS no. 111/2009 and 20/15) and The information and communications technology technology. Several segments of mobile telephony sector is recognized as strategic and is considered several by-laws. The telecommunications industry, as the core activity can be said to be in a stable phase, with a slight to be of crucial importance for sustainable economic of the Parent Company and most of its subsidiaries, increase in the number of customers, primarily those development in line with the Information Society represents an economic sector which sees stable using post-paid services. An increase in the number Development Strategy until 2020. TS:NET B.V., AMSTERDAM revenues despite the unfavourable market conditions. of smart phones contributes to the strengthening The telecommunications market is still dynamic with of this segment and opens up room for further TS:NET B.V. is operating in accordance with the a strong competition, primarily in the domain of growth. Constantly increasing is the awareness of Mobile telephony still has the largest share in overall Dutch law. At the end of 2012, the amendments telephony and the Internet, the activities in this sector the importance and possibilities of smartphones, revenues, even though a slight decrease in the total to the law came into force providing for a more are still intensive capital-wise. which contributes to an overall growth in the use of value of the mobile market in Serbia is seen. The flexible form of business operations conducted the mobile Internet and speeding up of the so-called Internet and pay TV markets are constantly on the by companies in the Netherlands (Flex BV act), Until now, the telecommunications sector has seen transition from voice to data. increase. and the preparations were launched for adjusting a slight growth, particularly when it comes to the the operations of TS:NET B.V. to the relevant mobile telephony, Internet and pay-TV markets. Internet use currently represents an irreplaceable The development of the IT sector is followed by amendments. In the past period, the first slight drop in the total segment of contemporary society and an efficient legal and regulatory activities and liberalization value of the mobile market was reported in many support for the development of information society. of the regulatory regime, and the introduction of European countries, primarily due to a decrease in Internet technologies are one of the extremely the e-governance program in a number of state the prescribed interconnection fees. important factors of economic growth and progress TELECOMMUNICATIONS COMPANY HD- institutions. WIN d.o.o., BEOGRAD of a country as an increase in the number of Over the past decade, the telecommunications broadband Internet connections has a direct effect Apart from the law and legal regulations governing markets were also regulated and gradually liberalized on an increase in GDP. The penetration rates of the The fixed telephony market can be said to have general operations (the Law on Contracts and per business segment. A significant indicator of Internet services are characterized by continuous entered the liberalisation phase, wound up with the Torts, VAT Law, Income Tax Law and the like), market liberalization lies in number portability. growth, which is mainly the result of fixed broadband introduction of number portability. As is the case the business operations of Arenasport TV is access. The services in this operating segment are with other markets of fixed telephony, the trend of particularly subject to the Law on Broadcasting, As the present-day users are active in the world being constantly developed by means of an increase migration to digital telephony is evident. Likewise, of swift changes, their needs for communication the Law on Copyright and Related Rights and the in access bitrates, introduction of various service there is an apparently decreased traffic volume become more demanding and complex. The Law on Public Information. In view of the nature bundles for specific customer categories and a through fixed networks due to an increasingly more aspects to which more importance is attached are reduction in service bundle prices. An increase in dominant share of mobile telephony. This trend of operations (broadcasting of TV programmes) the availability of top-quality service and its flexibility the communications services based on the Internet largely compensates for the provision of bundle and the advertising of customers on Arenasport and security. TV channels, in this segment, operations are such as Skype, Viber and WhatsApp represents an services. important trend. The future of telecommunications also regulated by the Law on Advertising. From the point of view of a life cycle, fixed telephony will be data-based and all messages will be IP based. can be said to be on a slight downward path, primarily Apart from Telekom Srbija, the following companies due to the attractiveness of mobile telephony and The markets of media content distribution have not have also been operating on the fixed telephony mts banka a.d., BEOGRAD more prominent transition to digital telephony. The significantly changed as compared to the last year, market in the Republic of Serbia: number of telephone, cable and Internet operators in terms of the transfer structure and technologies. mts banka is doing business in accordance with relying on the Internet in the voice technology is The competition in this segment in all individual • since 2009 Orion Telekom d.o.o., Beograd, the regulations of the Republic of Serbia, primarily increasing. Projections have it that from the point of markets is extremely intensive, with a large number former Media Works, in the specific domain of banking transactions view of the structure of operating revenues, there will of distributors. (Law on Banks – Official Gazette of RS nos be a significant decrease in the share of the revenues • since 2010 Telenor d.o.o., Beograd, 107/05, 91/10 and 14/15 and other regulations). from fixed telephony and Internet services as a result

24 25 Development and business environment Consolidated Annual Business Report for 2015

• since 2012 – Srpske The mobile telephony segment is characterized by The advancement of television technologies has also The voice service market in fixed telephony was kablovske mreže d.o.o., Beograd, IKOM the increased use of Internet-based services such led to a significant change in the quality of image and marked by such activities as an increase in a d.o.o. Beograd and Invest Inženjering d.o.o., as Skype, Viber and WhatsApp. Statistics has it that tone, by way of digital programme broadcasting. bonus in tariffs, the introduction of flat traffic , almost one-third of mobile customers uses some In Serbia digitalization was conducted in three packages in the fixed and mobile networks, of the listed services, primarily due to significant phases in the course of 2015 and was successfully the care for the social categories of customers, According to internal estimates for 2015, in Serbia savings and ease of use. completed on 7 July 2015. The digital TV signal there were some three million fixed customers. The the possibility of creating a single account, the covers 97.8% of the population of Serbia, instead of protection of customers from excessive usage operations of Telekom Srbija in the fixed telephony The mobile banking market represents a new the projected European standard of 95%, with the and clearer definition of the terms for the provision segment remains dominant, both in financial and segment of services, which additionally enriches aim of covering with the signal the remainder of two technical terms. user experience with flexibility and diversity of percent of the population. of services. services. Despite a slight decrease, primarily as a With its IPTV platform, Telekom Srbija is the second The activities on the market of leased lines were result of a reduction in the fees of prescribed In 2015, the Internet market in the Republic of largest operator of media content in Serbia and at aimed at reducing the prices of the offers of interconnections, mobile telecommunications Serbia maintained the increase trend from the past the same time the largest IPTV operator on the leased lines, the introduction of the wholesale have the largest share in the total revenues of years. The most widespread method of Internet market. offer of Ethernet lines, a reduction in the monthly telecommunications services in Serbia. In the access is still ADSL access. Internet access can subscription fee, the introduction of new access mobile telephony market there are still three also be ensured even by way of a cable modem, After the introduction of the advanced mts TV rates and a reduction in the prices of using the operators in place: Telekom Srbija a.d., Telenor directly, via the Ethernet, by way of an optical cable, service via the new multimedia platform, the direct Internet access service. d.o.o. Beograd and Vip mobile d.o.o. Beograd. All wirelessly in the 2.4 GHz and 5.8 GHz frequency number of IPTV customers has largely increased, three operators hold licences for the public mobile ranges, which are in the free regime of use, to a particularly since the introduction of the multiscreen The multimedia service market was marked telecommunications network and the services lesser extent by using the 3.4-3.6 GHz ranges and service. LTE customers may use the TV channel by the activities of increasing the number of of public mobile telecommunications network in by way of UMTS (3G) and the LTE (4G) network of reception service on mobile handsets, which is one conformity with GSM/GSM1800 and UMTS/IMT- mobile operators. of the initiatives which is to ensure an adequate TV channels in packages and the number of 2000 standards issued by Ratel. The licences response to increasingly more competitive market packages, reducing the monthly subscription have been issued for the territory of the Republic In the ICT service domain, the cloud service offer of OTT (Over the Top) services. fees and increasing bonuses therein. of Serbia, for a 10-year period, whereafter the was upgraded, with the creation of conditions licence validity will be extended for an additional for strengthening partner business models in an The number of fixed subscribers of the operators 10-year period, for which the licence holder shall extremely complex sphere, where the demands for Bosnia-Herzegovina with significant market power in B-H at the end of not be required to file a request, provided that all data safety and security are exceptionally high. 2015 is put at 854,58712, where the growth rate as requirements from the licence have been fulfilled. In the sphere of telecommunications, the compared to 2014 amounts to -3%. The market The commercial provision of services via the Additionally upgraded were the services for the processes of market liberalization and share of Mtel according to internal estimates, LTE network was launched in 2015 following the business segment, including bundle service successful participation in the tender for the issue raising the competition level on the market of from the point of view of the number of fixed packets, the possibility of connecting locations users in B-H, accounts for 31.4%.13 of spectrum radio frequencies of the advanced into a single network system, the introduction of telecommunications in Bosnia-Herzegovina. LTE and/or 4G technology for the territory of the the WiFi service, a full IT security solution which These processes have seen a positive growth Republic of Serbia for which all three operators integrates virus protection, and data compromise trend which is reflected in: an increase in the The liberalization of the telecommunications present in Serbia had applied. and abuse threatening from the Internet, and the number of Internet service users, which increases market of B-H, particularly the number Staas (Storage as a Service) solution which ensures the Internet use rate to almost 70%, an increase in portability services for the users of fixed public As regards penetration and access to the most a particular storage space and a maximum number the number of mobile customers, and an increase telephone services, increased competitiveness advanced services, the mobile telephony market of its users. in the number and type of services offered by the on the fixed market. The growth trend of the in Serbia is on the level of developed markets. telecom operators. total of transferred numbers in the fixed Penetration per inhabitant accounts for almost The market of media content distribution in the telephone network of B-H continued in 2015 as 130% and available to customers is a wide range of Republic of Serbia did not significantly change in The operators that hold a Licence for a Public well, bringing their number to 32,869 in 2015.14 the latest mobile handsets, products and services. 2015. The operators provided their services through Fixed Telephony Operator include: JP BH the following public telecommunications networks: The total number of mobile users in Serbia is Telecom d.d. Sarajevo, Telekomunikacije RS a.d. In Bosnia-Herzegovina, three operators hold the Banja Luka and JP Hrvatske Telekomunikacije Licence for the Provision of the GSM Services: almost 10 million and the Company has a market • Cable distribution network (coaxial, hybrid d.d. Mostar. In 2015, the same operators are share of over 40%. The trend of using smartphones and optical) – KDS, which include analogue JP BH Telecom d.d. Sarajevo, Telekomunikacije is contributed to by the natural demand and and digital cable distribution system; the ones with a significant market power on the Srpske a.d. Banja Luka and JP Hrvatske mobile operators themselves as they subsidize fixed market in Bosnia-Herzegovina. The listed Telekomunikacije d.o.o. Mostar. the purchase of smartphones in the framework of • Public fixed telephone network– IPTV; operators have a significant market share, sales post-paid contracts offering combinations of voice volume and generated revenues and the number 12. Internal estimate based on the official RAK data. communication, data transmission and message • Satellite distribution network (Direct to of employees.11 transfer. Home) – DTH. 13. Internal estimate based on the official RAK data. 11. www.rak.ba 14. Internal estimate based on the official RAK data.

26 27 Development and business environment Consolidated Annual Business Report for 2015

There are some other operators registered as the B-H in the sphere of fixed broadband access is services and multimedia content. That the market Apart from the aforementioned core markets providers of mobile public telephone services internally put at 23%. is saturated is testified to by the penetration rate in which the Parent Company and related legal which provide mobile services on the basis of which has been over 160% over the last years. entities operate, HD WIN also operates in the commercial contracts concluded with the holders The use of broadband services is on the increase territory of Croatia, Macedonia and , of the Licences for the Provision of the GSM year in year out, so that the number of broadband A drop in the revenues in mobile telephony resulted whereas Mtel Austria also conducts its business Services, including IZI Mobil and Logosoft d.o.o. subscribers reached 99.58% of the total number from the regulator’s influence on the prices of in the territory of Austria. TS:Net headquartered Sarajevo which operate pursuant to contracts of Internet subscribers. interconnection, a reduction in the revenues in Amsterdam and Dimedia Group and with Mtel, Blicne and Telrad Net that entered into from voice and SMS and strong competition GO4YU, represent the support for the planned contracts with BH Telecom. The development of the broadband Internet, along on the market. Increasingly more present is the breakthrough of the Parent Company and related with the liberalization of the telecommunications influence of the OTT applications such as Viber legal entities on the markets outside the parent, There are 3,507,250 mobile subscribers in Bosnia- market, influenced the offer of service packages whereby the customers more significantly reduce regional markets. Herzegovina as at 31 December 2015, which is by which integrate multiple telecommunications the use of standard Voice and SMS services. On 0.5% customers more as compared to the end of services: The Internet, fixed telephony, mobile the other hand, strong competitiveness calls for 2014. telephony and television. In 2015, the number constant investments in the modernization of the of users of such service packages significantly mobile network in order to remain in the game. Although the number of prepaid subscribers increased. Telenor and Telekom Crne Gore have already is still several times higher as compared to the introduced the 4G generation. number of post-paid subscribers, the share of The multimedia service market in B-H, from the post-paid customers increased in 2015 to some point of view of operators with significant market Further modernization of the mobile network 23.1%. The market share of Mtel, according to power, is characterized by a constant growth in also calls for an optical infrastructure both in internal estimates, taking into account the number the number of packet services, acquisition of new the transit section and the access part of the of customers on the level of B-H, accounts for customers or retention of the existing ones so that infrastructure. 40%.15 ADSL customers and voice service customers become users of 2P, 3P or 4P service packages In line with the world trends of using the mobile A decrease in the popularity of SMS messages (the share of residential voice customers in Internet, mtel paid special attention to this is the result of a greater use of messenger 2P/3P/4P packages accounts for 99.7%). segment in which it sees an increase in revenues. applications such as Whatsapp, Google Talk, In the sphere of the Internet and cable TV, the Facebook Messenger, Viber, and Skype, whereas The modernization of the platform for the delivery market in Montenegro saw consolidation. The a drop in international outgoing traffic resulted of IPTV content ensured new services in this TV signal distribution market is divided between from the high prices of international calls and segment. three dominant operators: T Com, SBB and BBM the use of the substitutes such as Viber, Skype, and 4 cable operators. Bearing in mind this state Gtalk, and Whatsapp for voice calls. Likewise significant are the activities of the in the market, mtel identified the greatest growth operators in the sphere of broadening the content potential in the domain of fixed services, so that, The Internet access service market was marked by offer. In 2015, partner cooperation was established in the course of 2015, it made a significant step the introduction of new access technologies, flat with the OTT content provider (Pickbox in Mtel towards further winning of this part of the market traffic packages, unlimited upload in packages, Open). by acquiring cable operators. the services which protect Internet users through the control of Internet content access, and an Montenegro On the fixed telephony market, evident is the increase in access rates for all customers. dominance of Crnogorski Telekom, whereas The Internet service penetration rate on the In the market of Montenegro in 2015, the following mtel offers its fixed services by way of the Wi- market of Bosnia-Herzegovina is characterized companies directly operate: mtel, FiberNet and Max network. Just like in most of the countries, by continual growth, where broadband access HD-WIN, in the segment of mobile telephony, the fixed market sees a decline, but the number should be singled out as the generator of this fixed telephony (via the Wi-Max network), portability process makes it possible for mtel to growth. It is estimated that the Internet use rate distribution of media content and provision win new customers. To achieve an increase in at the end of 2015 accounts for 69.87%, which is of transport capacities for the providers of the market share in the sphere of the Internet by some 10 pp more as compared to 2014. communications services, as well as connection and pay TV, in the course of 2015, mtel made with foreign telecommunications networks. significant investments into the fixed network. There were 570.06016 fixed broadband access Such optical structure will soon be used for base service users in B-H at the end of 2015. The The mobile telephony market is characterized by stations for the LTE signal. penetration rate of broadband access in relation strong competition, with three operators in place, to the number of inhabitants in B-H accounts for Telenor, T-mobile and mtel. Said operators aspire By acquiring four legal entities, including three 15%. The market share of Mtel on the level of towards full modernization of the mobile network, cable providers, mtel continues the process expansion of radio spectrum, a broader offer of of building cable infrastructure in all towns in 15. Internal estimate based on the official RAK data handsets on the market and the development of Montenegro. 16. Internal estimate based on the official RAK data

28 29 Consolidated Annual Business Report for 2015

in accordance with the Law and Articles of CORPORATE Association, vote in writing.

GOVERNANCE Supervisory Board members are nominated by Owing to corporate governance, Telekom Srbija has the Supervisory Board, the Supervisory Board, achieved better organization and control mechanisms the Appointment Commission, if any, and the and an efficient distribution of competencies between Company’s shareholders with the right to put forth the corporate governance bodies. an agenda. The chairman is elected by the Supervisory Board 03 CORPORATE GOVERNANCE from among its own members by a majority vote of BODES AND CORPORATE the total number of Supervisory Board members, at the proposal of the Supervisory Board members put Corporate GOVERNANCE SYSTEM up by the controlling shareholder of the Company. Telekom Srbija a.d. Beograd Audit Commission

Corporate governance is organized as two-tier. The Commission for the audit of operations was set The corporate governance bodies include: up by the Supervisory Board and it conducts the tasks • General Meeting, falling within its scope of responsibility in line with the competences laid down by the applicable legal governance • Supervisory Board, regulations and the Company’s by-laws. • Executive Board. Executive Board General Meeting Members of the Executive Board, including the The General Meeting includes all shareholders of the director general, are elected by the Supervisory Company that, through its operation, are exercising Board. Executive directors are members of the their ownership rights. In 2015, the following were Executive Board. held: 48th regular session (on 25 June 2015) and the 49th extraordinary session of the General Meeting The organization, method of operation and decision- (on 25 September 2015). making of the Executive Board are more specifically regulated by the Rules of Procedure which were adopted by the Executive Board in keeping with its Supervisory Board legal and statutory competences. The Supervisory Board conducts the tasks falling within its scope of responsibility in accordance Secretary to the Company with the applicable legal regulations, the Company Articles of Association and the Rules of Procedure Telekom Srbija has a Secretary to the Company of the Supervisory Board, endeavouring to act in who is appointed by the Supervisory Board. the best interest of the Company. Internal Control The Supervisory Board and its members are obligated to act conscientiously and loyally to the The Company also includes an organizational unit Company and the shareholders, and perform the competent for the activities of internal control (Internal duties falling within their scope of responsibility Audit), which conducts the audit of compliance of with due care and in the reasonable belief that they the Company’s operations with the law, and other act in the best interest of the Company. regulations and by-laws of the Company. With its by- laws, the Supervisory Board regulated the manner of Supervisory Board members are elected by the implementation and organization of the activities of General Meeting, usually by a simple majority the internal audit of business operations, including of the attendees and represented shareholders the terms to be fulfilled by the persons performing the with the right to vote and the shareholders who, duties of internal audit as regards their professional

31 Corporate management Consolidated Annual Business Report for 2015

skills or expertise, experience and respect for the of the activities between all bodies of the Company, ethical norms which make them suitable for the managers at the business seat of the Company performance of said duties in the Company. and units of its territorial organization, employees, shareholders and the public. The Supervisory Board adopted the Charter of DIVISION / HUMAN Internal Audit which is necessary for the purpose There were no deviations from the rules laid down DIRECTOR DIRECTOR EXECUTIVE FOR HUMANFOR RESOURCES RESOURCES RESOURCES of ensuring independent and objective functioning by the Code in the implementation of the corporate of the organizational unit in charge of internal audit governance system activities and the Rules of Internal Audit. Shareholders’ rights Organizational structure The Company guarantees the exercise of ownership AUDIT AUDIT DIVISION / FINANCE DIRECTOR DIRECTOR The Company pursues its business goals through the and non-ownership rights of the shareholders INTERNAL EXECUTIVE NIŠ REGION FOR FINANCEFOR business units managed by executive directors. established by the Law, the Act of Incorporation, the Articles of Association and other by-laws of the The chart attached hereto features the organizational Company. structure of Telekom Srbija: All company shares are ordinary shares and each share gives shareholders the right to one vote at the

DIVISION REPRESENTATION ON THE DIRECTOR DIRECTOR EXECUTIVE / BUSINESS Company’s General Meeting. CUSTOMERS CUSTOMERS CUSTOMERS FOR BUSINESSFOR APPLICATION OF THE CODE OF

REGION CORPORATE GOVERNANCE Through the timely scheduling of General Meeting

KRAGUJEVAC KRAGUJEVAC sessions and the mechanisms of the shareholders’ Telekom Srbija has applied the Code of Corporate voting in absentia, the Company tries to encourage Governance (hereafter: Code), which was adopted the participation of shareholders in the work of the at the 1st session of the Company Supervisory General Meeting. BOARD DIVISION EXECUTIVE

CUSTOMERS CUSTOMERS RESIDENTIAL RESIDENTIAL Board held on 26 June 2012 and published on the CUSTOMERS / CUSTOMERS DIRECTOR FOR DIRECTOR

SUPERVISORY SUPERVISORY corporate website at www.telekom.rs. All the relevant information and materials for a General Meeting session are available at the web

- The Company is endeavouring to develop a practice page of the Company www.mts.rs/otelekomu,

REGION within the legally prescribed deadlines before the

NOVI SAD NOVI of corporate governance which is based on the contemporary and generally-accepted principles of holding of the General Meeting’s session, especially corporate governance, experience and best practice having in mind the current situation of there being a DIVISION DIRECTOR DIRECTOR EXECUTIVE FOR IT SUP FOR large number of shareholders. SERVICES / ITSERVICES ICT SERVICESICT

PORT AND ICTPORT in this sphere, with the respect for the requirements SUPPORT ANDSUPPORT laid down by the applicable regulations and the acknowledgement of the global market conditions Remunerations and bonuses for members of and trends on the domestic telecommunications the Company’s bodies Organizational structure of Telekom Srbija structure Telekom of Organizational market and defined development goals of the Company. The Company’s General Meeting made certain AFFAIRS DIVISION

REGION decisions by which it established the remunerations AFFAIRS / AFFAIRS EXECUTIVE TECHNICAL TECHNICAL COMPANY COMPANY BELGRADE

COMMITTEE for the work of the chairman and members of the DIRECTOR FOR DIRECTOR The Company Supervisory Board is competent SECRETARIAT for the implementation and interpretation of the Supervisory Board, i.e. the policy of remunerations Code, regular monitoring of its implementation for the work of executive directors of the Company. and compliance of the corporate organization and By a special decision, the Supervisory Board activities of the Company with the Code. established the right to remunerations for work of the president and members of the Audit Commission. The implementation of the principle of adequate GENERAL DIRECTOR DIRECTOR EXECUTIVE APPOINTED Communication with the public, disclosure of AS DIRECTOR DIRECTOR AS observance of the interest of all the existing

EXECUTIVE BOARD EXECUTIVE and potential shareholders, investors, creditors, data and transparency service users, employees, and members of the corporate governance bodies, is ensured through The Company shall secure the transparency of its the procedures, activities and decision-making operations by fulfilling the envisaged obligations method of the corporate bodies, defined by the by- regarding the reporting and publishing of accurate laws and through communication and coordination and complete information, with the respect for

32 33 Corporate management Consolidated Annual Business Report for 2015

the principle of regular and timely provision of • Executive Board, of corporate management of the Company through Telecommunications Company mtel DOO information via its web page. The shareholders and activities that referred to: Podgorica the public shall primarily via the web page of the • Audit Commission, Company be informed about the financial results of • Providing the basis for an efficient In accordance with mtel’s Articles of Association, • Internal Auditor. the Company, and all the important events regarding implementation of the principle of managing mtel’s bodies are as follows: the Company, which is bound to respect the The governance bodies of the Logosoft d.o.o joint stock companies; obligations of such reporting by the applicable legal Sarajevo subsidiary include: • The Board of Directors, regulations and the internal by-laws of the Company. • Shareholders rights and the key ownership function; • The Executive Director. • Company management • Equal treatment of the shareholders; The Executive Director appoints directors responsible Other activities in the implementation of the Code • Supervisory Board for certain spheres of operations. • Role of interested parties – interest holders – The governance bodies of the Mtel Austria The Company invests maximum efforts to permanently in the management of joint stock companies; improve the corporate system which will guarantee subsidiary include: Telus a.d. Beograd that all the corporate bodies of the Company, their • Publishing and availability of information, members, employees and the Company as a whole act • Director General The management of Telus is organized in one-tier. in accordance with the rules of the Code, especially in • Role and responsibility of the board. Telus’ bodies are: the domains regulating the following: • General Meeting Corporate governance will continue to be an important • The General Meeting and Statement on the implementation of the • Existence of personal interest and the duty segment of market operations in the Company. Mtel corporate management standards • The director of avoiding the conflict of interest, will continually monitor the compliance of the principle of good corporate governance with the Company’s The Telus’ organization structure consists of: • Cooperation between the corporate bodies The Mtel company adopted its own Code of bylaws and will make them available to all interested Conduct and Corporate Management, which it fully parties. The bearers of the management functions of of the Company, • The Head Office and adheres to. This Code establishes the mechanisms Mtel will regularly deal with the issues of promotion of functioning of the Company’s bodies and the • Suppression and prevention of corruption of the good corporate governance practice in the • Territorial centers and bribery, protection of interests in the mutual relationships of company and the company will operate observing different interest holders in the Company. The Code the interests and positions of other interest holders The Head Office is divided into four organizational units: • Engagement of external consultants, was established based on the Law on Business towards the Company. Companies, the Corporate Management Standards • Business ethics. • The director’s office: and the Principles of Corporate Management As a responsible and market-oriented company, adopted by the Organization for Economic Mtel will apply the corporate governance principle, -- Assistant Director for Hygiene Maintenance and Cooperation and Development (OECD). This statement represents an integral part of the exercise its rights in accordance with the fair principles Regular Maintenance Consolidated Annual Report on the Company’s of market operations and fulfil its obligations in a All the issues not regulated by the Code shall be -- Assistant Director for Physical and Technical operations for 2015. responsible manner, whereby it will endeavour to directly governed by the provisions of the Law on ensure a long-term prosperity of the company and Security Business Companies, the Corporate Management its shareholders. Standards adopted by the Securities’ Commission, • Expert Section for Legal and General Affairs Telecommunications of Republic of Srpska the Articles of Association and other general by- a.d. Banja Luka Mtel’s statement on the harmonization of organization • Expert Section for Sales laws of the Company. The aim of the Company and operations with the code of conduct, and/or The operations of Mtel, as a company of capital, that is to, by permanent application of the prescribed corporate management standards constitutes an • Expert Section for Finances. is, a joint stock company, are defined by the provisions standards, and good and responsible management integral part of this report and is published on the web The territorial centers of the Company, managed by of the Law on Business Companies. In line with these and supervision of the business and managerial page of the company within the section “Investors”: the heads of the Territorial Centers, are organized in: provisions and the Articles of Association of Mtel, the functions of the Company, improve the competitive http://www.Mtel.ba and on the web page of the Stock bodies of the joint stock company include: ability of the Company and provide a more Exchange: http://www.blberza.com. favourable environment for investment. • Belgrade, The subsidiaries of Mtel, Logosoft d.o.o. Sarajevo • General Meeting, • Niš, By the application of the Corporate Management and Mtel Austria, also observe the highest standards Standards and its own Code of Conduct and • Supervisory Board, of corporate governance which are a precondition • Kraljevo and Corporate Management, in the course of 2015, Mtel for high quality and long-term relations with our • Director General, secured the efficient implementation of the principle customers, partners and different stakeholders. • Novi Sad.

34 35 Corporate management Consolidated Annual Business Report for 2015

TS:NET B.V. AMSTERDAM strategic importance for the Company. At sessions, members of the Company are presented the The bodies of TS:NET B.V. are: operating results and in line therewith, further lines of development are presented as well. • The General Meeting and mts banka a.d., BEOGRAD • The Board of Executive Directors. The Bank bodies include: TS:NET B.V. is managed, with the authorizations and competencies of the Board of Executive • General Meeting of the Bank Directors, by the legal entity Sovereign Trust B.V., from Amsterdam, based on a specially concluded • Managing Board (with 7 members) Management Contract, while the tasks from the competence of the General Meeting are performed • Executive Board (with 3 members) by the director general of the Parent Company as the founder. DIMEDIA GROUP SA, GENEVE TELECOMMUNICATIONS COMPANY HD-WIN d.o.o., BEOGRAD According to the Articles of Association adopted by the General Meeting, the corporate bodies Telecommunications Company HD WIN is operates include: and is divided into the following units: • General Meeting • The Office of the Director General • Board of Directors (with 4 members) • The Technical Affairs Department • Executive Director • The Studio Technical Section

• The Satellite Direction Section GO4YU D.O.O., BEOGRAD

• The IT and Development Section The management of GO4YU is organized as one- tier. • The Production Department The corporate governance bodies, in line with the • The Programme Department Memorandum of Incorporation of GO4YU include: • The Editorial Section • General Meeting • The Marketing and Sales Department • Director. • The Economic and Legal Affairs Department

Telecommunications Company HD-WIN, as the mts d.o.o. Kosovska Mitrovica sole corporate body, includes the General Meeting composed of all shareholders/members of the The management of mts d.o.o. is organized as Company. Through the General Meeting of the one-tier. Company, all Company members exercise their ownership rights. Sessions of the General Meeting of the Company are held periodically to define the basic lines of development of the Company, strategies for the acquisition of sports content, market appearances and other decisions of

36 37 Business operations Consolidated Annual Business Report for 2015

For the purpose of strengthening our market position, STRATEGY improving our organizational effectiveness and efficiency and improving our business performances, a new The Parent Company and its related legal entities enjoy business strategy for the period 2014-2016 was adopted a unique position on the telecommunications market in Serbia, Bosnia and Herzegovina and Montenegro, in 2014, based on an enhanced vision and mission, which as operators that make it possible for their customers develop the key segments of the corporate strategy to have a unique and integrated customer experience in the fields of marketing and sales for private and based on the delivery of a wide range of convergent business customers, PR, technological development, IT services. Provision of mobile telephony services started development, human resources development, finances, 04 in Austria in 2015, through a related legal entity, with the logistics and procurement. Strategic goals were defined intention to exploit the potential for expansion to other which refer to all the key areas of operations, and which markets and business areas. The Parent Company are achieved by the implementation of strategic initiatives, and its related legal entities aspire to retain the leading and the implementation of strategic recommendations. Business position in several segments of the market in the region, through innovative development of products and The strategic framework is based on the pyramidal services, improving the satisfaction of the customers principle and defines answers to the main challenges and business partners and generating growth in the which the companies face in performing the core business results. activity, i.e. in the development of new spheres of operations. The major part of resources is directed at operations The strategic commitment of the Parent Company increasing the overall competitive strength in three main and its related legal entities, apart from retaining the spheres: increasing market effectiveness, increasing leading position in certain market segments, is to efficiency and increasing organizational effectiveness. improve the market position and secure sustainable The aim of these efforts is to create superior customer growth of its market share. The said aims are achieved experience and increase the efficiency of the company’s by continuous improvement of customer experience organization. In order to cope with the competition, through the introduction of new services and application solutions, network modernization and the strengthening investing continued in order to establish and retain the of the brand with respect for the principles of socially leading position in the sphere of innovations on the responsible behaviour. markets where we are present. The success of the Parent Company and its related legal entities is measured by the The contemporary demands of the market and growing sustainability of growth in the value of these companies customers’ needs require that comparative market for their shareholders. advantages and strategy implementation should rely ever more on intangible assets such as: human capital, Our strategic commitment in the 2014-2016 period relies information capital and organizational capital. on three pillars, which refer to the main challenges: What TS should do? HOW to do that? Leadership and Retention Leadership in of leadership position in innovations innovations and network

Organisation’s Building efficiency Transformation and competitive strategic Improvement of the business advantages initiatives model and corporate culture experience Superior customer Organizational effectiveness Increasing competitive Focus and strength Stabilisation Market of the core activity effectivness Efficiency Strategic frameword and links to the pillars of strategic directions

39 Business operations Consolidated Annual Business Report for 2015

• Focus and stabilization of the core activity, competitive advantage are grouped into two main • internally harmonized plan of implementation, knowledge, competencies and best practices between spheres: goals and initiatives for creating superior responsibilities and coordination, with full support the Parent Company and the related legal entities. • Transformation and improvement of the customer experience and goals and initiatives and consent of top management to the time business model and corporate culture, for increasing the efficiency of organization. schedule and the defined priorities; The commercial synergies include joint marketing • Leadership and retaining the leading position The initiatives directed at building competitive activities on the group level, transfer of solutions during in terms of innovations and network. advantage require bigger investments and a longer • setting up appropriate teams for implementation the development of new products and services between time horizon due to a longer period required for the in terms of skills and capacities, with an intense the related legal entities, price strategy on the group Strategic goals and strategic initiatives to be return of investment. The commercial provision of involvement of stakeholders at higher levels; level, centralized management of partnerships, for the implemented in order to achieve the set goals are services across LTE network began in April 2015, purpose of achieving cost optimization and securing a defined for each level of the strategic framework. thus implementing the initiatives for providing • providing the necessary IT resources, given unified brand strategy. the high level of dependence of strategy a superior customer experience. In the RATEL implementation on the availability of information In the course of 2015, the company continued or public tender the Company ensured the necessary technologies. started implementing a large number of strategic frequency bands for the long term provision of initiatives, in accordance with the defined action wireless broadband Internet access services of A successful implementation of the strategy greatly SERVICES plans for implementation. high quality. There has been a huge increase in relies on the implementation of management the number of IPTV users after the introduction of methodologies and tools that are applied in the best The strategic goals and initiatives for increasing advanced mts TV service through a new multimedia practice: competitive strength are grouped according to platforms, and the promotional provision has Telekom Srbija a.d., Beograd the main spheres to which they refer and include begun of the service related to reception of TV • implementation of the Key Performance Telekom Srbija is a company that successfully the goals and initiatives for increasing market channels on multiple devices (multiscreen). LTE Indicators (KPI) system through the BSC effectiveness, goals and initiatives for increasing users were enabled the promotional use of the maintains a leadership role in the field of fixed (Balanced Scorecard) system for monitoring and mobile telephony and has a significant efficiency and goals and initiatives for increasing service related to reception of TV channels on strategy implementation organizational effectiveness. In order to increase mobile devices. These initiatives should provide an market share in the Internet and multimedia efficiency, an initiative relating to the optimization adequate response to the increasingly competitive • strengthening project and program management segment, while introducing new standards and of office space was implemented in the course of market of OTT (Over The Top) services. in order to create and control a unique map of developing new tendencies with continuous 2015. By concentrating employees in a smaller changes that exceed everyday operations business improvement. Therefore, our services number of locations in Belgrade, the conditions The strategic goals and initiatives for securing a are synonymous with trust, superior performance and innovative technology. were created to reduce the cost of leasing office leading position in innovations refer to entry into • continued improvement of business processes space. The realization of initiatives related to the new market segments. The initiatives for securing management and increase of operational and In 2015, the mts user brand got a new visual transformation of OSS/BSS system is continued a leading position in innovativeness on the organizational efficiency identity and unified all the company services by implementing ERP, CRM, billing and other market are directed at providing non-traditional under one roof and one name. advanced application solutions. Increase of telecommunications services to customers and the organizational effectiveness is carried out expanding operations to other activities. By The Parent Company and its related legal entities try to continually identify the possibilities and create Business Customers through initiatives related to the transformation acquiring a majority ownership in Dunav banka, synergy effects from the organizational, technical and Small and Medium-Sized Enterprises of human resources management (competency now mts banka, the conditions were created models, performance management, reward and commercial aspects. for entry into a new segment of operations​​ with During 2015, a new 4G service was introduced via salary system, changes in corporate culture), the aim of providing the synergy of banking The organizational synergies are reflected in the 4G mobile telephony network of Telekom Srbija. The transformation of the procurement process and and telecommunications services. In the field introduction of corporate management on the group service may be activated only for the customers with supply chain management, as well as improvement of ICT services, the Cloud services offer has level, which is supposed to create a number of positive USIM cards and mobile devices that support LTE of the IT management process through the been upgraded, thus creating the conditions to effects: improving the business results of the Parent technology (existing customers were provided with introduction of ISO 20000 and ISO 9001 standards. strengthen the partnership business models in this Company and its related legal entities and retaining the a replacement of SIM cards by USIM cards). The The implementation is under way of initiatives to challenging but highly complex area. investors’ trust, cost reduction, increasing the value of the service is not charged extra, but there are restrictions increase the market effectiveness that relate to companies, encouraging the management to achieve on the packets for which it is enabled: the introduction of new service packages tailored The corporate business strategy, with its three the goals that are in the interest of the shareholders and to different customer requirements, improvement pillars and the strategic framework, creates a the company, and decreasing risks in the operations. • for mobile internet - for Mobile Net 30GB of the effects of managing the standardized balance between the initiatives that are oriented The operational synergies involve the consolidation, package and larger, customer segments and development of new toward just one organizational unit and the and/or centralization of common functions in order to loyalty program for customers. Progress has been initiatives whose implementation requires create positive effects on the group level, thanks to the • for postpaid customers with tariffs BizMixNet L, XL made in consolidation of the company brands multidisciplinary cooperation between a larger economies of scale. and XXL and BizMax and BizMax Plus. architecture by introducing the new mts brand number of organizational units, which leads to full and customer experience has been enhanced by achievement of the common goals. The technological synergies refer to joint long-term Blackberry BES 12 service was introduced in the introducing a new unified portal. network planning and attitude toward the suppliers, first half of 2015 and it allows users to securely The key factors of successful implementation of the establishing common guidelines for the development and manage BlackBerry OS7, BlackBerry 10, iOS, The strategic goals and initiatives for building strategy are: use of certain technical platforms, and the exchange of Android and Windows Phone 8 phones from a

40 41 Business operations Consolidated Annual Business Report for 2015

unified BES 12 console. The following services are copper wires), active equipment and access points that is registered to the user. When activating the tickets for transportation from the major Serbian used in this manner: wireless receiving and sending (indoor and outdoor). Also, the service includes a service, users get their credentials for access to cities to tourist destinations in Montenegro. Users e-mail messages, wireless access to the Internet, all captive portal - web page to which every end user the administration portal (Delegated Admin) and of mts mobile network were enabled to purchase functions of a mobile phone; enabled synchronization is diverted. That page can have some marketing completely independently create and manage tickets at the portal redvožnje.rs by debiting and use of organizer from a PC, access to business text, but it can also serve as a log in page for their mail accounts, using one of the predefined postpaid or prepaid accounts, with the tickets information and contacts from a PC and the access to WiFi, depending on the requirements of mailboxes from the offered set. being delivered to their home address. separation of two work environments - business and the business customer. private. Since September, the postpaid tariffs introduced TBB concept was introduced for Cloud services, Residential Customers some novelties, involving a new Mix XL Plus tariff, The IPTV service for business customers was which customers can use to test these services for Mix XXL revised tariff with more SMS and GPRS enhanced in March, and it offered an extended set of a limited time, by selecting the special packages Mobile Telephony Services traffic and a lower price for the Super Plus tariff. functionalities through the new platform. The service marked as TBB packages. Period of testing usually has been released for the following segments of takes about a month. The mts centre application was created in 2015, The service of purchasing vouchers for taxi business customers: hotels, office premises, public with a version for the three most common operating rides in the territory of Belgrade was launched (open) space. Microsoft business solution includes MS systems in the mts mobile network (Android, iOS in November. Users of mts mobile network buy Exchange, MS Lync and MS SharePoint services. and Windows). The application allows users to vouchers via CarGo mobile application by debiting A new Mts BizPaket service was introduced in the Those are services that represent a hosted check their account balances, top-up credits for their postpaid or prepaid accounts. first half of 2015, for the business customers from solution on Telekom Srbija servers and a rounded, friends and family and get information about the the segment of small and medium-sized enterprises. so-called. Office Productivity solution. Customers current promotions. It is enabled to purchase The service of purchasing BusPlus tickets BizPaket combines the services of fixed telephony can opt for any combination of services. vouchers and activate services related to favourable by debiting customers’ mobile accounts was (up to 9 lines), mobile telephony (up to 20 lines) and calls to fixed and mobile networks abroad, as well released in December. The prerequisite for using the Internet. This package was further enhanced in WFBS product is a complete IT security solution as to favourite numbers in the mts network. It is this service is that customers have a mobile phone August by enabling customers to include the IPTV and it relates to unified protection from viruses, also enabled to review important numbers, list with Android operating system version 4.4. or in the BizPaket service, as an additional service. The data compromises and abuses that threaten of Telekom Srbija outlets, SMS directory or the higher, which supports NFC service and that they number of allowed mobile lines in the package was from the Internet, with minimal impact on the network your friends are in. download the mts centre application. The ticket also increased from the max 20 to max 40 mobile performance of protected computers. purchased in this manner is downloaded into postpaid line. The Credit Alarm service was launched in June. the phone’s memory as an NFC token, which is Bizdisk Pro was released in the second half of 2015 Customers log in to the service which enables visible only to the validator in the public transport At the end of 2015, PromoBox was introduced for and it represents a StaaS (Storage as a Service) them, as soon as the credit in the account reaches vehicles in Belgrade. In this manner, users can business customers, as a fully integrated and tested solution. an amount that is bellow 50 dinars, to received purchase individual time tickets for all four zones system that provides the ability to market promotions a reminder in the form of an SMS notification. of the Belgrade city transport. Purchased tickets to customers, to manage promotions, as well as to It is a service that provides users with a certain The service is provided to customers free of can be used/validated in the following 24 hours. A generate reports on the marketed promotions in a amount of storage space per maximum number charge. The Credit Alarm can be used by prepaid new BusPlus ticket can be purchased after using/ simple and fast manner. PromoBox allows users to of customers using that space. One of users is customers and users of the Cost Control tariff. validating the previously purchased ticket. activate roaming add-ons and tariff add-ons via SMS also the administrator, who creates other users and USSD menus. The introduction of PromoBox and defines access rights for internal folders. In Since July, the purchase of mobile phones in The service of mobile telephony over LTE (4G) for business customers improved the Front-end addition to the disk space that can be accessed instalments at retail prices has been enabled technology was experimentally provided to segment, i.e. channel of communication with via any device that has an internet browser, access even when customers decide on a monthly fee residential customers in April. It involves the use of customers, as well as customer segmentation on the is enabled through applications for mobile devices with a 50% discount. The number of instalments services via 4G technology at no additional charge USSD channel. (Android, iPhone, Windows Phone) and PCs (with is conditioned by the length of their contractual to users of postpaid tariff profile Mix XL and users Windows operating system - for which there are obligations. of Box package containing a postpaid tariff profile ICT Services separate Sync and Backup applications). of mobile telephony, as well as users of Mix XXL, The service of paying invoices for the MTS services Super and Super Plus, Mobile NET L and Mobile The Managed LAN service that connects the BizMail service enables the use of e-mail over via a mobile phone was also launched in June, NET XL tariffs. business customers’ locations in a single network the Internet, where the mail server is provided and the payments are effected by debiting VISA/ system - local network, has been improved through by Telekom Srbija. Sending and receiving users’ MasterCard payment cards. To use this service, In April, the cooperation was established with TV new terminal equipment, and new - lower prices e-mails is carried out with strict data security, customers must be registered for mobile payments Pink in terms of services that accompanied the have been applied for equipment rental. antivirus and antispam protection and easy usage in the bank that issued Visa or MasterCard. In this TV show “Pinkove zvezdice”. A special prepaid of the service. The whole process, from purchasing manner the invoices are paid without commission, tariff was established, and users are able to enjoy The WiFi service for business customers was to creating and defining individual user accounts in just a few simple steps, sending text messages special benefits, including 15 free votes for voting launched in June. The service enables business and other options, is fully automated. User or using the android application m_plati. shows. The application Pinkove zvezdice was customers to use Wi-Fi technology for Internet accounts that are opened on the mail server can developed as well, allowing users of specific mts access. Telekom Srbija provides a complete be on a domain that is registered to Telekom and During the summer months of 2015, users of mts tariffs to follow the television programs Pinkove solution - Internet access (via optical fibers or not additionally charged to the user or on a domain mobile network were enabled to purchase bus zvezdice via their phones. The following facilities

42 43 Business operations Consolidated Annual Business Report for 2015

were available to users: all the shows broadcasted genre and thematic guidelines. Mts TV Basic offer relation with loyal customers and attract new ones, The portfolio of integrated packages in 2015 so far (approximately 60-70 hours of recorded changes in terms of contents and includes 102 a Loyalty Program was defined and commercially included new additional services: nPVR, Start content); exclusive video material of events channels + 5 Arena channels. released on 21 December 2015. Over, Pause, Catch up TV and Mosaic TV channels taking place behind the scene during recording; (Mosaic Promo and Mosaic Sport). interesting facts about the program, the jury, the The Multiscreen service has been released since The mobile telephony segment is characterized competitors, in the form of video clips - on a daily October, allows users to view multimedia content via by a continuous offer of various starting packages The offer for residential users of the integrated basis. TV, PC and mobile devices (so called OTT devices). and tariff models. Since December 2015, new fixed telephony, Internet access, mobile telephony This functionality includes the ability to use content postpaid tariff models My Mix MINI, My Mix and IPTV services included Pickbox SVoD service Since July, the mobile application mts Željko on multiple devices. A user who starts viewing the STANDARD, My Mix Net, My Mix EXTRA, My Mix (Subscription Video on Demand). This video Joksimović has been released, allowing users to content on one device, can continue to monitor the TOP and My Mix PREMIUM have been included in on demand service enables IPTV users to view listen to 11 new songs for this artist. It is available content on another, under the same user account. the offer. The new tariff models are much improved a large number of contents integrated into the to all users, and for the first 130,000 mts customers Multiscreen functionality as an additional service can in relation to the existing ones and they comply Pickbox video library with the option of unlimited it was free to download from Google Play and App only be used by residential IPTV users. with the market requirements and customer number of views of selected content in the service Store until 30 September. needs. It is expected to have an increased influx use period. The service resulted from partnerships Convergent Packages Services of new postpaid customers, and migration of a with the OTT content provider. The Elektronski račun (E-bill) service has been large number of existing customers from the old active since August, providing users with the The Green Field campaign started in October to the new tariff models. Customers are offered Plan for the coming period is to continue with option of downloading/receiving Telekom Srbija 2015, allowing applications for a BOX package to numerous significant bonuses, as well as various the activities related to increasing the number of bills in electronic form. The service is designed be submitted even at a location where there is no discounts for calls, SMS and the Internet. users of integrated services and thereby elevate for all residential customers of Telekom Srbija. It fixed line. The aim of introducing this procedure is to the number of IPTV users in relation to the total represents a replacement/addition to the existing facilitate the submission of applications to customers Mtel Company offers the latest models of mobile number of fixed telephony subscribers. The plan paper form bills. who do not use any of the services at the moment of phones, thus standing out as an operator that is to develop a portfolio of multimedia services application. follows trends and provides customers with the by introducing the Multiscreen service, OTT IPTV Internet Services best package of services with terminal equipment. service, and OTT widgets as well. In 2015, Mtel offered mobile phones of renowned There are different Net packages of various global manufacturers as well as models covering In 2015, Mtel constantly offered its customers speeds, designed according to customers needs: Telecommunications of Republic all consumer segments in BIH. It achieved LCD TV models with excellent characteristics, competitiveness and advantage over other made by the renowned manufacturers, following • Net 10 (up to 10/1 Mb/s) of Srpska a.d. Banja Luka operators by offering of the most attractive phone the world trends and ensuring the availability and models (Samsung Galaxy S6 Edge, S6 Edge+ , accessibility of different models. LCD TV sales in • Net 20 (up to 20/2 Mb/s) In order to retain existing customers and attract Note 4, Huawei P8, Mate S, HTC One M9, HTC 2015 increased by 39% compared to 2014, and new ones, services were upgraded in the mobile One E9, LG G4, Sony Xperia Z3+, Sony Xperia Z5), the relevant revenues accordingly increased by • Net 50 (up to 50/2 Mb/s) telephony segment during 2015, in terms of with the largest portfolio and the first to offer it in 62% compared to 2014. introduction of new tariff models, implementation the BiH market. • Net 100 (up to 100/2 Mb/s). of a number of marketing activities and offer of attractive models of smart devices. Logosoft d.o.o. Sarajevo Net packages have been offered at more favourable In addition to selling service packages with a mobile prices since December. With a 24-month contract, device, Mtel offers its customers the opportunity During 2015, numerous promotional campaigns From the aspect of service portfolio, Logosoft is the use these service is enabled for 1 dinar in a to purchase handsets at purchase price, without a were conducted, intended for prepaid customers contractual obligation. It also offers the possibility a unique company in the wider region as it offers period of 2 to 5 months, depending on the selected a complete set of IT and telecommunications package. , offering them certain amounts of free minutes in of purchasing handsets bundled with a service in Mtel fixed and mobile network, free SMS within 12 monthly installments. services that are currently necessary to all users, BiH, data transfer in Mtel mobile network, as well such as ISP services, fixed and mobile telephony, IP television, business solutions development, Multimedia Services as calls to m:ts mobile network of Serbia at the In the market of Bosnia and Herzegovina, Mtel has price of 0.17 KM/min. the largest portfolio of integrated services tailored system integrator solutions, advanced solutions to the customers needs and structured: Open Duo, on the network infrastructure, all the way to the The mtsTV GO application was released in April - it specialist IT education. In that sense, the portfolio is a service that allows users to watch TV channels The most important activity in the prepaid segment Open Trio and Open Quadro. These packages of mobile telephony was marketing a new brand, incorporate in various combinations services of is really spreading over the entire scope of what and other video, audio and multimedia content over is now considered IT and the Internet. It is necessary for users to install the GO! with a price of calls to all mobile networks in fixed and mobile telephony, IPTV services and services. relevant application on their mobile phones, tablets BiH - 0.10 KM , according to a 60+60 calculation Internet access via ADSL. This way, the integrated or computers, i.e. to have a webTV plug-in. unit, which represents a unique offer in the market services have impact on keeping a good market and the cheapest national traffic in BiH. GO! brand position and extending of fixed telephony. Logosoft is among the first companies in Bosnia and Herzegovina that started selling and There has been a new mts TV service offer since offer was enhanced by mobile phones: Alcatel The Open packages have been offered so as to implementing the cloud based services and October, through which customers have available 1016G, Allview S5 Simpy and Allview A5 Smiley. compensate for a decline of physical volume of packages that are created in accordance with the In order to retain existing customers, have a better fixed telephony traffic by flat traffic. solutions. Thus in April 2015, the new loGO! BIZ

44 45 Business operations Consolidated Annual Business Report for 2015

platform was introduced, which combines all IT Taking into account the advantages of doing business In October, the sale continued of the prepaid package BOX 2, Internet 15M and Basic TV package, and BOX and communication services, among which is the with the Parent Company and related legal entities, m:go plus, with the following benefits: 10,000 minutes all 4 with Tel BOX 1, Internet 8M, Basic TV package Office365 solution. mtel continued the campaign with advantages for all in 068 MTEL network, 10,000 SMS messages in and mobile package. users who are roaming in Serbia, in the mt:s network, 068 MTEL network, 300 MB of free Internet and 3 In the coming period, Logosoft will further work on entitled m:roaming tickets. Customers could select EUR of credit for free consumption, whereby the In addition to BOX packages, special Flash Internet development of the cloud service implementation. one of the m:roaming tickets for 15 days or the First free resources are valid for 15 days from the date of packages were created that offer internet speeds Some examples of the cloud based services Class annual ticket, which allowed them to use all of activation. of up to 25 Mbps, as well as special fixed telephony that could be offered in the BH market right at the said benefits until the end of 2015. packages with benefits in a promotional campaign. the beginning, and on whose development they As regards postpaid customers, the offer includes have been working, are the following remote Regarding the prepaid segment, for all new prepaid the opportunity to purchase phones in instalments, backup, VM hosting and platform-as-a-service Basic and Mini Basic TV packages contain the best customers the m:go plus NEW package was and a discount rate of up to 30% for the customers models. A distinctive advantage of Logosoft prepared in April, with the possibility of sending SMS offer of TV channels in the Montenegrin market. A who sign a 24-month contract by purchasing a phone compared to other potential competitors in this messages to all networks in Montenegro for just wide range of Pink channels is included in the Basic at a retail price with Odaberi Plus packages. As of segment of services in the BH market is well- 1 cent. By activating a card during the promotional package, along with Arena channels. In addition to 15 November, the offer has included the opportunity branched infrastructure to the end users, with period, users receives free calls to three selected these packages, the offer likewise includes standard high bandwidth, which basically allows the use of numbers from any network in Montenegro in the to purchase annual m:roaming tickets at a price of add-on packages (HBO...). a wide spectrum of cloud service. following 30 days (2000 minutes). 19 euros. This ticket allows all MTEL network users unlimited minutes towards mobile and fixed network With BOX packages there is an opportunity to of Telekom Srbija and towards MTEL networks, Mtel Austria Vienna Continued campaigns of selling mobile phones (with purchase the most advanced Samsung and Tesla a special emphasis on smart phones), modems and unlimited SMS messages to numbers from the mt:s TVs, at retail prices or with deferred payment. tablets were aimed at popularizing mobile Internet and MTEL network, unlimited Internet and unlimited Mtel Austria started commercial operation in incoming calls from any network in the world until the as much as possible as well as greater Internet The national digital line enables digital connectivity October 2015, whereby they released prepaid end of 2016. consumption, particularly if taking into consideration and connection of two customer’s points in the and postpaid mobile telephony services. Other the tendency of increasing use of social networks territory of Montenegro, and this is a service provided significant activities were likewise carried out: web and mobile applications. In December, new tariff packages Surf Elastic and by FiberNet in the Montenegrin territory. The above site was put into operation; the purchase of startup Super Surf Elastic were introduced, which include a prepaid packages was enabled via the web shop Apart from the standard offer within the USSD menu, possibility for users to get two SIM cards and to use service does not depend on the protocol and it by using credit cards, PayPal or payment from a and with an aim to increase revenues in the prepaid the Internet simultaneously on two devices with one enables a transparent transmission of the signal of current account; ordering postpaid services via segment, a special menu was enabled – the m:me monthly subscription. required capacity between the customer’s endpoints. the web shop on the web portal was also enabled. menu, created with a personalized offer of benefits It is used for the provision of telephone services or The number portability service was enabled with depending on the customer’s previous habits and other services of data transmission between the the mobile operators in Austria, mtel Austria Call A campaign was also launched in December aimed preferences of the targeted user group (calls, SMS at users who prefer phones with a keyboard and customer’s locations that require high service quality. Centre was put into operation, m:music service or the Internet). For prepaid customers offers are FiberNet offers national and international digital lines was enabled for users of mtel Austria and a new larger screen. With the new Senior Plus postpaid generated through m: me menu on a daily, weekly and of the following capacities: 2Mbps, FETh (4MMbps, mtel Austria outlet was opened in Vienna. package, for just 7.9 euros per month customers monthly basis, relating to the consumption within the get an Alcatel 2004C phone, with the following 6Mbps….100Mbps) and STM-1, depending on the M:TEL network, or consumption towards all networks benefits: 3000 minutes and 3000 SMS messages in locations of the customer’s endpoints. in Montenegro. MTEL 068 network, 100 minutes to fixed networks in Telecommunications Company Montenegro and 30 minutes and 30 SMS messages The service of leasing optical dark fibers allows At the beginning of the tourist season, in June, the mtel DOO Podgorica to other mobile networks in Montenegro. customers to connect their locations in Montenegro sale was launched of a new tourist package with the or to connect a location in Montenegro with a location prepaid package m:go tourist. For only 3 EUR users Mobile Telephony Services abroad. can get 3 EUR of credit, 100 SMS messages to be Services of Fixed Telephony, Internet and Television In order to satisfy the needs of all mobile telephony sent to international networks in the following seven days, and 3 days of free Internet, 500 MB of which at The service of lease of transport capacities represents customers - primarily with the aim to retain the In early September, the mtel company officially the service of lease of high bit rate capacities existing and gain new customers, and having in mind the maximum speed. offered cable television and Internet services. implemented via SDH/DWDM network of FiberNet* the segmented target groups, the mtel company and its partners abroad. Transport capacities that are carefully planned new services. A promotional campaign was launched in July, in the segment of the provision of services via the cable The m:BOX packages were introduced that combine leased may be national and international. The said In February, the postpaid segment introduced a new infrastructure. New tariff packages were introduced fixed, mobile, Internet and services, service is intended for operator (wholesale) customers group of Select Plus packages. A special feature of that combine services of the fixed and mobile with a monthly subscription from EUR 19.99 to 34.99. for the connection of endpoints of their network or for these packages is that they have the resources to telephony, Internet and television. Key benefits of the There are four BOX Packages offered: BOX Trio 1 that the connection of their network with the network of access the M:BOX digital service which allows users offer are: the richest TV offer, the most favourable includes Tel BOX 1, Internet 2M and Mini Basic TV another operator. to store all their photos, video clips and files on an internet packages with free connection and package, Box Trio 2 that includes Tel BOX 1, Internet online server. installation. 8M and Basic TV package, BOX Trio 3 comprising Tel

46 47 Business operations Consolidated Annual Business Report for 2015

Telus a.d. Beograd • Arenasport WEB channel exclusively for the The total investments amounted to RSD 20.1 billion, needs of www.svenaklik.com service INVESTMENTS which is 64% more compared to the previous year. Within its registered activity, Telus offers the • MaxGP channel (a specialized auto-moto In the fixed network the aim is to further increase following services: channel) for the territory of Croatia. PARENT COMPANY AND the customer base, while maintaining existing RELATED LEGAL ENTITIES customers and facilitating higher Internet speeds. • securing facilities and property (physical and All channels are available in the SD and HD formats technical security, fire protection and money Investments were mainly intended for upgrade (1920x1080i), while the entire production process, from and expansion of access network, thus providing escort), the reception (ingest) of the signal, through its processing, The total investments in 2015, at the level of the parent and related legal entities amounted to RSD 29.6 users with services via high-speed Broadband (BB) i.e. post-production, until the delivery to end users was access. In the fixed telephony segment of switching • maintaining hygiene of office space and projected and performed in high resolution. billion and 51.9% were higher than the investments in facilities and 2014. A comparative overview of capital investments systems there was improvement and expansion of the IMS system, which is the central switching node The basic elements of play-out are based on automation made by individual companies in 2015 and 2014 is • services related to ancillary tasks. for the new generation of fixed and mobile network. systems by the reputed producers of broadcasting featured in the table below: Since 2008, Telus has possessed a certificate equipment such as Snell, Harmonic, Omneon, Miranda, In mobile network Telekom Srbija continues being Rorke, etc., while the entire system is connected through on implementation and application of Standard In million RSD 2015 Growth 2014 a leader in mobile network territorial coverage, SRPS ISO 9001 – Quality Management System Cisco servers and switches. rate providing its users with high quality signal and and, since 2012, Standard OHSAS 18001 – Health Telekom Srbija 20,122 64% 12,267 fast mobile Internet throughout the country. The The virtual studio For-A, which is also one of the most and Safety-at-Work Management System. In 2013, investment related to obtaining licenses in the 800 the quality standard ISO 14001 was introduced - modern studios in the country, has been operational since Mtel 6,977 22% 5,717 the first round of the Champions League season 2012/13. MHz and 1800 MHz bands, which is a prerequisite Environmental Management System. mtel 2,498 68.5% 1,483 for the provision of LTE services, confirms the Since the beginning of its broadcasting, the program of Telus 1 85.7% 0.7 intention of Telekom Srbija to turn the technological capabilities and performance into a superior user TELECOMMUNICATIONS Arenasport TV has been based on the exclusive premium FiberNet - - 2 content from the world of sports. The content itself is mainly experience. COMPANY HD-WIN d.o.o., provided on the basis of three-year contracts based on HD-WIN 11 -56.8% 25 During 2015, various improvements have been made BEOGRAD negotiations and direct negotiated procedures with the mts banka 9 - - holders of the rights. The exception is the UEFA, which to the CS core network, as well as implementation Total 29,619 51.9% 19,494 of additional core network functionalities, enabling At the end of 2015, the Arenasport channels were has strict rules and procedures thanks to which telecom operators from this region managed to win the bid for the the provision of services via LTE technology. The present in the distribution networks of 47 operators Total investments implementation of the new EPC (/3G/4G PS core) on the territory of Serbia, 28 on the territory of Bosnia seasons 2015-2018. Analysed by members, the largest investments in has been finalized, while the mVAS platform (unified and Herzegovina, 4 in Montenegro and 1 each in platform for the provision of messaging services) is Macedonia and Croatia, i.e. a total of 81 operators. With the work of the studio, the program was enriched with 2015 were made in the Parent Company (RSD 20.1 studio shows that comment on the Champions League billion), whereas the lowest were made in the Telus in the final testing stage. In all the said markets, the Arenasport channels and the Europa League, and the events regarding the Jelen related legal entity (RSD 1.3 million). Super League, the French and the Italian leagues, and In the Internet sphere, investments were directed were present on the platforms of all the main towards expansion of the IP/MPLS network aiming telecommunications operators (T-Com Crna Gora, there is also a show that deals with the events in the world at implementation of the best solutions available T-Com Makedonija, T-Com Hrvatska, BH Telecom, of basketball. Daily Arena News are broadcasted as well. m:tel RS, HT Eronet, Telekom Srbija). Telekom Srbija a.d., Beograd on the market and providing the capacities for all Arenasport is engaged in the productions of various sports future network and customers’ demands. Arenasport prepares and broadcasts the following events in the territories where it is present (JSL, ABA, Major investments by Telekom Srbija were aimed In the sphere of multimedia, investments were channels: BPL, KLS, CL and EL). All the important competitions are at ensuring business continuity in all operating covered by studio shows and special shows from its own segments. Telekom Srbija is committed to directed towards further expansion of IPTV • Arenasport 1 for the territories of Serbia, production. maintaining the position as the leading provider multimedia platform and additional services and Montenegro, Bosnia and Herzegovina and of the most demanded ICT services in the HeadEnd platform, by which Telekom Srbija wants Macedonia Arenasport Channel 1 is distributed by all operators within market, including: Internet access via different to improve its position in this market segment the basic offer, and other channels are part of the pay technologies, data transfer, voice and multimedia offering the attractive high quality multimedia • Arenasport 2, 3 and 4 for the territories of package whether as a stand-alone Arenasport package services, but it is simultaneously turned towards contents in contemporary manner. Serbia, Montenegro, Macedonia and BiH or as part of another pay package. As a promotion, new market segments imposed by a dynamic Shortening the loop makes a prerequisite for better some operators were allowed to broadcast channels to business environment. In this regard, investments • Arenasport 1, 2, 3, 4 and 5 for the territory customers within the basic package. rate, i.e. fast fixed Internet and high-quality of Croatia in Telekom Srbija comprise investments in the offering of IPTV service on several HD channels network for the provision of regular services in a Distribution of channels to the operators is carried out either simultaneously. more technologically sophisticated manner and • Arenasport 5 currently only for the needs of via Polaris (BulSat) DTH platform (reception with Polaris or OpenIPTV of Telekom Srbija Tandberg receivers and only in SD format) or via optic fibers. investments in new technologies. The most important IT projects in this period include

48 49 Business operations Consolidated Annual Business Report for 2015

continuation of the IT transformation program access equipment and the project was launched During 2015, replacement of the complete CS During 2015, the support was purchased for Sales through consolidation of the Billing platforms, and the contract signed for the procurement of Core subsystem with two new MSS/MGW nodes and Marketing activities, the HRMS system was introduction of a new CRM system, ERP system equipment and works for the project FTTx Prijedor. located in TKC buildings in Banja Luka and Pale purchased and implemented, software licenses standardization and further virtualization of the During 2015, the reconstruction has been was carried out within the project of modernization were procured and SAS platform improved, while complete IT infrastructure with the aim of creating completed of a significant Mtel project, the of the CS Core system, and installation of new IS POS application software was procured and a Software Defined Data Centre, as well as support reconstruction of Banja Luka TKC, wherein a network elements in the PS Core subsystem service delivery improved. for new revenue sources by offering payment and complete reconstruction of the facade and roof of (Firewall, Border Gateway) increased the system cloud services to end-users. the building was completed, as well as construction security for data transfer via cellular networks and In addition, procurement was effected of a printer of the power supply for data centre premises. The ensured a high capacity required for the provision and software for bulk printing, active and passive Investments in logistics support primarily refer construction of new, centralized power supply of services in the future. Likewise, there were Corporate Computer Network, new servers and to the reconstruction and installation of radio systems and connection within the control system significant projects related to expansion of the storages, system for DoS/DDoS attack protection, base stations, space refurbishment and the resulted in a new power supply topology for the IN system functionality (charge@once Unified), redundant CA (Public Key Infrastructure - PKI), procurement of the work equipment. In order to central Mtel building. In addition, an advertisement supply and installation of the mPayment system centralized Password Management, as well as a ensure smooth work process in the Company, the was placed on the building, the air-conditioning and services, as well as one of the strategic software solution for control of remote access to motor pool was considerably improved, with a system was purchased and installed, which will be projects in the mobile telephony network - the network resources and security system (UTM) that plan for the modernization to be completed by the able to respond to new demands regarding better project of Expanding Capacity and Functionality is integrated with the existing system for monitoring, end of 2016. cooling capacity, greater heat loads in small areas of the VPN system in the mobile network, which recording and analyzing server access. and precise cooling. was launched in the previous year.

TELECOMMUNICATIONS OF The project related to delivery and installation In 2015, investments in internet network equipment Logosoft d.o.o. Sarajevo REPUBLIC OF SRPSKA A.D. of the core system for expansion of the core and IPTV were carried out. The equipment BANJA LUKA AND RELATED telecommunications network of Mtel enabled a necessary for expansion of the core router of Mtel Regarding investments of the Logosoft related LEGAL ENTITIES number of significant interventions to be performed network was purchased within the implementation legal entity, the major part of investments during on the fixed network infrastructure. A replacement of the expansion project for ISP router Bijeljina, 2015 is intended for the purchase of terminal Total investments of the Mtel company with related of a significant part of the legacy hardware was along with equipment related to procurement equipment in the access network (VDSL2 CPE legal entities Mtel Austria and Logosoft in 2015 executed on the NGN network element, as well of the DoS attacks prevention system, while devices, HD Set-Top-Boxes and IP phones) that amounted to RSD 7 billion (KM 113 million). as implementation of the Terminal Management migration and installation are planned in 2016. In delivers services to residential customers. A System (TR69), which enables remote control of addition, the project related to procurement and significant part of investments is directed towards Of the total realized investments of Mtel and its two the user terminal equipment. installation of the integral system for IPTV content the procurement of xDSL equipment projected for related legal entities, the biggest investments were distribution was completed; it is a system with a termination of lines to residential customers, in realized in Mtel in the amount of RSD 6.6 billion A significant project in the context of the total very advanced architecture and fully implemented particular the contemporary DSLAM aggregation (KM 107 million), which is 12.4% more related to realized investments refers also to the purchase Multiscreen concept. devices and VDSL2 service modules for expansion investments in 2014. of equipment and services necessary for the of capacities in the access network. modernization of the mobile network and continued Modernization and improvement of the NOC system Telecommunications of Republic implementation of the project which started in and expansion of the capacity and functionality of Part of the funds in 2015 was invested in the the previous year - Modernization of the Wireless the system for signalization and quality control, acquisition of a multicast streaming server, which of Srpska a.d. Banja Luka Access Network SWAP Phase III (Krajina and enabled the system for signalization and quality is a key part of the IPTV Headend system, through Herzegovina), and procurement of base stations. In control to be provided for all newly built elements which processing and distribution of television In the structure of total realized investments of Mtel addition, equipment and licenses were purchased in the network core, as well as the radio access and radio signals to IPTV services subscribers are in 2015, significant investments refer to investing that are necessary for the implementation of SON network. In 2015, the equipment and licenses were carried out. into cable transport network, access network, system for wireless access network, and new purchased for the purpose of full implementation procurement and installation of equipment for repeaters and pico repeaters to achieve coverage and installation of the existing IP/MPLS network in the expansion of MSAN and the construction within the facilities. 2016. Mtel Austria Vienna of new ANs. During 2015, the procurement was also effected of installation materials for In addition, twelve mobile trailers with infrastructure The structure of investments included The most significant investments of the Mtel Austria telecommunication, copper and fiber optic cables, for accommodation of mobile telephony base implementation of investments in user software and related legal entity in 2015 referred to investments OTN/DWDM equipment and services, construction stations were procured, which would considerably licenses, and they are related to the procurement in network elements of the MVNO platform with of FTTx networks, fiber optic cable connection improve the mobile telephony signal and provide of software solutions that need to improve, CRM and billing system, HLR, GGSN, DNS and paths and drop lines to the base stations and sufficient capacity where large gatherings are promote and facilitate the work of employees in firewalls, enabling operation of the mobile network MSANs. Also, as required by the project FTTx expected or coverage for new locations until the company, and shorten the market release time and the commercial commissioning of mobile Bijeljina, assembly was completed of the part of permanent BS are constructed. for new services. telephony services.

50 51 Business operations Consolidated Annual Business Report for 2015

Telecommunications Company that were out of the warranty period. The same is fixed telephony customers is shown in the graph upgraded to the latest SW version, and the backup CUSTOMERS below: mtel DOO Podgorica installation was performed for the TV headend station in Podgorica, which will functionally replace The total investments of the mtel related legal the existing one in Budva after its commissioning. 100% entity in 2015 amounted to RSD 2.5 billion (EUR The preparation of premises for the TV station in 90.0% 90.3% 20.7 million) and they are 68.5% higher than those Podgorica was completed, which included works PARENT COMPANY AND realized in 2014. in the Data Centre Čelebić and preparation of the RELATED LEGAL ENTITIES 80% space on the roof of the facility for installation of In 2015, investments were directed to the mobile satellite dishes. The system upgrade to the latest network through providing better coverage in version of Conax Contego encryption was done 60% 2G and 3G network, increasing capacity in the in the TV station Budva. The final activity related On the level of the Parent Company and the Core and RAN part of network in keeping with to commissioning of the TV station Podgorica and related legal entities, the number of Internet and the expected increase in traffic, and additional multimedia customers increased and the total configuration of the cluster Podgorica-Budva was 40% hardware and software system upgrade for the expected in February 2016. number of fixed telephony customers declined in PS Core packet traffic. The number of 2G and 3G 2015, whereas the number of mobile telephony base stations has been increased, and the second customers remained on the previous year’s level. carrier was activated on all 3G base stations in the 20% network is activated, enabling packet flow rates up Telus a.d. Beograd 9.8% 9.7% to 42/5.78 Mbps. The third carrier was activated Fixed Telephony Customers 0.2% 0.1% on all base stations at the see side to prepare the In 2015, the total value of investments of the Telus 0% 2015 2014 network for the tourist season. The HW and SW subsidiary amounted to RSD 1.3 million and relate The fixed telephony services provided by the upgrade was performed on all elements of the to the procurement of work equipment (cleaning Parent Company and the related legal entities are Core Network where it was planned, and licenses equipment for premises, photocopying machines, used by 2.7 million customers. In Telekom Srbija, were extended on all the network elements to the brush cutter and other devices). Realized as the Parent Company, and the Mtel related legal Telekom Srbija Mtel mtel extent required by the traffic they generated. It investments were lower compared to the previous entity, the number of fixed telephony customers facilitated smooth network traffic. in 2015 was lower than the number of customers The Parent Company and the related legal year by RSD 616 thousand (85.7%). entities’ share in the total number of fixed in 2014, whereas the number of fixed telephony telephony customers Likewise, the installation of mobile customers customers was higher in the mtel related legal positioning system was carried out. The equipment entity, because this company has started to was delivered and installed. The connection to the TELECOMMUNICATIONS provide fixed telephony services through the In 2015, there were 2.5 million residential customers centre for emergency management OCC 112 of optical network since July. the Ministry of Interior of Montenegro by optical COMPANY HD-WIN d.o.o., and 290 thousand business customers in the Parent Company and the related legal entities. coupling was executed in accordance with the BEOGRAD The total number of fixed telephony customers per current legislation in Montenegro and intensive company is shown in the table below: testing with the Ministry of Interior is under way. In 2015 the the related legal entity HD Win’s investments totalled to RSD 10.9 million. Major In thousands 2015 Growth 2014 Investments were also focused on the development rate investments relate to replacement of the archives In thousands 2015 Growth 2014 of the HFC cable network in all cities of Montenegro, rate and expansion of the broadcasting system (play- Residential 2.422 -8,2% 2.637 as well as on the expansion of DWDM and MPLS out) by two new channels. Realized investments Telekom infrastructure. The DWDM/MPLS project was 2,440 -6.8% 2,618 Business 290 9,8% 264 fully implemented by December 2015, and the were lower compared to the previous year by RSD Srbija 14.3 million dinars (56.8%). equipment was installed in all regional and local Total 2.712 -6,5% 2.901 Data Centres where it was planned by the network Mtel 267 -4.9% 281 topology. The redesign was thus executed of the mts banka a.d., BEOGRAD Total number of fixed telephony customers transport network for the provision of services of mtel 5 158.1% 2 cable television, Internet and fixed telephony, and Realized investments of the mts banka related Total 2,712 -6.5% 2,901 at the same time the network was prepared to legal entity in 2015 amounted to RSD 8.9 million Mobile Telephony Customers redesign the transport of the mobile network traffic, and mainly referred o investments in the IT which will gradually occur as base stations are Total number of fixed telephony customers being linked to the optical transmission systems. infrastructure. In 2015, the total number of mobile telephony customers on the level of the Parent Company and In the course of 2015, the replacement was effected The percentage of the Parent Company and the the related legal entities amounted to 6 million. All of all parts of the TV head-end station in Budva related legal entities’ share in the total number of companies recorded a decline in the number of

52 53 Business operations Consolidated Annual Business Report for 2015

prepaid customers and an increase in the number of Growth The number of multimedia customers at the end intensively growing because the customers postpaid customers compared to the previous year. In thousands 2015 rate 2014 of 2015 amounted to 472 thousand. Multimedia have recognized the advantages of convergent customers of the Parent Company and the related packages offered by Telekom Srbija. In the The total number of mobile telephony customers of Prepaid 3.392 -3,8% 3.526 legal entities include IPTV users of the Parent previous three years the number significantly the Parent Company and the related legal entities is Postpaid 2.590 9,0% 2.377 Company Telekom Srbija and the Mtel related legal increased and at the end of 2015 amounted 496 shown in the table below: Total 5.982 1,3% 5.903 entity, as well as mtel’s cable users. The growth in thousand customers. the number of mtel’s multimedia customers is the result of buying and merging the cable providers. Growth Total number of mobile telephony customers Fixed telephony customers In thousands 2015 rate 2014 Growth Telekom Internet and Multimedia Customers In thousands 2015 2014 Liberalization of the fixed telephony market Srbija 4.303 1,5% 4.239 rate In 2015, the total number of internet users on the has not jeopardized the leading position of Mtel 1.404 1,6% 1.382 Telekom Srbija 399 26,9% 314 level of the Parent Company and the related legal Telekom Srbija. Declining number of customers mtel 275 -2,5% 282 entities amounted to 888 thousand and included Mtel 56 28,8% 44 has been mostly caused by alternative forms of communication such as mobile telephony Total 5.982 1,3% 5.903 the ADSL customers of the Parent Company mtel 17 - 0 and the Mtel related legal entity, as well as the and Internet, but also by launching the number Total 472 31,7% 358 portability service. Total number of mobile telephony customers customers of the mtel related legal entity using the internet via cable and wimax technology. The Multimedia customers growth in the number of mtel’s customers is the Percentage of the Parent Company and the related In thousands 2015 Growth 2014 legal entities’ share in the total number of mobile result of merging the cable providers. rate 100% 87,8% telephony customers is shown in the graph below: 84,6% POTS 2.372 -6,9% 2.548 In thousands 2015 Growth 2014 rate 80% Telekom Srbija 743 4,6% 710 ISDN 50 -17,0% 61 100% Mtel 134 8,2% 124 Other* 17 77,3% 10 mtel 11 73,2% 6 60% 80% Total 888 5,7% 840 Total 2.440 -6,8% 2.618 71,9% 71,8% 40% Internet *IP Centrex, Business trunking i E1 60% Note: Business trunking 2015 – number of lines, 2014 – 100% number of connections 20% 84,5% 12,2% 40% 83,7% 11,9% Fixed telephony customers 80% 3,5% 0% 0% At the end of 2015, Telekom Srbija’s fixed 23,5% 23,4% telephony services were used by 2.4 million 20% 2015 2014 60% customers. Owing to development of IP Telekom Srbija Mtel mtel technology, the number of ISDN customers 4,6% 4,8% declined, whereas an interest in IP Centrex and 0% 40% The Parent Company and the related legal entities’ Business trunking services increased due to their 2015 2014 share in the total number of multimedia customers advantages.

Telekom Srbija Mtel mtel In 2015, Telekom Srbija had a steady number of 20% 15,1% 14,8% TELEKOM SRBIJA customers on the mobile telephony market taking The Parent Company and the related legal its major share. 1,2% 0,8% entities’ share in the total number of mobile 0% Despite the challenges of growing competition telephony customers 2015 2014 in all business segments, Telekom Srbija has a considerable number of customers221 in fixed and Mobile telephony customers In 2015, the number of prepaid customers Telekom Srbija Mtel mtel mobile telephony and an increasing number of amounted to 3.4 million taking a 57% share in the IPTV and Internet users. In 2015, the total number of mobile telephony total number of customers, whereas the number of The Parent Company and the related legal customers increased vs. 2014 as a result of the postpaid customers amounted to 2.6 million taking entities’ share in the total number of internet The number of convergent package users is larger number of postpaid customers. a 43% share in the total number of customers. users 22. Active connections / customers at the end of period.

54 55 Business operations Consolidated Annual Business Report for 2015

Growth Telecommunications of Republic and Herzegovina with the unique aim of reducing of three dominant operators and five MVNO mobile In thousands 2015 rate 2014 the outflow and retaining the fixed network operators, as follows: of Srpska a.d. Banja Luka Prepaid 2.144 -4,2% 2.239 customers. • net d.o.o. Banja Luka, Postpaid 2.159 8,0% 2.000 In accordance with the improvement of the service In 2015, a decline in the number of customers was Total 4.303 1,5% 4.239 portfolio and numerous marketing activities, in recorded as compared to 2014, which conforms • Telrad NET d.o.o. Bijeljina, 2015 there was a growth in the number of mobile to the feature of fixed telephony market that has • IZI mobil d.o.o. Sarajevo, Mobile telephony customers telephony customers, as well as integrated, ADSL entered a declining stage from the aspect of its and IPTV users. The volume of mobile telephony life cycle, primarily due to substitution of fixed and • Logosoft d.o.o. Sarajevo i The advantages of numerous campaigns and traffic also increased as a result of increased mobile telephony. new tariff profiles introduced in order to meet the number of customers and migration of customers • ELTA-KABEL d.o.o. Doboj. specific demands of various groups of customers to packages with a higher bonus. The strategic guidelines in the fixed telephony had a positive impact on the total number of mobile segment are to preserve revenues. To achieve the In 2015, Mtel created a new tariff policy for prepaid telephony customers. In October 2015, Mtel Austria started its operations above, the Company is focused on slowing the customers of GO! brand at the price of KM 0.10 to connecting the prepaid customers only. Having downward trend in the number of customers in all mobile networks in B&H. The accounting unit is At the end of 2015, Telekom Srbija recorded 83 facilitated the provision of postapid services, the this segment, i.e. stabilization of the average traffic 60+60. As at 31 December 2015, there was 1,216 thousand users of mobile Internet via USB modem. activities related to postpaid customers were GO! customers. carried out at the end of December 2015. and revenue per user indicator. Considering the tactical level, the key instruments are integrated Fixed Internet and Multimedia service packages, in the context of providing In 2015, the mobile telephony customer base was Fixed Telephony top-quality value to end users and on that basis expanded with 1.7 thousand Open quadro service users. The total number of Open quadro service In thousands 2015 Growth 2014 building loyalty and retention of „good customers“. rate The total number of fixed telephony customers of users amounted to 6,113. Fixed Internet - Mtel and its related legal entity Logosoft, as at 31 Mobile Telephony retail 634 7,0% 592 December 2015, amounted to 267 thousand. Considering that Mtel Austria started its operations in October 2015, the first customers were Fixed Internet - The total number of mobile telephony customers, 109 -7,3% 118 In Growth connected in October, so a significant increase in wholesale thousands 2015 rate 2014 as at 31 December 2015, amounted to 1.4 million, of which 76.9% referred to prepaid customers and the customer base has been planned. Initially, Mtel IPTV 399 26,9% 314 Residential 235 -5,6% 249 23.1% referred to postpaid customers. Austria provided the prepaid mobile telephony Total 1.142 11,5% 1.024 customers services and at the end of December 2015, after Business 32 0,4% 32 introducing the postpaid services, marketing Fixed Internet and multimedia customers In Growth activities were carried out to attract postpaid thousands 2015 rate 2014 Total 267 -4,9% 281 customers. The Internet market recorded growing customers’ Prepaid 1.080 -1,7% 1.099 demands for the Broadband Internet, which Total number of fixed telephony customers Postpaid 324 14,0% 284 Logosoft exclusively provides postpaid mobile reflected the customer interest in the service telephony services, but the structure of the total enabling a high-quality and easily accessible Total 1.404 1,6% 1.382 number of customers includes M.net, VPN and content. Within the fixed telephony structure, the residential customers accounted for 87.9%, whereas Total number of mobile telephony customers Quadro users in addition to standard postpaid customers. At the end of 2015, the Company had 634 business customers accounted for 12.1%. There Despite the observed negative trends in the thousand fixed Internet users in the retail segment are two categories within the residential and national economy, the telecommunications market and recorded a 7% growth compared to the business customers of fixed telephony: the in B&H in the mobile segment kept the growing previous year. Internet customers of non-integrated services and the trend. There is still room for growth in this market,

customers of integrated services. The customers especially in the segments of the overall mobile In 2015, the number of IPTV users considerably As at 31 December 2015, the number of ADSL of non-integrated services in fixed telephony are telephony penetration, the number of postpaid increased (by 27%) as a result of the convergent the customers of basic voice services (POTS, customers (independent and as part of integrated customers, the penetration of smart devices, the service packages) totalled 134 thousand, that is packages offering and TV signal digitalization. ISDN, CLL), whereas the customers of integrated level of mobile internet use and the development 8.4% more as compared to the previous year. In At the end of 2015, the Company recorded 399 services are the customers of bundle packages thousand IPTV users. of OTT services. 2015, a trend of migration of customers from ADSL (the customers of at least two services). In the last packages to Open services was recorded. few years there has been a trend of integration At the end of 2015, the subscription-based Mtel has a 40.2% B&H market share in mobile number of Web TV service users amounted to 30 and convergence of certain telecommunications telephony. The mobile telephony market in Bosnia As at 31 December 2015, the number of registered thousand. services both globally and on the market of Bosnia and Herzegovina is characterized by the operation Dial up customers totalled 42 thousand.

56 57 Business operations Consolidated Annual Business Report for 2015

The market share recorded at the end of December Multimedia In thousands 2015 Growth 2014 Growth rate In thousands 2015 rate 2014 2015 amounted to 3.81%, with a 25% penetration in the Montenegrin fixed telephony market (according Since July 2015, the mtel related legal entity ADSL residential Residential 82 22,8% 67 to the definition of the Telecommunications customers 122 8,3% 112 customers has started to provide the television service and Agency). reached the market share of 8.01% by the end of Business ADSL business 13 6,9% 12 0,4 65,1% 0,2 2015. customers customers Mobile telephony As at 31 December 2015, the number of TV users Total 134 8,2% 124 Total 83 22,9% 67 The market share recorded at the end of totalled 16,5 thousand. December 2015 amounted to 28.52%, with a Total number of ADSL customers Total number of customers of integrated services 162.56% penetration in the Montenegrin mobile telephony market (according to the definition of Telus a.d. Beograd The Mtel B&H market share still grew in the The total number of IPTV users (independent and the Telecommunications Agency). segment of fixed broadband access to the Internet as part of integrated service packages) as at 31 Besides Telekom Srbija and PE PTT Traffic and it was estimated at 24.2% in 2015. December 2015 amounted to 56 thousand. The number of mtel’s customers, at the end of 2015, amounted to 275 thousand, whereof prepaid Srbija, as the major buyer on the market, Telus customers accounted for 61% and postpaid has significantly developed its operations on the The Internet access is possible in all towns in In thousands 2015 Growth 2014 rate customers accounted for 39% in the total number hygiene maintenance service market particularly Bosnia and Herzegovina. Mtel’s infrastructure is of mobile telephony customers. since 2010. limited to the provision of internet services in the Residential customers 56 28% 43 territory of the Republic of Srpska. Mtel offers to The security services are predominantly rendered Business all its customers the advanced version of ADSL 1 71% 0,5 In 2015 Growth 2014 to Telekom Srbija and PE PTT Traffic Srbija. standard (ADSL 2+) providing a higher flow rate customers thousands rate Total 56 28,8% 44 In public procurement procedures, contracts were compared to the standard ADSL (up to 30 Mbps Prepaid 168 -11,0% 189 awarded, inter alia, to PE PTT Traffic Srbija, the towards the user and up to 3 Mbps from the user). Total number of IPTV customers Flight Control Agency of Serbia and Montenegro, Postpaid 107 14,7% 93 City Municipality Novi Beograd, CM Savski Venac, Public Utility Company Beogradske Elektrane, Integrated Service Users Total 275 -2,5% 282 Drinsko-limska HE, the Republic Geodetic Telecommunications Company Authority, ED (Šabac, Kraljevo, Valjevo, Lazarevac, In the B&H market, Mtel has the largest portfolio of Total number of mobile telephony customers Užice, Novi Pazar, Loznica), the Ministry of Finance integrated services tailored to the users’ demands mtel DOO Podgorica branch offices – Treasury and Tax Administration, and structured as follows: Open duo, Open trio Internet PE Elektromreža Srbije. and Open Quadro. These packages incorporate Fixed Telephony The development of optical network as well as Also, based on conducted internal procurement various combinations of fixed and mobile services, the purchase and merger of business entities in procedures, contracts were concluded with: IPTV services and Internet access via ADSL. The The mtel related legal entity has started to provide 2015 caused a 73% increase in the total number of DDOR Novi Sad, Generali osiguranje a.d.o., Open packages have been designed so as to fixed telephony services via optical network since Internet users from 6,308 users at the end of 2014 Piraeus banka a.d., Alfa banka a.d., Opportunity July 2015, resulting in a significant growth in the compensate for a decline of physical volume of to 10,923 users at the end of 2015. banka a.d., Dunav osiguranje a.d. branch offices. fixed telephony traffic by flat traffic offering. number of customers, so that the total number of fixed telephony customers increased from 1,963 The packages have been created with a single at the end of 2014 to 5,067customers at the end Growth In thousands 2015 rate 2014 monthly subscription fee for the service package, of 2015. offering free telephone traffic within Mtel’s fixed Wimax internet 3,7 -41,8% 6,3 network, free international traffic based on Flat In 2015 Growth 2014 fare-use principle, ADSL package with different thousands rate Cable internet 7,3 - 0 access flow rates compared to independent Residential Total 10,9 73,2% 6,3 ADSL, differentiated IPTV packages and mobile customers 4,7 188,1% 1,6 telephony service offering. Business Total number of Internet customers customers 0,4 15,0% 0,3 As at 31 December 2015, the number of Mtel’s The market share of Internet users at the end of Total 5,1 158,1% 2,0 customers and the related legal entities of December 2015 amounted to 11.25% according to integrated service packages totalled 83 thousand. Total number of fixed telephony customers the definition of the Telecommunications Agency.

58 59 Business operations Consolidated Annual Business Report for 2015

at work, health care and possibilities for further The smallest share belongs to the employees with Telekom Srbija a.d., Beograd EMPLOYEES advancement and education. two-year college education (7.9%). As at 31 December 2015, there were a total of The total number of employees in the Parent 8,449 employees in the Company. Out of the above Company and the related legal entities amounts PARENT COMPANY AND THE number, owing to the nature of jobs, 8 employees to 12,703 including the employees that have a have been referred to work in the related legal RELATED LEGAL ENTITIES dormant employment status (30 in the Parent 28,37% entities on a temporary basis. In addition to the Company and the related legal entities), whereof above number, as at 31 December 2014, 1,038 the largest portion relates to Telekom Srbija a.d. persons were engaged outside of employment Beograd (66.51%), 17.74% to Mtel, 11.73% to Telus, contract through employment agencies (staff Employees 2.04% to mtel, 1.35% to mts banka, 0.52% to HD- 7,9% leasing). WIN, whereas 0.1% to the GO4YU. 63,73% The management and development of human Educational structure of employees (without the resources is one of the topmost goals and tasks Owing to the nature of jobs, 8 employees of Telekom employees that have a dormant employment of Telekom Srbija. Care about employees involves Srbija a.d. have been referred to work in the related status). care about overall satisfaction of employees, legal entities, therefore they are presented both in boosting their motivation and adherence to the the Parent Company and the related legal entities. university college secondary Company. Telekom Srbija always strives to ensure The total number of employees in the Parent degree degree school for its employees a better future, adequate working Company and the related legal entities as at 31 Educational structure of employees conditions, equal treatment of employees, safety December 2015 is shown in the following graph: 30,07% 10.000 As for the employees’ age structure in the Parent Company and the related legal entities, the largest 8.449 share belongs to the employees aged between 8.000 40 and 49 (41.91%), followed by 50 - 59 aged employees (30.03%), 30-39 age group (21.8%), 60 59,82% and over 60 (3.83%), 20 – 29 age group (2.42%), 10,11% 8.000 whereas employees up to 20 years of age account for 0.01%. 0,01% 4.000 2,42% 3,83% 2.254 2.000 21,80% 1.490 30,03% university college secondary degree degree school 259 66 172 13 0 Educational structure of employees Telekom HD-WIN Mtel mtel Telus mts banka GO4YU Srbija By analysing the educational structure of employees on the Company level, it can be noticed that Number of employees 41,91% the largest share belongs to the employees with secondary school education (59.82%), followed by university education employees (30.07%), whereas the smallest share belongs to the employees with Besides the permanent and temporary employees By analyzing the educational structure of up to 20 years of age 0,01% two-year college education (10.11%). in the Parent Company and the related legal employees on the level of the Parent Company 20 - 29 years of age 2,42% entities, there is a total of 2,166 workers hired and the related legal entities, it can be noticed that 30 - 39 years of age 21,80% As for the employees’ age structure, the largest based on various outside of employment contracts the largest share belongs to the employees with 40 - 49 years of age 41,91% share belongs to the employees aged between (temporary and casual jobs, agency and mediation), secondary school education (63.73%), followed 50 - 59 years of age 30,03% 40 and 49 (43.19%), followed by 50 - 59 aged whereof 47.92% in Telekom Srbija, 39.66% is hired by university education (28.37%) where the total employees (31.68%), 30-39 age group (19.83%), in Telus, 7.02% in Mtel, 3.32% in HD-WIN, 1.75% number includes specialists, master and PhD over 60 years of age 3,83% 60 and over 60 (4.09%), and the smallest share in mtel, 0.28 in mts banka, whereas 0.05% is hired degrees. belongs to the employees aged between 20 – 29 in G04YU. Age structure of employees (1.20%).

60 61 Business operations Consolidated Annual Business Report for 2015

create an adequate organizational context for the In 2015, 680 training beneficiaries under the whereas 3 contracts were terminated and 13 1,20% implementation of new values and achievement contract concluded with suppliers (with/without approved studies were completed. 4,09% of the Company’s strategic objectives, while contractual obligation) spent 2,368 training days 19,83% simultaneously overcoming resistance to change. in the country, which accounts for 3.48 days per attendee, whereas 32 training beneficiaries under Licences, certificates, membership the same contract spent 150 training days abroad, 31,68% EDUCATION which accounts for 4.69 days per attendee. 712 In 2015, the Company financed different types training beneficiaries under the contract concluded of licences, certificates, professional exams and with suppliers spent a total of 2,518 training days, External education in the country and abroad membership fees for total of 663 employees, which accounts for 3.54 days per attendee. as follows: the Engineer Chamber membership In 2015, a total of 2,125 employees were referred renewal for responsible designer and contractor to external education in the country and abroad, licenses for 520 employees, acquiring of new 43,19% who had 6,841 training days that accounts for In-house training licenses for 16 employees, vocational exams approximately 3.21 days per attendee. for 9 employees, acquiring of CISCO and other In 2015, the Training Centre in the Human vocational certificates for 40 employees, GIAC up to 20 years of age 0,00% The external educational events in the country Resources Division organized in-house training re-certification for 2 employees, PMI membership 20 - 29 years of age 1,20% were attended by 1,066 beneficiaries, whereof attended by a total of 794 employees who spent for 32 employees, PMP re-certification for 4 186 employees were sent to referential seminars, 30 - 39 years of age 19,83% 2,923.3 days on in-house training, which accounts employees, the International Institute of Business 441 to training and seminars, 18 to law-mandatory for 3.7 days per attendee. Analysis membership for 7 employees, the 40 - 49 years of age 43,19% training, 176 to business skills training, 227 to Association of Internal Auditors membership for 50 - 59 years of age 31,68% teambuilding and 18 employees to training in In-house vocational education was attended 6 employees, the Association of Accountants general knowledge and skills. The attendees spent over 60 years of age 4,09% by 446 participants, 204 employees attended and Auditors membership for 21 employees, the 2,757 training days in the country, which accounts professional skills training, 78 employees attended Chamber of Certified Auditors membership for 1 for 2.58 per attendee. Age structure of employees the English course (56 – group lessons, 22 – employee, the Journalists’ association of Serbia for individual lessons with department managers). 1 employee and vocational exam in the sphere of In accordance with the agreement on teaching transport of dangerous goods and fire protection English concluded with external language schools A new project of the Human In 2015, the first in-house teambuilding program – Zadužbina Ilije M. Kolarca, in 2015 the English for 4 employees. was organized for 66 participants from the Resources Division – Employee language course was held for 35 employees Company. performance evaluation and attending group lessons and 40 employees Practical training attending individual lessons, who had 298 training corporate culture transformation days, which accounts for 3.97 days per attendee. The number of internal and external education In 2015, practical training in the Company was beneficiaries in the country and abroad totals done by 111 university students. In accordance to 2,919 who spent 9,764.3 days on training, In 2015, based on the Strategic Business Plan for Educational events abroad were attended by a with an Agreement on Cooperation signed with total of 304 employees, whereof 226 attended which accounts for approximately 3.34 days per the Ministry of Youth and Sports, the Company the 2014-2016 period, a project entitled Employee beneficiary. Performance Management Model and Corporate conferences, congresses and seminars, 32 provided summer practical training for 3 Culture Transformation was implemented in attended the training in operating the equipment beneficiaries of the Fund for Young Talents. For cooperation with the consultant. The process according to the contracts concluded with suppliers the purpose of organizing practical training in of introducing the performance management of equipment and services, 25 attended forums, 15 Schooling the Regions, an Agreement on Cooperation was as a new system for managing the employee attended vocational training and workshops and 6 signed with the University of Novi Sad and Niš. performance has been initiated by the project employees visited fairs. The attendees spent 1,418 The Company enters into contracts on settlement in order to improve the employees’ output and days abroad, which accounts for 4.66 days per of mutual rights and obligations with employees competences, introduce a transparent and attendee. referred to various types of additional schooling, more equitable system of remuneration (salaries particularly with regard to the period of completion RECRUITMENT AND SELECTION and benefits) based on objective performance The Company enters into contracts with the of schooling and the period of mandatory stay in employees that are sent to training in the country the Company; as at 31/12/2015 there were 32 active indicators, thus creating the basis for talent st In 2015, the Company engaged 194 external and knowledge management processes in the and abroad so that they are bound to stay with contracts (4 for the 1 grade vocational studies, 6 the Company for 14 or 24 months. The number for the 1st grade academic studies, 5 for master candidates of the total of 837 candidates involved future. On the other hand, the corporate culture nd in the selection procedure (the highest percentage transformation process has been initiated by the of employees having the contractual obligation studies, 5 for the 2 grade vocational studies, 6 for MBA studies and 6 for postgraduate, PhD of engagement refers to jobs with a high rate of project, primarily through the assessment of the as at 31/12/2015 amounts to 858 (838 for training and specialist academic studies). In 2014, 14 new fluctuation - operator and sales jobs). Pursuant to existing corporate culture, defining new corporate in the country and 20 for training abroad under the contract concluded with suppliers), whereof, schooling contracts were approved, as follows: 2 internal advertisements, 21 employees were assigned values and ambitions of new, desired culture. in 2015, there were 635 beneficiaries with active for the 1st grade vocational studies, 6 for the 1st to new positions – based on internal selections The corporate culture transformation is aimed at contracts, i.e. 616 for training in the country and 19 grade academic studies, 3 for specialist vocational performed with 76 employees. Out of 25 selected defining new corporate behaviour necessary to for training abroad. studies, 2 for master studies, 1 for EMBA studies, candidates, 21 candidates were assigned.

62 63 Business operations Consolidated Annual Business Report for 2015

EMPLOYEES’ BENEFITS concluded in 2015 with the following insurance health rehabilitation for 346 employees and culture and sports, telecommunications in the companies: recreation for a total of 168 employees. country and abroad, sections Visit Serbia, the World, Famous Serbs, Great Thoughts by Great Implementation of the policy of material, th social and health protection of employees • for the period from 1 January to 30 April Gifts for 8 March People, Psychological Counselling, Labour and 2015 with DDOR Novi Sad a.d.o. in case Legal Counselling, Funny Press Clipping, German of accidents and Delta Generali osiguranje In 2015, on the occasion of 8th March, International Jubilee awards and English Language Tests, Survey and New a.d.o. in case of severe illnesses and Women’s Day, and in accordance with the Technologies). In accordance with the Company’s Collective surgeries, Company’s internal by-laws, the Company granted Agreement, the jubilee awards are granted to the right to a one-off payment of funds as a gift to In 2015, a total of 2,235,959 single visits were • for the period from 1 May to 31 December women employed/engaged outside of employment recorded, the corporate Newsletter (a total of employees and ex-employees, who in the period 2015 with Delta Generali osiguranje a.d.o. from 2 June of the previous year to 1 June of the contract. 12 issues) was distributed, along with the latest in case of accidents, severe illnesses and news from the subsidiaries and a presentation of current year have: surgeries. New Year gift for the employees’ children new services and current events in the sphere of • 10 years of uninterrupted employment in In 2015, a total of 306 applications were filed and culture and telecommunications, and 7 corporate Telekom Srbija; In 2015, the Company granted the right to a one- bulletins were issued. the insurance companies reimbursed the insured off payment of funds – gift to employees/individuals sums for 106 employees and members of their close engaged outside of employment contract, for the • 20 years of uninterrupted employment in PTT families, whereas 200 applications were rejected. system of Serbia; purchase of New Year parcels for children of up to 10 years of age, on the occasion of New Year 2016. Telecommunications of Republic • 30 years of uninterrupted employment in PTT Voluntary Retirement Insurance Program system of Serbia; of Srpska a.d. Banja Luka All employees in the Company are provided with Implementation of the policy of • 40 years of uninterrupted employment in PTT regular monthly payments against retirement As at 31 December 2015, Mtel had 2,254 system of Serbia. contribution for voluntary pension insurance. harmonization of relations with employees employees. The program was implemented according to the Notwithstanding the foregoing, in 2015 the jubilee agreement on retirement schemes which the All employees in the Company have at their disposal As for the educational structure of employees awards were also granted to employees who in Company has concluded with the joint stock expert teams of lawyers, psychologists and social (without employees with dormant employment the period from 2 June 2014 to the effective date companies for the management of voluntary workers in terms of labour, legal and psychological status), the largest share belongs to the employees of the Collective Agreement of the Company, i.e pension funds Delta Generali a.d. and Dunav a.d. counselling. In 2015, texts were published on the with secondary school education, i.e. 59.7% or to 27 January 2015 had 35 years of uninterrupted since 2007. company website – short professional topics and 1,343 employees, whereas university education employment in PTT system of Serbia in line with the the latest news in the domain of labour law, and accounts for 29.2% or 657 employees. previous Collective Agreement. Solidarity Aid Program responses to the requests and questions were and other types of help continuously e-mailed to the employees and they According to the age structure, the largest share The awards are granted on the basis of the average were also informed by phone within the Labour of the total number of employees belongs to gross salary in the Company for the month of June In accordance with the Company’s internal by-laws and Legal Counselling section. In 2014, within the employees between 41 and 50 years of age who paid to the employees with 20 years of uninterrupted governing the field of granting solidarity and other psychological counselling, 40 employees’ requests account for 38.04%, and employees between 51 employment in PTT system of Serbia, i.e. ½ of the types of aid, the Company paid solidarity aid to a were fulfilled and 24 texts were published. and 60 years of age who make up 26.36%. average gross salary for 10 years, 2 average gross total of 383 employees and members of their close salaries for 30 years and 3 average gross salaries families on all grounds granting the exercise of such Putting the focus on the importance of adequate for 40 years (i.e. 35 years according to the previous rights. employee management, training was organized Implementation of the policy of aimed at: business process improvement, better Collective Agreement). internal informing of employees Aid program for resolving team cooperation, personal and professional advancement of employees, as well as the creation In 2015 the jubilee awards were granted to 946 the employees’ housing needs It represents a program of continuous, accurate employees. of an efficient and productive work environment. In accordance with the Company’s internal by-laws and timely informing of employees via the Intranet By developing these competencies, Mtel shows its and the Company’s Newsletter. The Intranet Collective Insurance Program regulating the allocation of housing loans to the consistency in order to be a leader in the region Company’s employees, 22 contracts on housing implies regular and continuous preparation, when it comes to monitoring and implementing processing and publishing of information on the All employees in the Company are insured from loans were concluded. the contemporary trends of the positive business the consequences of accidents, severe illnesses internal site My Portal. The posted information is practice. and surgeries, at work or outside of work (24x7), Specialist medical check-ups, classified in categories: ad hoc information related with additional insurance of employees who are health rehabilitation and recreation to important announcements in the field of human In 2015, the Company also organized two team assigned to positions entailing higher risk. resources (employees’ rights), information about building events for employees, the internal training With the aim of prevention and improving the current events in the company that is posted on programs in order to adapt to market needs, as The program is implemented pursuant to the employees’ health, the Company organized a daily basis and information that is posted on well as electronic training (LMS), certification of insurance agreements/policies, which the Company specialist medical check-ups for 1,653 employees, a monthly basis (current events in the sphere of employees at Logosoft Education Centre.

64 65 Business operations Consolidated Annual Business Report for 2015

Telecommunications Company Media Net d.o.o. Podgorica, labour and legal status established. All employees in the company are documents for the period up to 2016, relies on of employees of the aforementioned companies insured from accidents, serious illnesses and the guidelines of the Organization for Economic mtel DOO Podgorica was regulated on 1 October 2015. surgeries at work and outside of work (24/7). This Cooperation and Development and the United program is implemented based on the Insurance Nations Global Compact. In this context, Telekom At the founding of mtel, in April 2007, the Agreement/Policies with Delta Generali. Srbija committedly launches and supports the employment of personnel was performed by public Telus a.d. Beograd initiatives directed at improving its own operations, announcements, through the Employment Agency and the operations of its partners, in the fields of or by an agreement on takeover. A personnel Telus’ policy towards the employees primarily consumer protection, respect for anti-corruption data base was created along with the personal depends on market conditions, but it is completely REPORT ON principles and the protection of the environment. files of employees. In addition to the above said, committed to adherence to high standards, The Company also promotes the values which it the procedure of registering all employees in the established by the founder. CORPORATE AND stands for and its activities in this field by means of Funds for healthcare and retirement and disability a network of partner organizations gathered around insurance was made and input of data into the The rights and obligations of the employees are SOCIAL RESPONSIBILITY the CSR Forum – the leading local association HR database through Navision application was regulated by the Collective Agreement of 29 dedicated to the promotion of good practice in the ensured. Collective insurance of employees was January 2015, which guarantees more rights business sector. provided. to employees than those envisaged by the law The customer is at the centre, the (bonuses for night work, length of annual leave, In 2015, like in the previous year, Mtel continued to The employees who concluded employment paid leave, higher percent of salary increase community is the driver foster old friendships, make new ones and build contracts for positions that involve work under new paths for future connections with the society special working conditions, established by the based on past labour, severance payment in case of layoffs, etc.). In accordance with the main commitment of the in which it operates. The year 2015 was marked Rules on Safety and Protection at Work, underwent Company to enrich customer experience by an offer by big projects that were dedicated to humanity, medical examinations to establish whether they are The total number of employees including the of services based on modern technologies, the youth, knowledge and culture. Mtel tries to integrate capable of performing special tasks. A procedure promotion of positive and safe ways of using these employees that have a dormant employment as many positive aspects and institutions into its for accessing the Montenegrin Employers’ Union services was at the centre of socially responsible status as at 31 December 2015 was 1,490. projects in order to encourage others to become the was also implemented. activities last year. This role, started by a very promoters of initiating positive changes by taking successful initiative aimed at raising awareness part in the campaigns of the company. During the Apart from the above said, a Collective Agreement of the proper use of mobile phones while driving year, Mtel organized, supported and was a friend was signed between the employer and the TELECOMMUNICATIONS entitled “Park your phone while driving!”, was of various events, conferences, humanitarian representative Trade Union in 2011. COMPANY HD-WIN d.o.o., enlarged in 2015 by an educational campaign organizations and campaigns, as well as scientific, In addition, the activity related to Manage services BEOGRAD dubbed “You choose how you communicate” in cultural and sports events throughout Bosnia and was initiated and implemented, whereby 34 which the customers are advised on how to reduce employees of the Technical Affairs Department and Herzegovina. At the end of 2015, HD-WIN Belgrade had 53 exposure to the impact of electromagnetic radiation 2 employees of the Marketing, Sales and Customer as the inevitable result of using mobile technologies. Care Department have been referred to work in persons engaged on an employment contract The mtel company believes that the progress of all Ericsson since 1 February 2015. and 59 outside of employment contract (technical segments of the social community within which it staff, reporters and production), while HD-WIN Fostering a responsible attitude toward each operates is of vital interest, which is why socially individual user of its services, Telekom Srbija also There were 259 employees in mtel as at 31 Arenasport – had 13 persons engaged responsible operations are an important part of its on an employment contract and 13 outside of remains loyal to its role of a reliable corporate partner corporate strategy. High ethical principles, reliability, December 2015; 7 persons are engaged outside to a wider community in which it operates. Thus, of employment contract, whereas 31 persons are employment contract. commitment to work and results, respect for others only in the previous year the Company supported engaged through the Staff Leasing Agency Gi and transparent cooperation with all factors of the 78 projects in the local community, most of which Group. Apart from high quality technical and technological society are the characteristics of operations that equipment of the television itself and the automated were in the sphere of education and health care, are directed at the welfare of the entire community. As for the educational structure of mtel’s employees, broadcasting system, a special emphasis in which is in accordance with the research projects the largest share belongs to the employees with operations is placed on the overall satisfaction of which are being implemented and which show that secondary school education university education employees, their loyalty to the television, motivation it is exactly in these spheres that the citizens expect (56.98%) or 147 employees, whereas university and specialist training for the job they perform. HD- the Company’s greatest engagement. By creating “Park your phone while driving!” education accounts for 32.17% or 83 employees. WIN is trying to provide safe and adequate working a network of reliable and responsible partners, conditions, health and personal protection at work, the Company is always concerned with an equally According to the research taken by the GfK agency As for the employees’ age structure, the largest equality of all employees and a possibility of further distributed development, and since it operates in at the end of 2015, Telekom Srbija tops the list share belongs to the employees aged between 30 training and education. the entire region, it has to be especially sensitive of the socially responsible companies in Serbia. and 39 (53.87%), i.e. 139 employees, followed by 40 to an equal treatment of local communities when The reason for this are certainly the results of the - 49 aged employees (24.80%), i.e. 64 employees. After Telekom Srbija had joined the it comes to improving the living conditions and campaign “Park your phone while driving!” which Telecommunications Company HD-WIN, the creating preconditions for their further progress. 50% of the citizens, two years after its launching, After the restructuring procedure had been reorganization and systematization of the recognizes at the first mention, and which has, implemented by merging Elta-Mont d.o.o. Nikšić, entire production process within the company The socially responsible operations of the along with other projects, brought the company the FiberNet d.o.o. Podgorica, Cabling d.o.o. Budva and was performed and business standards were Company, as envisaged by the strategic National Award for socially responsible operations

66 67 Business operations Consolidated Annual Business Report for 2015

granted by the Serbian Chamber of Commerce in responsible use of the devices and services that the increased and it can be measured by the enthusiasm Telekom Srbija supported the centre by allocating funds the category of large and medium-sized companies Company offers. The visitors of the microsite can and interest of the students, and an increasing for the refurbishing of space that was assigned to the in April 2015. get information about the additional measures that number of quality and innovative applications. The SEE ICT organization by the Savski Venac municipality, the Company undertakes in this sphere taking into mts Android competition is intended for students and by the in-kind donation of services of Internet Within the campaign “Park your phone while account the protection of the environment and all of high schools that follow a curriculum created for access and fixed telephony. It is, however, conceived driving!” Telekom Srbija developed an Android legal regulations. The website www.kakokomuniciras. talents in the sphere of mathematics and includes only as a framework for a much closer cooperation in application intended for drivers, primarily young rs also contains the main results of the research six high schools in Serbia – the Mathematical High the development of programs for each of the partners by people who are the most frequent users of smart project “Lexnet”, organized under the auspices of the School in Belgrade, the Jovan Jovanović Zmaj High an exchange of tutorial and consultant services, and for phones, and who are at the same time the riskiest European Union, and in whose work representatives School in Novi Sad, the First Kragujevac High School, the launching of joint projects in this sphere. category of drivers. In cooperation with the Traffic of Telekom Srbija and the Faculty of Electrical the Valjevo High School, the Bolyai High School in Police Department of the Serbian Interior Ministry Engineering took part. Senta and the Svetozar Marković High School in Niš. Mihajlo Pupin, the reality that obligates us and the Serbian Traffic Safety Committee, the Company wanted to in this way additionally attract “City speaking” With the development of entrepreneurial abilities, On the occasion of marking the 80th anniversary of attention to the safe use of mobile phones during a special motive for the participation of students Mihajlo Pupin’s death and one century since the filing driving, and to enable smart phone users to use The long-term project “City speaking” was launched in the competitions are certainly the awards. Apart of his patents that are considered most important in two years ago with the main idea to encourage local their mobile phones in yet another responsible way. the sphere of telecommunications, the Company self-governments and city tourism organizations to from a journey to Barcelona and visit to the World continues to implement activities for the purpose of The Mtel subsidiary, which was a partner of the large use modern technologies in order to present their Mobile Congress for the first-ranked team and tablet popularization of the character and work of the great campaign entitled “Stop texting if you don’t want to city and its cultural and historical heritage to possible computers and mobile phones for the second and scientist. After support for the creation of the Mihajlo crash” intended to raise the drivers’ awareness of visitors in a modern and innovative way. third-ranked team, a special award entitled “The Pupin virtual museum and a 3D website by means of the dangers of using mobile devices while driving, Power of Innovation – Igor Osmokrović” is granted for which one can visit his Hometown Complex in Idvor, dealt with the same topic. As a Company that offers a wide range of special innovativeness in the creation of applications. and a great competition on Pupin in which elementary telecommunications services, and as a reliable partner and high school students took place, Telekom Srbija “You choose how you communicate” in the local community, Telekom Srbija launched this For the purpose of improving the classes and the joined the organization of a great interactive exhibition project so that visitors of the larger cities in Serbia process of knowledge acquisition, the schools that “Pupin – from physical to spiritual reality”, set up at the Telekom Srbija, in cooperation with the Faculty of would have a faster and more interesting access to took part in the competition were donated funds Historical Museum of Serbia. This is yet another project Electrical Engineering of Belgrade University and their sights and monuments. Thus, the Company for equipping the classrooms with the information implemented in cooperation with the Educational and under the auspices of the Ministry of Trade, Tourism developed mobile applications that in a very attractive and communication equipment. The mts Android Research Society “Mihajlo Pupin”, under the auspices and Telecommunications, launched a socially way present the most important cultural and historical competition project was included in the selection of the Ministry of Culture and Information. responsible campaign dubbed “You choose how monuments of Belgrade, Novi Sad, Sremski Karlovci of the prestigious European CSR organization, CSR you communicate”, in which mobile telephony and Niš. In 2015, Telekom Srbija, in cooperation Europe. The unique exhibition showed the most comprehensive users are advised on how to reduce exposure to with the City Tourism Organization of Kragujevac, overview of the life and work of the great scientist, electromagnetic radiation. developed the application “Kragujevac speaking”, by Support for the foundation and the visitors could get acquainted with a number which this old Serbian capital was placed on the “City of the Start IT Centre of facts about the private life of Mihajlo Pupin, and the For the needs of the campaign, a microsite www. speaking” map with 40 historical sights presented in so far unknown archive material with a large number kakokomuniciras.rs was launched on which, apart an eventful and entertaining way. On the other hand, The SEE ICT organization is one of the most active ones of documents such as the secret file of the Federal from the advice on the proper use of mobile devices, the Belgrade application was enriched by the new in the promotion of entrepreneurship in the industry of Bureau of Investigation (FBI), which was presented there is basic information about the sources of route “Belgrade under Belgrade” which contains ten information and communication technologies, through to the Serbian and the international public for the electromagnetic radiation, the manner of functioning new, underground locations that are becoming more the launch of various programs and projects, thus first time. What made the exhibition special is the of mobile networks and the legal framework in this and more interesting to local and foreign visitors. sphere. In Serbia there are more than 10 million creating a stimulating environment for the development use of technology of augmented reality and spatial mobile telephony users and the main idea of the of a startup community and culture in Serbia. The installations which allowed the audience to step into All the applications within this project are available campaign is to get them acquainted with the how Company became their first partner in the launching of Pupin’s world by means of sound and image. For the in the Serbian and English language for the Android the mobile network functions and teach them how the STARTIT centre, a new space that will gather experts first time in museology, the interactive AR glasses were and iOS platforms. Since the launch of the first to reduce their exposure to electromagnetic radiation in the sphere of technology and design, entrepreneurs used. application “Belgrade speaking”, in July 2013, all the as the inevitable consequence of using mobile and innovators who wish to start a local business in the applications together have been downloaded almost devices. Since contemporary life cannot be imagined sphere of technologies with a global perspective. Children, for whom school visits were also organized, without many devices that operate with the help of 60,000 times. were the ones who enjoyed the great Pupin exhibition electromagnetic waves, including mobile phones, the Apart from the co-working part of the centre in which most. Children from schools and day care centres in aim of the project is acquainting the public with the Fifth mt:s Android™ Competition some 50 local start-ups will permanently reside, it is Serbia had the chance to become acquainted with sources of electromagnetic radiation, and ways to envisaged to almost daily organize various educational Pupin’s work at the Malo Pozorište Duško Radović reduce it by the proper use of the devices themselves. The fifth mts Android competition for the creation programs and conferences at the centre which will help children’s theater. The theater season 2015 was marked of applications for mobile devices in the Android™ entrepreneurs successfully find investments for their by screening a short educational film about the great By this project Telekom Srbija actually continues to operating system was launched in June 2015. Since its business and then adequately offer it on the market, scientist, which was shown before each play, and which educate its users, trying to raise their awareness of founding in 2011, the success of the competition has both local and international. is Telekom Srbija’s gift to the youngest generations.

68 69 Business operations Consolidated Annual Business Report for 2015

Nikola Tesla Virtual Museum Android competition, the cooperation is also reflected In accordance with the mtel company’s principle with the stands and the way of thinking of students and in the support for the preparation and participation to support projects that promote innovations and future colleagues. After the Mihajlo Pupin Virtual Museum, the of students in the international competitions in creativity, the company continued to support the Company, in cooperation with the “Tesla Global mathematics, physics and information science. Knowledge Factory project, which is held within the Support to health care and Forum” association launched yet another unique Telekom Srbija provided its support to the Regional Open Science Days and represents the central feature investments in the community web portal dedicated to our famous scientist and Centre for Young Talents that awards talented of the event that has been traditionally organized inventor without whom the contemporary world of students, award-winners from various scientific by the Montenegrin Ministry of Science. mtel was Telekom Srbija tries to be a responsible partner of the telecommunications would not exist – the great Nikola disciplines at world championships, regional a friend of the exhibition entitled “The Dinosaurs of community and provide help and support to those who Tesla. What makes this Virtual Museum different competitions and in the sphere of research projects. Argentina: Giants of Patagonia”, at which 25 replicas need it most. Special attention is dedicated to health from other forums, institutions and museums dealing Since support to unofficial forms of education is of the skeletons of these prehistoric animals were care and improving hospital conditions. In 2015, funds with the character and work of this great man, is the equally important, mathematical camps whose displayed in natural size, in the halls of the Adriatic were earmarked for the painting of three big General reliability and accuracy of all information about Tesla organization the Company also supports are active Fair in Budva. Hospitals in Kladovo, Aranđelovac and Loznica, and and the exclusive content about his works that also during the summer. for testing hearing in newborns at the General Hospital reveal his peace-loving, ecological and philanthropic Building of the Mokra Gora in Subotica. The Operational Block of the Dentistry thought that has often been insufficiently analysed When it comes to high school students, Telekom School of Management Campus Clinic in Niš was equipped with a diode laser with the and emphasized. Srbija tries to encourage young people to think as accompanying equipment, the City Institute for Lung future entrepreneurs by setting up inspirational tasks Support for education involves investments into the Diseases and Tuberculosis received the equipment for The Nikola Tesla Virtual Museum is designed as a for teams participating in the Business Challenge construction of institutions which will pass on to the next quick diagnostics, while the Special Hospital for Thyroid comprehensive guide through Tesla’s life and heritage. program of the Youth Achievements organization. As generations. The efforts to help future generations and Gland and Metabolism Diseases Zlatibor was equipped This unique online platform shows Tesla’s network, a responsible company, the Company tries to allow improve the schooling of new generations, in this case with the equipment for a more efficient diagnosing of as an overview of all associations throughout the all students equal conditions for the development and Serbian managers, was implemented by the Company cardiovascular diseases. Funds for improving treatment world that deal with his work. The thoughts of many acquisition of knowledge, so that for this purpose, by participation in the project of building the Campus of conditions were granted to Health Care Centres in Nobel Prize winners, academicians, the experts of funds were donated for the procurement of a digital the Mokra Gora School of Management. Prokuplje and Leskovac. UNESCO, Mensa, the scientific community and the speech therapy set for the needs of the elementary civil society about Tesla are now available in one school for children with disabilities “Radivoj Popović” With a significant donation of Telekom Srbija and the The Company contributed to the reconstruction of the place. in Zemun. benefaction of Emir Kusturica, who assigned the land University Children’s Clinic in Tiršova street and the for the building of the facility to the Mokra Gora School procurement of a new entrance door by participation With the support of the Company, the scientific Mtel implemented the project Schools 2.0 whose of Management, without compensation, for a period of in the humanitarian race “Cord Charity Masters” within directors of the Tesla Global Forum, with the help aim was to allow as many elementary schools in 25 years, works on the project started in September the 28th Belgrade Marathon. Forty of our employees of numerous associates, from experts to students Bosnia-Herzegovina to get their own website, in 2015. It is envisaged that after the construction of the took part in the Satisfaction Race, promoting healthy Campus, in April 2016, the students of the Mokra Gora of electrical engineering, will continue to develop order to create a long-term social value for the entire life styles and thus contributing to the humanitarian School of Management and participants of the forum and improve the Nikola Tesla Virtual Museum. The community. As part of the project, Mtel provided campaign. will be able to use the amphitheatre “Mihailo Pupin – museum can be visited at the website www.tesla.org. all schools that participated in the project with free Telekom Srbija”, three working classrooms, a library Within the framework of social protection, a summer rs, and is characterized by a simple language, easy hosting and a domain for a period of two years, and navigation and elegant design. and the accompanying content, on a total of 450 square holiday was provided for the inmates of the Children’s tutorial support during the campaign, with laptops as meters. Village from Kraljevo and the Home for Children with awards for the best websites. The project resulted Special Needs „Veternik“, children with disabilities aided Support for education in the design of 60 new websites of the elementary Cooperation with student organizations by the humanitarian organization “Heart for Children”, schools in BiH. For a sixth year in a row Mtel continued As a big national company, Telekom Srbija develops and cancer-stricken children, under the auspices of the and fosters strong ties with its users and the to grant scholarships to the best students of electrical By cooperation with student organizations, the Company humanitarian organization “Friend in Need”. Thanks community where it operates. Young and educated engineering and information technologies in BiH, by contributes to the improvement of education, with a to the support of the Company, living conditions were people represent a very important element in the holding a new Competition for m:scholarships. belief that in an unofficial way, without strict limitations improved at the Institution for Children and Youth progress of the society ad having this in mind, we try and frameworks, it can successfully contribute to the Sremčica, and in several Centres for Social Work and to support the organizations and projects that share As a company whose strategic resource is highly spreading of knowledge and by such build-up achieve Foster Family Accommodation in Belgrade, Svrljig and the same values and allow pupils and students to educated and trained staff, and which believes in the real results. Miloševac. In Leskovac, aid was provided for equipping acquire knowledge and experience that they will be importance of adequate education, mtel continues to the Shelter for Women and Children Victims of Violence, able to use later in their career in an easier and more contribute to a higher quality education in Montenegro A good indicator of students’ interest in the acquisition which provides accommodation and food, legal and successful way. through numerous campaigns and cooperation with of knowledge in the field of innovative business ideas psychosocial support to victims of family violence from elementary schools, high schools and universities. and business start-ups are the events of student this region. The Company continuously invests in official In order to help schools to more easily introduce organizations – Start Up Your Future and Open IT, education by providing funds for the procurement of pupils into the world of Internet, free Internet access organized by AIESEC, as well as the Case Study Show In 2015, Mtel implemented the “Good Deed” campaign IT equipment in order to improve classes at schools. was granted to all elementary and high schools in and the Modern Management Academy organized by whose idea is to encourage doing good deeds and the The Company has successfully cooperated with the Montenegro for a period of 10 years. Also, in 2015, ESTIEM, on the topic of entrepreneurship. The lectures promotion of positive values and humanity. Citizens Mathematical High School in Belgrade since 2010. the best fourth-grade students of the Nikšić high and workshops also present a chance for the experts throughout BiH had the chance to write down their good Apart from the participation of its students in the mts school received a phone for the Luča degree. of Telekom Srbija to become additionally acquainted deeds on an interactive map on the website dobrodjelo.

70 71 Business operations Consolidated Annual Business Report for 2015

com, while the municipality with the largest number of campaign in cooperation with the Military Medical the audience could enjoy the concerts of some of the mathematics, Serbian and English. The project recorded recorded positive examples – the Prnjavor municipality Academy and the Transfusion Institute of the Republic of most famous soloists and world renowned ensembles. a huge success and was declared the best project in the – was rewarded with a children’s playground. Apart Serbia. The campaigns are also organized in Belgrade, An exceptional music performance was seen at the competition of socially responsible projects of all clubs from numerous humanitarian activities dedicated to Niš, Kragujevac, Subotica, Požarevac, Vranje, Čačak, concert conducted by Zubin Mehta. in Europe by the Euroleague. For Telekom Srbija, this children and youth, Mtel also supported the work of the Bujanovac, Zaječar, Pirot, Kruševac, Jastrebac, Užice, is the second recognition by the Euroleague, because Blue Phone, enabling free calls from the entire country, Šabac, Valjevo and Pančevo during the summer period In 2015, Mtel designed and implemented the project the Company’s previous project “One Team”, in 2013, from all fixed and mobile networks, for the needs of an when the need for blood units is greater. Last year, more “Catch the Communication”, a competition for the won a recognition as the best example of work and counselling line for children who are victims of violence. than 1,200 blood units were collected. A total of 1,212 best photo. The 100th anniversary of the birth of partnership. In 2015, a Month of Friendship was organized which employees took part in the voluntary blood donation Branko Ćopić was the reason why Mtel took part in was promoted throughout BiH, when the most humane, campaigns in 23 cities in Serbia during 2015. the reconstruction and furnishing of the newly opened The Company’s support for the sports and team spirit most original and most emotional friends’ wishes were library at the Elementary School “Branko Ćopić” and cooperation among young people was reflected fulfilled. By a project in the sphere of ecology, “Schoolyard in Hašani. The Company fostered its long-lasting in continued cooperation with the Orthodox Sports Planning”, the Company and the Association delighted friendships with cultural institutions, such the National Association “Holy Serbia”. In 2015, numerous sports The mtel company is especially proud of the donation children in small rural schools throughout the country. Theater of Republika Srpska, the Children’s Theater of activities and events were organized and the top event of financial funds to the Nikšić Municipality and the Republika Srpska, the Academy of Arts in Banjaluka, was the second “Sports Festival of Holy Serbia”. The Montenegrin Water Polo Alliance, allocated for the Investments in culture and many others, and created new friendships – project turned into an important sports event in the implementation of the project of refurbishing and Mtel was the sponsor of the “First Ballet School” in capital and gathered 2,000 participants. reconstruction of the swimming pool located within In accordance with its commitment to continuously Republika Srpska, and together with the Museum of the PE Sports Centre ‚’Nikšić’’. mtel also provided support culture and education, Telekom Srbija Contemporary Art in Banjaluka, took part in organizing From the very beginning of its operations in financial support for the New Year 2016 celebration on continues to invest in cultural and educational values the Night of Museums. The Company also organized the Montenegro, mtel was recognized as a great friend of the Republic Square in Podgorica, which improved the and institutions that foster these values. During 2015, multimedia spectacle “The m:tel Night of the Ad Eaters”, sport – supporting various forms of sports activities that tourist offer of the capital, and in a similar way supported over 700 books were donated to libraries that suffered and supported numerous festivals, concerts and music gather a large number of young people and influence the activities of the Tourism Organization of Budva. a great damage to the book fund during the floods. events. In 2015, Mtel also supported the already world the development of sports awareness and a healthy Wishing to make a contribution to the development of New books were granted to the library “Dr Vićentije famous festival held in Banjaluka - Demofest. life style. As an unavoidable partner in this segment, the local fashion industry, the company supported the Rakić” in Paraćin, the Resavska Library in Svilajnac mtel continued to support the Basketball Alliance of talented young fashion designer Ivana Murišić. mtel also and the Cultural Centre Library in Kladovo. Apart from Having in mind corporate loyalty, mtel tries to continuously Montenegro, and support was also granted to the takes care of the local religious community so that funds this, books were donated to two elementary schools in contribute to activities that are important for both Serbia Football Club “KOM” from Podgorica, the Football Club were donated to the Eparchy of Budimlja and Nikšić. Kosovo, the elementary school “Veljko Dugošević” in and Montenegro, through donations to the Embassy of Bratstvo, the NGO Association for the Development Ranilug and the elementary school “Šarski odred” in the the Republic of Serbia in Montenegro and the Embassy of Children and Youth Fair Play and the Montenegrin Since one should always contribute to noble values village of Sevce, in the municipality of Štrpce. of Montenegro in Serbia. The Company continued to Equestrian Alliance. and activities that encourage love towards animals and financially support the Matica Srpska institution that the protection of animals, mtel donated funds for the In the project entitled “Foster the Serbian Language” the implements numerous cultural and scientific projects. Protection of the environment “Donor Exhibition of the Best-Looking Mixed-Breed Company saw the chance to as a big national company Dogs” organized by the NGO “sDog”. contribute to raising awareness of the importance Supporting the development of media and different The task of us all, and especially the big corporations, and the need to preserve the Serbian language. The forms of research activities, mtel supported the is not only to give our contribution to the society, but Activities of the “From the Heart” Company also supported the holding of the exhibition organization of conferences: the Danube Business also to responsibly, conscientiously and intelligently use association entitled “Four Centuries of the House of Romanov”, Forum and the Podgorica Journalist Forum, as well as the resources, invest in sustainable development and in set up in the crypt of the St. Sava Temple, while some the Public Policy Institute. this way return our debt to the society and community. Taking care of the employees and the social community traditional events such as Nušić’s Days, the Vukov Sabor In accordance with this, Telekom Srbija and its represents the main aim of the humanitarian association festival, the Antika festival, a theatre festival for children Development of a sports spirit subsidiaries, as active and responsible members of the of employees in Telekom Srbija entitled “From the Heart”. in Zaječar, and the Children’s October Salon maintained among young people society, respect the law and ethical principles that are The association gathers more than 1,000 voluntary their continuity thanks to the support of Telekom Srbija. generally accepted in business operations and reject blood donors among the employees in the Company Since young people are at the centre of Telekom and condemn the means of illegal and inappropriate and pensioners, with a wish to allow those who really In cooperation with the Photographers Association, the Srbija’s activities in the sphere of social responsibility, behavior to achieve business objectives, which can be need to benefit from its humanitarian work. Company continued the implementation of the project the Company actively supported the successful only achieved by the quality of products and services. “The Eye of Serbia”. This time the chance to discover implementation of the project “One Team – When the external public is in question, Telekom Srbija Apart from blood donation, the Association also tries new aspects of the cities through the objective of a Learning2Play”, for the purpose of developing a sports and its subsidiaries ensure that the market, its suppliers to contribute to education related to organ donation, camera was given to young people in Belgrade and Bor. and team spirit among young people and accepting and the public be informed about the activities of the help for disabled persons, the socially vulnerable and The forty most successful works were displayed at the mutual differences. The project was initiated by the BC Company respecting fair competition, because it is in the poor and children without parents, and raising final exhibition held at the Cultural Institution “Parobrod” Red Star Telekom within the Euroleague in cooperation the interest of both the company and its users and the the citizens’ awareness regarding the protection and in Belgrade, while the exhibition was then moved to Bor. with the Serbian Special Olympics. capital owners. preservation of the environment and popularization of a healthy life style. Relying on the long-term support of Telekom Srbija and The aim of the project was to allow the young people Telekom Srbija undertakes measures for the protection mts, the new concert season of the Kolarac Endowment with disabilities, through sports and activities with their of the environment by adopting ecologically oriented On the occasion of Telekom Srbija Day, the Association was inspired by the new slogan of the brand and peers from regular elementary schools, to better adjust technologies and methods with an aim to reduce traditionally organizes a voluntary blood donation entitled “Kolarac – Your World of Music”. Once again to everyday life, and to improve their knowledge from the negative impact on the environment. During the

72 73 Business operations Consolidated Annual Business Report for 2015

performance of its activities, the company takes care special interest (depending on their location) and which the risk of changes in the foreign currency exchange works, equipment and services, grace period and the of the aspects of environmental protection, such as the are to be controlled every 2 years. rates as compared with their functional currency by length of repayment. rational consumption of energy, prevention of waste, means of hedging transactions, wherever possible. proper disposal of waste and its recycling. By investing In the sphere of protection of the environment and The Companies also monitor the expected cash-ins and installing the most up to date telecommunications people, in 2015, Mtel paid most attention to the operation The Parent Company and the related legal entities are from receivables, along with the expected cash-outs technology, the Company contributes to the of radio-base stations and electromagnetic radiation. exposed to risks that through the effects of changes against the liabilities. implementation of clean technologies and technologies Special attention was paid to the collection, recycling in the amount of market interest rates affect their that consume less energy compared with the equipment and disposal of electrical and electronic products, financial standing, operating results and cash flows. used in previous decades. in accordance with Mtel’s commitment to actively participate in the protection of the environment as a The risk of change in the interest rates mostly stems CREDIT RISK Telekom Srbija generates various kinds of waste which company. Apart from this, Mtel continuously conducted from long-term loans from banks and loans from is properly removed according to legal regulations. The an internal and external campaign to save paper, i.e. use suppliers with a variable interest rate. The loans Credit risk is managed by undertaking appropriate Company has concluded contracts for the purchase electronic instead of paper bills. approved at the variable interest rate expose the activities and measures on the level of each of hazardous and non-hazardous waste with the company to the cash flow interest rate risk. individual company, such as client risk assessment, companies authorized for such activities. During 2015, monitoring the client’s operations and its financial a total of 1,295 tons of waste were handed over, of The risk of change in the interest rate also stems from standing, and receivables management. In cases of which 261 tons of hazardous and 1,034 tons of non- RISK MANAGEMENT short-term financial assets with a variable interest rate, non-performance of obligations toward the Parent hazardous waste. The radioactive waste is regularly which expose the company to the cash flow interest Company or a related legal entity, a further provision delivered to the PE Nuclear Facilities of Serbia, which The Parent Company and the related legal entities rate risk, and from the financial assets approved at of services to the client is suspended. There is no is the only authorized company for the takeover of this are in their regular operations, to a various extent, the fixed interest rate, which exposes the Company significant concentration risk since the companies kind of waste. In 2015, 660 radioactive ionizing smoke exposed to certain financial risks, as follows: to the risk of change in the interest rate fair value. have a wide base of buyers who are unconnected detectors were handed over for permanent disposal. with individually small amounts of obligations towards As at 31 December 2015 and 2014 liabilities against • Market risk (including: risk of change in the the company. The noise emitted into the environment mostly comes the loans were mostly expressed in EUR with a foreign exchange currency rates, risk of from the air conditioning chillers installed in the variable interest rate, which is related to Euribor. Company’s facilities. If it is suspected that the level of change in the interest rates and price risk), the noise emitted into the environment is higher than • Liquidity risk and The Parent Company and the related legal entities are CAPITAL RISK MANAGEMENT the legally prescribed values, measurements are exposed to the risk of change in the price of services, conducted. In 2015, noise was measured in 6 locations • Credit risk. because they are facing intense competition in the The policy of the Parent Company and each related and the allowed noise level was not exceeded. The sphere of mobile telephony, Internet and multimedia, legal entity is to provide a sufficient level of capital in emission of pollutants into the air (smoke gases as the Risk management in the Parent Company and and in the sphere of fixed telephony, which the order to keep the trust of the investors, creditors and product of combustion in boiler-rooms) was regularly the related legal entities is directed at minimizing Company tries to make up for by the introduction of the market, and maintain the future development of measured and the permitted values were not exceeded. diverse services. possible negative impacts on the financial standing operations. and operations of the companies in fluctuating The electromagnetic radiation emitted into the financial markets and it is defined by the financial and The Parent Company and the related legal entities The aim of capital management is that the Parent environment mostly originates from mobile telephony accounting policies of certain companies, adopted by are not exposed to a significant risk of change in the Company and/or related legal entity should keep the radio-base stations. Before the installation of a the relevant managing bodies. In 2015, there were no price of equity securities. ability to continue its operations in an unlimited period, base station, a Study of the assessed impact on the significant changes in the risk management policies in the foreseeable future, in order to preserve the environment is done which contains all technical details that are reviewed in order to reflect changes in the capital structure, with the aim to reduce the and protection measures for this particular base station. market conditions and activities of the companies. Upon the approval of the Study of the assessed impact LIQUIDITY RISK costs of capital and provide adequate compensation on the environment, the base station is launched into to capital owners. The Parent Company and the operation. There are regulations and standards that MARKET RISK The liquidity risk is a risk that the company will not be related legal entities monitor the capital based on the regulate the permitted level of radiation. Before the first able to settle its due liabilities and it is centralized on indebtedness coefficient, which is calculated as the launching into operation, the Company measures the Market risk is a risk of changes in market prices the level of each individual company. ratio between the net debts of a certain company and level of radiation, and if there is a complaint against the such as: foreign currency exchange rates, interest its total capital. level of radiation by third parties, a separate institution rates and the prices of capital instruments, which Access to liquidity risk management is aimed at is engaged to measure the level of radiation. According may have a negative impact on the revenues of the providing at all times, to the extent possible, adequate to the Law on protection from non-ionizing radiation, Parent Company and the related legal entities or liquidity for settling the liabilities when they are due, the measuring of the level of electromagnetic radiation the value of their financial instruments. The aim of in both regular and extraordinary circumstances. of radio-base stations is performed every two years. market risk management is to control exposure to The Parent Company and the related legal entities The Company has not exceeded the permitted level market risk within the acceptable parameters, with manage their assets and liabilities in a manner that of radiation so far. In 2015, measurements of the level the achievement of an optimum yield. allows them to at all times fulfill all their obligations. of non-ionizing radiation were conducted on 716 base For the purpose of managing risk liquidity, financial stations, in 369 locations, so that there is a total of The management of the Parent Company and the policies were adopted which define the maximum 49 base stations declared as sources of radiation of related legal entities established a policy for managing amount of advance payment to the suppliers of

74 75 Consolidated Annual Business Report for 2015

In 2015, the total operating revenues amounted FINANCIAL RESULTS to 127.8 billion dinars and are by 4.4% higher compared to 2014. In the relevant period, CONSOLIDATED STATEMENT operating expenses increased by 10.4% equalling 111.8 billion dinars. In million RSD 2014 2015 Financial expenditure, net, decreased by 2.9 billion Operating revenues 122.413 127.788 dinars. Foreign exchange losses, net, decreased by 2.4 billion dinars, while the interest expenses, 05 Fixed telephony 44.204 41.458 net, fell by 566 million dinars. On the other hand, other financial revenues, net, decreased by 130 Mobile telephony 56.936 59.364 million dinars. Internet retail 10.094 10.705 Financial In 2015, the generated net profit amounted to Multimedia 5.729 7.854 14.7 billion dinars (17.6% decline), EBIT amounts to 15.9 billion dinars (244% decline), and EBITDA Other operating 43.5 billion dinars (6.6% decline). revenues 5.450 8.407 Operating (101.309) (111.839) The operating revenues increased by 5.4 billion expenditures dinars. Mobile telephony increased by 2.4 billion results Salaries and dinars mostly due to the growth of postpaid (20.650) (20.630) remunerations and other services (by 3.2 billion dinars) and Operator expenses (13.169) (14.298) interconnection (by 1.1 billion dinars), while prepaid declines (by 1.9 billion dinars). Multimedia Material and maintenance (17.037 ) (19.637) increased by 2.1 billion dinars, predominantly with Depreciation and the Parent Company. The Internet retail increased amortization (25.434) (27.534) by 0.6 billion dinars. On the other hand, fixed telephony declined by 2.7 billion dinars. Lease expenses (6.146) (6.652) Other operating Other operating revenues increased by 3.0 billion expenses (18.873) (23.088) dinars. Of that amount, 1.3 billion dinars refers to collected damages from insurance as a result EBIT 21.104 15.949 of fire in the Parent Company, 1.0 billion dinars EBIT rate 17, 2% 12,5% refers to cancellation of deferred income based on granted funds to the Parent Company and 0.7 EBITDA 46.539 43.483 billion dinars refers to the revenues of MTS bank EBITDA rate 38,0% 34,0% (which were missing in 2014).

Financial expenses, net (3.559) (679) Operating expenditures increased by 10.5 billion dinars. The increase was mostly influenced by Share in the loss of higher depreciation costs (by 2.1 billion dinars), GO4YU affiliate - (22) the costs of hte sold mobile handsets and devices Profit tax, net 259 (575) (by 2.1 billion dinars), the operator costs (by 1.1 billion dinars) and the costs of fees against TV Net profit 17.804 14.673 content (by 0.8 billion dinars). Besides, the fire- Net profit margin 14,5% 11,5% inflicted damage in the Parent Company amounts to 1.3 billion dinars. Consolidated P & L

77 Financial results Consolidated Annual Business Report for 2015

31.12. 31.12. In 2014, total operating revenues were generated in In million RSD 2014 2015 In million RSD 2014 2015 FINANCIAL STATEMENTS the amount of 93.4 billion dinars and they increased by 4.2% compared to 2014. In the relevant period, NON-CURRENT 204.607 207.322 Profit OF THE PARENT ASSSETS before 17.545 15.248 operating expenditures increased by 8.4% and they Intangible assets 62.966 68.970 taxation COMPANY AND ITS amount to 80.1 billion dinars. Real estate, plants and Profit adjustement 32.893 33.263 RELATED LEGAL ENTITIES Financial revenues, net, increased by 2.8 billion dinars equipment and advance 131.178 127.093 mostly due to foreign exchange losses, net, 2.4 billion payments Net cash-in from business 50.438 48.511 BASIC FINANCIAL INDICATORS dinars. Other 10.463 11.259 activities Net profit amounted to 16.3 billion dinars and it CURRENT Net cash-out decreased by 3.3% versus 2014. In 2015, EBIT ASSETS 57.361 54.462 from investments (19.751) (25.964) activities amounted to 13.2 billion dinars (15.6% decline), and Inventories 7. 275 6.902 EBITDA 31.4 billion dinars (2.5% decline). Net cash-out Telekom Srbija a.d., Beograd Receivables and other 21.240 21.476 from financing (17.518) (26.923) Operating revenues increased by 3.8 billion dinars current assets activities compared to 2014. Cash and cash 21.503 17.127 Net (outflow)/inflow In million RSD 2014 2015 equivalents of cash and cash 13.169 (4.376) Mobile telephony revenues increased by 2.8 billion equivalents Operating revenues 89.588 93.368 Other 7.343 8.957 dinars. The revenues from postpaid monthly fees Cash and cash Fixed telephony 37.9 02 35.608 increased by 1.9 billion dinars and the revenues from TOTAL equivalents at the 8.334 21.503 Mobile telephony 36.413 39.169 interconnection by 1.6 billion dinars. Prepaid declined ASSETS 261.968 261.784 beginning of the year Internet retail 8.626 9.121 by 1.1 billion dinars. The revenues from multimedia Cash and cash and internet increased by 1.1 billion dinars and 0.5 Multimedia 2.438 3.544 equivalents at the end 21.503 17.127 billion dinars, respectively. On the other hand, the Owner's of the year capital 133.449 146.618 Other operating revenues from fixed telephony decreased by 2.3 revenues 4.209 5.926 Equity capital 100.000 100.000 Consolidated Cash Flows billion dinars (a decline in revenues from national and Operating international traffic, while the revenue from monthly Other 33.449 46.618 (73.920) (80.143) expenditures fees increased). Other operating revenues increased Shareholdings without Salaries and by 1.7 billion dinars, mostly due to collected damages control rights 20.723 18.978 (14.138) (13.577) remunerations from insurance for the property destroyed in fire (1.3 TOTAL In million RSD 2014 2015 Operator expenses (12.850) (13.512) billion dinars). CAPITAL 154.172 165.596 Total debt 60.498 53.910 Material and (11.552) (13.029) Operating expenditures increased by 6.2 billion LONG-TERM 39.304 28.699 maintenance LIABILITIES Net debt 38.995 36.782 dinars. The costs of the sold phones and devices Depreciation and (16.526) (18.155) Long-term loans 32.321 24.343 Net debt / 0,84 0,85 amortization increased by 1.6 billion dinars due to the growth of EBITDA customers and versatile offer of high-budget phones. Other 6.983 4.356 Lease expenses (5.000) (5.325) Total liabilities / Depreciation costs increased by 1.6 billion dinars CURRENT 2,32 2,21 68.492 67.489 EBITDA Other operating (partly the effect of reconstruction of fixed asset LIABILITIES expenses (13.854) (16.545) Debt ratio 20,2% 18,2% register). In addition, the damage upon the property Current payables under EBIT 15.668 13.225 long-term loans 28.178 29.566 Quick ratio 0,80 0,80 inflicted by fire in February 2015 amounts to 1.3 EBIT rate 17,5% 14,2% billion dinars. In 2015, a voluntary layoff program Liabilities from business was implemented whereunder, in keeping with the operations 12.167 15.831 Ratio analysis of consolidated business results EBITDA 32.194 31.380 EBITDA rate 35,9% 33,6% defined criteria, 512 employees left the Company. Other short-term The severance costs amount to 1.4 billion dinars, with liabilities 28.147 22.092 Financial revenues, net 379 3.188 concurrent savings in gross salaries in the amount TOTAL Profit tax, net 830 (96) of 406 million dinars. In addition, in November 2014, LIABILITIES 261.968 261.784 In the course of 2015, indebtedness on Net profit 16.877 16.317 so-called ‘’salary tax’’ was introduced (the Law on Temporary Arrangement of Bases for Calculation and Consolidated Balance Sheet consolidated level decreased, predominantly due Net profit margin 18,8% 17,5% to loan repayment. Disbursement of Salaries) whereunder the amount of Profit and Loss Account 1.0 billion dinars was calculated.

78 79 Financial results Consolidated Annual Business Report for 2015

31.12. 31.12. Telecommunications of Republic 1.1 billion dinars). Postpaid revenues increased by In million RSD 2014 2015 In million RSD 2014 2015 373 million dinars and the revenues from the sale of Srpska a.d. Banja Luka of mobile handsets by 280 million dinars. Fixed NON-CURRENT ASSSETS 161.781 164.765 Profit before telephony decreased by 472 million dinars. On the taxation 16.047 16.413 Intangible assets 3.768 8.957 other hand, the multimedia revenues increased by Profit adjustment 16.767 19.624 In million RSD 2014 2015 617 million dinars and the revenues from the sale of IT services and network equipment (generated by Real estate, plants, equipment 88.418 84.385 and advance payments Net cash-in from Operating revenues 29.305 29.259 Logosoft) by 322 million dinars. business activities 32.814 36.037 Share in the capital of 61.878 62.149 Fixed telephony 7.775 7.303 In 2015, operating expenditures increased by 1.7 subsidiaries and affiliates Net cash-out from (9.332) (12.742) investments activities Mobile telephony 17.583 16.990 billion dinars mostly due to higher costs of sold Other 7.717 9.274 phones and devices (by 536 million dinars), the Net cash-out from Internet retail 1.337 1.442 employee costs (by 347 million dinars) and operator financing activities (12.749) (23.210) CURRENT ASSETS 37.552 36.737 Multimedia 2.104 2.721 costs (by 308 million dinars). Net (outflow)/inflow of cash and cash 10.733 85 Network equipment and 110 432 Inventories 5.666 4.203 IT services 31.12. 31.12. equivalents In million RSD 2014 2015 Receivables and other Other operating revenues 396 371 current assets 13.937 14.194 Cash and cash NON-CURRENT equivalents at the 2.012 12.745 Operating expenditures (22.430) (24.168) ASSSETS 42.624 43.925 Cash and cash equivalents 12.745 12.830 beginning of the year Salaries and (4.642) (4.951) Intangible assets 4.956 6.138 Other 5.204 5.510 Cash and cash remunerations equivalents at the end 12.745 12.830 Real estate, plants and Operator expenses (2.355) (2.663) TOTAL ASSETS 199.333 201.502 of the year equipment and advance 31.837 31.811 payments Material and (4.559) (5.493) Cash flows maintenance Share in the capital of 3.709 4.772 Depreciation and affiliate legal entities In January 2015, dividends were paid to (5.956) (5.923) CAPITAL 114.176 129.530 amortization Other 2.122 1.204 shareholders in the total amount of 10.5 billion (759) (859) LONG-TERM LIABILITIES 32.178 21.190 dinars, which affected, at the same time, a Lease expenses CURRENT ASSETS 11.562 10.404 Long-term loans 28.395 18.994 decrease in other short-term liabilities as at 31 Other operating (4.159) (4.279) Inventories 1.317 1.499 December 2015. expenses Recievables and current Other 3.783 2.196 EBIT 6.875 5.091 assets 3.489 4.144 CURRENT LIABILITIES 52.979 50.782 EBIT rate 23,5% 17,4% Cash and cash 5.483 2.932 12.831 11.014 equivalents Current payables under EBITDA long-term loans 22.256 25.529 In million RSD 2014 2015 EBITDA rate 43,8% 37,6% Other 1.273 1.829 217 179 TOTAL ASSETS 54.186 54.329 Liabilities from business Total debt 50.651 44.522 Financial revenues, net activities 7.416 8.822 Net profit 6.384 4.713 CAPITAL 43.223 41.857 Net debt 37.9 0 6 31.692 21,8% 16,1% Other short-term liabilities 23.307 16.431 Net profit margin LONG-TERM 2.390 2.437 Net debt/ LIABILITIES 1,18 1,01 Profit and Loss Account TOTAL LIABILITIES 199.333 201.502 EBITDA Long-term loans 1.840 1.947 Operating revenues in 2015 amounted to 29.3 billion Balance Sheet Other 550 490 Total liabilities/ 2,65 2,29 dinars and they are at the level of 2014. Operating EBITDA expenditures amounted to 24.2 billion dinars and CURRENT LIABILITIES 8.573 10.035 The inventories as at 31 December 2015 amount they grew by 7.7% compared to 2014. Current payables under to 4.2 billion dinars (a decrease of 1.5 billion Debt ratio 24,9% 19,7% long-term loans 713 806 dinars mostly due to the fire in February). Long- Net profit in 2015 amounted to 4.7 billion dinars (26.2% Quick ratio 0,65 0,76 decline). EBIT amounted to 5.1 billion and decreased Liabilities from business term liabilities as at 31 December 2015 are lower operations 3.868 4.600 by 11.0 billion dinars mostly due to maturity of the by 25.9%. EBITDA amounted to 11.0 billion dinars syndicated loan from banks in 2016 (transfer to Ratio analysis and declined by 14.2%. Other short-term liabilities 3.992 4.629 current maturity of long-term loans). A significant decrease in the debt ratio as at 31 Operating revenues decreased by 46 million dinars. Mobile telephony declined by 593 million dinars, TOTAL LIABILITIES 54.186 54.329 December 2015 was caused, to largest extent, by primarily due to the decline in prepaid revenue (by repayment of long-term credit liabilities. Balance Sheet

80 81 Financial results Consolidated Annual Business Report for 2015

Telecommunications Company million dinars: the growth of prepaid revenues In September 2015, merger of the Cabling In million RSD 2014 2015 by 315 million dinars, a mild growth of postpaid company was made (acquired in March 2015 by mtel DOO Podgorica revenues by 12 million dinars. However, the Mtel), Fibernet (previously owned by Telekom Profit before taxation 7.092 5.270 interconnection revenue decreased by 191 million Srbija), Elta Mont and MediaNet (acquired in June Profit adjustment 6.009 4.799 dinars. The revenues from multimedia amounted 2015 by mtel). The merger generally caused an Net cash-in from to 135 million dinars and they are generated by the increase in assets (by 51.5%), which amounts, as business activities 13.101 10.069 distribution of TV content of affiliated companies. at 31 December 2015, to 11.8 billion dinars. In million RSD 2014 2015 Net cash-out from Other operating revenues increased by 243 million Apart from the transfer of ownership in the investments activities (5.936) (5.841) Operating revenues 4.804 5.292 dinars (reduced liabilities, gifts of suppliers, etc.). aforementioned companies in total amount of Net cash-out from (7.396) (6.779) WiMAX 204 215 16 million euros, in order to retain the existing financing activities Operating expenditures in 2015 grew by 364 million ownership structure of mtel, Telekom Srbija Mobile telephony 4.399 4.499 Net outflow of cash and (231) (2.551) dinars, predominantly as a result of increased increased the capital in cash in the amount of 1.3 cash equivalents Multimedia 1 135 costs of depreciation (by 173 million dinars) and million euros. The capital as at 31 December 2015 maintenance costs (by 101 million dinars). Cash and cash equivalents Other operating revenues 200 443 amounted to 4.5 billion dinars (44.1% growth). at the beginning of the year 5.714 5.483 Operating expenditures (4.659) (5.023) Cash and cash equivalents 31.12. 31.12. 5.483 2.932 In million RSD 2014 2015 In million RSD 2014 2015 at the end of the year Salaries and (523) (511) remunerations NON-CURRENT ASSSETS 6.171 7.919 Cash Flows Profit before taxation 74 186 Operator expenses (1.192) (1.104) Intangible assets 2.156 2.687 Profit adjustment 863 565 In 2015, total of 5.9 billion dinars was disbursed Material and (801) (867) Real estate, plants and Net cash-in from 937 751 against dividends to shareholders, of which the maintenance equipment and advance 3.960 5.217 business activities Parent Company received 4.1 billion dinars. payments Net cash-out from Depreciation and (1.103) (1.276) (830) (1.194) amortization Other 55 15 investments activities Lease expenses (298) (309) CURRENT ASSETS 1.616 3.877 Net cash-out from financing activities (302) 443 Other operating (742) (956) Inventories 263 1.190 expenses Net outflow of cash and (195) - Receivables and other cash equivalents EBIT 145 269 1.024 1.945 current assets Cash and cash equivalents EBIT rate 3,0% 5,1% at the beginning of the year 208 13 Cash and cash 13 13 EBITDA 1.248 1.545 equivalents Cash and cash equivalents 13 13 EBITDA rate 26,0% 29,2% Other 316 729 at the end of the year TOTAL ASSETS 7.787 11.796 Cash Flows Financial expenses, net (71) (83) Net profit 57 127 CAPITAL 3.133 4.516 Net profit margin 1,2% 2,4% LONG-TERM LIABILITIES 1.584 2.569 Profit and Loss Account In million RSD 2014 2015 Long-term loans 1.429 2.402 In 2015, operating revenues amounted to 5.3 billion Total debt 2.685 3.231 dinars and they increased by 10.2%. Operating Other 155 167 expenditures amounted to 5.0 billion dinars and Net debt 2.672 3.218 CURRENT LIABILITIES 3.070 4.711 they increased by 7.8%. Net debt / 2,14 2,08 Current payables under EBITDA Net profit in 2015 amounted to 127 million dinars long-term loans/short- 1.256 829 Total liabilities / and it increased by 122.8% compared to the term loans EBITDA 3,73 4,71 previous year. EBIT amounted to 269 million dinars Debt ratio 46,0% 41,6% (85.5% decrease), and EBITDA 1.5 billion dinars Liabilities from business 1.164 2.554 (23.8% decrease). operations Interest expenses/ 1,73% 1,81% Other short-term liabilities 650 1.328 operating revenues Operating revenues grew by 488 million dinars. The growth was mostly influenced by the revenues TOTAL LIABILITIES 7.787 11.796 Quick ratio 0,42 0,58 from mobile telephony and multimedia. The revenues from mobile telephony increased by 100 Balance Sheet Ratio analysis

82 83 The increase in capital influenced a decrease in TS:NET B.V., Amsterdam Telecommunications Company mts banka a.d., the debt ration from 46.0% at the end of 2014, to 41.6% as at 31 December 2015. HD-WIN d.o.o., Beograd Beograd Telus a.d., Beograd In million RSD 2014 2015 In million RSD 2014 2015 In million RSD 2014 2015 In million RSD 2014 2015 Operating revenues 2.064 2.509 Revenues from interest, Operating revenues 1.511 1.646 Operating revenues 51 47 The sale of licences and TV commissions, fees and FX 276 341 rights 1.905 2.341 gains/losses, net Operating expenditures (1.423) (1.541) Operating expenditures (44) (42) EBIT 88 105 Other operating revenues 159 168 Other operating revenues 108 143 EBIT 7 5 EBIT rate 5,8% 6,4% Operating expenditures (2.024) (2.378) Expenditures against impairment of investments, (1.266) (451) EBITDA 93 110 EBIT rate 13,7% 10,6% Purchased licences and TV rights (1.452) (1.638) net EBITDA rate 6,2% 6,7% EBITDA 39 38 Other operating expenses (572) (740) Other operating expenses (493) (540) Financial revenues, net 38 33 Net loss (1.370) (500) EBITDA rate 76,5% 80,9% EBIT 40 131 Net profit 103 116 EBIT rate 1,9% 5,2% Profit and Loss Account Net profit margin 6,8% 7,0% Net profit 6 4 EBITDA 81 173 The lower expenditures of provision for risky Net profit margin 11,8% 8,5% Profit and Loss Account EBITDA rate 3,9% 6,9% investments, net, in 2015, predominantly caused a Financial expenses, net (213) (102) decrease in the Bank’s net loss. The operating revenues in 2015 amounted to 1.6 Profit and Loss Account billion dinars and they increased by 8.9% compared Net profit/(loss) (173) 29 to previous year. The revenue growth in 2015 was caused, primarily, by renewing the contract on Profit and Loss Account hygiene maintenance with PE PTT in February 2015. Operating revenues fully reflect the revenues from The operating revenues in 2015 amounted to 2.5 Operating expenditures amounted to 1.5 billion dinars leasing equipment to the Parent Company. In billion dinars and they increased by 21.6% due to and they increased by 83%. 2015, they amounted to 47 million dinars and they the growth of revenues based on the sale of TV were lower due to lower number of the locations rights and licences. The growth was caused mostly Net profit amounted to 116 million dinars and it by larger number of end users and the expansion increased by 12.6%. EBIT amounted to 105 million to lease. to the regional markets. dinars (19.3% growth), and EBITDA 110 million dinars (18.3% growth). Operating expenditures increased by 17.5% and In million RSD 31.12. 31.12. 31.12. 31.12. 2014 2015 reached the amount of 2.4 billion dinars. The In million RSD 2014 2015 operating expenditures are mostly related to NON-CURRENT ASSETS 184 152 purchased TV rights and licences (69% of total NON-CURRENT ASSETS 19 16 operating expenditures). CURRENT ASSETS 921 1.036 CURRENT ASSETS 108 59 In 2015, net profit was generated in the amount Receivables and other Cash and cash equivalents 93 44 current assets 875 940 of 29 million dinars. EBIT amounted to 131 million dinars, and EBITDA 173 million dinars. Cash and cash equivalents 28 85 Other 15 15 Other 18 11 TOTAL ASSETS 292 211 In million RSD 31.12. 31.12. TOTAL ASSETS 940 1.052 2014 2015 NON-CURRENT ASSETS 192 162 CAPITAL 779 854 CAPITAL 291 210 CURRENT ASSETS 1.866 4.791 LONG-TERM PROVISIONS 59 66 TOTAL ASSETS 2.058 4.953 CURRENT LIABILITIES 1 1 CURRENT LIABILITIES 102 132 TOTAL LIABILITIES 940 1.052 TOTAL LIABILITIES 292 211 TOTAL LIABILITIES 2.058 4.953

Balance Sheet Balance Sheet Balance Sheet

Financial results

88