Lot 3: Telecommunications and Information Technologies

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Contracting Authority: Central Financing and Contracting Agency, Zagreb, Croatia

Mid-term forecasting of electronic communication markets development in Croatia

LOT 3 Framework contract Beneficiaries EUROPEAID/119860/C/SV/multi

“Mid-term forecasting of electronic communication markets development in Croatia”

Letter of Contract N. 2006– 0707-0315

Report A

report on the situation on the telecommunications sector and importance of telecommunications in the Croatian economy

June 2009

Version v final

Lot 3: Telecommunications and Information Technologies

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Project Title: Mid-term forecasting of electronic communication markets development in Croatia Project Number: 2006– 0707-0315

Country: Republic of Croatia

Beneficiary Institution Project manager Task manager Name: Croatian Agency for Central Finance European Commission Post and Electronic and Contracting Delegation to the Communications Agency (CFCA) Republic of Croatia (HAKOM) Address: Jurišićeva 13, Ulica grada Trg žrtava fašizma 6 10 000 Zagreb Vukovara 284, 10 000 Zagreb Croatia 10 000 Zagreb Croatia Contact person: Mr. Juraj Mužina Mr. Damir Mrs. Karin Lindblad Novaković Tel. number: +385 1 489 60 10 + 385 1 4591 233 +385 1 4896 585 Fax number: +385 1 492 02 27 + 385 1 4592 075 385 1 4896 555 E-mail Juraj.muzina@telekom. Damir.novakovic [email protected] hr @safu.hr pa.eu

consultant experts Team leader Expert II Expert III Name: A.R.S. Progetti

Address: Ars Progetti S.p.A Bruxelles Liaison Office Rue d'Egmont 15 1000 Brussels Belgium Contact person: Marilena di Stasi Ton de Liefde Gerard Ville Pilviö Arendsen Tel. number: 0032 2 500 85 32 0955 215 541 0959 224 201 0955 214 140 (when in HR) (when in HR) (when in HR) +31654981825 +31475537288 +358400539942 (outside HR) (outside HR) (outside HR) Fax number: 0032 2 511 24 08 E-mail m.distasi@ [email protected] gerardarends [email protected] arsprogetti.com [email protected] m Date of report: 9 June 2009 Authors of report: Gerard Arendsen, Team members Version: v final 2

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table of contents

1 LIST OF TABLES, FIGURES AD BOXES...... 5

1.1 LIST OF TABLES: ...... 5

1.2 LIST OF FIGURES:...... 5

1.3 LIST OF BOXES: ...... 6

2 MAJOR FIDIGS...... 7

2.1 WITH REGARDS TO THE PRESENT MARKET AND THE DEVELOPMENTS 2006 UNTIL 2008: ...... 7

2.2 WITH REGARDS TO THE EXPECTED DEVELOPMENTS 2009 UNTIL 2011: ...... 7

2.3 WITH REGARDS TO THE CONTRIBUTION OF THE COMMUNICATIONS SECTOR TO THE CROATIAN ECONOMY:..... 8

2.4 WITH REGARDS TO CROATIA AND THE OTHER COUNTRIES IN THE REGION: ...... 8

3 OBJECTIVES OF THE PROJECT ...... 10 4 THE ECOOMY ...... 11

4.1 THE MACRO-ECONOMIC DEVELOPMENTS INCL. FORECASTS ACCORDING THE IMF...... 11

5 THE TELECOMMUICATIOS MARKET ...... 14

5.1 THE MARKET FOR TELECOMMUNICATIONS SERVICES...... 14

5.2 THE FIXED TELEPHONY MARKET...... 21

5.3 THE MOBILE TELEPHONY MARKET...... 30

5.4 THE MARKET FOR INTERNET ACCESS ...... 37

5.5 THE MARKET FOR LEASED LINES...... 43

5.6 THE CATV MARKET...... 45

6 COTRIBUTIO OF THE COMMUICATIOS SECTOR TO THE CROATIA ECOOMY...... 47 7 BECHMARKIG ICT MARKETS CROATIA...... 51

7.1 THE ICT PRICE BASKET...... 51

7.2 THE USAGE OF INTERNET BY ENTERPRISES...... 52

7.3 BENCHMARKING ICT CROATIA BASED ON NETWORK READINESS, GLOBAL COMPETITIVENESS AND EASE OF DOING BUSINESS INDEX...... 52

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia AEX 1: AALYSIS FIXED TELEPHOY MARKET...... 54 AEX 2: MOBILE TELEPHOY MARKET...... 68 AEX 3: AALYSIS ITERET ACCESS MARKET ...... 71 AEX 4: SOME BECHMARKIG RESULTS CROATIA AD OTHER EAST AD SOUTH- EUROPEA COUTRIES...... 74

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia 1 List of tables, figures and boxes

1.1 List of tables: Table 1: Macro-Economic Overview Republic of Croatia and forecast 2009 and 2010 Table 2: The Market for Telecommunications Services Period 2006 until 2008 Table 3: Telecom subscribers in Croatia Period 2006 until 2008 Table 4: Forecast of the Telecommunications Market until 2001 Table 5: The Fixed Telephony Market Period 2006 until 2008 Table 6: The Fixed Telephony Subscribers Period 2006 until 2008 Table 7: Financial Performance HT within the market for Fixed Telephony and in comparison with its major competitors Period 2006 until 2008 Table 8: Forecast of the Fixed Telephony Market Period 2009 until 2011. Table 9: The Mobile Telephony Market Period 2006 until 2008 Table 10: Revenues and costs per employee mobile operators Period 2006 until 2008 Table 11: Forecast of the Market for Mobile Telephony Period 2009 until 2011 Table 12: The Market for Internet Access Period 2006 until 2008 Table 13: Forecast for the Market for Internet Access Period 2009 until 2011 Table 14: The Market for Leased Lines Period 2006 until 2008 Table 15: Market shares Leased Line Market Period 2006 until 2008 Table 16: Forecast of the Market for Leased Lines Period 2009 until 2011 Table 17: The CATV Market Period 2006 until 2008 Table 18: Forecast of the CATV Market Period 2009 until 2011 Table 19: The Contribution of the Communications Sector to the Croatian Economy Period 2006 until 2008 Table 20: The Importance of the Communications Sector for the Labor Market Period 2006 until 2008 Table 21: ICT Price Basket 2008 Table 22: The use of Internet by enterprises in the Region-2008

1.2 List of figures: Figure 1: Gross Domestic Product based on purchasing- power- parity (PPP) per capita GDP Figure 2: The Market for Telecommunications Services based on revenues Figure 3: Development Tele-density and Internet density Figure 4: The overall Market share of HT in the Croatian Telecommunications Market, based on revenues-2008 Figure 5: Strategic Mapping Position HT in the Croatian Telecommunications Market. Figure 6: The Market for Telecommunications services and forecast for Period 2009 until 2011 based on revenues Figure 7: Fixed Telephony Traffic Volumes by Segment Figure 8: The Fixed Telephony Market by major segment Figure 9: Market shares of HT in the Markets for Fixed Telephony Traffic and based on traffic volumes. Figure 10: Market shares HT in the markets for Fixed Telephony by major segment and based on revenues Figure 11: Market shares HT by subscriber category Figure 12: The Investments in the Fixed Telephony Infrastructure and equipment by operator (Mill Figure 13: Mobile telephony traffic in minutes per subscriber and by operator Figure 14: Number of SMS messages per subscriber and by operator Figure 15: Market shares mobile telephony subscribers by operator. Figure 16: UMTS subscribers by operator Figure 17: Market shares mobile telephony market based on revenues. Figure 18: Investments Infrastructure and Equipment by mobile operator

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 19: Internet subscribers by Access Technology Figure 20: Internet Revenues by Access Technology Figure 21: The Market shares on the ADSL market based on number of subscribers. Figure 22: The market shares on the ADSL market based on revenues. Figure 23: Revenues per ADSL-subscriber and by major operator Figure 24: Market share HT on the entire Internet market and based on revenues Figure 25: CATV subscribers in Croatia Figure 26: The Contribution of the Communications Sector (excl. Internet Access) to the Croatian Economy Figure 27: Employees Communications Sector as % of National Labour Force Figure 28: Total Foreign Direct Equity Investments and reinvested Earning from Direct Investments in Croatia -1993 until 2008 Figure 29: Benchmarking ICT Price basket Croatia with other countries in the region- 2008 Figure 30: Benchmarking IT Croatia, Global Competitiveness and Ease of Doing Business-2008 1.3 List of Boxes: Box 1: Recent developments (April 2009) according the Economic Institute of Zagreb Box 2: Major players within the Fixed Telephony Market Box 3 Assumptions forecast market for fixed telephony Box 4: Major players within the Mobile Telephony Market Box 5: Assumptions Market Forecast Mobile Telephony Box 6: Major players in the market for Internet Access Box 7: The plans of HT with regards to FttH. Box 8: Assumptions Market Forecast Internet Access. Box 9: Major Providers of Leased Lines. Box 10: Major players on the CATV-market.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia 2 Major Findings 2.1 With regards to the present market and the developments 2006 until 2008: • The total market for telecommunications services had a value of nearly 2 billions Euros in 2008

• Nearly every household has a fixed telephony access (36.6 % of the population); the mobile density amounted 132.6 % (or 1.3 mobile subscriptions per Croatian citizen) and the internet density was close to 30 % of the population.

• The market for mobile telephony has been the major driver of the growth of the Croatian telecommunications market.

• Tele2 is already since 2006 faced with heavy losses due to the lack of economies of scale which are decisive for a successful operation in a mobile telephony market.

• Markets for fixed telephony, internet access and leased lines are absolutely dominated by the incumbent HT. In particular the market for Internet Access where HT holds a market share of over 80 %.

• Competition from Croatian origin does not play any role of importance in the markets for fixed telephony, internet access and leased lines. There operations are limited and this is mainly due to a lack of economies of scale, management capabilities, technological lead HT, etc.

2.2 With regards to the expected developments 2009 until 2011: • It is expected that the market for telecommunications services will only show a modest increase of 90 millions Euros till a level of close to 2.1 billions Euros (2069 millions).

• Major reason for this modest market growth will be the decrease of the market for fixed telephony which is expected to decrease with a rate of 6 to 7 % annually. Decrease is mainly caused by the substitution of fixed telephony by mobile telephony and the more intensive use of the various broadband facilities.

• Major driver for the growth of the telecommunications market will still be the mobile telephony market. Although it is expected that the mobile traffic will show a decrease, major growth will come from new services as mobile broadband which will generate new traffic revenues.

• It is doubtful in how far Tele2 still will be active on the Croatian market for mobile telephony. This is mainly because of their weak financial results until now on the Croatian market

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia • It is realistic to expect that the Croatian market for fixed telephony and Internet Access will be faced with a process of consolidation. Less players will be active, mainly because of financial reasons. Many of the present market players will not be able to realise the economies of scale needed to survive in a capital intensive market as the telecommunications market.

• HT is and will remain the dominant market player in the markets for fixed telephony and internet access. Its strategic position will only be strengthened through the large scale implementation of new broadband technologies as Fiber-To-The-Home (=FttH) and Fiber- To-The-Building (=FttB).

• Broadband Access through the CATV network will remain a limited market due to the fragmented character of the CATV market.

2.3 With regards to the contribution of the Communications Sector to the Croatian Economy: • The direct contribution of the telecommunications sector (excluding Internet Access because of no consistent and reliable data) to the Croatian Economy was 868 millions of Euros in 2008 r 1.8 % of the GDP.

• It is not expected that this percentage will show an increase in the coming years. This is mainly due to the modest growth of the telecommunications market.

• About 5 % of the Croatian labour force is active within the telecommunications sector . It is expected that due to the capital intensive character of the telecommunications market, that this share will show a gradual decrease in the years 2009 until 2011.

• Te Croatian Post and Telecommunications Sector ranks at a third place when it comes to the foreign investments carried out in Croatia in the period 1993 until 2008. The majority of these investments were done in the period 1999 until 2001.

2.4 With regards to Croatia and the other countries in the region: • Croatia scores fairly well when it comes to the prices for ICT services in comparison with other countries in the region. The main minus is that the prices for mobile telephony are belonging to the highest in the region.

• Croatia scores also fairly well when it comes to the use of ICT by enterprises with more than 10 employees. It scores less when it comes to E-government usage, where it just leads Romania.

• According the researches of the World Economic Foundation and the Worldbank the main problems that Croatia has with its ICT markets are the independency of the judicial system, the lack of ICT clusters and ICT companies within the Croatian Economy and also the slow absorption of technology by local enterprises.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia • More or less identical are the complaints about the institutional pillar which encompasses elements as burden of government regulation, the efficiency of the legal framework, the judicial independence and also Foreign Investments Developments and technology transfer.

• It goes without saying that these elements may hamper the development of the Croatian ICT market.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

3 Objectives of the project

The global objective of the project is to assure further strengthening of regulatory rules of the telecommunications market in Croatia (in compliance with the EU acquis), which will contribute to its further development.

In the Terms of reference there are two specific objectives mentioned:

To provide an overview of the entire telecommunications market in Croatia including both historical data and future projections in order to provide access to the information necessary for focusing research and development efforts and developing new products and business strategies.

To provide strategic assessment of the role of regulatory rules (laws, bylaws, decisions) in the telecommunications sector with the main focus on the role of competition in delivering benefits for customers.

Emphasis on broadband

In discussions with the beneficiary it was asked and agreed that the project would put emphasis on the broadband development as this is of vital importance to the development of the information society in Croatia.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

4 The Economy 4.1 The Macro-Economic Developments incl. Forecasts according the IMF The global economic crisis has begun to affect Croatia’s economy, bringing to an end a multi- year expansion fuelled by strong credit growth. The economy now faces strong headwinds from the ongoing financial turmoil that has triggered a sharp decline in the volume of capital inflows, and from the sharp economic slowdown in the euro-area and the region that is increasingly taking a toll on export demand.

The IMF expects a considerable decline in economic activity in 2009. While GDP growth estimates at this point are subject to an unusual degree of uncertainty, the GDP growth projection of -2 percent in the revised budget, although possible, would require a recovery starting in the second half of the year. According the IMF, downside risks dominate and economic activity could contract more sharply. Domestic demand would be the key driver, with weakening private consumption and a large drop in investment. Import contraction is expected to outpace the fall in exports, and the current account deficit would narrow to about 6.5 percent of GDP. Growth is expected to remain sluggish in 2010, with the strength and pace of recovery depending, inter alia, on regional economic and financial conditions.

Croatia’s financial system has weathered relatively well the first impact of the global storm thanks to skilful management and timely measures. In particular, financial market jitters and a sudden deposit outflow in the second half of October 2008 was arrested and reversed quickly by measures to increase deposit insurance coverage.

Moreover, a revised and more realistic budget was adopted in April 2009. However, a tight financing-negative growth environment in the period ahead threatens to exacerbate long- standing domestic imbalances. Private sector indebtedness (mostly external or foreign currency denominated) swelled during a period of ample liquidity, with a large part of the financing supporting non-tradable sectors and private consumption. External financing needs are very large and fragile balance sheets constrain policies.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Box 1: Recent developments (April 2009) according the Economic Institute of Zagreb.

• Croatian economy has entered recession. • GDP dropped by 0.4 percent in the fourth quarter 2008. • Personal consumption has contracted stronger than previously expected. • Investments in fixed capital still resist recession. • Government consumption not yet affected. • Severe decline in foreign trade; imports hit more than exports. • Industrial production and retail trade volume retain steep downward trends. • Rising unemployment. • Average wage continues to grow, although slightly slower than before. • Credit growth in line with the central bank’s target; foreign debt continues to rise. • Inflationary pressures ease. • Budget revision came early this year; public debt on the rise again.

Source: Croatian Economic Outlook, April 2009.

In the table on the next page these data are summarised.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table 1: Macro Economic Overview Republic of Croatia and forecast 2009 and 2010 Forecast

2004 2005 2006 2007 2008 2009 2010

Population Persons 4.439 4.442 4.44 4.436 4.436 4.436 4.436

Gross domestic product, current prices Billions of Euros 32.778 35.747 39.085 43.217 47.382 41.881 42.041

Gross domestic product per capita, current prices Euros 7,379 8,042 8,807 9,655 10,682 10,510 10,768

Gross domestic product based on purchasing-power-parity (PPP) per capita GDP Euros 11,336 12,167 13,038 13,086 12,674 12,894 12,983

Inflation, average consumer prices Index, 2000=100 109.5 113.2 116.8 120.2 127.5 130.7 134.3

Current account balance Percent of GDP -4.605 -5.75 -6.703 -7.587 -9.403 -6.498 -4.089

External debt as % of GDP Percent of GDP 80.0% 82.4% 85.5% 87.8% 90.6% 91.7% 91.8%

Unemployment rate % 18.5% 18.0% 17.0% 14.7% 13.5% 14.5% 14.2%

Figure 5: Gross Domestic Product based on purchasing- power- parity (PPP) per capita GDP (Euros)

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

5 The Telecommunications Market 5.1 The Market for Telecommunications Services. The Croatian market for telecommunications services reached a level of nearly of 2 Billions Euros in 2008. Major growth has been realized by the market for mobile telephony which counts for over 56 per cent of the entire telecommunications services market.

Although its share in the entire telecommunications market is still limited to a 7 %, the market for internet access has also shown an impressive Composed Annual Growth Rate (=CAGR) growth of over 24 %. Within this market it is mainly the market for ADSL-access with a CAGR of over 58 % while the market for dial-up internet access is decreasing with a rate of over 22 %.

The market for fixed telephony, and in particular the traffic revenues, are showing a negative growth with a CAGR of – 9.0 %. Reason for this negative growth is that also in Croatia, people are using more and more their mobile for local and domestic calls. Lower prices and a population which has more communications media at its disposal in comparison with five or six years ago are the major reasons for this decrease.

Table 2: The Market for Telecommunications Services* (Millions of Euros)

2006 2007 2008 % cagr Fixed telephony 672 666 665 -0.5% of which: Traffic revenues 414 358 343 -9.0% Connection and subscription revenues 208 191 191 -4.2% Others (data comm., CPS, LLU, 50 117 132 62.5% interconnection)

Mobile telephony 972 1010 1136 8.1% of which: Traffic revenues 869 860 942 4.1% Connection and subscription revenues 103 150 188 35.1%

Internet Access 77 98 127 24.2% Of which revenues for: Dial-up revenues 24 17 11 -32.3% ADSL 32 55 80 58.1% Leased lines 16 18 26 27.5% CATV Internet 1 2 3 73,2% Other forms of access 1 1 2 41.4% VoIP 3 5 5 29.1%

Leased Lines 41 32 31 -13.0%

CATV 12 12 14 8.0%

Total Market 1774 1818 1974 5.5% 14

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 6: The Market for Telecommunications Services (Millions of Euros)

The number of fixed telephony subscribers is about 1.6 million subscribers while the number of mobile subscribers is close to 6 million. It is realistic to expect that in the coming years the number of residential fixed telephony subscribers will decrease. The number of mobile subscribers will still show a growth although the rates will not be as impressive as they were in the last four to five years.

The reasons are mainly laid down in the high penetration degree among households of fixed telephony access and the high saturation degree mobile telephony has already reached in Croatia. At present it is already close to 1.5 mobile telephone subscription per individual.

Fixed telephony will more and more being faced with a substitution of fixed telephony by mobile telephony. The fixed telephony access will become a major tool for the citizens and business of Croatia for various forms of fixed Broadband Access (ADSL, VDSL but also FttH and FttB).

Taking in to consideration the first commercial launch of ADSL in the beginning of 2004, one can say that the growth in the number of broadband subscribers can be called ‘impressive’. ADSL is more and more replacing the ‘internet dial-up’ for creating an access to the world-wide-web of computers.

Fixed telephony has reached in 2008 a level of nearly every household having a fixed telephony access. Mobile telephony density has reached a level of over 130 % of the Croatian population. This high level of mobile telephony density means that in many people use more than one mobile subscription. In the report on consumer survey (report D) we found that this is the case for almost 30% of the people that have a mobile phone.

The internet density has reached a level that many households in Croatia have access to the Internet. In the same study we found that this is the case in almost 70% of the households. As 15

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia already mentioned it is realistic to expect that in the coming years broadband access will to a large extent replace the ‘dial-up’ access.

Table 3: Telecom subscribers in Croatia

2006 2007 2008 % cagr

Fixed telephony 000's of subscribers 1,572 1,628 1,622 1.6% Mobile telephony 000's of subscribers 4,395 5,035 5,880 15.7% Internet-broadband 000's of subscribers 244 387 523 46.4% Internet-dial up 000's of subscribers 981 937 777 -11.0% Total Internet 000's of subscribers 1,225 1,324 1,300 3.0%

Fixed telephony density % of population 35.4% 36.7% 36.6% 1.6% Mobile telephony density % of population 99.1% 113.5% 132.6% 15.7% Total Telephony density % of population 134.5% 150.2% 169.1% 12.1%

Internet dial-up density % of population 22.1% 21.1% 17.5% -11.0% Internet-broadband density % of population 5.5% 8.7% 11.8% 46.4%

Total Internet density % of population 27.6% 29.8% 29.3% 3.0%

Mobile telephony subscribers as % of fixed telephony subscribers % of fixed telephony 279.6% 309.3% 362.5% 13.9% Internet subscribers as % of fixed telephony subscribers % of fixed telephony 77.9% 81.3% 80.1% 1.4%

Source: HAKOM

Figure 7: Development Tele-density and Internet density

The development of the Croatian telecommunications market described above is in line with the developments in other European countries. In particular, a substitution of fixed telephony, a slow 16

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia down in the growth of mobile subscribers and the substitution of internet dial-up by broadband access.

However, characteristic for the Croatian telecommunications market is the absolute dominance of the incumbent HT in the entire telecommunications market. In 2008 its share of the entire telecommunications market was over 68 %.

Figure 8: The overall Market share of HT in the Croatian Telecommunications Market, based on revenues-2008

This strength of HT is in fact valid for all of the major segments as fixed telephony, mobile but in particular the strategic important internet access market.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Figure 5: Strategic Mapping Position HT in the Croatian Telecommunications Market.

Relative Market Share HT High Low

% High M a Internet r Market 148 k Millions e Euro Mobile t Telephony Market G 1130 Millions Euro r o w t h Fixed Telephony Market 665 Milions low Euro

Until 2011 an annual growth of the market for telecommunications services is forecasted with a growth rate of 1.6 % until a level of about 2068 millions of Euros. This modest growth will mainly be realised by the market for mobile telephony and the internet access market. Fixed telephony will decrease with at least 6 to 7 per cent annually.(See the various overviews per market segment for the detailed assumptions)

Mobile telephony will remain the major telecommunications market with a share of over 63 % of the entire telecommunications market while the share of fixed Internet access will remain at about 8 to 9 % of the entire market.

It is not expected that there will be some real changes in the dominant position of HT. HT will remain the major player on the market for telecommunications services with a share of at least above 60 %.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Table: 4: Forecast of the Telecommunications Market until 2011

Forecast 2008 2009 2010 2011 % cagr Fixed Telephony 666 641 605 544 -6.5% of which: Fixed Telephony Traffic 343 320 290 250 -10.0% Data communications 10 8 6 4 -26.3% Subscription revenues 188 185 180 170 -3.3% Interconnection Traffic 38 42 45 40 1.7% Other categories 87 86 84 80 -2.8%

Mobile Telephony 1136 1210 1265 1315 5.0% of which: Traffic revenues 948 990 1020 1040 3.1% Other revenues 188 220 245 275 13.5%

Internet Access 127 150 163 177 11.7% of which: Dial-up 11 7 4 3 -35.2% ADSL 80 100 110 105 9.5% Leased Lines 26 24 15 10 -27.3% FttH/FttB 0 6 20 45 173.9% Other forms of Access 5 7 9 11 30.1% VOIP-traffic 5 6 5 3 -15.7%

Leased Lines 31 26 21 15 -21.5%

CATV 14 16 17 17 6.7%

Total 1974 2043 2071 2068 1.6%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Figure 6: The market for telecommunications services and its forecast for 2009 until 2011(Millions of Euros)

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

5.2 The Fixed Telephony Market At the moment a total of 10 operators are active within the Croatian market for fixed telephony. Major players are the incumbent HT and also the two alternative operators Optima and Metronet. The remaining seven operators are relatively small and vary in turnover from 2 millions Euros until 11 millions Euros and in number of employees from 8 (Voljatel) until 55 (Amis Telekom). Their service offering is often limited to a handful of subscribers.

Box 2: The major players within the Fixed Telephony Market

• Deutsche Telekom is the majority owner of T-Hrvatski Telekom with a 51% stake. Following the sale of shares to present and former employees of T-Hrvatski Telekom and Croatian Post in June 2008, the Government of the Republic of Croatia reduced its holding from 9.5% to 3.6%. Croatian War Veteran’s Fund owns 7% of shares while private and institutional investors hold 38.4%. The organization of the

Company is based on division into corporate and business functions. Together with four Corporate Units (CEO, CFO, CHRO, GCTO/CIO), the role of which is to integrate business and management of the whole

Company, T-HT has two Business Units:

o Business Unit for Fixed Network and Broadband Operation (T-Com), organized within Croatian Telecom Inc. as a legal person

o Business Unit for Mobile Communications Operation (T-Mobile), a separate legal person organized as a limited liability company one hundred percent owned by Croatian Telecom Inc.

In its session on 4 May 2009, the Supervisory Board of T-Hrvatski Telekom approved a proposal by T-HT's Management Board to begin preparations to combine T-Com and T-Mobile into a single business unit.

After the acquisition in 2006, Iskon Internet d.d., one of the leading alternative providers in Croatia, became a member of T-HT Group. Within the Group, Iskon continues to develop the increasing segment of customers who prefer alternative products and who were not intensively served by T-HT until 2006.

• Optima Telekom, alternative operator whose shares are in hands by Mr. Matija Martic (67,7 % of the share holding) while the remaining shares are in hands of banks, insurance companies, etc.

• Metronet, alternative network provider and whose shares are mainly in hands of private investors and

venture-capitalists.

Although the total volume of fixed telephony traffic still shows an increase over the period 2006 until 2008, it is in particular that the ´residential´ segments or ´traffic forms mainly used by the residential subscribers´ are showing a decrease. In particular the traffic within the own network , the traffic from fixed to mobile as well as mobile to fixed and in particular the internet dial/up traffic. Reasons for this are besides the substitution of fixed telephony by mobile telephony also the substitution of dial-up internet access by broadband access.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia An indication of the increasingly competitive character of the Croatian market for fixed telephony is perhaps shown at best by the increase in the traffic volumes of the category ´to and from other domestic fixed networks´ and the increase of the ´interconnection traffic´. However, the traffic volumes carried out by the various competitors of HT are still relatively small.

In terms of value, the fixed telephony traffic shows a slight decrease and in particular the revenues generated by fixed telephony traffic. The small decrease of the fixed telephony market is mainly caused by the increase of the CPS and LLU revenues as well as the revenues from the interconnection traffic. In particular, these market segments which are a result of the a few years ago started liberalization of the Croatian telecommunications market. However, their share in the overall fixed telephony market is still limited.

There are some doubts regarding to the data on CPS and LLU revenues provided by HAKOM. The CPS and LLU revenues realized by the incumbent HT sounds not logic as this would imply that for e.g. the incumbent is also offering CPS facilities to its own subscribers. In 2008 the CPS revenues of HT already were Euros 23 millions. It may be that the amounts are double quoted.

The number of fixed telephony subscribers showed in 2008 a slight decrease in comparison with 2007. The growth in the residential telephony subscribers is nearly halted and showed in 2008 a decrease in comparison with 2007 while the number of business subscribers is still increasing. It is expected that in the coming years the number of residential fixed telephony subscribers will decrease more and more due to the substitution of fixed telephony by mobile telephony.

Table 5: The Fixed Telephony Market

2006 2007 2008 % cagr Total Traffic (Mio's of minutes) 11832 11450 13356 6.2% of which: Within own network 3992 3530 3189 -10.6% To and from other domestic fixed networks 1453 1501 2408 28.7% Fixed to mobile 627 610 568 -4.8% Mobile to fixed 249 245 219 -6.2% International (incoming and outgoing) 859 924 1019 8.9% Value Added Service 69 76 68 -0.7% Total Internet dial-up 3083 2331 1627 -27.4% Interconnection traffic 1500 2233 4258 68.5%

Total Revenues (Mio's of Euros) 672 666 666 -0.4% of which: Fixed telephony traffic 414 358 343 -9.0% Data communications (ATM, frame relay, etc.) 19 16 10 -27.5% Connection revenues fixed telephony 6 4 3 -29.3% Subscription revenues fixed telephony 175 187 188 3.6% CPS revenues 33 61 60 34.8% LLU revenues 0 5 19 94.9%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia 2006 2007 2008 % cagr WIMAX subscriptions 0 3 5 66.7% Revenues from interconnection traffic 25 32 38 23.3%

Source: HAKOM

Table 6: The Fixed Telephony Subscribers

2006 2007 2008 % cagr

Lines (000's of lines) 1839 1839 1860 0.6% of which: Analogue lines 1524 1536 1568 1.4% ISDN lines 303 275 262 -7.0% FGSM, WIMAX 12 28 30 58.1%

Fixed Telephony Subscribers (000's) 1571 1628 1622 1.6% of which: analogue-residential 1361 1389 1400 1.4% analogue- business 163 184 190 8.0% ISDN-residential 40 47 25 -20.9% ISDN-business 7 8 7 0.0%

Fixed telephony subscribers by customer category (000's) 1572 1628 1622 1.6% of which Fixed telephony-residential 1402 1436 1425 0.8% Fixed telephony business 170 192 197 7.6%

Other services (000´s): CPS-subscribers 426 236 491 7.4% Unbundled local loop subscribers 2 38 196 889.9% WIMAX-subscribers 12 8 30 58.1% Other access technologies NA 0 36 0.0%

Source: HAKOM

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 7: Fixed Telephony Traffic Volumes by Segment (Millions of minutes)

Figure 8: The Fixed Telephony Market by Major Segment (Millions of Euros)

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

When it comes to the various fixed telephony traffic markets, one can conclude that the HT share is decreasing in all sub-markets but it still had at the end of 2008 a share of 63 % of the total fixed telephony traffic market.

Figure 9: Market shares of HT in the Markets for Fixed Telephony Traffic and based on traffic volumes.

In terms of value, the share of HTis even more. HT has a share of over 70 % in the markets for fixed telephony traffic and the total market for fixed telephony revenues. But as said there is place for some caution regarding the CPS revenues as it is unclear how these revenues were defined by HAKOM.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Figure 10: Market shares HT in the markets for Fixed Telephony by major segment and based on revenues (Millions of Euros)

Although the number of telephone subscribers showed a slight decrease in 2008, the share of HT in the total number of fixed telephony subscribers is 90 % while their share among business subscribers is still 85 %.

Figure 11: Market shares HT by Subscriber Ccategory

Regarding the financial performance of the various fixed telephony operators, it is that HT has a lead in comparison with its competitors when it comes to revenues per line, costs per line and lines per employees. Besides marketing and management capabilities, financial strength, etc., decisive is of course the economies of scale HT is able to realize and which is of course easier with a 90 % share of the subscribers.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table 7: Financial Performance HT within the market for Fixed Telephony and in comparison with its major competitor

2006 2007 2008 Total Total Total HT Optima Croatia HT Optima Croatia HT Optima Croatia Revenue per line (Euros) 331 57085 383 305 2861 362 290 1300 357 Costs per line(Euros) 235 50062 279 232 2244 277 256 913 308 Revenue per subscriber (Euros) 387 58600 448 354 2834 409 336 1300 410 Costs per subscriber (Euros) 275 51476 327 269 2223 313 297 913 353 Revenue per employee (000's Euros) 97 177 100 99 339 106 94 462 111 Costs per employee (000's Euros) 69 156 383 75 266 81 83 325 96 Lines per employee 291 3 262 323 118 292 326 355 312 Source: HAKOM

Being the incumbent implies also being the largest investor in fixed telephony infrastructure and equipment. HT was in 2008 responsible for over 75 % of the investments carried out in the fixed telephony infrastructure. In how far investments in broadband access technologies and infrastructure are included in these amounts is unclear as HAKOM does not have a proper view on the accounting principles used by HT and to which extent investments in the broadband infrastructure are included.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Figure 12: The Investments in the Fixed Telephony Infrastructure and equipment by operator (Millions of Euros)

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Box 3: Assumptions forecast market for fixed telephony

General

• Fixed telephony access will function more and more as broadband access. • Use of fixed telephony will be limited because of more intensive use other communication means as broadband.

Prices

• No price increases are expected. • Due to increasing competition stabilization of prices and even in segments as interconnection a decrease of 4 to 5 %. • No increase of costs of monthly subscription.

Subscribers

• An annual decrease in the number of residential fixed telephony subscribers of 2 % • A stabilization of the number of business fixed telephony subscribers

Traffic

• An annual decrease in the traffic within the network of at least 10 % • An annual increase of the traffic ´to and from other domestic´ networks of 20 % • An annual decrease in the traffic of fixed to mobile and mobile to fixed of 8 % • An annual increase of the international traffic volumes of 8 % • An annual decrease of VAS traffic of 10 % • An annual decrease of the Internet dials up traffic of at least 30 % • An annual increase of the interconnection traffic of 60 %

Taking into consideration the actual status of the fixed telephony market in Croatia and also the changes in consumer behaviour as for e.g. a more intensive use of various forms of communications as mobile telephony but also broadband, it is not expected that the market for fixed telephony will show an increase in the coming two years. Due to in particular the lower traffic volumes (with the exception of interconnection traffic) it is expected that in the next years the market for fixed telephony will show an annual decrease of at least 5 %.

Table 8: The forecast of the Fixed Telephony Market 2009 until 2011 (Millions of Euros)

Forecast % 2008 2009 2010 2011 cagr Fixed telephony traffic 343 320 290 250 -10.0% Data communications 10 8 6 4 -26.3% Subscription revenues 188 185 180 170 -3.3% Interconnection Traffic 38 42 45 40 1.7% 29

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Other categories 87 86 84 80 -2.8% Total 672 641 605 544 -6.8%

There are many small players active in the market for fixed telephony, it is expected that their number will be reduced with at least 2 or 3 operators. An element as ´economies of scale´ will become more and more decisive and it is therefore realistic to expect that HT will remain the absolute dominant market player in the market for fixed telephony

5.3 The Mobile Telephony Market. Since the mid of 2005, three mobile operators are active on the Croatian Market for Mobile Telephony. Until that time, the market was dominated by T-Mobile and VIPnet.

Box 4: The Major Players within the Mobile Telephony Market

• T-Mobile, a business Unit for Mobile Communications Operation of Croatian Telecom, a separate legal person organized as a limited liability company one hundred percent owned by Croatian Telecom Inc. • Vipnet is the first private GSM operator in Croatia. In September 1998 Vipnet was granted concession of the second GSM network in Croatia and its network started operating in July 1999. he company is in 100% - ownership of Mobilkom Austria and is a member of Mobilkom Austria group, whose members are Mobilkom Austria (Austria), Si.mobil (Slovenia), Mobilkom Liechtenstein

(Liechtenstein), Mobiltel (Bulgaria), Vip mobile (Serbia), Vip operator (Macedonia) and Velcom (Belarus). • Tele2, a majority shareholding of the Swedish Tele2 AB and with the remaining shares in hands of 9 local private investors and venture capitalists

The Croatian market for mobile telephony services was in 2008 over 1.1 billions of Euros and it showed an annual growth of over 8.0. % in the period 2006 to 2008. The total traffic revenues were about 77 % of the entire market revenues. Other revenues encompassed mainly subscription fees and the sale of mobile terminals by the mobile operators.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table 9: The Mobile Telephony Market

2006 2007 2008 % cagr

Gross Revenues Mio's of Euros 1,088 1,113 1,228 6.2% Traffic revenues Mio's of Euros 869 860 948 4.4% Other revenues Mio's of Euros 219 253 280 13.1% Investments infra structure and equipment Mio's of Euros 126 113 147 8.0% Employees absolute 2,148 2,166 2,205 1.3% Mobile Telephony subscribers 000's 4,395 5,035 5,880 15.7% By contract form: Subscribers-pre paid 000's 3,435 3,824 4,398 13.2% Subscribers post-paid 000's 960 1,211 1,482 24.2% By Technology: GSM 000's 4,321 4,768 5,014 7.7% UMTS 000's 75 267 865 239.6% Mobile density % of population 99.1% 113.5% 132.5% 15.6% Traffic Mio's of minutes 5,300 6,722 6,152 7.7% SMS sent Mio's of SMS 2,511 2,724 3,876 24.3% MMS sent Mio's of MMS 19 22 44 50.5%

Like in the West-European markets for mobile telephony, the average traffic volume per subscriber showed in 2008 also a decline. The decrease in the average traffic per subscriber served by Tele2 started already in 2007.

The voice traffic per subscriber of the Tele2 subscriber remained under the average traffic throughout Croatia. In fact, the voice traffic of the Tele2 subscriber was in 2008 only 50 % of the traffic of the T-Mobile subscriber.

Figure 13: Mobile Telephony Traffic in Minutes per Subscriber and by Operator

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Regarding the number of SMS messages sent per subscriber and per operator it can be concluded that this form of mobile communications increased for all operators in 2008 and in particular for the subscriber to the Tele2 services. However, the share of Tele2 within the total number of SMS sent in 2008 is still around 13 %.

Figure 14: Number of SMS Messages per Subscriber and by Operator

T-Mobile is the market-leader when it comes to the number of mobile subscribers with a share of 46 % followed by VIPnet with 42 % and Tele2 with a share of 12 %. It has to be remarked that T- Mobile is the leading operator in especially the market segment of post-paid subscribers with a 55 % share while the positions in the market for pre-paid subscribers are more or less equal to each other (44 % VIPnet and 43 % for T-Mobile).

Figure 15: Market Shares Mobile Telephony Subscribers by Operator.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Within the segment of UMTS subscribers, it is T-Mobile that counts for over 80 % of all the UMTS subscribers in Croatia. It is in this strategic market which gives the opportunity for offering mobile broadband services that T-Mobile has a real lead. However, it has to be remarked that one has to be careful with an interpretation of the actual status of the UMTS-market. Many mobile terminals which have been sold throughout the last 3 years offer UMTS facilities but access to for e.g. mobile broadband is hardly used by most of the subscribers. This is mainly because of the price of the respective service but perhaps also by unfamiliarity with the service.

Figure 16: UMTS Subscribers by Operator (000’s of subscribers)

Expressed in terms of value, it is T-Mobile which is already for the last 3 years the leading mobile operator in Croatia, followed by VIPnet with a share of 41 % and which market share decreased from a level of 46 % in 2006. Tele2, has a share of about 7 %. The question remains in how far this market share of Tele2 will be sufficient taking into consideration the huge investments needed in mobile telephony are decisive for reaching economies of scale and this in a market where the Average Revenue Per User (=ARPU) is steadily decreasing till a level of 14 to 15 Euros per month.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 17: Market Shares Mobile Telephony Market based on Revenues.

Based on the financial results of the various operators and expressed in terms as revenues and costs per employee, it is that one has to conclude that the financial performance of Tele2 has been relatively weak throughout the last 3 years and that realizing ‘economies of scale’ is still a problem. Costs per employee have hardly decreased since 2006 and the revenues per employee are not covering the costs at all.

Table 10: Revenues and Costs per Employee by Mobile Operator (000’s of Euros)

2006 2007 2008 Revenues Costs Revenues Costs Revenues Costs T-Mobile 522 384 551 405 587 300 VIPnet 475 344 458 356 485 229 Tele2 817 1835 780 1493 1058 1832 Source: HAKOM

In the period from 2006 until 2008, the majority of the investments in the mobile telephony network were carried out by VIPnet and T-Mobile. The last one doubled its investments in 2008. Majority of the investments undertaken by VIPnet and T-mobile were for the set-up of a mobile broadband infrastructure.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 98: Investments Infrastructure and Equipment by mobile operator (Millions of Euros)

Box 5: Assumptions Market Forecast Mobile Telephony

General: • Competition among the 3 players will become more intensive. The market for mobile broadband will become the new battle field. • T-Mobie and VIPnet will have a technological lead and also the leading market players. Tele2 will remain a niche player or even disappear from the market because of financial reasons. • It is doubtful if a new operator will enter the mobile telephony market in the coming years. This mainly because of the economies of scale one has to realize taking into consideration the huge investments an operation in a mobile market requires.

Subscribers: • The number of mobile subscribers will still increase with a level of 10 % annually. • There will also be a gradual shift from pre-paid subscribers to post-paid subscribers. It is expected that at the end of 2011, post-paid subscribers will count for about 40 % of the entire group of mobile telephony subscribers. • Mobile broadband will be gradually picked up ny the mobile subscribers and it is expected that at the end of 2011 there will be among 1 million mobile broadband subscribers (post and pre paid) in Croatia.

Prices: • Prices will remain stable. • No real price decrease in the costs for mobile broadband.

Traffic: • Mobile voice traffic will show an annual decrease of about 5 % . • SMS traffic will still show a growth of 8 % annually.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

It is expected that the market for mobile telephony will increase the coming years until a level of about 1.4 billions Euros. This is mainly due to the introduction of mobile broadband services.

Table 11: Forecast of the Market for Mobile Telephony (Millions of Euros)

Forecast 2008 2009 2010 2011 % cgar

Traffic revenues 948 990 1020 1040 3.1% Connection and subscription revenues* 188 220 245 275 13.5% Total 1136 1210 1265 1315 5.0%

*= incl. mobile broadband subscriptions

The question in how far Tele2 will still be a player on the Croatian market for mobile telephony in 2011 is difficult to answer. In particular because of its low market share which seems to be insufficient to cover the high costs that go together with operating in a market where economies of scale are decisive.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

5.4 The market for Internet Access

Table 12: The Market for Internet Access

2006 2007 2008 % cagr

Revenues dial-up Mio's Euros 24 17 11 -32.3% Mio's Euros Revenues ADSL 32 55 80 58.1% Mio's Euros Revenues leased lines 16 18 26 27.5% Mio’s Euros Revenues CATV-Internet 1 2 3 73.2% Mio’s of Euros Other forms of Internet Access 1 2 2 41.4% Mio's Euros Revenues VOIP 3 5 5 29.1% Mio's Euros Total revenues 77 98 127 28.2% ADSL subscribers 000's 243 370 496 42.9% Dial up subscribers 000's 981 937 777 -11.0% Other technologies 000's 1 17 27 419.6% CATV-Internet subscribers 000's 1 10 19 335.9% Leased line access 000's 0 2 5 150.0% WLAN 000's 0 5 3 -40.0% Satellite 000's 0 0 0 0.0% Total Internet subscribers 000's 1225 1324 1300 3.0% Dial-up minutes Mio's 1952 1319 874 -33.1% VOIP numbers 000's 2117 2488 806 -38.3% VOIP minutes Mio's 21 305 319 289.7%

Source: HAKOM

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Box 6: The major players in the market for Internet Access

• T-Com, the Business Unit for Fixed Network and Broadband Operation (T-Com), organized within Croatian Telecom Inc. as a legal person • Iskon Internet d.d., one of the leading alternative providers in Croatia, and a member of the HT Group. Iskon Internet is offering triple play services. Throughout the country. • Optima Telekom, alternative operator whose shares are in hands by Mr. Matija Martic (67,7 % of the share holding) while the remaining shares are in hands of banks, insurance

companies, etc. • Other players in the market for Internet Access are formed by over 40 internet service providers which are mainly active on a local and regional level. Their size in number of employees is varying from 2 till 6 or 7 at most.

At the end of 2008, there were a total of 1, 3 million Internet subscribers in Croatia and of which nearly 60 % still had a dial-up connection. The number of ADSL subscribers was close to half a million. However, it has to be remarked that the number of ADSL subscribers showed an impressive growth in the period 2006 until 2008. Its number doubled from 243 thousand in 2006 till 496.000 in 2008. Characteristic for Croatia is the low level of Internet subscribers making use of for e.g. the CATV-network and this is mainly due to the character of the CATV market where many players are active at a local and regional level. The opportunities of a CATV network as a broadband access were until recently not used.

Figure19: Internet Subscribers by Access Technology (000's of subscribers)

In terms of value, the market for Internet Access amounted a 148 millions Euros in 2008. The revenues from ADSL subscription were about Euros 80 millions. Revenues for dial-up internet access are decreasing and count at the moment for only 7 to 8 per cent of the Internet market.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 20: Internet Revenues by Access Technology (Millions of Euros)

It is characteristic for the Internet market in Croatia that HT has an almost absolute dominance. When its fully owned subsidiary ISKON is included, the market share of HT is far above 90 per cent. This is valid for the market expressed in terms of subscribers but also in terms of value. A reason for this absolute dominance is besides the advantage of having the control and ownership of the fixed telephony infrastructure also the weak management and marketing capabilities of the competition. Also the lack of a competitive access technology as CATV is in fact a benefit for HT.

Figure 21: The Market shares on the ADSL market based on number of subscribers.

In terms of revenues the share of the competitors in the ADSL market is limited to only a few percent. It is not expected that this will change in the coming years despite the introduction of LLU which by itself has not lead to a real competitive broadband market. It shows again, besides

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia having at its disposal the national fixed telephony infrastructure, also a lead of HT in technology and marketing.

Figure 22: The market shares on the ADSL market based on revenues.

An illustration of the strong position of HT in the Internet market is the high revenue per ADSL subscriber and this in comparison with its competitors. It has been the highest since 2006 and it even increased with nearly 40 Euros till the level of 173 Euros in 2008.

Figure 23: Revenues per ADSL-subscriber and by major operator (Euros)

The overall market share of HT in the Internet market and considered in terms of value is 85 % and it increased from a level of 70 % in 2006. In terms of revenue, the competition hardly plays any role.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure 24: Market share HT on the entire Internet market and based on revenues

It is not expected that the role and position of HT as the major provider of Internet Access will really change in the coming years. HT is already at the moment starting with the large scale installation of FttH in the major cities of Croatia. Alternative operators will always being faced with a backlog of their competitive position as they will for their service supply being dependent on the HT network infrastructure. There is simply at a nationwide level not a real alternative access facility available as for e.g. a high developed CATV-network.

Box 7: The plans of HT with regards to FttH.

T-Hrvatski Telekom started the program of accelerated expansion of broadband Internet access by investing into further development of optical infrastructure in order to bring optical fibers to customers’ homes and buildings, thus ensuring even higher access speeds, higher data

transmission capacity and better service stability. Planned implementation of infrastructure based on FttH/FttB solutions – optical fiber to the home/optical fiber to the building – T-HT plans to ensure an even better quality of the existing services and open possibilities for development of new, even more sophisticated and technically demanding services.

Optical network services are used at present by a limited number of some two hundred test customers in four major Croatian cities. They are testing VoIP, ADSL and IPTV service. According to the plans, approximately 50,000 customers should be connected to optical network, whether through FttH or FttB solution, by the end of 2009.

T-HT plans to invest more than a billion Kuna into development of fixed infrastructure in 2009,

primarily in expansion of optical access network. Annual investments of T-HT into modernization of fixed and mobile network represent 95% of all investments on the Croatian telecom market. T-HT plans further investments into access network with the aim to migrate to a unique IP platform.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Box 8: Assumptions Market Forecast Internet Access.

General:

• FttH will become commercially available in the 2nd half of 2009 in the 4 largest cities of Croatia VOIP for local and national calls will become a standard item in the various broadband connection packages. • Although the number of CATV-Broadband subscribers is expected to double at least in the coming years, it will remain a niche market due to the fragmentised character of the market. Too many small scale

players in too many regions

Subscribers: • Year-end 2009 there will already be 50.000 FttH connections in Croatia. At the end of 2011 there will be about 150.000 FTHH connections in Croatia. Mainly in the largest cities because of status fixed network and availability of business subscribers. • ADSL will reach its limits in number of subscribers and at the end of 2010 it is expected to be around

650.000 and from 2010 onwards ‘early’ ADSL subscribers will start with the replacement of their ADSL connection by a FttH connection. • A stabilization in the number of ADSL subscribers from 2011 onwards and a gradual decrease from 2012 . • Dial-up subscribers will reach a bottom level of about 200.000 subscribers in 2011. Dial-up Internet access will remain an access tool for those areas which are difficult to connect by ADSL or FttH.

• Leased lines as a tool for internet access will be replaced by FttH or FTTB.

Prices: • ADSL subscription prices will show an annual decrease of at least 4 to 5 % due to the introduction of FttH. • More ‘triple play’ (internet, video and telephony) packages will be introduced against prices of about 25 euro per month.

It is expected that the market for Internet Access including VOIP traffic will increase in the period 2009 until 2011 until a level of about 177 millions Euros. Major reason is as already mentioned the introduction of FttH and also the substitution of ADSL by FttH from 2010 onwards. For reasons as investments needed and having the disposal of an own network infrastructure, it is realistic to expect that HT will remain the absolute market leader in terms of value and subscribers. The role of the various alternative providers will therefore be limited to a few market niches.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table 13: Forecast for the market for Internet Access (Euros millions)

Forecast 2008 2009 2010 2011 % cgar Dial-up 11 7 4 3 -35.2% ADSL 80 100 110 105 9.5% Leased lines 26 24 15 10 -27.3% FTTH/FTTB 0 6 20 45 173.9% Other forms of access (incl. CATV-Internet) 5 7 9 11 30.1%

VOIP-traffic 5 6 5 3 -15.7%

Total Market 127 150 163 177 11.7%

5.5 The Market for Leased Lines The market for leased lines had in 2008 a value of about 31 millions Euros and it is showing a decrease since 2006. Major reason is besides the increasing use of the various broadband opportunities, a lower price of the lines offered and a shift in the demand. In particular an increase in the use of leased lines with a transmission capacity of > 2Mbit/s instead of lines with a lower capacity.

Table 14: The market for leased lines

Indicator 2006 2007 2008 % cagr

Revenues Mio’s of Euros 41 32 31 -13.0% Costs Mio’s of Euros NA 7 9 28.6% Investments Mio’s of Euros 9 14 NA 0.0% Employees Absolute NA 39 43 10.3%

Leased Lines installed Absolute 7838 9299 6170 -11.3% of which: < 2 Mbit/s Absolute 6364 7457 3635 -24.4% > 2 Mbit/s Absolute 1474 1842 2535 31.1%

Source: HAKOM

The number of players active in this market is in fact limited to a handful of providers and the leading provider is HT. Although its market share expressed in terms of value decreased with more as 40 points, it still has a competitive advantage due to its ownership of the national telephony infrastructure. The role of companies as OIV , a subsidiary of the Radio and Television Company Croatia, and the alternative providers as Metronet and Optima is limited.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Box 9: The Major Providers of Leased Lines. • T-Hrvatski Telekom a 51% stake and offering leased lines facilities through its Business Unit for Fixed Network and Broadband Operation (T-Com), organized within Croatian Telecom Inc. as a legal person. • OIV, a subsidiary of the 100 % state owned Radio and Television Company Croatia (=HRT) • Optima Telekom, alternative operator whose shares are in hands by Mr. Matija Martic (67,7 % of the share holding) while the remaining shares are in hands of banks, insurance companies, etc.

• Metronet, alternative network provider and whose shares are mainly in hands of private investors and venture-capitalists.

Table 25: Market shares Leased Line Market

2006 2007 2008

Value Lines Value Lines Value Lines HT 90.7% 99.3% 61.1% 57.9% 47.2% 68.7% OIV 6.6% 0.3% 12.1% 0.2% 13.6% 0.1% Metronet 0.0% 0.0% 0.4% 23.7% 0.8% 28.2% Others 3.4% 0.4% 26.4% 18.2% 36.4% 3.0%

Source: HAKOM

For the coming years a decrease in the demand for leased lines is forecasted until a level of about Euros 15 million in 2011. The use of leased lines with a capacity of < 2 Mbit/s will be limited to a few customer groups as police, fire works, medical transport, etc or in short customer groups with a specific demand for reasons as security of voice, etc.

The market for leased lines with a capacity of> 2Mbit/s will see a stable demand for use in for e.g. backbone networks of the various operators active in Croatia but also again a demand by those user-groups which have specific requirements for reasons as security etc. However, the demand will remain low as the present broadband infrastructure and the envisaged implementation of fiber in the fixed telephony network will become more and more real alternatives for the traditional leased line.

Table 16: Forecast of the Market for Leased Lines (Millions of Euros)

Forecast 2008 2009 2010 2011 % cagr

Revenues 31 26 21 15 -21.5%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

5.6 The CATV Market The total CATV market in Croatia had a value of about 15 millions Euros in 2008 while the total number of subscribers amounted close to 136 000 of which 19.000 subscribers are using the CATV network also for having access to the Internet.

Table 17: The CATV market

Indicator 2006 2007 2008 % cagr

Revenues Mio's of Euros 12 12 14 4.1 % Costs Mio's of Euros NA 18 19 5.6 % Investments Mio's of Euros NA 4 NA NA of which: Mio's of Euros Infrastructure and equipment Mio's of Euros NA 3 NA NA Employees absolute NA 225 284 26.2 %

CATV subscribers 000's of subscribers 131.2 133 135.7 1.7 % of which Internet subscribers 000's of subscribers 1 10 19 335.9 %

Source: HAKOM

It is important to remark that in Croatia, television is mostly broadcasted by conventional terrestrial means and reaches about 80% of households. About 15% of households have cable and 23.5% receive their programmes by satellite. The cable sector is dominated by the Austrian cable operator B.net, which bought the two main market players Digital City Media and Adriatic Cable, in 2007. In addition, two IPTV services were operational in 2006, one provided by Vodatel (eTV) and the other by T-HT (Maxtv).

Box 10: Major players on the Croatian CATV-market.

• B.Net Hravatska, a subsidiary of the Austrian Kabelsignal AG, which on its turn is a shareholding of EVN, the largest energy supplier in Lower Austria. B.Net Hravatska has a share of over 70 % of

the CATV subscribers in Croatia and, in terms of value, a market share of close to 80 %. • Other players in the Croatian CATV market are formed by a total of 18 local and regional active CATV providers.

It is this weak and fragmented character of the CATV market is the reason that the CATV sector has never been able to become a real alternative to the ADSL supply by HT. Many CATV providers are only regionally active and their size in number of employees is often below 10. 45

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Although the number of CATV-Broadband subscribers is expected to double at least in the coming years, it will remain a niche market due to this fragmentisation.

Figure 25: CATV and CATV subscribers in Croatia (000's of subscribers)

A growth of the CATV market until a level of about Euros 20 millions is forecasted. It is expected that the number of CATV subscribers will increase until a level of 146.000 while the number of CATV-Internet subscribers will increase till a level of about 50.000 subscribers. However, it has to be stressed that CATV will remain a niche player in the market for e.g. Internet Access. The reasons is not only the fragmented character of the market but also the cheap alternative that FttH will become for TV reception and various advanced forms of Internet supply. Even though in principle cable companies can offer Internet access at a lower price than telephony operators, it is likely that the market players have been simply too late with the offering of Internet facilities through the CATV-network.

Table 18: The forecast of the CATV market.

Forecast 2008 2009 2010 2001 % cagr

CATV revenues 14 16 17 17 6.7% CATV subscribers 135.9 139 143 146 2.4% of which CATV Internet subscribers 19 30 40 50 38.1%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

6 Contribution of the Communications Sector to the Croatian Economy The direct contribution of the telecommunications sector to the Croatian Economy (expressed in GDP) is estimated at a total of 866 Millions of Euros. This contribution is excluding the contribution of the market for Internet Access due to the lack of reliable and consistent statistical data. Also not taken into account are the sales of mobile terminals by the various operators and items as other revenues for which a proper definition was not available

Figure 26: The Contribution of the Communications Sector (excl. Internet Access) to the Croatian Economy (Millions of Euros)

Based on the calculations, it is possible to conclude that the highest contribution to the Croatian Economy comes in particular from the mobile telephony sector. This is mainly due to the capital- intensive character of this sector.

It is also clear that one of the largest contributions to the Croatian economy comes from HT which is the largest investor in telecommunications equipment and infrastructure and which has also, through its dominant market position, the largest Value Added in its operations.

Although its contribution to the GDP has increased over the last three years, It is expected that expressed in a % of the GDP, the contribution to the Croatian Economy will remain more or less at the same level. This is because of the shrink of the GDP in 2009 and the minimal growth in 2010.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

Table 19: The Contribution of the Communications Sector to the Croatian Economy.

2006 2007 2008 % cagr Total Revenues Mio's of Euros 1697 1720 1847 4.3% of which: Fixed telephony Mio's of Euros 672 666 666 -0.4% Mobile telephony Mio's of Euros 972 1010 1136 8.1% Leased Lines Mio's of Euros 41 32 31 -13.0% CATV Mio's of Euros 12 12 14 8.0% Minus Costs Mio's of Euros 1395 1447 1316 -2.9% of which: Fixed telephony Mio's of Euros 515 515 572 5.4% Mobile telephony Mio's of Euros 860 907 716 -8.8% Leased Lines Mio's of Euros 5 7 9 34.2% CATV Mio's of Euros 15 18 19 12.5% Gives Value Added Mio's of Euros 302 273 531 32.6% of which: Fixed telephony Mio's of Euros 157 151 94 -22.6% Mobile telephony Mio's of Euros 112 103 420 93.6% Leased Lines Mio's of Euros 36 25 22 -21.8% CATV Mio's of Euros -3 -6 -5 29.1% Plus the Investments Mio's of Euros 297 276 343 7.5% of which: Fixed telephony Mio's of Euros 118 113 159 16.1% Mobile telephony Mio's of Euros 167 145 163 -1.2% Leased Lines Mio's of Euros 9 14 15 29.1% CATV Mio's of Euros 3 4 6 41.4% Gives the Total contribution to Mio's of Euros 599 549 874 20.8% the Croatian Economy of which: Mio's of Euros Fixed telephony Mio's of Euros 275 264 253 -4.1% Mobile telephony Mio's of Euros 279 248 583 44.6% Leased Lines Mio's of Euros 45 39 37 -9.3% CATV Mio's of Euros 0 -2 1 Total direct contribution as % of GDP Percentage 1.5% 1.3% 1.8% 9.7% of which: Percentage Fixed telephony Percentage 0.7% 0.6% 0.5% -12.9% Mobile telephony Percentage 0.7% 0.6% 1.2% 31.3% Leased Lines Percentage 0.1% 0.1% 0.1% -17.6%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

2006 2007 2008 % cagr CATV Percentage 0.0% 0.0% 0.0% 0.0% Source: HAKOM, DZS

Looking to the contribution of the communications sector to the national labour force, one can conclude that about 5 % of the Croatian labour force has a job in the communications sector (excl. Internet Access of which reliable data are missing).

It is expected that this share will gradually decrease the coming years due to the more and more capital intensive character of the communications sector.

Table 20: The Importance of the Communications Sector for the Labour Market

2006 2007 2008 % cagr

Employees active Absolute 9413 8721 8499 -5.0% of which: Fixed telephony Absolute 7018 6291 5967 -7.8% Mobile telephony Absolute 2148 2166 2205 1.3% Leased Lines Absolute 37 39 43 7.8% CATV Absolute 210 225 284 16.3%

Active labour force 000's 1,729 1,759 1,781 1.5%

Employees Communications Sector Percentage 5.4% 5.0% 4.8% -6.4% as % of national labour force of which: Percentage 4.1% 3.6% 3.3% -9.1% Fixed telephony Percentage 1.2% 1.2% 1.2% -0.2% Leased Lines Percentage 0.0% 0.0% 0.0% 6.2% CATV Percentage 0.1% 0.1% 0.2% 14.6%

Source: HAKOM and DSZ

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Figure25: Employees Communications Sector as % of National Labour Force

Of all the foreign investments carried out in Croatia since 1993, about 7 % founded its destination in the Post and Telecommunications sector. The majority of these investments were undertaken in the period 1999 until 2001.

Figure 28: Total Foreign Direct Equity Investments and Reinvested Earning from Direct Investments in Croatia -1993 until 2008 and in millions of Euros

Source: National Bank of Croatia

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia 7 Benchmarking ICT markets Croatia. 7.1 The ICT price basket. A comparison of the various prices for ICT services undertaken by the ITU shows that Croatia can not be qualified as a country in the region with high ICT prices. The costs for ICT services in Bulgaria, Romania, Hungary and Poland are higher. However, prices for mobile telephony in Croatia are high compared with other countries but prices for broadband access are on their turn belonging to the lowest in the region.

Table 21: ICT Price Basket 2008

ICT Price Basket Fixed (% of Mobile (% of Broadband (% of GNI per capita Value GNI per capita) GNI per capita) GNI per capita) (US$) Bulgaria 3.8 2.4 4.9 4.1 4,590 Croatia 2.1 1.9 2.2 2.4 10,460 Czech Republic 2.2 2.6 1.5 2.4 14,450 Estonia 2.0 1.2 1.2 3.5 13,200 Hungary 2.5 3.1 1.7 2.6 11,570 Latvia 1.8 1.4 0.9 3.7 5,560 Lithuania 1.6 1.8 1.1 1.9 9,920 Poland 2.7 3.4 1.5 3.3 9,840 Romania 3.0 2.4 2.3 4.4 6,150 Serbia 1.5 1.1 1.3 2.3 4,730 Slovak Republic 2.4 2.5 1.7 2.9 11,730 Slovenia 1.2 1.2 0.7 1.6 20,960

Source: ITU

Figure 109: Benchmarking ICT Price basket Croatia with other countries in the region- 2008

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

7.2 The usage of Internet by enterprises. With regards to the use of internet and broadband recent and reliable data are missing within HAKOM but also for e.g. within the Central Statistical Office. Some data have been published by for e.g. Eurostat. These data show that nearly all enterprises with more than 10 employees have access to the Internet. Also here Croatia takes a strong position. The same is also valid if one looks to the per cent of enterprises which has received order on-line. A weak position is there when it comes to the E-Government Usage by the enterprises. It is here that Croatia scores fairly below countries as Czech Republic, Estonia, Lithuania, Slovakia and Slovenia.

Table 22: The use of Internet by enterprises

Enterprises Enterprises having access having received E- to the Internet orders on-line Government (> 10 (> 10 Usage by employees) employees) enterprises

Bulgaria 83% 2% 53% Croatia 97% 16% 52% Czech Republic 95% 15% 70% Estonia 96% 11% 75% Hungary 86% 4% 56% Latvia 88% 6% 51% Lithuania 94% 22% 83% Poland 93% 8% 56% Romania 67% 3% 37% Slovakia 96% 8% 82% Slovenia 97% 5% 85%

Source: Eurostat, March 2009

7.3 Benchmarking ICT Croatia based on Network Readiness, Global Competitiveness and Ease of Doing Business Index. Remarkable results are shown in the regional benchmarking that has been carried out and which is based on the Network Readiness Index and the Global Competitiveness Index of the World Economic Forum: the Ease of Doing Business Index of the World Bank.

Although Croatia scores a better network readiness index in comparison with countries like Bulgaria, Poland, Romania and Serbia, it seems that it is lagging behind with countries as Slovenia, Estonia, and Hungary.

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Major problems with regards to the ICT Readiness Index seem to be the independency of the judicial system, the lack of ICT clusters and companies within the Croatian Economy and also the slow absorption of technology.

With regards to the Ease of Doing Business Index Croatia scores relatively weak when it comes to the start of a new business, dealing with for e.g. construction permits, protection of foreign investors, registry of property and employing workers.

The Global Competitiveness Index ranks Croatia also at a modest 61st ranking and behind countries as Slovenia, Slovak republic, the Baltic States. A especially weak position is in particular the institutional pillar which encompasses elements as burden of government regulation, the efficiency of the legal framework, again the judicial independence but also Foreign Investments Developments and technology transfer.

It goes without saying that these elements hamper the development of the Croatian ICT market. Crucial is the absence of a real ICT sector (with the exception of a company as Ericsson) which encompasses more than the supply of basic ICT services as fixed and mobile telephony and broadband access.

Figure 30: Benchmarking IT Croatia, Global Competitiveness and Ease of Doing Business- 2008 (low index means a good ranking)

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Annex 1: Analysis Fixed Telephony Market

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2006 TELEKOM Internet Croatia

Traffic Mio’s of minutes 12 0 9,263 1 6 920 111 0 17 0 0 10,331 of which: Within own network Mio’s of minutes 0 0 3,979 0 0 2 0 0 9 0 0 3,992 To and from other domestic fixed networks Mio’s of minutes 7 0 575 1 4 768 94 0 3 0 0 1,453 Total domestic fixed traffic Mio’s of minutes 7 0 4,554 1 4 770 94 0 12 0 0 5,444 Fixed to mobile Mio’s of minutes 1 0 548 0 1 60 12 0 4 0 0 627 Mobile to fixed Mio’s of minutes 0 0 247 0 0 1 0 0 0 0 0 249

International (incoming and outgoing) Mio’s of minutes 3 0 763 0 0 88 4 0 1 0 0 859 Value Added Service Mio’s of minutes 0 0 68 0 0 0 0 0 0 0 0 69 Internet dial-up Mio’s of minutes 0 0 1,458 0 0 6 13 0 0 0 0 1,477 Internet dial-up other ISP's Mio’s of minutes 0 0 1,625 0 0 1 0 0 0 0 0 1,626 Total Internet dial-up Mio’s of minutes 0 0 3,083 0 0 0 0 0 0 0 0 3,083 Interconnection traffic Mio’s of minutes NA NA NA NA NA NA NA NA NA NA NA NA

Total Revenues Mio’s of Euros 1 0 607 0 1 44 12 0 2 4 0 672 of which: Fixed telephony traffic Mio’s of Euros 1 0 378 0 1 23 5 0 1 4 0 414 Data communications (ATM, frame relay, etc.) Mio’s of Euros 0 0 19 0 0 0 0 0 0 0 0 19 Connection revenues fixed telephony Mio’s of Euros 0 0 5 0 0 0 0 0 0 0 0 6 Subscription revenues fixed telephony Mio’s of Euros 0 0 172 0 1 1 0 0 1 0 0 175 CPS subscriptions Mio’s of Euros 0 0 11 0 0 16 5 0 0 0 0 33 LLU subscriptions Mio’s of Euros 0 0 0 0 0 0 0 0 0 0 0 0 WIMAX subscriptions Mio’s of Euros 0 0 0 0 0 0 0 0 0 0 0 0 Revenues from interconnection traffic Mio’s of Euros 0 0 21 0 0 4 0 0 0 0 0 25

Lines 000's of lines 1 0 1,832 1 0 1 0 0 4 0 0 1,839 of which: Analogue lines 000's of lines 1 0 1,521 0 0 1 0 0 0 0 0 1,524 ISDN lines 000's of lines 0 0 303 0 0 0 0 0 0 0 0 303 FGSM, WIMAX 000's of lines 0 0 8 0 0 0 0 0 4 0 0 12

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2006 TELEKOM Internet Croatia Subscribers: 1 0 1,569 0 0 1 0 0 0 0 0 1,572 of which: analogue -private 000's of lines 0 0 1,360 0 0 1 0 0 0 0 0 1,361 analogue-business 000's of lines 1 0 161 0 0 0 0 0 0 0 0 163 ISDN-private 000's of lines 0 0 40 0 0 0 0 0 0 0 0 40 ISDN-business 000's of lines 0 0 7 0 0 0 0 0 0 0 0 7

Fixed telephony subscribers by customer category 000's of subscribers 1 0 1,569 0 0 1 0 0 0 0 0 1,572 of which: Fixed telephony-private 000's of subscribers 0 0 1,400 0 0 1 0 0 0 0 0 1,402 Fixed telephony business 000's of subscribers 1 0 169 0 0 0 0 0 0 0 0 170

Others: of which: CPS-subscribers 000's of subscribers 0 0 207 0 0 174 45 0 0 0 0 426 Unbundled local loop subscribers 000's of subscribers 0 0 1 0 0 1 0 0 0 0 0 2 FGSM, WIMAX subscribers 000's of subscribers 0 0 8 0 0 0 0 0 4 0 0 12

Employees absolute 31 0 6,287 146 136 249 103 8 58 0 7,018 Costs 000's of Euros 2 0 431 16 12 39 11 0 1 4 0 515 Investments infrastructure and equipment Mio’s of Euros 1 0 73 3 10 14 2 0 0 7 0 110 Others Mio’s of Euros 0 0 0 1 1 4 1 0 0 1 0 8 Total investments Mio’s of Euros 1 0 73 4 11 18 3 0 0 8 0 118

Some ratio's: Total traffic per line minutes 18,670 0 5,056 2,409 17,036 1,202,571 860,744 3,354 3,971 0 0 5,618 Own network traffic per line minutes 0 0 2,172 745 821 2,554 1,959 1,792 2,222 0 0 2,171 To and from other domestic fixed networks per line minutes 11,325 0 314 1,335 10,836 1,004,559 729,709 1,325 656 0 0 790 Fixed to mobile traffic per line minutes 2,148 0 299 92 3,362 78,922 95,645 151 886 0 0 341 Mobile to fixed traffic per line minutes 653 0 135 7 1,121 1,726 858 47 14 0 0 136 International (incoming and outgoing) traffic per line minutes 4,545 0 416 229 822 114,639 32,573 8 192 0 0 467 Value Added Service traffic per line minutes 0 0 37 0 74 173 0 31 0 0 0 37 55

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2006 TELEKOM Internet Croatia Internet dial-up traffic per line minutes 0 0 796 0 17 7,872 101,592 0 0 0 0 803 Fixed telephony traffic as % of total revenues % of total revenues 61% 0% 62% 72% 45% 52% 46% 0% 62% 99% 0% 62% AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL TELEKOM Internet Croatia Revenue per line Euros 1,990 0 331 65 3,896 57,605 90,142 0 559 0 0 365 Costs per line Euros 2,671 0 235 31,662 31,082 50,602 86,294 1,614 0 0 0 280 Revenue per subscriber Euros 1,440 0 387 130 3,896 58,600 92,289 0 0 0 0 427 Costs per subscriber Euros 1,932 0 275 63,325 31,082 51,476 88,349 1,614 0 0 0 328 Revenue per employee 000'of Euros 40 0 97 0 11 177 113 0 0 70 0 96 Lines per employee absolute 20 0 291 3 3 3 1 17 0 0 0 262 Costs per employee 000's of Euros 54 0 69 109 85 155 108 27 0 77 0 365 Market share based on total traffic % total traffic 0% 0% 90% 0% 0% 9% 1% 0% 0% 0% 0% 100% Market share based on total domestic fixed traffic % total traffic 0% 0% 84% 0% 0% 14% 2% 0% 0% 0% 0% 100% Within own network traffic % total traffic 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% To and from other domestic fixed networks % total traffic 0% 0% 40% 0% 0% 53% 6% 0% 0% 0% 0% 100% Fixed to mobile traffic % total traffic 0% 0% 87% 0% 0% 10% 2% 0% 1% 0% 0% 100% Mobile to fixed traffic % total traffic 0% 0% 99% 0% 0% 1% 0% 0% 0% 0% 0% 100% International (incoming and outgoing) traffic % total traffic 0% 0% 89% 0% 0% 10% 0% 0% 0% 0% 0% 100% Value Added Service traffic % total traffic 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Internet dial-up traffic % total traffic 0% 0% 99% 0% 0% 0% 1% 0% 0% 0% 0% 100% Internet dial-up other ISP's traffic % total traffic 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Total Internet dial-up traffic % total traffic 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Interconnection traffic % total traffic Market share based on fixed telephony subscribers % of total subscribers 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Market share based on fixed telephony subscribers- % of private subscribers private 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Market share based on fixed telephony subscribers- % of business subscribers business 0% 0% 99% 0% 0% 0% 0% 0% 0% 0% 0% 100% Make share CPS subscribers % of total subscribers 0% 0% 48% 0% 0% 41% 11% 0% 0% 0% 0% 100% Market shares LLU subscribers % of total subscribers 0% 0% 41% 15% 0% 44% 0% 0% 0% 0% 0% 100% Market share based on revenues % of total revenues 0% 0% 90% 0% 0% 7% 2% 0% 0% 1% 0% 100% Market shares based on revenues fixed telephony traffic % revenues fixed telephony 0% 0% 91% 0% 0% 6% 1% 0% 0% 1% 0% 100% Market shares based on CPS-revenues % of total CPS revenues 1% 0% 33% 0% 0% 50% 16% 0% 0% 0% 0% 100% Market shares based on LLU revenues % of total LLU revenues 0% 0% 0% 8% 0% 92% 0% 0% 0% 0% 0% 100% % of total interconnection Market shares based on interconnection revenues revenues 0% 0% 83% 0% 0% 15% 2% 0% 0% 0% 0% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2007 TELEKOM Internet Croatia

Traffic Mio’s of minutes 37 20 9,303 49 194 1,392 265 77 71 17 27 11,451 of which: Within own network Mio’s of minutes 0 0 3,504 3 3 6 0 0 14 0 0 3,530 To and from other domestic fixed networks Mio’s of minutes 24 0 100 33 56 942 227 48 45 13 13 1,501 Total domestic fixed traffic Mio’s of minutes 25 0 3,604 36 60 948 227 48 59 13 13 5,031 Fixed to mobile Mio’s of minutes 4 0 448 3 7 91 22 25 8 2 0 610 Mobile to fixed Mio’s of minutes 0 0 227 0 9 4 0 3 1 0 0 245 International (incoming and outgoing) Mio’s of minutes 7 0 706 10 13 163 16 0 3 2 4 924 Value Added Service incl. Information service Mio’s of minutes 0 0 75 0 0 1 0 0 0 0 0 76

Internet dial-up Mio’s of minutes 0 20 982 0 0 27 0 0 0 0 0 1,029 Internet dial-up other ISP's Mio’s of minutes 0 0 1,298 0 0 4 0 0 0 0 0 1,303 Total Internet dial-up Mio’s of minutes 0 20 2,280 0 0 31 0 0 0 0 0 2,331

Interconnection traffic Mio’s of minutes 0 0 1,963 0 105 154 0 1 0 0 10 2,233

Total Revenues Mio’s of Euros 3 21 542 1 11 76 0 0 10 1 1 666 of which: Mio’s of Euros Fixed telephony traffic Mio’s of Euros 2 10 296 1 9 36 0 0 4 0 0 358 Data communications (ATM, frame relay, etc.) Mio’s of Euros 0 0 16 0 0 0 0 0 0 0 0 16 Connection revenues fixed telephony Mio’s of Euros 0 0 3 0 0 0 0 0 0 0 0 4 Subscription revenues fixed telephony Mio’s of Euros 0 1 176 0 2 3 0 0 4 1 0 187 CPS subscriptions Mio’s of Euros 1 10 22 0 0 29 0 0 0 0 0 61 LLU subscriptions Mio’s of Euros 0 0 3 0 0 2 0 0 0 0 0 5

WIMAX subscriptions Mio’s of Euros 0 0 0 0 0 0 0 0 3 0 0 3 Revenues from interconnection traffic Mio’s of Euros 0 0 26 0 0 6 0 0 0 0 0 32

Lines 000's of lines 5 0 1,773 8 2 26 0 0 20 1 2 1,839 of which: Analogue lines 000's of lines 4 0 1,492 8 2 26 0 0 0 0 2 1,536 ISDN lines 000's of lines 1 0 273 0 0 0 0 0 0 1 0 275

FGSM, WIMAX 000's of lines 0 0 8 0 0 0 0 0 20 0 0 28

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2007 TELEKOM Internet Croatia Subscribers: 000's of subscribers 4 0 1,531 8 15 27 0 1 22 1 18 1,628 of which: analogue-private 000's of subscribers 4 0 1,330 7 2 26 0 0 18 1 2 1,389 analogue- business 000's of subscribers 1 0 162 1 14 1 0 0 4 0 1 184 ISDN-private 000's of subscribers 0 0 32 0 0 0 0 0 0 0 15 47 ISDN-business 000's of subscribers 0 0 7 0 0 0 0 0 0 0 1 8

Fixed telephony subscribers by customer category 000's of subscribers 4 0 1,531 8 15 27 0 1 22 1 18 1,628 of which: Fixed telephony-private 000's of subscribers 4 0 1,362 7 2 26 0 0 18 1 17 1,436 Fixed telephony business 000's of subscribers 1 0 169 1 14 1 0 0 4 0 2 192

Others of which: CPS-subscribers 000's of subscribers 1 74 236 0 5 176 0 0 0 0 0 492 Unbundled local loop subscribers 000's of subscribers 0 0 38 8 2 26 0 0 0 0 0 75 WIMAX-subscribers 000's of subscribers 0 0 8 0 0 0 0 0 20 0 0 27 Other access technologies 000's of subscribers 0 0 0 0 14 0 0 0 2 0 0 16

Employees absolute 55 96 5,485 150 245 223 0 8 0 21 8 6,291 Costs 000's of Euros 5 19 411 -15 30 59 0 0 2 3 0 515

Investments infrastructure and equipment Mio’s of Euros 1 1 65 0 23 15 0 0 1 4 0 109 Others Mio’s of Euros 0 1 0 1 1 1 0 0 0 0 0 4 Total investments Mio’s of Euros 1 2 65 1 24 16 0 0 1 4 0 113 Some ratio's: Total traffic per line minutes 7,777 147,691 5,246 5,836 105,935 52,682 0 189,590 3,561 12,930 12,570 6,228 Own network traffic per line minutes 80 0 1,976 326 1,862 229 0 282 688 0 17 1,920 To and from other domestic fixed networks per minutes line 5,104 0 57 3,962 30,768 35,648 0 117,073 2,275 10,014 5,938 816 Fixed to mobile traffic per line minutes 942 0 253 321 4,013 3,446 0 62,014 395 1,228 84 332 Mobile to fixed traffic per line minutes 75 0 128 55 4,876 156 0 7,926 32 0 29 133 International (incoming and outgoing) traffic per minutes line 1,575 0 398 1,173 6,875 6,155 0 363 171 1,688 1,834 502

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2007 TELEKOM Internet Croatia Revenue per line Euros 710 152,581 305 135 6,043 2,861 0 381 511 770 432 362 Costs per line Euros 1,148 139,487 232 -1,786 16,294 2,244 0 713 77 2,168 149 280 Revenue per subscriber Euros 752 105,872 354 135 720 2,834 0 185 465 770 51 409 Costs per subscriber Euros 1,215 96,787 269 -1,786 1,942 2,223 0 346 70 2,168 18 316 Revenue per employee Euros 61 216 99 7 45 339 0 19 0 48 115 106 Lines per employee absolute 86 1 323 56 7 118 0 51 0 62 266 292 Costs per employee Euros 99 198 75 -99 122 266 0 36 0 134 40 82 Market share based on total traffic % total traffic 0% 0% 81% 0% 2% 12% 2% 1% 1% 0% 0% 100% Within own network traffic % total traffic 0% 0% 99% 0% 0% 0% 0% 0% 0% 0% 0% 100% To and from other domestic fixed networks % total traffic 2% 0% 7% 2% 4% 63% 15% 3% 3% 1% 1% 100% Fixed to mobile traffic % total traffic 1% 0% 73% 0% 1% 15% 4% 4% 1% 0% 0% 100% Market share based on total domestic fixed traffic % total traffic 0% 0% 72% 1% 1% 19% 5% 1% 1% 0% 0% 100% Mobile to fixed traffic % total traffic 0% 0% 93% 0% 4% 2% 0% 1% 0% 0% 0% 100% International (incoming and outgoing) traffic % total traffic 1% 0% 76% 1% 1% 18% 2% 0% 0% 0% 0% 100% Value Added Service traffic % total traffic 0% 0% 99% 0% 0% 1% 0% 0% 0% 0% 0% 100% Internet dial-up traffic % total traffic 0% 2% 95% 0% 0% 3% 0% 0% 0% 0% 0% 100% Internet dial-up other ISP's traffic % total traffic 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% Total Internet dial-up traffic % total traffic 0% 1% 98% 0% 0% 1% 0% 0% 0% 0% 0% 100% Interconnection traffic % total traffic 0% 0% 88% 0% 5% 7% 0% 0% 0% 0% 0% 100% Market share based on fixed telephony subscribers % of total subscribers 0% 0% 94% 1% 1% 2% 0% 0% 1% 0% 1% 100% Market share based on fixed telephony subscribers- % of total residential residential subscribers 0% 0% 95% 1% 0% 2% 0% 0% 1% 0% 1% 100% Market share based on fixed telephony subscribers- % of business business subscribers 0% 0% 88% 1% 7% 1% 0% 0% 2% 0% 1% 100% Make share CPS subscribers % of total subscribers 0% 15% 48% 0% 1% 36% 0% 0% 0% 0% 0% 100% Market shares LLU subscribers % of total subscribers 0% 0% 51% 11% 2% 35% 0% 0% 0% 0% 0% 100% Market share based on revenues % of total revenues 1% 3% 81% 0% 2% 11% 0% 0% 2% 0% 0% 100% Market shares based on revenues fixed telephony % revenues fixed traffic telephony 0% 3% 83% 0% 2% 10% 0% 0% 1% 0% 0% 100% % of total CPS Market shares based on CPS-revenues revenues 2% 16% 36% 0% 0% 47% 0% 0% 0% 0% 0% 100% % of total LLU Market shares based on LLU revenues revenues 4% 0% 53% 0% 0% 43% 0% 0% 0% 0% 0% 100% % of total interconnection Market shares based on interconnection revenues revenues 0% 1% 81% 0% 0% 17% 0% 0% 0% 0% 0% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2007 TELEKOM Internet Croatia % revenues Investments infrastructure and equipment as % of investments total investments infrastructure 1% 1% 60% 0% 21% 14% 0% 0% 1% 3% 0% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2008 TELEKOM Internet Croatia

Traffic Mio’s of minutes 67 790 8,427 267 385 3,253 0 39 118 9 124 13,355 of which:

Within own network Mio’s of minutes 2 0 3,133 4 9 21 0 2 16 0 2 3,189 To and from other domestic fixed networks Mio’s of minutes 53 405 253 96 168 1,292 0 8 72 7 54 2,408 Total domestic fixed traffic Mio’s of minutes 55 405 3,385 100 177 1,313 0 10 88 7 56 5,597 Fixed to mobile Mio’s of minutes 5 24 383 7 21 99 0 16 11 0 2 568 Mobile to fixed Mio’s of minutes 1 0 186 1 10 12 0 4 3 1 1 219 International (incoming and outgoing) Mio’s of minutes 6 15 750 34 12 182 0 9 6 1 3 1,019 Value Added Service incl. Information service Mio’s of minutes 0 0 65 0 2 1 0 0 0 0 0 68 Internet dial-up Mio’s of minutes 0 16 656 125 0 30 0 0 10 2 0 839 Internet dial-up other ISP's Mio’s of minutes 0 0 910 0 4 0 0 0 0 0 0 915 Total Internet dial-up Mio’s of minutes 0 16 1,565 0 4 30 0 0 10 0 0 1,627 Interconnection traffic Mio’s of minutes 0 329 2,092 0 157 1,617 0 0 0 0 62 4,258

Total Revenues Mio’s of Euros 4 24 491 15 25 91 0 0 11 1 2 665 of which: Fixed telephony traffic Mio’s of Euros 2 11 251 15 16 44 0 0 0 1 2 343 Data communications (ATM, frame relay, etc.) Mio’s of Euros 0 0 10 0 0 0 0 0 0 0 0 10 Connection revenues fixed telephony Mio’s of Euros 0 0 3 0 0 0 0 0 0 0 0 3 Subscription revenues fixed telephony Mio’s of Euros 0 1 174 0 7 0 0 0 6 0 0 188 CPS subscriptions Mio’s of Euros 1 11 23 0 0 25 0 0 0 0 0 60

LLU subscriptions Mio’s of Euros 1 0 9 0 0 9 0 0 0 0 0 19 WIMAX subscriptions Mio’s of Euros 0 0 0 0 0 0 0 0 5 0 0 5 Revenues from interconnection traffic Mio’s of Euros 0 0 23 0 2 12 0 0 0 0 0 38

Lines 000's of lines 8 2 1,696 17 30 70 0 1 22 0 14 1,860 of which: Analogue lines 000's of lines 8 2 1,430 15 29 70 0 1 0 0 14 1,568 ISDN lines 000's of lines 1 0 258 2 1 0 0 0 0 0 0 262 FGSM, WIMAX 000's of lines 0 0 7 0 0 0 0 0 22 0 0 30

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Total Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL 2008 TELEKOM Internet Croatia Fixed Telephony Subscribers: 8 2 1,462 15 29 70 0 1 22 0 14 1,622 of which: analogue-private 000's of subscribers 7 2 1,270 14 7 67 0 0 19 0 14 1,400 analogue- business 000's of subscribers 1 0 160 2 21 3 0 0 3 0 0 190 ISDN-private 000's of subscribers 0 0 25 0 0 0 0 0 0 0 0 25 ISDN-business 000's of subscribers 0 0 7 0 0 0 0 0 0 0 0 7

Fixed telephony subscribers by customer 8 2 1,462 15 29 70 0 1 22 0 14 1,622 category of which Fixed telephony-residential 000's of subscribers 7 2 1,294 14 7 67 0 0 19 0 14 1,425 Fixed telephony business 000's of subscribers 1 0 167 2 22 3 0 0 3 0 0 197

CPS-subscribers 000's of subscribers 2 89 236 0 13 152 0 0 0 0 0 491 Unbundled local loop subscribers 000's of subscribers 0 2 102 15 6 70 0 0 0 0 0 196 WIMAX-subscribers 000's of subscribers 0 0 7 0 0 0 0 0 22 0 0 30 Other access technologies 000's of subscribers 0 0 0 0 22 0 0 0 0 0 14 36

Employees absolute 55 127 5,209 156 214 196 0 2 0 0 8 5,967 Costs Mio’s of Euros 4 16 434 19 33 64 0 0 1 0 0 572 Investments infrastructure and equipment Mio’s of Euros 1 3 124 4 8 18 0 0 1 0 0 159 Others Mio’s of Euros 0 1 0 0 0 0 0 0 0 0 0 1 Total investments Mio’s of Euros 1 4 124 5 8 18 0 0 1 0 0 160

Some ratio's: Total traffic per line minutes 8,007 349,522 4,969 15,510 13,023 46,697 0 60,796 5,290 0 8,852 7,180 Own network traffic per line minutes 202 147 1,847 244 311 300 0 3,299 732 0 112 1,715 To and from other domestic fixed networks per minutes 6,320 179,061 149 5,562 5,687 18,545 0 12,849 3,219 0 3,884 1,295 line Fixed to mobile traffic per line minutes 628 10,807 226 410 725 1,414 0 24,258 489 0 137 306 Mobile to fixed traffic per line minutes 126 104 109 58 350 167 0 6,083 131 0 80 118 International (incoming and outgoing) traffic per minutes 732 6,446 442 1,992 404 2,616 0 14,180 274 0 208 548 line Value Added Service traffic per line minutes 0 0 38 0 70 8 0 0 0 0 0 36

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

AMIS ISKON Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL Total Croatia 2008 TELEKOM Internet

Revenue per line Euros 423 10,737 290 889 852 1,300 0 27 507 0 117 357

Costs per line Euros 491 7,225 256 1,122 1,103 913 0 598 61 0 34 308 Revenue per subscriber Euros 444 11,141 336 996 880 1,300 0 27 0 0 118 410 Costs per subscriber Euros 515 7,497 297 1,258 1,139 913 0 610 0 0 34 353 Revenue per employee 000's Euros 65 191 94 98 118 462 0 9 0 0 204 111 Lines per employee absolute 153 18 326 110 138 355 0 323 0 0 1,749 312 Costs per employee Euros 75 129 83 124 152 325 0 193 0 0 59 96 Market share based on total traffic % total traffic 1% 6% 63% 2% 3% 24% 0% 0% 1% 0% 1% 100% Within own network traffic % total traffic 0% 0% 98% 0% 0% 1% 0% 0% 1% 0% 0% 100% To and from other domestic fixed networks % total traffic 2% 17% 10% 4% 7% 54% 0% 0% 3% 0% 2% 100% Market share based on total domestic fixed traffic % total traffic 1% 7% 60% 2% 3% 23% 0% 0% 2% 0% 1% 100% Fixed to mobile traffic % total traffic 1% 4% 67% 1% 4% 17% 0% 3% 2% 0% 0% 100% Mobile to fixed traffic % total traffic 0% 0% 85% 0% 5% 5% 0% 2% 1% 0% 1% 100% International (incoming and outgoing) traffic % total traffic 1% 1% 74% 3% 1% 18% 0% 1% 1% 0% 0% 100% Value Added Service traffic % total traffic 0% 0% 96% 0% 3% 1% 0% 0% 0% 0% 0% 100% Internet dial-up traffic % total traffic 0% 2% 78% 15% 0% 4% 0% 0% 1% 0% 0% 100% Internet dial-up other ISP's traffic % total traffic 0% 0% 99% 0% 0% 0% 0% 0% 0% 0% 0% 100% Total Internet dial-up traffic % total traffic 0% 1% 96% 0% 0% 2% 0% 0% 1% 0% 0% 100% Interconnection traffic % total traffic 0% 8% 49% 0% 4% 38% 0% 0% 0% 0% 1% 100% Market share based on fixed telephony subscribers % of total subscribers 0% 0% 90% 1% 2% 4% 0% 0% 1% 0% 1% 100% Market share based on fixed telephony % of residential subscribers-residential subscribers 0% 0% 91% 1% 0% 5% 0% 0% 1% 0% 1% 100% Market share based on fixed telephony % of business subscribers-business subscribers 0% 0% 85% 1% 11% 1% 0% 0% 2% 0% 0% 100% Make share CPS subscribers % of total subscribers 0% 18% 48% 0% 3% 31% 0% 0% 0% 0% 0% 100% Market shares LLU subscribers % of total subscribers 0% 1% 52% 8% 3% 36% 0% 0% 0% 0% 0% 100% Market share based on revenues % of total revenues 1% 4% 74% 2% 4% 14% 0% 0% 2% 0% 0% 100% Market shares based on revenues fixed telephony % revenues fixed traffic telephony 1% 3% 73% 4% 5% 13% 0% 0% 0% 0% 0% 100% Market shares based on CPS-revenues % revenues CPS 2% 19% 38% 0% 0% 42% 0% 0% 0% 0% 0% 100% Market shares based on LLU revenues % revenues LLU 4% 1% 47% 0% 0% 48% 0% 0% 0% 0% 0% 100% % revenues Market shares based on interconnection revenues interconnection 0% 0% 60% 0% 6% 32% 0% 0% 1% 0% 0% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia AMIS ISKON Indicator H1 HT METRONET OPTIMA Portus PRIMATEL VIP VODATEL VOLJATEL Total Croatia 2008 TELEKOM Internet % revenues Investments infrastructure and equipment as % of investments total investments infrastructure 1% 2% 78% 3% 5% 12% 0% 0% 0% 0% 0% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Annex 2: Mobile Telephony Market

2006 Indicator: T-Mobile VIPnet Tele2 Total

Gross Revenues Mio’s of Euros 550 495 43 1,088 Connection fees Mio’s of Euros 0 3 9 Subscription fees Mio’s of Euros 64 30 5 94 Sales mobile terminals and equipment Mio’s of Euros 28 68 7 103 Other revenues Mio’s of Euros 11 2 0 13 Traffic revenues Mio’s of Euros 446 393 30 869 Costs Mio’s of Euros 404 359 97 860 Investments infrastrcuture and equipment Mio’s of Euros 42 56 28 126 Other investments Mio’s of Euros 30 8 3 41 Total investments Mio’s of Euros 72 65 31 167 Employees Absolute 1,052 1,043 53 2,148 Subscribers-pre paid 000's of subscribers 1,603 1,559 273 3,435 Subscribers post-paid 000's of subscribers 555 321 84 960 Total subscribers 000's of subscribers 2,158 1,880 357 4,395 of which: GSM 000's of subscribers 2,106 1,858 357 4,321 UMTS 000's of subscribers 53 22 0 75 Traffic 000's of minutes 2,941,024 2,073,477 285,873 5,300,373 SMS sent 000's of SMS 1,357,390 1,036,665 116,469 2,510,524 MMS sent 000's of MMS 8,082 11,162 0 19,244 Some ratio's: Traffic revenues as % of gross revenues Percentage 81% 79% 70% 80% Revenues per employee Euros 522,394 474,902 816,679 506,595 Costs per employee Euros 383,785 343,850 1,835,121 400,204 Pre-paid subscribers as % of total subscribers Percentage 74% 83% 76% 78% UMTS as % of total subscribers operator Percentage 2% 1% 0% 2% UMTS as % of national UMTS subscribers Percentage 70% 30% 0% 100% Gross Revenues per subscriber Euros 255 263 121 248 Traffic revenues per subscriber Euros 207 209 84 198 Costs per subscriber Euros 187 191 272 196 Traffic per subscriber Minutes 1,363 1,103 801 1,206 SMS per subscriber SMS messages 629 551 326 571 MMS per subscriber MMS messages 4 6 0 4 Market share based on traffic % of total traffic 55% 39% 5% 100% Market shares based on SMS % of total SMS sent 54% 41% 5% 100% Market shares based on MMS % of total MMS sent 42% 58% 0% 100% Market shares based on total subscribers % of total subscribers 49% 43% 8% 100% Market shares based on pre-paid subscribers % of total pre-paid subscribers 47% 45% 8% 100% % of total post-paid Market shares based on post-paid subscribers subscribers 58% 33% 9% 100% Market share based on revenues % of total market revenues 51% 46% 4% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

2007 Indicator: T-Mobile VIPnet Tele2 Total

Gross Revenues Mio’s of Euros 577 479 58 1,113 Connection fees Mio’s of Euros 0 2 0 2 Subscription fees Mio’s of Euros 76 66 6 148 Sales mobile terminals and equipment Mio’s of Euros 27 42 13 82 Other revenues Mio’s of Euros 16 5 0 22 Traffic revenues Mio’s of Euros 457 364 39 860 Costs Mio’s of Euros 424 373 110 907 Investments infrastructure and equipment Mio’s of Euros 31 52 30 113 Other investments Mio’s of Euros 20 12 1 32 Total investments Mio’s of Euros 51 64 30 145 Employees Absolute 1,046 1,046 74 2,166 Subscribers-pre paid Absolute 1,700 1,733 391 3,824 Subscribers post-paid Absolute 685 446 80 1,211 Total subscribers Absolute 2,385 2,180 470 5,035 of which: GSM Absolute 2,170 2,128 470 4,768 UMTS Absolute 215 52 0 267 Traffic 000's of minutes 3,524,246 2,856,303 341,109 6,721,658 SMS sent 000's of SMS 1,440,164 1,126,806 157,350 2,724,320 MMS sent 000's of MMS 11,210 6,550 3,882 21,643

Some ratio's: Traffic revenues as % of gross revenues Percentage 79% 76% 68% 77% Revenues per employee Euros 551,184 457,814 780,166 513,917 Costs per employee Euros 404,926 356,283 1,493,189 418,615 Pre-paid subscribers as % of total subscribers Percentage 71.3% 79.5% 83.1% 76.0% UMTS as % of total subscribers operator Percentage 9.0% 2.4% 0.0% 5.3% UMTS as % of national UMTS subscribers Percentage 80% 20% 0% 100% Gross Revenues per subscriber Euros 242 220 123 221 Traffic revenues per subscriber Euros 192 167 83 171 Costs per subscriber Euros 178 171 235 180 Traffic per subscriber Minutes 1,478 1,310 725 1,335 SMS per subscriber SMS messages 604 517 334 541 MMS per subscriber MMS messages 5 3 8 4 Market share based on traffic % of total traffic 52% 42% 5% 100% Market shares based on SMS % of total SMS sent 53% 41% 6% 100% Market shares based on MMS % of total MMS sent 52% 30% 18% 100% Market shares based on total subscribers % of total subscribers 47% 43% 9% 100% Market shares based on pre-paid subscribers % of total pre-paid subscribers 44% 45% 10% 100% Market shares based on post-paid subscribers % of total post-paid subscribers 57% 37% 7% 100% Market share based on revenues % of total market revenues 52% 43% 5% 100% Market share based on traffic revenues 53% 42% 5% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

2008 Indicator: T-Mobile VIPnet Tele2 Total

Gross Revenues Mio’s of Euros 637 503 88 1,228 Connection fees Mio’s of Euros 0 2 0 2 Subscription fees Mio’s of Euros 99 79 8 186 Sales mobile terminals and equipment Mio’s of Euros 28 39 13 80 Other revenues Mio’s of Euros 12 5 1 18 Traffic revenues Mio’s of Euros 497 379 66 948 Costs Mio’s of Euros 326 238 152 716 Investments infrastructure and equipment Mio’s of Euros 62 63 22 147 Other investments Mio’s of Euros 3 11 2 16 Total Investments Mio’s of Euros 65 74 24 163 Employees Absolute 1,085 1,037 83 2,205 Subscribers-pre paid Absolute 1,879 1,920 598 4,398 Subscribers post-paid Absolute 811 566 105 1,482 Total subscribers Absolute 2,690 2,487 703 5,880 of which: GSM Absolute 1,974 2,393 647 5,014 UMTS Absolute 716 93 56 865 Traffic 000's of minutes 3,185,533 2,544,960 421,278 6,151,771 SMS sent 000's of SMS 1,956,523 1,408,727 510,423 3,875,674 MMS sent 000's of MMS 33,234 6,536 3,871 43,641

Some ratio's: Traffic revenues as % of gross revenues Percentage 78% 75% 75% 77% Revenues per employee Euros 586,949 485,158 1,058,078 556,811 Costs per employee Euros 300,227 229,937 1,832,481 324,847 Pre-paid subscribers as % of total subscribers Percentage 69.9% 77.2% 85.0% 74.8% UMTS as % of total subscribers operator Percentage 26.6% 3.7% 8.0% 14.7% UMTS as % of national UMTS subscribers Percentage 83% 11% 7% 100% Revenues per subscriber Euros 237 202 125 209 Traffic revenues per subscriber Euros 185 152 94 161 Costs per subscriber Euros 121 96 216 122 Traffic per subscriber Minutes 1,184 1,023 599 1,046 SMS per subscriber SMS messages 727 567 726 659 MMS per subscriber MMS messages 12 3 6 7 Market share based on traffic % of total traffic 52% 41% 7% 100% Market shares based on SMS % of total SMS sent 50% 36% 13% 100% Market shares based on MMS % of total MMS sent 76% 15% 9% 100% Market shares based on total subscribers % of total subscribers 46% 42% 12% 100% Market shares based on pre-paid subscribers % of total pre-paid subscribers 43% 44% 14% 100% Market shares based on post-paid subscribers % of total post-paid subscribers 55% 38% 7% 100% Market share based on gross revenues % of total market revenues 52% 41% 7% 100% Market share based on traffic revenues % of total market revenues 52% 40% 7% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia Annex 3: Analysis Internet Access Market

2006

Indicator: HT ISKON Optima Others Total

Revenues dial-up Mio’s of Euros 21 2 0.0 1 24 Revenues ADSL Mio’s of Euros 31 1 0.0 0 32 Revenues leased lines Mio’s of Euros 10 4 0.0 1 16 Revenues VOIP Mio’s of Euros 0 0 0.0 3 3 Other revenues Mio’s of Euros 1 4 0.0 16 22 Total revenues Mio’s of Euros 64 11 0.1 21 96 ADSL subscribers 000's of subscribers 230 12 0 1 243 Dial up subscribers 000's of subscribers 626 106 4 245 981 CATV-Internet subscribers 000's of subscribers 0 0 0 1 1 Total Internet subscribers 000's of subscribers 856 119 4 246 1,225 VOIP numbers absolute 81 351 0 1,685 2,117 VOIP minutes 000's of minutes 116 1,097 0 19,334 20,547 Dial-up minutes Mio’s of minutes 1,458 351 6 137 1,952

Some ratio's: Dial-up revenues as % of operator Internet revenues % of total revenues 33% 18% 57% 4% 25% ADSL revenues as % of operator Internet revenues % of total revenues 48% 11% 42% 0% 34% ADSL subscribers as % of total dial-up and ADSL subscribers % of total subscribers 27% 10% 6% 0% 20% Revenues per dial-up subscriber Euros 33 18 8 3 24 Revenues per ADSL-subscribers Euros 134 95 92 53 132 Dial-up traffic per dial-up subscriber minutes 2,328 3,294 1,546 559 1,989 Market share dial-up subscribers % of total dial-up market 64% 11% 0% 25% 100% Market share dial-up traffic % of total dial-up traffic 75% 18% 0% 7% 100% Market share ADSL subscribers % of total ADSL market 95% 5% 0% 0% 100% % of total internet Market share total internet subscribers subscribers 70% 10% 0% 20% 100% Market share dial-up-revenues of total dial-up revenues % of total dial-up market 88% 8% 0% 4% 100% Market share ADSL revenues of total ADSL revenues % of total ADSL market 96% 4% 0% 0% 100% Market shares Leased lines revenues of total Leased Lines %of total leased lines Revenues market 67% 23% 0% 10% 100% Market share total Internet revenues % of total internet revenues 67% 11% 0% 22% 100% Market shares VOIP numbers % of total VOIP numbers 4% 17% 0% 80% 100% Market shares VOIP minutes % of total VOIP minutes 1% 5% 0% 94% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

2007

Indicator HT ISKON Optima Others Total

Revenues dial-up Mio’s of Euros 15 1 0.2 1 17 Revenues ADSL Mio’s of Euros 52 2 0.3 1 55 Revenues leased lines Mio’s of Euros 11 2 0.2 5 18 Revenues VOIP Mio’s of Euros 1 1 0.0 3 5 Other revenues Mio’s of Euros 2 6 0.3 7 15 Total revenues Mio’s of Euros 81 11 1.0 16 109 ADSL subscribers 000's of subscribers 324 13 1.7 32 370 Dial up subscribers 000's of subscribers 551 98 5.5 283 937 CATV-Internet subscribers 000's of subscribers 0 0 0.0 10 10 Total Internet subscribers 000's of subscribers 875 110 7 325 1,317 VOIP numbers absolute 572 249 0.0 1,667 2,488 VOIP minutes 000's of minutes 12 0 0.0 293 305 Dial-up minutes 000's of minutes 982 207 27 104 1,319

Some ratio's: Dial-up revenues as % of operator Internet revenues % of total revenues 18% 12% 18% 4% 15% ADSL revenues as % of operator Internet revenues % of total revenues 65% 15% 28% 4% 50% ADSL subscribers as % of total dial-up and ADSL subscribers % of total subscribers 37% 11% 24% 10% 28% Revenues per dial-up subscriber Euros 26 14 33 2 18 Revenues per ADSL-subscribers Euros 161 132 164 19 148 Dial-up traffic per dial-up subscriber minutes 1,783 2,120 4,890 366 1,408 Market share dial-up subscribers % of total dial-up market 59% 10% 1% 30% 100% Market share dial-up traffic % of total dial-up market 74% 16% 2% 8% 100% Market share ADSL subscribers % of total ADSL market 88% 3% 0% 9% 100% % of toal internet Market share total Internet subscribers subscribers 66% 8% 1% 25% 100% Market share dial-up-revenues of total dial-up revenues % of total dial-up market 87% 8% 1% 4% 100% Market share ADSL revenues of total ADSL revenues % of total ADSL market 95% 3% 1% 1% 100% Market shares Leased lines revenues of total Leased Lines % of total leased lines Revenues market 62% 9% 1% 27% 100% % of total internet Market share total Internet revenues revenues 74% 10% 1% 15% 100% Market shares VOIP numbers % of total VOIP numbers 23% 10% 0% 67% 100% Market shares VOIP minutes % of total VOIP minutes 4% 0% 0% 96% 100%

Report A: The telecommunications market Project: Mid-term forecasting of electronic Communication markets development in Croatia

2008

Indicator: HT ISKON Optima Others Total

Revenues dial-up Mio’s of Euros 9 1 0 1 11 Revenues ADSL Mio’s of Euros 77 1 2 0 80 Revenues leased lines Mio’s of Euros 14 3 0 8 26 Revenues VOIP Mio’s of Euros 1 2 0 3 5 Other revenues Mio’s of Euros 10 8 2 6 26 Total revenues Mio’s of Euros 111 16 4 17 148 ADSL subscribers 000's of subscribers 442 13 32 9 496 Dial up subscribers 000's of subscribers 654 108 7 9 777 CATV-Internet subscribers 000's of subscribers 0 0 0 19 19 Total Internet subscribers 000's of subscribers 1,096 121 38 38 1,293 VOIP numbers absolute 0 0 0 806 806 VOIP minutes 000's of minutes 11,971 160 0 307,151 319,283 Dial-up minutes Mio’s of minutes 656 125 27 66 874

Some ratio's: Dial-up revenues as % of operator Internet revenues % of total revenues 8% 6% 3% 3% 7% ADSL revenues as % of operator Internet revenues % of total revenues 69% 6% 44% 1% 54% ADSL subscribers as % of total dial-up and ADSL subscribers % of total subscribers 40% 11% 83% 50% 39% Revenues per dial-up subscriber Euros 14 8 21 56 14 Revenues per ADSL-subscribers Euros 173 72 60 24 160 Dial-up traffic per dial-up subscriber minutes 1,003 1,159 4,145 7,312 1,125 Market share dial-up subscribers % of total dial-up market 84% 14% 1% 1% 100% Market shares dial-up traffic % of total dial-up traffic 75% 14% 3% 8% 100% Market share ADSL subscribers % of total ADSL market 89% 3% 6% 2% 100% % of of total internet Market share total Internet subscribers subscribers 85% 9% 3% 3% 100% Market share dial-up-revenues of total dial-up revenues % of total dial-up market 85% 9% 1% 5% 100% Market share ADSL revenues of total ADSL revenues % of total ADSL market 96% 1% 2% 0% 100% Market shares Leased lines revenues of total Leased Lines % of total leased lines Revenues market 38% 33% 7% 22% 100% Market shares total Internet revenues % of total internet revenues 75% 11% 3% 12% 100%

Market shares VOIP numbers % of total VOIP numbers 0% 0% 0% 100% 100% Market shares VOIP minutes % of total VOIP minutes 4% 0% 0% 96% 100%

Report A, the Croatian Telecommunications Sector

Project: Mid-term forecasting of

electronic communication markets development in Croatia

Annex 4: Some Benchmarking Results Croatia and other East and South-European Countries

Czech Slovak Bulgaria Croatia Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia Republic Slovenia

Population (millions) 2007 7.6 4.4 10.3 1.3 10.1 2.3 3.4 38.1 21.5 7.4 5.4 2 GDP per capita (PPP$') 2007 11,311 15,532 24,229 20,584 19,020 17,488 17,733 16,316 11,401 10,071 20,268 27,227 Ease of doing business rank 45 106 75 22 41 29 28 76 47 94 36 54 R & D expenditures (% of GDP) 0.48 0.87 1.54 1.15 1 0.69 0.8 0.56 0.46 1.41 0.49 1.63 Global Competitiveness Index 76 61 33 32 62 54 44 53 68 85 46 42 Network Readiness Index 68 49 32 18 41 48 35 68 58 84 43 31 of which: Market Environment Component 71 54 36 25 41 47 40 68 66 79 50 34 Readiness Component 74 47 31 18 52 59 44 62 55 73 48 33 Usage Component 79 49 33 9 40 46 32 80 52 93 43 29

Total ICT Market – 2008 (Billions of Euros) 2.2 3.0 9.1 1.1 8.1 1.1 1.1 18.1 4.9 2 2.6 1.5 of which: Computer hardware 0.2 0.3 1.6 0.1 1.3 0.2 0.1 2.2 0.3 0.2 0.3 0.2 Computer software 0.1 0.4 1.5 0.2 1.1 0.1 0.1 1.1 0.2 0.2 0.2 0.1 Computer Services 0.1 0.3 1.0 0.1 0.7 0.1 0.1 1.6 0.2 0.1 0.3 0.1 Telecommunications 1.7 2.0 5.1 0.7 5 0.7 0.8 13.2 4.2 1.5 1.8 1.1

Total Capital Investment Telecommunications (Billions Euro)- 2007 € 0.54 € 0.3 € 0.564 € 0.09 € 0.430 € 0.120 € 0.14 € 2.64 € 1.3 NA € 0.388 €0.245 Telecommunications Market as % of GDP 0.058 0.052 0.041 0.049 0.042 0.037 0.027 0.043 0.031 0.049 0.033 0.034 Fixed Telephony density-2007 0.303 0.367 0.236 0.37 0.328 0.284 0.237 0.271 0.198 0.386 0.213 0.426 Mobile Telephony density-2007 1.374 1.135 1.31 1.342 1.17 0.956 1.49 1.01 1.03 1.143 0.976 1 Fixed Broadband density-2008 0.112 11,9 0.171 0.246 0.163 0.174 0.175 0.132 0.117 0.078 0.109 0.21

Report A, the Croatian Telecommunications Sector

Project: Mid-term forecasting of

electronic communication markets development in Croatia

Czech Slovak Bulgaria Croatia Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia Republic Slovenia Incumbents market share fixed access- 2008 0.96 0.68 0.957 0.78 0.919 0.981 0.78 0.687 1 0.953 0.893 Incumbents market share fixed broadband access-2008 0.291 0.89 0.335 0.53 0.417 0.464 0.502 0.503 0.261 NA 0.52 0.492

Major problems ICT: 1 political and judicial Bureaucracy tax rates taxes lack of tax rates government taxes government Government taxes regulatory independence government clusters regulation regulation regulation 2 ICT staff lack of clusters prioritization availability effectiveness availability lack of taxes government trained staff quality staff Government effectiveness staff law making staff clusters prioritisation procurement bodies 3 government technology law making quantity government quantity government government technology Technology government quantity local prioritization absorption bodies local role in local role in role ICT absorption absorption usage of suppliers suppliers procurement suppliers procurement usage ICT