Telefónica O2 Czech Republic group in the first half of 2010

In the first half of 2010, the Telefónica O2 Group marketed its products and services with the aim to accommodate the needs of its customers even in the time of the difficult economic situation. Customers in the consumer segment benefited from promotions and our improved portfolio of broadband services. They could get internet connectivity without a commitment to use the service for a specific length of time. The Company continued in the development of ICT and business solutions, which focused not only on the government segment and large corporate accounts, but also on small and medium businesses.

In the mobile segment, the Company promoted its flat-ate contract tariffs O2 NEON. Customers of the prepaid mobile services continued to benefit from Odměna za dobití (Top-up Reward) programme. In April, the Company introduced Korunománie, a promotion offering one minute of call for only CZK 1. In the area of mobile data networks, Telefónica O2 made a significant progress in expanding the coverage of its new generation network (3G). By mid-July, the 3G network was available to one third of the Czech population. At the same time, the Company continued the construction of its EDGE network; by the end of the half-year, more than 60% of the population were within the reach of the network. Together with the expansion of the coverage of mobile data networks, the Company also expanded its portfolio of mobile data tariffs, which were for the first time available for prepaid mobile customers.

The Company continued its successful marketing of O2 Fér tariffs in Slovakia, which led to an improvement and growth in the customer base and achieved a greater customer loyalty, and resulted in a sustained and significant revenue growth and improved financial performance.

All the above activities reflected into a solid operating result in terms of customer growth. The number of retail ADSL connections reached 702 thousand as at the middle of 2010, which represents a year-on-year growth of 10.8%. The number of O2 TV customers reached 133 thousand at the end of June. As at the same date, the number of fixed accesses operated by Telefónica O2 reached 1.7 million. During the first six months of 2010, the number declined by 62 thousand, which is 30.3%.less than in the same period of 2009. The number of mobile customers grew, despite the highly saturated mobile market, by 0.1% on the year before, and reached 4.8 million. This development was driven mainly by the growth in the number of contact customers, of which there was 2.8 million at the end of June, which is up 4.5% on the previous year. The decline in the number of prepaid customers slowed down to 70 thousand in the half-year, compared to 110 thousand in the same period of 2009. The number of mobile customers in Slovakia increased by 156 thousand in the first half of the year (compared to 92 thousand in the same period of 2009) and reached 709 thousand.

As in 2009, also in the first half of 2010 the Company strived for better operating efficiency. With this goal in mind we decided to implement an ambitious restructuring programme; its aim is to realign the organisation into a more efficient form through a reduction of the number of organisation levels across the Company. We also maintain our focus on better process efficiency through the continuing integration of fixed-line and mobile platforms and systems, with a special regard for network transformation, including the outsourcing of some activities. The changes will also translate into a headcount reduction by approximately 1,000 employees in 2010; of this number, approximately 500 will be transferred together with the outsourced activities. The Company posted restructuring costs of approximately CZK 427 million in the first half of 2010.

Due to the increasing popularity of the simple and value-based tariff O2 Fér, Telefónica O2 Slovakia succeeded in growing its customer base and improving its financial performance in the first half of 2010. At the end of June, the number of active customers reached 709 thousand, which is a year-on-year increase of 69.9%. The net additions reached 156 thousand in the first half of the year 2010. The net customer adds for the first half of 2010 were 89.9% year on year and reached 258 thousand; the number of prepaid customers grew 60.3% year on year to 451 thousand. At the end of the second quarter of 2010, the share of contract customers in the total customer base reached 36.4%, which is an increase of 3.8 percentage points.

The continuing strong growth in the customer base helped Telefónica O2 increase its market share to 12.3% at the end of June, from 9.8% at the beginning of the year.

The revenues of Telefónica O2 Slovakia grew in the first half of 2010 by 51.0% year on year and reached EUR 48.8 million. The Average Revenue Per User (ARPU) also increased: the average for contract customers in the first and second quarter was EUR 18.8 and EUR 19.2, respectively, while for prepaid customers it was EUR 8.3 and EUR 8.5, respectively.

At the end of the first half-year, Telefónica O2 Slovakia’s own network covered already 94.35% of the Slovak population. The coverage now allowed the company to carry 89% of traffic in its own network, while the remaining 11% of traffic was carried within the framework of national roaming. The share of on-net traffic therefore increased by 5 percentage points compared to the situation at the end of 2009.

An independent agency evaluated Telefónica O2 Slovakia as an operator with the highest customer satisfaction score among all mobile operators in Slovakia. The Customer Satisfaction Index (CSI) of Telefónica O2 Slovakia was 84.2 and the company thus confirmed its longstanding leadership in the area of customer satisfaction.

Telefónica O2 Slovakia is now fully established in the Slovak market. In May, the Board of Directors of the parent Telefónica O2 Czech Republic approved an increase of the registered capital by means of a pecuniary contribution of EUR 40 million, to the total of EUR 240 million. This step confirmed the long-term plans of the Telefónica Group in Slovakia. Also in the future, Telefónica O2 Slovakia will continue to monitor the needs of Slovak customers, and meet them with innovative and effective solutions.

In March, Telefónica O2 made a special offer to new users of flat-rate tariffs from the O2 NEON family. Customers (small businesses or registered self-employed), who activated a new number with any of the tariffs O2 NEON L, L+, XL or XXL between 1 March and 14 March 2010, could have it 30% cheaper for the whole time they subscribed to it (i.e. 2 or 3 years, depending on the contract).

From 1 June, Telefónica O2 offers a complementary service O2 Navzájem, which, for a flat monthly fee, offers unlimited calls within a group of up to seven friends, regardless of the time of day. The service is available to both contract customers and users of the prepaid O2 karta. Each member of the group pays the same monthly fee, which gets lower with each new member to the group. The unlimited communication with the selected contacts makes the service an ideal complement to the O2 NEON tariffs.

Any customer of the prepaid service who, between 22 March and 5 April 2010, topped up their credit for a minimum of CZK 200 and entered a special code at www.odmenazadobiti.cz, received a special ‘gold’ bonus instead of the standard one, e.g. a choice of another O2 service: instead of the standard bonus of ten SMS to the O2 network, the customer could send unlimited on-net SMS for one whole day.

Other options included daily bundles of unlimited calls and MMS, mobile internet for one whole week or twenty free minutes for calling international. The ‘gold’ bonuses were available to all customers even after the end of the Easter promotion, provided they topped up their credit for a minimum of CZK 400 at any one time.

New customers of prepaid mobile customers of Telefónica O2 could take an advantage of a unique promotion, which ran from 1 April until 30 June 2010. Together with O2 NA!PIŠTE and O2 NA!HLAS tariffs, customers got a special promotional rate of CZK 1 per one minute of call. Even outside the promotion, if they had any of the above prepaid tariffs, the customers could choose from four bundles – calling in evenings or weekends for CZK 0.50 per minute, weekend SMS for CZK 0.50 or mobile internet for CZK 20 per week. They were also eligible for the guaranteed bonuses from www.odmenazadobiti.cz.

From April 2010, Telefónica O2 expanded its offer of mobile tariffs for small businesses and self-employed persons. The new O2 Podnikání were the first tariffs on the Czech market which offered, for a flat monthly fee, unlimited calls within working hours. The benefit was not limited in time and applied for the whole duration of subscription to the tariff. O2 Podnikání tariffs gave a choice of four alternatives: O2 Podnikání M, O2 Podnikání L, O2 Podnikání XL and O2 Podnikání XXL. The highest tariff came with unlimited calls to any network between 9 am and 5 pm. The other tariffs offered the benefit of unlimited calls to more than 7 million numbers in the O2 network and to all fixed line numbers in the Czech Republic.

From May, Telefónica O2 began to offer O2 Business, improved per-minute tariffs to small and medium business customers. The innovated tariff O2 Business Unlimited came with unlimited calls. Customers who subscribed to this tariff could, for the promotional monthly rate of CZK 2,900 (exclusive of VAT), make unlimited calls, use unlimited mobile internet and send unlimited SMS to all networks in the Czech Republic. O2 Business tariffs were also made more affordable, with more free minutes, lower per-minute rates and lower monthly subscription fees. A promotion of O2 Business tariffs gave customers a free choice of any of the O2 Podnikatel tariffs, which focused on calls in Telefónica O2’s own network.

In February, Telefónica O2 introduced another promotion for broadband internet. Customers who activated the service O2 Internet na doma in February, paid only CZK 600 month for a period of one year; there was no commitment required and no extra payments for fixed line rental. New and existing customers alike could get even more value if they combined their internet service with additional services. With a subscription to O2 Internet na doma, they could order cut-price mobile internet and get a discount of CZK 100 on the mobile tariffs O2 NEON, or get 300 free voice minutes from a fixed line for only CZK 120.

From 1 June, all customers of Telefónica O2 could get a very competitively priced internet service with the highest speed of up to 16 MB/s, depending on the capacity of their line. Any customer who ordered O2 Internet paid only CZK 400 per month for the duration of the subscription; again there was no commitment required and no extra payments for fixed line rental.

In February, Telefónica O2 expanded its portfolio of mobile internet tariff by introducing the new O2 Mobilní Internet Standard tariff, which was aimed at regular internet users. It was sufficient for daily email, occasional music downloads or for storing more than 2,000 high resolution images. For CZK 500 per month, customers could surf anytime and anywhere. The FUP data limit for the new tariff was set at 2 GB per month. O2 Mobilní Internet Standard worked out most economically in combination with other services.

From 1 June, all get mobile internet connectivity on a prepaid basis, with the service O2 Předplacený mobilní internet. The service gave customers a free access to the internet, without a contract and commitment to monthly payment. It came in four alternatives, based on the number of daily access packages purchased. Daily access packages were 24 hour blocks that could be used anytime within two months from the date of activation. One such block came with unlimited access and 500 MB of (FUP) data limit. The daily access packages were available with the following pricing structure: 1 day – CZK 50; 5x 1 day – CZK 200, 10x 1 day – CZK 350; 30x 1 day – CZK 900. Customers had a choice of two optionsO2 Mobilní internet sada (set) and O2 Mobilní internet karta (card). O2 Mobilní internet sada consisted of a prepaid SIM card with 5 weeks of free internet and a Huawei USB modem E1750; the retail price of the set was CZK 995. O2 Mobilní internet karta could be purchased separately for CZK 95; it came with a prepaid credit of CZK 50, which gave one day free access to the internet.

On 8 June, Telefónica O2 presented its new portfolio of flat-rate mobile internet tariffs. Customers had a choice of four tariffs: O2 Mobilní Internet Start for CZK 300 inclusive of VAT, with a data limit of 500 MB; O2 Mobilní Internet Standard for CZK 500 inclusive of VAT, with a data limit of 2 GB; O2 Mobilní Internet Pro for CZK 750 inclusive of VAT, with a data limit of 10 GB; and O2 Mobilní Internet Neomezený or CZK 1,000 inclusive of VAT and without a data limit.

With some mobile data tariffs, small and medium business customers could get a netbook Samsung N150 for a subsidised price of CZK 1,495, or a professional notebook HP 4520s for CZK 6,495. Both portable computers came with an inbuilt 3G modem. Customers therefore require no other equipment to enjoy the fastest mobile internet access in the Czech Republic.

In June, Telefónica O2 expanded its offer of mobile internet tariffs for customers of its prepaid service. Smartphone owners, who wanted to surf online without any restrictions, could subscribe to the new tariff O2 Internet v mobilu Plus for CZK 75 per week, inclusive of VAT. The monthly data limit in this case was 500 MB (FUP).

In April, Telefónica O2 launched a new service, O2 Clean Internet, which provides a professional standard of protection against malicious content to any local network which is connected to the internet through Telefónica O2 Czech Republic. O2 Clean Internet can be installed for the vast majority of internet connections offered by the Company (symmetrical/asymmetrical xDSL connections, IOL Ethernet, VPN Expres, etc.). The professional solution significantly reduces the risk of infiltration by malicious code (spyware, malware) and various viruses in the local network. At the same time it gives the user the necessary functionality for managing the security of the connection of the customer network to the internet and filters away any unwanted http traffic. The solution did not require any client intervention in the proprietary infrastructure as the service ran in the O2 data centre and did not take up any of the client network capacity. The service could be activated for CZK 500 per internet connection.

All people with impaired hearing could, from February, use a free special assistance service O2 – Hovor pro neslyšící. Telefónica O2 operated a 24/7 assistance number at which operators with special training helped people who are deaf or hard of hearing communicate. Until then, the service could be accessed only through a text phone or a fax; now it was made available also via SMS and email. The service works on a very simple principle: the operator receives an instruction from a deaf or hard-of-hearing customer via email, fax or SM, and communicates it to the intended hearing recipient. Likewise, the operator can convey a message to a deaf or hard-of-hearing recipient, by transcribing it and sending it to the intended recipient.

In this section we present and comment on the unaudited consolidated financial results of the Telefónica O2 Group including the results of Telefónica O2 Slovakia, Telefónica O2 Business Solutions and other smaller operating companies. The results were prepared according to International Financial Reporting Standards (IFRS).

Consolidated Financial Statements

The financial performance of Telefónica O2 Czech Republic Group in the first half of 2010 Group continued to be negatively impacted by challenging environment and mobile termination rate (MTR) cuts. In addition, revenues from Universal Service (USO) negatively impacted year-on-year revenues comparison. However in the second quarter it showed improving trends both in fixed and mobile segments compared to the first quarter with less customers’ optimization and stabilization in spend. Total consolidated revenues totalled CZK 27,908 million, down by 6.4% year-on-year. Business revenues went down 6.6% year-on-year to CZK 27,765 million in the first half 2010 with a 4.1% year-on-year decline to CZK 14,038 million in second quarter alone. Excluding the impact of USO 1, Group business revenues would have declined 6.2% year-on-year in the first half, and 4.1% year-on-year in second quarter. Fixed business revenues in the Czech Republic declined by 7.5% year-on-year to CZK 12,273 million in the first half 2010 (-6.5% year-on-year excluding the USO impact) and by 5.3% to 6,121 million in second quarter (-5.5% year-on-year excluding the USO impact, an improvement compared to a 7.3% decline in the first quarter). Mobile revenues in the Czech Republic declined by 8.5% to CZK 14,310 million in the first half 2010 (-4.2 % year-on-year excluding the impact of MTR cuts) and by 5.8% to CZK 7,282 million in the second quarter, (-1.6 % year-on-year excluding the impact of MTR cuts, an improvement compared to the first quarter: -6.8%). On the other hand, revenues in Slovakia continued in the sound growth and recorded a 51.0% year-on-year increase to reach EUR 48.8 million in the first half 2010 (+51.0% in second quarter).

In the first quarter of 2010, the Company announced an ambitious restructuring program with a special focus on Network transformation, aiming at further improvement of its operational efficiency. As a result, the restructuring provision of CZK 381 million has been booked in the first quarter, while in the second quarter, the Company charged additional CZK 46 million coming from further management structure simplification.

In addition, the Company continued in efficiency enhancement via strict financial discipline seen already in previous quarters to compensate for drop in revenues. Total consolidated operating costs (including restructuring costs) reached CZK 16,993 million in the first half 2010, up 0.9% year-on-year. The year on year comparison has been impacted by the settlement agreement with T-Mobile (CZK 1,027 million) booked in the second quarter 2009 and already mentioned restructuring costs booked in the first half 2010 (CZK 427 mil.). Excluding these items, Group consolidated costs would declined by 7.3% in the first half 2010 helped also by MTR cuts.

Group Operating income before depreciation and amortization (OIBDA) went down 18.1% year-on-year to CZK 11,209 million in the first half 2010 (-17.2% year-on-year to 5,864 million in the second quarter alone) largely due to revenues decline, non-recurring gain from real estate sale booked in the first quarter 2009 (CZK 341 million), settlement agreement with T-Mobile in the second quarter 2009 (CZK 1,027 million) and negative impact of restructuring costs (CZK 427 million) booked in the first half 2010. Consequently OIBDA margin thus decreased by 5.7 percentage points year-on-year to reach 40.4% in the first half 2010 and by 6.6 percentage points year-on-year to 41.8% in the second quarter 2010. Comparable OIBDA 2 decreased by 4.5% year-on-year to CZK 12,047 million in the first half 2010 (-2.0% year-on-year to 6,116 million in the second quarter 2010), while comparable OIBDA margin 3 improved by 0.7 percentage points to reach 43.4% in the first half 2010 (+1.0 percentage points to 43.6% in the second quarter 2010).

Consolidated net income amounted to CZK 4,354 million in the first half 2010, down by 23.9% year-on-year (-23.9% year-on-year in the second quarter to CZK 2,342 million), largely as a result of the decline in OIBDA, which has not been fully compensated by lower depreciation & amortization, financial expenses and income tax.

Consolidated CAPEX reached CZK 2,379 million in the first half 2010, down by 18.1% year-on-year (-31.2% year-on-year in the second quarter). The Company continued to invest in expansion of its mobile broadband networks (EDGE and UMTS), fixed broadband network (ADSL and IPTV) as well as development of IT systems. During the first half 2010, the Company expanded its 3G coverage to additional district towns resulting in 29 towns in the Czech Republic covered by mid-July, which represents some 32% of the population. Investment in EDGE network expansion also continued and by the end of June 2010, 60% of the population has been covered. Group free cash flows increased 15.2% year-on-year to reach CZK 7,103 million in the first half 2009, largely due to lower paid income tax and less cash paid for CAPEX.

The consolidated financial debt amounted to CZK 3,147 million at 30 June 2010, flat compared to the end of 2009, while cash and cash equivalents and short term financial investments reached CZK 8,397 million at the end of June 2010.

CZ Mobile Business Overview 4

Mobile business continued to maintain solid commercial performance in mobile contract segment leveraging on successful customer proposition around O2 NEON tariffs. The financial performance in the second quarter improved compared to the first quarter with less customers’ optimization and some stabilization seen in spend, while MTR cuts (-34.4% between January 2009 and January 2010 5) continued to dilute mobile revenues in the first half 2010.

In the third quarter 2009, for its contract customers the Company launched a tariff with no monthly fee (O2 ZERO) to address the customers’ demand for a strict cost control. In line with prudent principle, the Company decided to apply 3 months’ activity criteria to those contract customers and to customers who subscribed for similar tariffs launched in the past years, as it applies to prepaid customers. As a result, in June 2010, the contract customer base has been reduced by 111,000 one-off corresponding to customers with low activity level. However, this adjustment has no impact on the financial performance of the mobile business.

Consequently, total mobile customer base increased by 0.1% year-on-year to reach 4,842 thousand at the end of June 2010 (+2.4% year-on-year to 4,953 thousand excluding the adjustment). Number of contract customers went up 4.5% year-on-year reaching 2,782 thousand at the end of the second quarter 2010 (+8.6% year-on-year to 2,893 thousand excluding the adjustment). Excluding the adjustment, the contract net additions reached 78 thousand in the first half 2010. This solid performance was driven by continuous uptake of O2 NEON tariffs and by customers migrating from the prepaid to the contract segment. Number of prepaid active customers reached 2,060 thousand at the end of the second quarter 2010, down by 5.2% year-on-year. The Company kept up seeing a continuous improvement in prepaid customer base with 70 thousand net losses in the first half 2010, 36.7% less compared to the same period in 2009. At the end of the second quarter 2010, contract customers represented 57.4% of the base (+2.4 percentage points year-on-year).

The blended monthly average churn rate totalled 2.5% in the first half 2010 and 2.8% in the second quarter, posting a 0.6 percentage points year-on-year increase in the first half 2010 and 1.1 p. year-on-year in the second quarter, mainly due to the disconnections made in the contract base in the period. Excluding the one-off adjustment, churn would stand at 2.1% in the second quarter, which is 0.1 percentage points lower compared to the first quarter.

In terms of usage, mobile traffic 6 carried by the customers in the Czech Republic grew by 9.0% year-on-year to 4,387 million minutes in the first half 2010.

In the first half 2010, blended ARPU 7 reached CZK 468.3, down 9.5% year-on-year, largely due to MTR cuts and customers’ optimizing their behavior. However, in the second quarter the ARPU (CZK 477.1) improved to -7.9% year-on-year. Contract ARPU reached CZK 664.0 in the first half 2010, down by 13.5% year-on-year, while in the second quarter its decline slowed down to -11.2% year-on-year to reach CZK 673.0. This was the result of decreasing customers’ optimization, stabilization in spend and seasonality patterns. In addition, customer migration from prepaid to the contract tariffs and MTR cuts continued to contribute to contract ARPU dilution. Prepaid ARPU decreased by 9.2% year-on-year to reach CZK 203.3 in the first half 2010 with an improvement to CZK 209.4 in the second quarter compared to CZK 197.2 in the first quarter due to positive impact of propositions focused on traffic stimulation and regular top-ups.

Total mobile business revenues in the Czech Republic declined by 8.5% to CZK 14,310 million in the first half 2010 with a 5.8% decline in the second quarter 2010, while mobile service revenues went down by 8.5% year-on-year and 5.6% year-on-year in the first half and the second quarter respectively. Mobile termination rate cuts diluted mobile service revenues by 4.4 percentage points and 4.3 percentage points in the first half and the second quarter 2010. Despite 9.0% year-on-year growth in mobile outbound voice traffic in the first half 2010, traffic revenues decreased by 10.6% year-on-year to CZK 4,214 million (-9.3% in the second quarter), due to higher number of customers opting for semi-flat rate tariffs (O2 NEON). Interconnection revenues went down by 19.6% year-on-year to CZK 1,951 million in the first half (-18.3% in the second quarter), largely impacted by MTR cuts, which have not been compensated by higher inbound traffic. Other revenues (including SMS & MMS, data and other business revues) declined by 7.2% year-on-year in the first half 2010, while in the second quarter, they improved by 2.2% driven by better performance of SMS, MMS as well as mobile data revenues.

CZ Fixed Business Overview 8

The fixed business reported solid commercial performance in broadband customer base and fixed accesses in the first half 2010. The financial performance continued to be negatively impacted by already mentioned universal service (in the first quarter), while ICT revenues continued in growing trend experienced already in the first quarter.

Total number of fixed accesses declined by 5.3% year-on-year to reach 1,708 thousand at the end of June 2010, with 29 thousand net losses in the quarter (by 37.9% less compared to the second quarter 2009) helped by solid uptake of naked accesses following the introduction of new broadband centric proposition in 2009. The positive impact of the broadband strategy has been also proven by household access performance. Their decline slowed down further to -5.6% year-on-year in the second quarter 2010 to reach 1,159 thousand at the end of June 2010, while their number decreased by 6.1% year-on-year in the first quarter 2010 and by 9.1% year-on-year in the second quarter 2009.

Voice traffic generated in the fixed network went down 13.2% in the first half 2010 to 923 million minutes as a result of continued fixed telephony lines losses and fixed to mobile substitution effect.

Retail ADSL accesses reached 702 thousand at the end of the second quarter 2010, up 10.8% year-on-year, while total number of O2 TV customers reached 133 thousand, up by 0.4% year-on-year.

Total fixed business revenues went down 7.5% year-on-year to CZK 12,273 million in the first half 2010 (-6.5% year-on-year excluding the USO impact), while they decreased by 5.3% to CZK 6,121 million in the second quarter (-5.5% excluding the USO impact). Revenues from traditional accesses fell by 31.5% year-on-year to reach CZK 2,684 million in the first half 2010 (-29.6% in the second quarter) due to continuous fixed telephony lines losses and introduction of broadband centric customer proposition in 2009, while Internet & broadband revenues increased in total by 35.8% year-on-year to CZK 2,989 million in the first half 2010. IT services and business solutions revenues increased by still solid 25.4% year-on-year to reach CZK 1,030 million in the first half 2010 (+20.5% year-on-year in the second quarter alone).

Slovakia

In the first half 2010, Telefónica O2 Slovakia kept its sound commercial performance and deliver strong financial performance leveraging on successful customer proposition based on value and simplicity strategy (O2 Fér). Total number of active customers reached 709 thousand at the end of June 2010, up by 69.9% year-on-year, with 63 thousand net additions in the second quarter. Number of contract customers grew by 89.9% year-on-year to reached 258 thousand, while number of prepaid active customers increased by 60.3% year-on-year to reach 451 thousand at the end the second quarter 2010. Contract customers represented 36.4% of total customer base at the end of the second quarter 2010, up 3.8 percentage points year-on-year. Total revenues of Telefónica O2 Slovakia in local currency increased by 51.0% year-on-year to reach EUR 48.8 million in the first half 2010, with a 51.0% year-on-year growth in the second quarter alone to EUR 26.3 million. Contract ARPU reached EUR 18.8 and EUR 19.2 in the first half and the second quarter respectively, while prepaid ARPU was at EUR 8.3 and EUR 8.5 in these periods.

Outlook for second half of 2010

Based on the delivered results for the first half of 2010 and outlook for the second half, Telefónica O2 Group confirms its full year guidance 9 for OIBDA and CapEx.

In the second half of 2010, the Group will continue with active proposition of its mobile O2 NEON tariffs and VPN based tariffs for business and corporate customers. In line with its 3G coverage expansion strategy, the Company will focus on improved proposition of new mobile broadband and data services. The Company’s aim is to exploit its competitive advantage of having the highest 3G network coverage and the most advanced portfolio of mobile data services.

In the fixed line business the Company’s effort will stay focused on active marketing and enhancement of the broadband centric proposition including the enlargement of fixed/mobile bundles proposition leading to further stabilization of fixed accesses. This should help the Company to outperform again the fixed broadband and mobile contract markets.

Telefónica O2 Slovakia will continue in active marketing of its “value and simplicity” customer proposition, which helped to outperform the market in the first half and will lead to further customer base growth and mix improvement to strengthen its financial position.

The Company will cautiously pursue the macroeconomic development in the Czech Republic and the speed of its gradual recovery. Therefore it will continue to closely monitor behavior of its customers to offer the propositions which meet their needs. In addition, it expects that mobile revenues will be hit by additional MTR cuts. In addition to above mentioned customer focused activities, the Company will stay focused on delivering commercial and non-commercial efficiencies in OPEX to sustain healthy operating profitability.