Consolidated Annual Business Report for 2015 CONSOLIDATED ANNUAL BUSINESS REPORT OF TELEKOM SRBIJA A.D. BEOGRAD FOR 2015 TABLE OF CONTENT 01 Summary report Telecommunications Company Telekom Srbija a.d. and related legal entities ...................... 7. Introductory note by the Director General ...........................................................................10. 02 Development and business environment Background ..........................................................................................................................13. Market ..................................................................................................................................18. 03 Corporate management Corporate bodies and Corporate management system ...................................................... 31. 04 Business operations Strategy ................................................................................................................................39. Services ............................................................................................................................... 41. Investments ..........................................................................................................................49. Customers ............................................................................................................................53. Employees ............................................................................................................................60. Report on Corporate and Social Responsibility ................................................................... 67. Risk management ................................................................................................................ 74. 05 Financial results Consolidated financial statement ......................................................................................... 77. Financial statements of the Parent Company and related legal entities ..............................82. Consolidated Annual Business Report for 2015 The Company has had the mobile telephony licence TELECOMMUNICATIONS (GSM/GSM1800 and UMTS/IMT-2000) since 2006. In 2007, the Company renewed the fixed telephony COMPANY ’’TELEKOM licence. Since 2009, the Company has been in SRBIJA’’ a.d., BEOGRAD possession of a fixed wireless access licence (CDMA). AND RELATED LEGAL Beside the above mentioned Licences, the Company ENTITIES has been entered into the Register of Operators 01 maintained by the Regulatory Agency for Electronic Communications and Postal Services (Ratel) and for the services of access to the broadband network, TELECOMMUNICATIONS Internet services, services of distribution of media COMPANY ’’TELEKOM SRBIJA’’ a.d., content and, since March 2015, for the 4G network. BEOGRAD Summary In keeping with the Law on Electronic Communications (Official Gazette of RS no. 44, of On 23 May 1997, the Public Enterprise of PTT Traffic 30 June 2010, No. 60 of 10 July 2013 – Decision ’’Srbija“, Beograd (PE PTT or PE of PTT Traffic ’’Srbija“) of the Constitutional Court and No. 62 of 13 June established the Telecommunications Company 2014), and within the activities on encouraging competition in the telecommunications market of ‘’Telekom Srbija“ a.d., Beograd (hereinafter: Telekom the Republic of Serbia, applying the instruments of Srbija or the Company or the Parent Company) when report market regulation, on 7 July 2011, Ratel passed the it assigned to the Company all telecommunications Decision on designating the markets that are subject assets, including real estate and some other assets and to prior regulation, whereunder it defined nine liabilities. The Company was registered on 29 May 1997 markets subject to prior regulation (PRM). Based on as a joint stock company, incorporated for an indefinite the analyses of these PRM, Ratel rendered some period of time. resolutions in late 2011 whereunder the Company was declared as an operator with significant market In accordance with the Law on Business Companies power (SPM) in 8, out of 9 PRM, as follows: I –retail (Official Gazette of RS, no. 36 of 27 May 2011 and no. 99 market for access to the public telephone network of 27 December 2011), the Company’s General Meeting on a fixed location, II – wholesale market for call adopted the Articles of Association in 2012, defining origination in the public telephone network on a fixed the following management bodies in the Company: location, III – wholesale market for call termination in the General Meeting, the Supervisory Board and the the public fixed network, IV – wholesale market for Executive Board. (physical) access to the network elements and the accompanying facilities (including the shared and The Company’s core activity is the provision of full unbundled access to local loop, V – wholesale telecommunications services, the most important being market for broadband access, VI – wholesale the services of local and international telephone traffic, market for leased lines, VII – wholesale market for fixed telephone services, traffic transit, data transfer, call termination in mobile network and VIII – retail lease of lines, services in the entire network area, add-on market of the publicly available telephone service services in the field of mobile telephony, fixed services, from a fixed location. For each of the above TPM, the Internet and multimedia services. The Company’s Telekom Srbija assumed the relevant regulatory predominant activity, according to the applicable activity obligations, such as: publishing the relevant data classification, is the cable telecommunications activity. in the form of a standard offer, non-discriminatory actions, enabling access and using the network The Company also provides services in the area of elements and associated facilities, price control, lease, construction, management and protection of application of cost-based accounting, prohibition on telecommunications infrastructure, it issues telephone excessive pricing, tariff control, etc. Telekom Srbija is directories, provides operator-assisted call services a joint stock company whose registered, authorised, and e-directory services in the field of fixed telephone issued and paid-in capital consists of 1,000,000,000 services. ordinary shares. 7 Summary report Consolidated Annual Business Report for 2015 As at 31 December 2015, Telekom Srbija had a share being the services of national and international BUSINESS COMPANY FOR THE Having finished the procedure for simultaneous in capital in the following related legal entities: telephone traffic. Besides, Mtel offers a wide portfolio MAINTENANCE AND SECURITY OF decrease and increase in the share capital of mts of other telecommunications services, including other FACILITIES, PROPERTY AND OTHER banka by the bank’s General Meeting, based on the • Telekomunikacije Republike Srpske a.d. Banja fixed and mobile telephony services, data transfer, SERVICES “TELUS“ A.D., BEOGRAD Subscription Agreement entered into on December Luka, Republika Srpska, i.e. Mtel a.d. Banja lease of lines, private lines, services in the entire 2014 with Dunav osiguranje and Dunav RE and Luka (65% share capital); network area, add-on services in mobile telephony, Within its registered activity, the Business Company after the payment effected within the procedure of the Internet and multimedia services. Mtel also for the Maintenance and Security of Facilities, Property increase of share capital, acquired ownership over • Telecommunications Company mtel DOO, provides services in the field of lease, construction, and Other Services “Telus“ a.d. (hereafter: Telus), is 55.79% of shares in mts banka. Podgorica, Montenegro (51% capital); management and protection of telecommunications engaged in the provision of the following services: infrastructure. The corporate bodies of the Company approved • Business Company for Providing Maintenance • security of facilities and property (FTO- additional acquisition of 1,190,700 shares formerly and Security of Facilities, Property and Other physical and technical security, PPZ- fire owned by Dunav osiguranje a.d.o. Beograd, whereby Services Telus a.d., Beograd, Republic of Serbia Telekom Srbija acquired ownership of 76.05% of the TELECOMMUNICATIONS COMPANY mtel DOO., protection and money escort services), (100% share capital); total number of shares of mts banka. Podgorica • maintenance of hygiene in business premises • TS:NET B.V., Amsterdam, the Netherlands In 2007, in a consortium with Ogalar B.V., Amsterdam, and buildings, and In February 2015, the additional 137.947 i.e. 2.1% (100% share capital); shares were acquired. Telekom Srbija a.d. was granted a special licence • hiring staff to perform auxiliary and physical • mts d.o.o., Kosovska Mitrovica (100% share for the construction, possession and operation jobs. In this way, conditions were created for commencing capital); of the public mobile telecommunications network the provision of mobile banking services to the user and provision of public mobile telecommunications TS:NET, B.V., AMSTERDAM (the Netherlands) of the Company’s telecommunications services. • Telecommunications Company HD-WIN d.o.o., services and licence for the provision of public Beograd, Republic of Serbia (51% capital); telecommunications services via fixed wireless The core activity of Business Company TS:NET, DIMEDIA GROUP SA, GENEVE, SWITZERLAND access (WIMAX) in Montenegro. B.V., with the seat in Amsterdam, the Netherlands • mts banka a.d. Beograd, Republic