Annual Report 2008 Contents I. Introduction of Slovak Telekom Group ■ Letter to Shareholders 3 ■ Milestones of 2008 7 ■ Company Profi le 12 ■ Corporate Governance 19 II. Shaping Development in the Telecommunications Market ■ Growing Competition, Higher Quality Services 29 ■ Telecommunications Market in Slovakia 32 III. Report of the Company’s Management ■ Products and Services of Slovak Telekom Group 38 ■ Information Technologies: System Support for Effective Business and New Service Launch 55 ■ Human Resources – Essential Prerequisite for a Flourishing Business 59 ■ Communication Affects Customer’s Decision 65 ■ Corporate Social Responsibility of the Slovak Telekom Group 82 IV. Financial Results ■ Consolidated Financial Statements 88 ■ Financial Statements 130 2 I. Introduction of Slovak Telekom Group Letter to Shareholders Dear Shareholders, SKK 13 billion (EUR 432 million), which worked out to net income of SKK 3.5 billion (EUR 117 million). 2008 brought many exacting challenges for the Slovak Telekom group of compa- The Slovak Telekom Group was in excellent fi nancial condition in 2008. Thanks to nies, but we coped with them successfully. the suffi cient generation of uncommitted resources, it was able to pay its share- Therefore it is an honour for me to present holders dividends totalling SKK 3 billion (EUR 100 million). you the Annual Report 2008, refl ecting the accomplishments achieved by Slovak Last year the telecommunications market was effected by activity of operators Telekom and its subsidiaries. modernising access infrastructure, through construction of optical networks. Slovak Telekom, offering its products and services under the T-Com brand, markedly ac- The Slovak Telekom Group generated Miroslav Majoroš celerated the penetration rate of FTTx optical networks into households. At the end consolidated revenues of SKK 31 billion Chairman of the Board of of 2008, either internet access or Magio digital television services on optical network (EUR 1.029), thus maintaining its leading Directors and CEO/President were accessible to more than 200 thousand households. Through new access net- position on the telecommunications mar- works, we were able to provide our customers with enhanced quality services – an ket. This excellent Group result was achieved mainly thanks to revenues generated increased internet access rate of 70 Mbps. by T-Mobile Slovensko, which recorded a year-on-year increase of 3.6 %. This is an admirable achievement under the existing circumstances of market oversaturation In 2008 we managed to further increase broadband internet penetration via DSL with mobile services (saturation reached more than 100 %). The important contri- technology, and mobile “fast internet”. 4G internet offered under the T-Com brand butions to the Group’s overall achievements include accomplishments achieved was being used by over 300 thousand customers at the end of the year. It was avail- by expanding broadband services for both fi xed and mobile access, internet and able in more than 900 Slovak cities and towns. Over 70 % of Slovakia’s population mobile content services, and wholesale services. had access to the benefi ts of the “Fast Internet” offered by T-Mobile. The continuing efficiency of Slovak Telekom activities in 2008 brought earn- We also managed to increase the number of customers using the most modern ings before interest tax, depreciation and amortisation in the amount of nearly and advanced digital television on the Slovak market: Magio. ■ Introduction of Slovak Telekom Group ■ Letter to Shareholders 3 We expanded the programme portfolio for our more than 35 thousand customers. Call Centres services are an integral part of our business. They enabled us to For the most demanding of them, who have multiple TV sets in their households, enhance the quality of services provided to our customers on the one hand – by we made it possible to use Magio services independently on as many as 4 TV sets. means of promoting sales of T-Com products and services – and on the other hand By the end of 2008, more than 600 thousand households could access this service. to provide professional services also to external customers, mainly in the areas of banking, insurance, and other telecommunications services. In 2008 our Call As a part of continuing service quality enhancement for our customers, Slovak Centres also provided sales service for the needs of the parent company Deutsche Telekom, offering its services under T-Com brand, and T-Mobile Slovensko have Telekom and for T-Mobile Slovensko, and we have established new operator lines established a common network of telecommunications brand shops, the largest for the hearing impaired. in Slovakia. At more than 200 common sales points, branded with the “T” logo, we offer our customers a complete portfolio of telecommunications products for the Slovak Telekom successfully renewed EN ISO 9001:2000 quality management needs of the business and residential customers. system certifi cate. Moreover, 2008 was a milestone in environmental protection for us, as Slovak Telekom met the EN ISO 14001:2004 standard requirements and In 2008, we successfully positioned the fi xed line as a family line, by means implemented and launched its environmental management system. of which advantageously-priced calls could be made to all networks both in Slovakia and abroad. Customer satisfaction is undoubtedly one of the most important of Company success As of 31 December, our Company had 1,126,000 telephone accesses registered. indicators. Our Company measures this parameter numerically using the internation- By offering a number of attractive products for the broadband internet services ally accepted TRI*M index. Slovak Telekom has seen steadily increasing TRI*M index we managed to increase the number of telephone acceses. values over the course of the last several years. Last year customer satisfaction meas- urement was harmonised throughout the Deutsche Telekom Group. The values thus Our new strategy is to be not only a telecommunications services vendor, but also measured also confi rmed the high satisfaction level of Slovak Telecom’s customers, a systems integrator of multiple vendors. Therefore we offered business customers in both the business and residential segments. extended MPLS VPN and Business City Net services, and managed LAN networks. We were a reliable partner for large corporate customers for long-term critical cus- In 2008, the need to continue investing in new optical infrastructure and innovative tomer data back-up in T-Com’s data centre. products led Slovak Telekom to intensify efforts to make processes and activities more effi cient. These efforts were introduced back in 2000, i.e. following the entry of Wholesale services provided by Slovak Telekom constituted a large part of the Deutsche Telekom, the strategic and majority shareholder. The current activities, as Company’s total revenues in 2008. We succeeded in increasing year-on-year formulated in the Save for Service project, therefore aim at reducing the level of the wholesale service volume by more than 10 %, thanks to the expanding trend of operating costs by about SKK 1.2 billon (EUR 39 million) over two years, i.e. by the hub business: transiting of international voice traffi c through our network. NGN end of 2010. Cost reduction will give us fl exibility in meeting the strategic objectives (Next Generation Network) technology, successfully expanded last year, together set by our Company in the worldwide fi nancial crisis. with business systems provided opportunities for increased hubbing business. The aggregate volume of the mobile revenue market totalled SKK 45 billion (EUR 1.50 billion) in 2008. Total customers increased to 5.60 million, which ■ Introduction of Slovak Telekom Group ■ Letter to Shareholders 4 constituted a 103 % level of mobile service penetration. T-Mobile Slovensko had not been present. It entered the job portal market, and the attendance rate of registered 2.35 million active mobile services customers at the end of the the “Kariera.sk” project grew to 100 thousand users per month after less than six year, achieving thus an estimated market share of 42 %. Increasing the ratio months of its existence. of customers using post-paid services to the total customer base to 58 % was another major achievement. The most visited news portal on the Slovak internet, Bleskovky, changed its name to Topky.sk. Thanks to its content, it managed to regain the original visitor rate of Last year, T-Mobile Slovensko permanently reduced the roaming call prices in the the former. European Union and other countries. It provided several special programmes and improvements for all customer groups through the entire year. Zoznam gave its customers new opportunities to use the internet, via multimedia content sharing at its new community portal Free.sk. There, users can archive their Over the course of 2008, T-Mobile Slovensko offered several exclusive models of videos and photos, share opinions, and exchange information. A unique functionality cell phones. In August, the Company launched one of the most anticipated mobile of Free.sk is the possibility of adding content directly from a mobile phone via WAP phones, the iPhone 3G, on the Slovak market. service or JAVA application. Given the fact that the mobile market was highly saturated, the focus of the Company’s Euro currency implementation was one of the most signifi cant projects of the entire activities shifted more from the acquisition of new customers to retaining and strengthen- Slovak Telekom Group. Companies belonging to the Group coped with the euro ing loyalty in the last year. Through the year, the “Just Tell Us Once” concept was further ex- conversion process in all its systems professionally and without any negative impact tended in the area of customer processes. This consisted of fi nding effective and prompt on the customers. solutions to customer requests. Additionally, T-Mobile Slovensko promised customers to meet their requests within a set deadline, a complete novelty on the mobile market. Dear shareholders, our achievements in 2008 are the result of systematic and effec- tive cooperation of all the employees of the Slovak Telekom Group.