1 ANNUAL REPORT 2007

Transcription

1 1 ANNUAL REPORT 2007

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3 Personal thoughts and feelings of real people. A random moment of your life on a piece of paper. Drawings, forms and colors representing joy, anger, fullfilment, loneliness, silence, cries, anything. You need to express yourself and the urge you have to communicate. This is what makes our work worthwhile and this is the message of this report. You.

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5 THE ΟΤΕ GROUP

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7 WHO: STELIOS WHEN: SATURDAY WHERE: ATHENS

8 WHO: VASSILIKI WHEN: ΤUESDAY WHERE: ΤΟΚIΟ

9 WHO: MANOS WHEN: FRIDAY WHERE: ATHENS

10 THE OTE GROUP 12 THE OTE GROUP ROMANIA SERBIA BULGARIA FYROM ALBANIA GREECE

11 THE OTE GROUP 13 GREECE Fixed-line and mobile telephony Fixed-line subscribers: 5,854,000 ADSL subscribers: 825,000 Mobile telephony subscribers: 6,269,000 ROMANIA Fixed-line and mobile telephony Fixed-line subscribers: 3,035,000 ADSL subscribers: 360,000 Mobile telephony subscribers: 3,616,000 Shareholder Structure May 15, % International Institutional Investors BULGARIA Mobile telephony Subscribers: 3,873,000 ALBANIA Mobile telephony Subscribers: 1,195, % Hellenic State 20.0% Deutsche Telekom FYROM Mobile telephony Subscribers: 593,000 Since 2006, the OTE Group owns 90% of GERMANOS S.A., the largest distributor of technology-related products in Southeast Europe with 769 stores. 9.8% Greek Institutional Investors 6.8% Other SERBIA Fixed-line and mobile telephony OTE owns 20% of Telekom Srbija

12 THE OTE GROUP 14 GROUP STRUCTURE Fixed-Line Telephony Mobile Telephony Other Operations OTE SA Greece 100% ΟΤΕGLOBE Greece 100% ΟΤΕNET Greece 100% 54% Cosmote Greece RomTelecom Romania 100% ΟΤΕestate Greece AMC Albania 82% 100% Globul Bulgaria 99% Hellas Sat Greece Cosmofon FYROM 100% 70% Cosmote Romania Romania 94% ΟΤΕSat-Maritel Greece 90% Germanos S.E. Europe 100% ΟΤΕplus Greece 100% OTEAcademy Greece 61% CosmoONE Greece

13 WHO: VASILIS WHEN: SUNDAY WHERE: ATHENS

14 THE OTE GROUP 16 ΟΤΕ GROUP KEY FINANCIAL & OPERATIONAL HIGHLIGHTS (all amounts are in mn unless otherwise stated) Operating Income before Depreciation and Amortization (OIBDA)* 1, , , * Excluding impact of OTE fixed-line Voluntary Retirement Program (provision of mn in 2005, reversal of 49.8 mn in 2006, and 22.1 mn provision in 2007) and non-recurring gains related to Cosmote Romania in 2005 Net Income/ (Loss) (216.8) Dividend per Share * ** 05 * There was no dividend distribution in 2005 ** Proposed dividend 06 07

15 THE OTE GROUP 17 Revenue Breakdown by Region (2007) Key Operations Revenue Contribution (2007) 74.5% Greece 50.0% Fixed-line 35.6% Mobile telephony* 25.5% Other countries 14.4% Other operations * Germanos S.A. is included in Other operations

16 THE OTE GROUP 18 OTE ADSL Subscribers (000) Mobile Telephony Subscribers (000) Greece, Albania, Bulgaria, Romania, FYROM 8,204 11,177 15, OTE Employees 11,348 11,755 14,

17 THE OTE GROUP 19 RomTelecom ADSL subscribers (000) Net Income/ (Loss) per Share ( ) (0.44) RomTelecom Employees 12,257 12,512 13,

18 THE OTE GROUP 20 OTE GROUP OPERATIONS THE ΟΤΕ GROUP Consisting of the parent company OTE S.A. and its subsidiaries, the Group offers fixed-line (voice, broadband, data and leased lines) and mobile telephony services in Greece and Romania, as well as mobile telephony services in Albania, Bulgaria and in the Former Yugoslav Republic of Macedonia (FYROM). The Group is also present in Serbia through its 20% stake in the country s incumbent operator, Telekom Srbija. OTE Group is also involved in a range of activities in Greece, notably in real-estate, satellite telecommunications and professional training. FIXED-LINE OPERATIONS IN GREECE OTE (OTE S.A.) is the main provider of fixed-line services (voice, broadband, data and leased lines) in Greece. Strategy: Focused on broadband promotion, development of competitive products (focus on bundled services), adoption of a dynamic tariff policy, investments in infrastructure and strong relationship with customers. MOBILE TELEPHONY OPERATIONS IN GREECE AND ABROAD Cosmote, OTE Group s mobile telephony operator, is the leading provider of mobile communications in Greece. The company also enjoys significant mobile telephony market shares in Albania, Bulgaria and FYROM, and is expanding rapidly in Romania. Cosmote also owns the largest distributor of technology-related products in Southeast Europe, Germanos (Germanos S.A.) Strategy: Aims to maintain its leading position in the Greek market and boost its profitability abroad. 51% Investments 44% OIBDA 38% Revenues 43% Revenues 37% OIBDA 27% Investments Note: The charts display the contribution of each segment in Group revenues, operating income before depreciation and amortization (OIBDA) and capital expenditure in 2007.

19 THE OTE GROUP 21 FIXED-LINE OPERATIONS IN ROMANIA (ROMTELECOM) OTE owns 54% of RomTelecom, the main telecommunications operator in Romania, providing fixed-line services (voice, broadband, data and leased lines) and satellite TV services to the local market. OTHER OPERATIONS IN GREECE AND ABROAD In Greece, the Group is involved in a range of activities notably in real-estate, satellite communications, and professional training. The Group is also present in Serbia through its 20% stake in the country s incumbent operator Telekom Srbija. Strategy: Focused on launching competitive products, strengthening its customer-oriented policy and increasing its market share in broadband and satellite TV services. Strategy: Aims to add value to the real-estate portfolio by establishing a real-estate investment company, and to develop synergies between the various companies of the Group. 19% Investments 13% OIBDA 12% Revenues 7% Revenues 5% OIBDA 3% Investments Note: The charts display the contribution of each segment in Group revenues, operating income before depreciation and amortization (OIBDA) and capital expenditure in 2007.

20 THE OTE GROUP AT A GLANCE MERGERS, ACQUISITIONS AND SALES In March, OTE presents the highlights of its 3-year Business Plan ( ) at an analyst-investor meeting in London. In May, the European Commission approves the Greek State s contribution of 390 mn towards OTE s pension fund, TAP-OTE, to cover for the voluntary retirement program. In May, OTE resolves to absorb its ISP subsidiary OTENET. In this context, in December 2007 OTE holds 100% of OTENET s share capital and the Board of Directors approves the launch of the merger proccedures, via absorption, by OTE, which will be concluded in In June, the Greek State completes the sale of 52,446,092 common shares of OTE (corresponding to 10.7% of the company s share capital) to Greek and foreign qualified investors, by means of an accelerated book-building process. Following this, the Greek State s stake in OTE s share capital is reduced to 28.03%. COMMERCIAL HIGHLIGHTS: FOCUS ON BROADBAND PROMOTION In June, OTE s ADSL ports pass the one million mark, double the prior-year level. In July, OTE s successful package connx-talk is expanded, offering unlimited local and long distance calls 24 hours a day, 7 days week, combining voice services with broadband Internet connection speeds. In July, OTE s Educational Mobile Unit OTE on the Broadband-OTE Broadband Services completes a road-show that had been launched in July 2006, travelling around 33 Greek cities to inform the public and promote broadband services. In July, the OTE retail store network, ΟΤΕshops, create conn-xperience, a dedicated area within the stores to allow customers to experience fast Internet access at real speeds and get acquainted with broadband services and conn-x applications. In November OTE makes a public offer to acquire the 32.2% minority interests in the share capital of its subsidiary, COSMOTE, at a price of per share. In December, OTE completes the 100% sale of its subsidiary, InfOTE (printed and electronic directory services), to Rhone Capital LLC and Zarkona Trading Limited, for a total consideration of mn. In September, OTE launches the innovative, broadband e-learning service School powered by conn-x which provides students with an opportunity to enhance their performance at school via a user-friendly, interactive broadband environment.

21 THE OTE GROUP 23 In December, OTE announces a reduced conn-x tariff plan, cutting prices by up to 44.5%, and introduces a new speed of up to 24 Mbps. In 2007, overall price reductions across the conn-x product range amounted to 30%-50%. ORGANIZATIONAL CHANGES In December, the General Division of Business and Residential Customers of OTE is separated into the Division of Corporate and Business Customers, and the Division of Residential Customers. The management of OTE proceeds with this organizational change in view of market competition levels, technological integration trends, increasing customer demands for state-of-the art products and services, and in line with common international practice. CORPORATE RESPONSIBILITY OTE s 2006 Corporate Social Responsibility Report is certified in October according to the international G3 standards of the Global Reporting Initiative (GRI) network.

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23 THE OTE GROUP 25 CONTENTS THE OTE GROUP Message from the Chairman 26 ΟΤΕ GROUP OPERATIONS Broadband Services 33 ΟΤΕNET 39 Traditional Fixed-Line Services 42 Services for Telecom Operators 46 International Telephony - ΟΤΕGLOBE 52 Investments in Fixed-Line 56 Regulatory Framework 62 Human Resources 64 Corporate Responsibility 68 Corporate Governance 72 Share Information 80 Mobile Telephony 82 Greece (Cosmote) 83 Albania (AMC) 88 Bulgaria (Globul) 90 FYROM (Cosmofon) 91 Romania (Cosmote Romania) 92 Germanos S.A. 94 RomTelecom 98 OTHER OPERATIONS IN GREECE AND ABROAD ΟΤΕestate 108 Hellas Sat 110 OTESat-Maritel 114 OTEplus 115 OTEAcademy 116 CosmoONE 118 Telekom Srbija 119 InfOTE 121 FINANCIAL STATEMENTS Annual Financial Statements 127

24 THE OTE GROUP 26 MESSAGE FROM THE CHAIRMAN Athens, June 2008 In 2007 OTE SA s net income increased by 8.5%, to mn, compared to mn in Operating income before depreciation and amortization climbed from mn or 29.1% of revenues in 2006, to mn or 31.4% of revenues in Consolidated net income increased by 15.3% to mn, compared to mn in 2006, while operating income before depreciation and amortization was 2,240.8 mn, or 35.5% of revenues, compared to 2,167.0 mn, or 36.8% of revenues, in Reflecting this financial performance, which met and in many cases exceeded our Group Business Plan targets, we are proposing a dividend of 0.75 per share, compared to 0.55 for In 2007, we continued the reorganization of the Group which begun in 2005 and aims at strengthening OTE against heightening competition and increasing regulatory pressure. In this context, we launched last year the buyout of Cosmote minorities and the absorption of OTENET by OTE, both of which were completed in early These organizational changes will result in notable cost savings as we better exploit synergies across Group companies. In addition, late last year, we sold INFOTE, the Group s directory subsidiary, generating a net gain of 174 mn. In Greek fixed-line telephony, we focused our efforts last year on optimizing and expanding our broadband network. The number of ADSL connections sold at the end of the year amounted to 825,000 compared to 488,000 at 2006 year end, while installed connections went from 764,000 to 1,232,000 over the same period. Unbundled Local Loops in operation jumped from only 19,000 at the end of 2006 to 274,000 one year later. OTE was also able to boost ADSL access speeds and lower tariffs. The digital gap between Greece and European averages is continuously narrowing and, based on the rate of growth Greece is currently witnessing, it is expected to disappear in a few years. While at the beginning of 2007 the number of OTE local exchanges with physical collocation services was only 31, at the end of the year it had reached 146. In 2007 we focused our efforts on cost reduction. The scope in this area is limited, however, because labour laws applying to OTE decouple compensation from productivity. As I have stated several times in the past, the employment regime of OTE had been established at a time when the company was a monopoly. The deregulation of the telecommunications market requires the alignment of OTE s working standards with those of its competitors. With regard to human resources, in 2007 OTE implemented, for the second year, an evaluation system for executives as well as a new evaluation system for all other OTE personnel, both of which are based on transparency and objectivity.

25 THE OTE GROUP 27 The absorption of OTENET and the establishment of a separate General Directorate for large corporate customers were also aimed at enhancing OTE s performance and potential against tough competition. The pilot offering of IPTV services continued successfully, with a target to launch commercial operations in The potential collaboration of Hellas Sat with a major international satellite operator is being assessed. Cosmote remained the most dynamic and profitable member of the Group. Thanks to the addition of the Germanos retail network, Cosmote was able to capture a growing share of revenues and to consolidate its leadership in the mobile market of Southeast Europe. The key challenge is Cosmote Romania where the company is rapidly gaining market share in the face of tough competition. In late 2007 Romtelecom managed to contain customer churn though it is still early to judge whether this will be a permanent trend. We are encouraged by the successful take-up of the company s broadband and satellite TV offering. In 2007, revenues generated outside of Greece were 26% of the total, up from 23% in the prior year. Fixed and mobile telephony accounted for 50% and 36% of total revenues, respectively, compared to 56% and 34% in The contribution to total Group revenues from other operations, which make up the balance, was higher in 2007, reflecting the full-year consolidation of Germanos. Developments that originated in late 2007 and are being completed in the first half of 2008 are speeding up the transformation of the Group. I am referring principally to two major changes. One, which I already mentioned, is the buy out of the Cosmote minorities which is now a 100% OTE subsidiary but retains its corporate autonomy. OTE s intention to proceed with this move had been known to the market for a long time and is considered very beneficial for the prospects of the Group. The other change is that Deutsche Telekom, one of Europe s leading incumbent telecommunications operators, has become a significant shareholder in OTE alongside the Greek State. This is a very positive development, guaranteeing that OTE will continue to be managed with professionalism, unburdened by interferences irrelevant to the interests of its shareholders, employees and customers was an intense year for OTE. In the second half, management and senior executives spent a great deal of time on issues which had little to do with OTE s main business objectives. Despite this it is a sign of the Group s vigour that the hard work and diligence of all employees at all levels enabled us to meet our objectives and to build the foundations for continuing improvement. A major problem remains the reluctance of the Regulator to see that to survive in telecoms a company needs critical mass and that the Greek market is too small to support the fragmentation which EETT has encouraged for years. It is a historic mistake at the expense of all concerned and of the economy of the country. Saturation in mobile telephony and technological change are leading the big mobile companies to market products directly competitive to fixed telephony. At the same time the Regulator stops OTE from defending itself by developing similar products. We shall continue our efforts to prove that the telecom market in Greece is now fully competitive and regulatory intervention hinders its smooth functioning. Panagis Vourloumis Chairman of the Board of Directors Chief Executive Officer of OTE SA

26 WHO: IFIGENIA WHEN: TUESDAY WHERE: ATHENS

27 Ετήσιος Απολογισμός ΟΤΕ GROUP OPERATIONS

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29 WHO: ΜΙΜΙΚΑ WHEN: WEDNESDAY WHERE: ROME

30 WHO: IRENE, ΤΑΤΙΑΝΑ, IVAN, ZORA, PAVEL, ILIJA WHEN: SATURDAY WHEN: GREECE, ROMANIA, ALBANIA, SERBIA, BULGARIA, FYROM,

31 OTE GROUP OPERATIONS GREECE 33 BROADBAND SERVICES Impressive growth as a result of reduced prices and high ADSL access speeds MARKET TRENDS 2007 could be heralded as the Year of Broadband characterized by key developments in the broadband market. During the year, OTE proceeded with the launch of new, higher ADSL access speeds, reduced the tariff plan for conn-x services and focused on developing its infrastructure further by increasing ADSL points of presence in the telecommunications network. In addition, OTE introduced new types of voice services in its broadband Internet packages, aiming to respond to growing market demands for specialised bundled products. As a result, the Greek broadband market continued to grow at an impressive rate, reflecting the growth in retail broadband connections sold by OTE, in wholesale connections provided by OTE and distributed by alternative operators, and also the increase of unbundled local loop connections from alternative operators. broadband Internet, IPTV and mobile telephony with traditional voice and Internet services. They also adopted competitive pricing policies, targeted specific client categories and offered integrated solutions to companies and individuals. OTE s market share in retail ADSL remained above 50%, at the end of 2007, despite the rapid growth of Local Loop Unbundling (LLU). At the end of 2007, the number of broadband subscribers sold in Greece doubled, exceeding 1.13 million at year end. Broadband penetration levels reached 10%, thus approaching the European average. The chart displays the evolution of the sold OTE ADSL and LLU connections in Greece during the period Alternative operators expanded their products and services portfolios, adding bundled x-play packages combining voice,

32 OTE GROUP OPERATIONS GREECE % OTE ADSL and LLU Subscribers (000 lines) 310 LLU According to the World Broadband Statistics survey for 2007, published by Point Topic, Greece ranked 7th in the world amongst the countries with the fastest-growing number of broadband subscribers, with an annual increase rate of approximately 120%. 825 ΟΤΕ ADSL % 25 LLU 488 ΟΤΕ ADSL Broadband Population Penetration (Total ADSL & LLU lines) % % 7 LLU 155 ΟΤΕ ADSL % LLU 44 ΟΤΕ ADSL % 0.4%

33 OTE GROUP OPERATIONS GREECE 35 DEVELOPMENT AND PROMOTION OF BROADBAND SERVICES The joint effort of the State, through its initiatives as part of the European Information Society (EU Strategy for Information and Communication Technologies, i2010 ) and the domestic Digital Strategy and OTE (with a series of dynamic initiatives in the fields of IT and broadband Internet) in 2007, led to a rapid growth of broadband services in the country. OTE focused on launching competitive products and services and further developing its infrastructure across the country (as a means to respond to rapidly increasing demands for broadband services) through the increase of Internet access speeds and the launch of public awareness campaigns highlighting the benefits of broadband services. With regards to its infrastructure, OTE made considerable investments, during 2007, in the ADSL network (especially in rural areas) and as a result broadband services were available at the end of the year in most areas of the country. Today, about 95% of all fixed-line connections in Greece have access to broadband services. of presence throughout the country. Out of the 1.2 million ADSL ports, about 660,000 have been installed outside the Attica region. As part of its strategy to promote broadband services, OTE s initiatives in 2007 included the countrywide broadband road-show OTE on the Broadband OTE Broadband Services, aimed at raising public awareness of the benefits of broadband services (which was organised for a second year by OTE) and the conn-xperience, an application, that was set up at the OTEshops to allow customers to familiarize themselves with broadband and conn-x services. Taking part in a project organized by the National Research and Technology Network and contributing to the efforts of the State to promote broadband penetration, the company awarded more than 12,500 first-year, top university students with 500 credit towards the purchase of a portable computer combined with a six-month free Conn-X 768 Home subscription (through its OTEShop network). In addition, the company also offered free 2 Gbps Internet connection of OTE s network with the National Research and Technology network. Free conn-x subscriptions were also offered to 4,500 top university students. By the end of 2007, OTE had installed more than 1.2 million ports on the ADSL network, realizing also the target of 1,300 points ADSL Points of Presence (PoP) Installed ADSL Ports (000 Ports) Points of Presence Total Number of Ports Other Regions Attica Region Other Regions Attica Region

34 OTE GROUP OPERATIONS GREECE 36 PRODUCTS AND SERVICES In 2007, OTE enriched its broadband product conn-x with new nominal speed packages and specialized services. The company proceeded with the upgrade of 1 Mbps and 2 Mbps speeds, and offered new access speeds of 4 Mbps, 8 Mbps and 24 Mbps. Apart from faster data transfer, the new higher speeds also allow for the provision of advanced broadband services that call for greater network capacity. The conn-x talk plan (combining fast Internet connection with voice services and unlimited local and long distance calls on certain days and hours) was supplemented by the new conn-x talk 24/7 package, allowing for unlimited local and long distance calls 24 hours a day, 7 days a week. In January 2007, OTE also introduced OTE ADSL Access Speeds (Kbps) 24756/1024 the new conn-x view service that allows for remote area surveillance and entertainment by establishing user-communities for data sharing (video, images, etc). During the same year, the company offered a new value-added service VPN Class of Service (CoS) for permanent IP VPN connections, which allows for the segmentation of total connection capacity and the provision of services at different quality levels. OTE also introduced an innovative broadband e-learning service School Powered by conn-x which provides students with the opportunity to enhance their performance at school via a user-friendly interactive broadband environment. Moreover, during 2007, the company upgraded the quality of its services by underpinning pre- and post-sale customer support, achieving thereby a higher degree of customer satisfaction and loyalty for conn-x products and services. In 2008 the company anticipates the launch of IPTV services, which will facilitate the broadcast of television programs through broadband connections, enhance co-operation with content providers (that will expand consumer options) and finally allow for the development of bundled products (combining voice, fast Internet and television), as part of OTE s strategy to provide double and triple play services. 8192/ / / / / / /256 Dec 06 Dec 07

35 OTE GROUP OPERATIONS GREECE 37 PRICING POLICY Contributing to the further increase of broadband penetration levels in Greece, OTE reduced its monthly tariffs for ADSL connections and conn-x ondsl Home packages through three consecutive price cuts during 2007, representing an overall tariff reduction, for current speeds, of 30%-50%. The graph displays the price evolution of OTE broadband packages during the period Monthly Fee ( ) <1Μb 24Μb 8Μb 4Μb 2Μb 1Μb DEC. 06 JAN. 07 FEB. 07 MAR. 07 APR. 07 MAY. 07 JUNE. 07 JULY. 07 AUG. 07 SEPT. 07 OCT. 07 NOV. 07 DEC. 07 JAN. 08

36 WHO:DARIA WHEN: WEDNESDAY WHERE:CONSTANTINOPLE

37 OTE GROUP OPERATIONS GREECE 39 ΟΤΕNET Enhancing OTE Group s positioning in the broadband market 2007 is considered a milestone year with regards to the Group s broadband Internet offerings. OTE s decision to absorb its subsidiary OTENET, which enjoys a strong position in the ISP and broadband Internet markets, signals the realization of the Group s vision for a single, dynamic and competitive positioning in the broadband market. OTE Group s efficiency and competitiveness are thus significantly enhanced by this merger as this introduces a new reality for the broadband Internet operations of the parent company and also establishes a single point of contact and support for broadband Internet customers. Following the absorption of OTENET by OTE, the OTENET brand name will continue to be used for Internet services. This development allows the Group to respond effectively to technological trends and other key developments in the broadband, fixed-line and/or mobile telephony market. Technological convergence trends coupled with the demand for integrated telecommunication services through a single operator, call for the merger of competences of different companies or different divisions within a company (operating in the same field) into a single, unified and integrated instrument of strategy and services. In this context, during 2007, OTENET focused on the alignment of its operations and service practices with those of OTE. The aim was to seamlessly incorporate its portfolio of services within those of OTE and to further increase competitiveness. The company was also engaged in further developing its integrated IT and telecommunication services for businesses and focused on the consolidation of its position in the respective market. At the same time, emphasis was placed on projects that will add value to OTE in due time. These projects relate either to new products and services or changes in processes that will ultimately enhance service quality and reduce operating costs.

38 OTE GROUP OPERATIONS GREECE 40 OTENET s services, which are now part of OTE s commercial portfolio, mainly cover: Internet access services Networking and Virtual Private Network services ( IP MPLS VPN, VPDN) Integrated telecom and IT business solutions (surveillance, network management and support, equipment, systems and applications services and also procurement/ customization installation/equipment support) Application development and operation services for websites and Internet portals Data Center and systems and applications hosting services In 2008 OTENET also completed a significant number of projects for business customers as part of its integrated IT and telecommunications solutions portfolio. In 2008 OTE will focus on the implementation of all necessary procedures for the smooth completion of OTENET s absorption, fully incorporating OTENET s services in those of OTE and transfering OTENET s client base to the mother company. In 2007, OTENET s revenues amounted to mn, up 16% from the 2006 level, whereas operating income before depreciation and amortization amounted to 10 mn. As part of OTE s fixed-line commercial strategy, in 2007, ΟΤΕNET offered the following products and services: New ADSL packages with new speeds (4Mbps/256Κbps, 8Mbps/384Κbps, 16Mbps/384Κbps) New Internet access products via Leased Lines at speeds of 5, 10, 20 and 34Mbps Surveillance and management services (managed services) for IP MPLS VPN with reporting potential through specially designed web applications Pilot run of IPTV service: design of technical solution, installation and customization of technological infrastructure, customization, control, provision and technical support of television and Video On Demand services for pilot users in the Attica region. Development and operation of Internet portals, with general content, such as otenet.gr with the impressive number of visitors of more than 1 million per month, as well as Internet portals with specific content, such as travel.gr, 2x4.gr, zuper.gr.

39 WHO: KOSTAS WHEN: ΤUESDAY WHERE: PARIS

40 OTE GROUP OPERATIONS GREECE 42 TRADITIONAL FIXED-LINE SERVICES New products and services for a highly competitive market MARKET TRENDS In 2007 the telecommunications market was marked by dramatic changes. The trend but also the need for consolidation significantly altered the telecommunications landscape. Alternative operators acquired other companies and formed strategic alliances in order to establish stronger ventures that will be able to withstand competition, both at infrastructure and service level, which will also corner greater market shares in fixed-line across all types of services. to the development, promotion and distribution of products, their involvement in the fixed-line market strongly intensifies competition. With regards to sales and distribution networks, new acquisitions and co-operations emerged amongst the various operators in the market, with certain alternative operators focused on setting up their own stores and with a significant expansion of the mobile operators sales network. At the same time, infrastructure-related investments by alternative operators also grew significantly compared to the previous year, leading to a sharp rise in the number of unbundled Local Loops. During the year, new, competitive products, offering unlimited calls were introduced in the fixed-line market and the broadband market continued to grow at a fast pace (encouraged by the introduction of higher DSL connection speeds). The fixed-to-mobile substitution rate remained unchanged in 2007, since mobile operators offered products that combined fixed and mobile telephony, either by using alternative operators infrastructure or via the provision of fixed-line services through mobile GSM networks. However, given the powerful brand names and the increased capabilities of mobile operators with regards Competition in 2008 intensified through the introduction of new bundled products that combine voice, broadband Internet, IPTV and mobile telephony services. Today it is evident that the Greek fixedline market has entered a more competitive phase, characterized by the presence of stronger alternative operators, an increase of investments in Local Loop Unbundling and the introduction of new bundled products and services (double play, triple play) as a result of increased broadband penetration. OTE s strategy and response to these challenges is strongly oriented towards sustained growth, the development and launch of innovative bundled products that combine fixed telephony and broadband Internet services, as well as the optimization of sales and customer-support networks.

41 OTE GROUP OPERATIONS GREECE 43 PRODUCTS AND SERVICES In 2007, the company broadened its service offering, providing business and residential customers with new flat-rate voice plans. Three attractive ΟΤΕ talk programs were offered to residential customers: OTE Talk 24/7 for unlimited local and long-distance calls, 24 hours a day, 7 days a week, OTΕ Talk Evenings and Weekends for unlimited local and long-distance calls on weekday evenings (20:00-08:00) and weekends, and ΟΤΕ Talk 1,2,3 for unlimited local and long-distance calls to 1 and up to 3 fixed-line numbers designated by the subscriber (within ΟΤΕ s network). Moreover, the new OTE mobile service, offers customer calls from fixed to mobile numbers at a lower cost. The OTE Mobile programs follow the mobile telephony pricing model, offering pre-paid talk time for calls to domestic mobile numbers. OTE presented four new OTE mobile programs: OTE mobile 30, OTE mobile 60, OTE mobile 120 and OTE mobile 240. OTE Mobile programs may be combined with all other existing OTE plans. In order to address specialized customer needs, the company launched the Katexochin program targeting residential customers who own a country home. This specific program offers a telephone connection, which is in operation for a total period of six months (four months during the summer, one month at Christmas and one month at Easter). In 2007, OTE also added new information categories to its directory enquiries service line, Today the line provides not only fixed number directory services, but also mobile number directory services and also handles content enquiries (such as contact details of travel agencies, hotels, emergency pharmacies and hospitals, restaurants, and provides information regarding events in Athens, Thessaloniki, Patra etc.,and various types of businesses). The line has been accessible from all mobile phones since August The following products had continuing success in 2007: OTEPILOGES package, offering significantly lower rates for phone calls to selected local, long-distance and mobile numbers, as well as for international calls to selected countries Smart Fixed Telephone package, offering services such as caller identification, call-waiting, call-diversion, call completion on busy lines and an enhanced package of voic services. Pre-paid phone cards with 4 and 10 talk time (with additional free talk time of 1), the Chronokarta range of pre-paid cards with 6, 13 and 25 talk time (with additional free talk time of 0.36, 0.25 and 0.55 respectively) for domestic and international calls from any fixed-line number, OTEkarta for local, long-distance and international calls to mobile numbers from any phone, and the pre-paid talk time card ALLO OTE that offers reduced rates for calls to selected Balkan, Eastern European, Asian and African countries. The 65+ program that supports retired people over the age of 65, offering them free local and long-distance calls at no extra cost with each bimonthly bill. The Student Pack package that is aimed at University and College students offering them 4 of free time for Internet access and long-distance calls. In 2007, OTE also added the new OTEbusiness plus Advantage program to its sevice portfolio for business customers, which addresses both large corporate clients or small business customers with large call volumes, offering tiered discounts on local, longdistance and international calls. OTE SMS, a short text messaging service, was also launched in 2007, offering customers the opportunity to send and receive SMS from/to both an OTE fixed-line and mobile phone.

42 OTE GROUP OPERATIONS GREECE 44 RETAIL DISTRIBUTION NETWORK ΟΤΕ Shops OTE s retail distribution network comprises 364 stores (OTEshops) throughout Greece. Of this total, 127 have received ISO 9001:2000 certification and 19 are franchise shops. OTEshops recorded an increased number of customer visits in 2007, as evidenced by the collection of 27 million and a total of 4.35 million OTE and Cosmote bills respectively. In 2007 the company focused on the optimization of the geographical distribution of OTE shops, the upgrade of their operation and the maximization of synergies with the Germanos retail distribution network, in order to meet the needs of customers across the country. Germanos Stores OTE Group s recent acquisition of the retail distribution network Germanos (which specialises in telephony and technology-related products) with 410 stores in Greece (as at December 2007), has significantly enhanced OTE Group s distribution network and is expected to contribute considerably in the distribution of new bundled products that will be introduced in the market in the years to come. The Germanos stores recorded an increased number of customer visits in 2007 which reached 12.5 million, posting an 8% increase compared to 2006 and evidencing the appeal that the Germanos network enjoys in the market. The OTE Group remains focused on building a single, unified retail distribution network through the merging of current individual distribution networks (OTE, Germanos, Cosmote). CUSTOMER CARE Call Centers OTE s Call Centers, which operate in four key areas, comprise of 1,000 workstations and handle customer requests from all over the country. The call centers are ISO 9001:2000 certified, employ highly trained personnel and operate state-of-the-art equipment, whilst ΟΤΕ s Customer Care team (134, telemarketing, 121, 11888, OTEshop.gr) is backed by CRM applications. OTE s specialized customer-service centers include the following: 134, customer service and sales call center, comprising 4 Call Centres with 200 workstations, fitted with state-ofthe-art equipment electronic store OTELINE call center for outbound Telemarketing services 1502, call center for the issue of citizenship related certificates European emergency number , for technical fault reporting Service center for people with hearing disabilities OTEAlert center for residential and business alerts Operator service for national, international calls as well as international directory enquiries, National and international Telegrams center, 136 In relation to its customer service traffic and quality evaluation, in 2007, OTE recorded the following customer service statistics: Customer Service Centers Number of Calls/Visits Customer service and Sales Call Center > 4.9 milion calls Average 134 response time 22 sec 134 customer satisfaction rate 95.1% Online store: milion visits oteshop.gr customer satisfaction rate 91.3% The performance of OTE s Call Centers and oteshop.gr, in 2007, exceeded all expectations, as 40% of the calls led to sales of products and services, while customer satisfaction levels reached 95%. OTE s targets for 2008 with regards to its customer service include: A 20% increase in calls that are handled by the Call Centers (> 9 million inbound and outbound calls) Upgrade of technological equipment of 134 Development of Web Self Care applications on oteshop.gr Sustainability of high levels of customer satisfaction

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44 OTE GROUP OPERATIONS GREECE 46 SERVICES FOR TELECOM OPERATORS Accelerating growth rate of Local Loop Unbundling services In 2007, the market of services for telecom operators grew dramatically. This was the outcome of considerable investments in infrastructure which were implemented by OTE, boosting not only the take up of Local Loop Unbundling (LLU) and related services (Co-location and Transmission Services), but also the offering of specialized products and services from all operators. The increasing growth rate of Local Loop Unbundling intensified competition for OTE and other operators providing retail services, as well as for the rest of operators with privately owned infrastructure and alternative network services such as Ethernet, ADSL and wireless broadband access services. There are 43 fixed-line and mobile telephony providers operating within the Greek telecommunications market today, of which, 19 are interconnected with OTE s network, while another 16 operators offer services via Local Loop Unbundling. Potential mergers or acquisitions of telecom operators, the upgrade of their network infrastructure, as well as the entry of mobile operators in the fixedline market are expected to transform the market landscape even further.

45 OTE GROUP OPERATIONS GREECE 47 INTEGRATED SERVICES FOR TELECOM OPERATORS OTE develops and provides services and integrated solutions to telecom operators. Specifically, OTE offers the following services: Broadband Local Loop Unbundling Data Transmission Voice and Network Interconnection Value-added Services Aiming to enhance its service portfolio and develop new offerings, in 2007, OTE proceeded with the following: Increase of ADSL speeds up to 24 Mbps Design and development of broadband access services that address telecom operators need for infrastructure that will accommodate technology convergence and triple-play services Upgrade of the Integrated Central Connection to the ADSL Network (O.K.SY.A II service) up to 10 Gigabit Ethernet Offering of fast data-transfer services, such as IP Backbone and Metropolitan Ethernet Offering of Co-location and Local Loop Unbundling services as well as all related facilities to 152 Local Exchange Offices of OTE throughout the country Development and offering of E.L.X.I.S SDH services for the transfer of data from co-location areas to operators premises Development of capacity provision services of 622 Mbps (STM-4), 2,5 Gbps (STM-16) and 10 Gbps (STM-64), through the model of Rights of Use that refers to long-term occupancy of increased capacities, depending on the needs of the operator Activation of access to OTE s Call Centre for mobile telephony users as part of the networks interconnectivity potential Offering of new SMS services via the interconnection of OTE s network with mobile networks Offering of networks interconnection services, called Imi-Zevksis Establishment of a single Fault Report Center for all operators, operating on a 24/7 basis Planning of wholesale services upgrade, as part of the SLA provision Commercial operation of the Universal Directory Service that offers directory enquiry services on fixed and mobile numbers Publication of 19 volumes of the Integrated Telephone Directory to respond to directory enquiries for fixed-line and mobile telephony throughout the country Activation of electronic filing systems for Local Loop Unbundling, ADSL and Carrier Pre-selection requests Upgrade of the website, aiming to provide consistent information and promote OTE services Development and implementation of marketing plans to promote OTE services

46 OTE GROUP OPERATIONS GREECE 48 LOCAL LOOP UNBUNDLING (LLU) SERVICES The highly increased uptake of Local Loop Unbundling services in 2007 contributed to the faster penetration of broadband services and the rapid growth of the number of broadband subscribers, which surpassed the 1 million mark. 62% Full unbundling 38% Partial unbundling LLU (000 lines) Operators requests for access via Local Loop Unbundling increased significantly during the year. As a result, by the end of 2007, more than 232,000 loops were fully unbundled and 41,500 loops partially unbundled by OTE, compared to 12,000 and 7,000, respectively, in % Full unbundling 15% Partial unbundling 2007

47 OTE GROUP OPERATIONS GREECE 49 In 2007, demand for services relating to LLU, such as Co-location and Transmission services, also grew significantly. OTE provided Remote Co-location services in 87 local exchanges, while the number of Remote Co-location service agreements amounted to 240, compared to less than 180 in At the same time, in 2007, 508 Physical Co-location services became effective in 146 local exchanges, compared to 90 Co-location agreements made available in 31 exchanges in Physical co-location agreements ADSL FOR TELECOM OPERATORS Wholesale ADSL connections exceeded 222,000, compared to 159,000 in 2006, posting an increase of 40%. Total capacity of the Integrated Central Connection to the ADSL Network (O.K.SY.A) reached 24 Gbps, compared to 21 Gbps in WHOLESALE LEASED LINES AND DATA SERVICES The total number of leased line circuits in 2007 reached 13,400, down by 2.9% from the previous year s figure of 13,800. Of these lines, interconnection leased line circuits amounted to 7,238, compared to 7,561 at the end of Demand for high-capacity lines and Backhaul SDH and Metro Ethernet networks increased. INTERCONNECTION SERVICES With regard to interconnection services for telephone networks, alternative operators traffic volume terminating at OTE s network increased by over 5%, reaching 5.8 billion minutes in 2007, compared to less than 5.5 billion in Mobile operators traffic volume terminating at OTE s network increased by almost 6%, reaching 1.99 billion minutes in 2007, as opposed to 1.87 billion in Origination and transit traffic minutes decreased by more than 5%, reaching 6.4 billion minutes in 2007, compared to 6.8 billion in Physical co-location agreements 146 ΟΤΕ exchanges During the second half of the year, customers migration from the Carrier Pre-Selection service (CPS) to bundling services, increased considerably, along with the amount of portable geographic numbers. 31 ΟΤΕ exchanges

48 OTE GROUP OPERATIONS GREECE 50 HIGH GROWTH RATES In 2007, revenues from wholesale services increased by 32%, as presented below: Wholesale Revenues ( mn)* % % Wholesale Revenue Breakdown % Interconnection/ Roaming / Termination 27.5% Wholesale leased lines 21.9% Wholesale ADSL 9.3% LLU * Each year displays the total revenues from Interconnection/ Roaming/ Termination/ Leased Lines, Wholesale ADSL/ LLU/ Co-location

49 OTE GROUP OPERATIONS GREECE 51 QUALITY ASSURANCE FOR CUSTOMER SERVICES OTE consistently monitors the Greek telecommunications market throughout the year in order to identify market trends, record the increasing needs of customers, create individual customer profiles and enhance the overall customer service system. The implementation of the Wholesale CRM (W-CRM) system has enhanced OTE s efficiency with regards to the management and support of services, as well as the company s product offering to alternative operators. Customer service quality has greatly improved through the electronic filing, monitoring and processing of requests for Local Loop Unbundling, Co-location, ADSL connections, number portability and Carrier Pre-selection services. Focused on managing relationships with alternative operators effectively and handling their requests in the most efficient manner, OTE issues statistics and reports for ADSL, Carrier Pre-selection services and Local Loop Unbundling products, and places special emphasis on post-sale support. The capacity and data transfer market is expected to grow significantly in 2008, chiefly due to the soaring growth rate of broadband services (offered by fixed-line and mobile operators). The transition to Local Loop Unbundling services is expected to continue, as a result of operators initiatives to provide products and services based on their own infrastructure. In 2008, OTE aims to: Leverage on its infrastructure and on the implementation of new technologies Offer high quality services that respond to the needs of fixed-line and mobile telephony operators in an environment that promotes the convergence of markets Adopt a customer-oriented policy which places strong emphasis on pre- and post-sale customer service

50 OTE GROUP OPERATIONS GREECE 52 INTERNATIONAL TELEPHONY ΟΤΕ GLOBE Enhancing international telephony s network infrastructure in Southeast Europe Capitalising on its strategic location and advanced infrastructure, OTEGLOBE is considered the Group s Network-Bridge connecting the Middle East with Europe through the Balkans. The company offers integrated international wholesale telephony services in Greece and abroad, and caters for the increased demands for broadband services in the region. OTEGLOBE, which launched its commercial operations in October 2000, offers a wide range of integrated interconnection, data, capacity and voice services via its three privately owned networks: the Multiple Service International Platform MPLS/IP (MSP), and the two, super-high speed, fiber-optic networks, based on DWDM/SDH technology, GWEN and Transbalkan (TBN). The largest volume of broadband and inbound/outbound voice traffic between Southeast Europe and the rest of the world is carried through OTEGLOBE s networks. OTEGLOBE operates in a market where continuously increasing broadband penetration levels call for significant investments in infrastructure. Coupled with fierce competition, these investments inevitably bring voice, data and capacity services prices down year on year. Whilst international wholesale voice services (fixed and mobile) continue to pool most of the sales volume, the uptake of data services (mainly the global Internet Feed service) seems to be growing rapidly as well. Within this environment, OTEGLOBE enjoys the competitive advantage of owning two independent networks in Southeast Europe. This path diversity guarantees the non-stop operation of OTEGLOBE s networks, since, asides from being independent, TBN and GWEN may function as back up of one to the other. By virtue of the multi-gigabit capacity that both TBN and GWEN provide, OTEGLOBE owns the most comprehensive network infrastructure in the region. The operation of two networks allows OTEGLOBE to offer maximum network availability at an optimal price.

51 OTE GROUP OPERATIONS GREECE 53 COMMERCIAL ACTIVITIES OTEGLOBE offers a broad portfolio of innovative, world-class telecommunication services based on its networks and its strategic alliances with operators worldwide. OTEGLOBE offers three types of services: International Data Services via the International Network IP/MPLS Data/IP Services for Businesses Integrated business end-to-end interconnection solutions (International Managed Clear Channel, Frame Relay, MPLS VPN, Ethernet, Managed CPE), complemented with guarantees (SLAs) for installation time, damage repair, high quality and availability of service. Data Services for Operators Internet Transit for Carriers (for global Internet routing), GPRS Roaming Exchange (for global GPRS roaming traffic of mobile operators), Ethernet for alternative operator networks (Ethernet Transport) and business networks (Ethernet VPN). International (wholesale) capacity services for operators via private cable infrastructure Based on OTEGLOBE s GWEN and TBN fiber-optic network infrastructure, international capacity services (International Full Circuit SDH Services - IFCS) provide full international digital circuits from certain points in Greece to key telecommunication centers in Europe, such as London, Frankfurt, Paris, Amsterdam, Brussels, Milan, Zurich etc. All services available via the GWEN network include end-to-end and fully protected interconnection solutions, such as E3 / DS3, STM-1, STM-4, STM-16, STM-64 and 10 Giga Ethernet, fully protected SDH interconnection from Greece to the 11 GWEN PoPs in Western Europe or in other European cities, and Wavelength services at 10 Gpbs (STM-64/10 Giga Ethernet interfaces). International capacity services include the international leased-line service (International Private Leased Circuit - IPLC), a traditional solution for the provision of high quality capacity on a half-circuit basis, available in capacities from 64 kbps to 155 Mbps, via cables worldwide. International telephony services for international wholesale operators and Greek fixed-line and mobile telephony operators International Wholesale Hubbing One-stop shopping service that offers high-quality and low-cost routing of telephony traffic to all international destinations International Wholesale VoIP Inexpensive solutions for international IP traffic transfer International Wholesale Inbound Traffic termination, through the most extensive network in the country, for international telecommunication companies Other Voice services International Wholesale Freephone, International Wholesale Signaling and Roaming, Home Country Direct and International ISDN KEY DEVELOPMENTS IN 2007 Control of OTE s International Cable Systems 2007 was a key year for OTEGLOBE. Through a corporate spin-off and a share capital increase, OTE s International centers and Cable Systems operation was passed on to OTEGLOBE. As a result, the company now manages the total assets and agreements relating to international centers, such as the international cable infrastructure, international IP network, MSP network, license agreements for the use of the INTEC-ITU pricing system and the relevant international agreements. Through this development, OTEGLOBE has also, in essence, aligned its operations management model with that of other European operators who have adopted a similar vertical organization approach, aiming to respond to the needs of two distinct telecommunications markets, those of retail and international wholesale. In control of the international telephony infrastructure, OTEGLOBE may now transact more effectively with the Group s local and foreign competitors and manage the quality of its services more effectively. The Transbalkan Network (TBN) OTEGLOBE s Transbalkan Network (TBN), whose operation was commenced in November 2007, covers the increased demand for broadband services in the Balkan region. Transbalkan Network spans from Greece to Frankfurt through Central Europe and the Balkans, with transmission rates from 34 Mbps to 10 Gbps. It is an exclusively terrestrial network, the only one in Greece connecting the Middle East with Europe through the Balkans, following a geographical route to Western Europe which differs from that of the current, private, super-high speed network GWEN, which passes through Italy. These two distinct, super-high speed routes guarantee an unobstructed flow of services, since both networks complement each other. Through the Transbalkan Network, OTEGLOBE provides connectivity with the IP MPLS (MSP) platform and the GWEN network, high reliability,

52 OTE GROUP OPERATIONS GREECE 54 competitive prices due to the privately owned infrastructure and customer care services on a 24/7 basis. The network will be expanded with new nodes and upgraded operations, and will stay fully protected until the end of OTHER DEVELOPMENTS IN 2007 In 2007 OTEGLOBE incorporated Soft Switch NGN technology in its MPLS/IP international network, increased the backbone capacity of MPLS/IP by 75% (28 Gbps from 16 Gbps) and raised the GWEN network capacity to 80 Gbps. Aiming to continuously improve the quality of its services, OTEGLOBE introduced new management systems, such as CRM, Flexible Billing, etc. Finally, OTEGLOBE s share capital was increased by 30 mn, as part of the company s new investment plan financing OUTLOOK OTEGLOBE s targets for 2008 involve a revenues increase from alternative and international operators, as well as from domestic and foreign mobile operators (generating new sources of income for the Group), the consolidation of the company s position as a network bridge, connecting the Middle East with Europe through the Balkans, and the expansion of its strategic alliances (so as to participate in infrastructure development projects in the region and support OTE Group s business plans in the region). OTEGLOBE will also continue to pursue the maximization of its international cable infrastructure uptake. In 2008, the company will also place special emphasis on the provision of Internet Transit over Ethernet, introduce new voice services based on the new generation technology Softswitch and will target, jointly with OTE, business customers with international connection needs through the MSP platform (IP MPLS technology) that offers advanced IP services. As far as the financial performance of OTEGLOBE is concerned, 2007 was a successful year in terms of voice and data service sales. Pursuant to the recent agreement with OTE, however, and due to the absorption of OTE s International Telephony and Infrastructure segment by OTEGLOBE, 2007 figures are not comparable with those of Total revenues in 2007 reached 165 mn with revenues from voice over MPLS services, that OTEGLOBE exclusively offers, climbing to 50 mn. Operating income before depreciation and amortization amounted to 14 mn.

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54 OTE GROUP OPERATIONS GREECE 56 INVESTMENTS IN FIXED-LINE Upgrading the network and enhancing broadband and Local Loop infrastructure The rapid expansion of broadband services, along with the increased demand for network technologies that facilitate the provision of bundled services, underline the necessity of access networks transformation and the upgrade of transmission systems and backbone network architecture. The transformation of access networks poses a significant challenge for telecommunication companies. For this reason, since 2006, OTE has been upgrading and transforming its infrastructure and developing a broadband platform that will support technology convergence and allow for the provision of new bundled services. The gradual transformation of the TDM network into a Next Generation Network (NGN) along with the further expansion of broadband services, remain the key priorities of OTE s planning and investment program. Next Generation Networks are based on TISPAN IMS architecture that allows for, amongst other things, fixed-line and mobile telephony convergence. Transition to next generation networks is underlined by the need for greater bandwidth availability, as well as the need for super-high speed networks, limiting thereby or replacing copper loops with fiber optic cables.

55 OTE GROUP OPERATIONS GREECE 57 The technology and network architecture required to respond to these needs (FTTx) are part of the Next Generation Access Network s (NGA) features, making therefore the development of NGA networks a key target for the company. Specific projects, related to the transformation of the network, which were launched in 2007 include the following: Implementation of a pilot offering of IPTV and VoD (Voice on Demand) services Expansion of the Metro Ethernet infrastructure in all major Greek cities and provision of symmetric leased-line circuits through optic access points on the Metro Ethernet (Ε-Line) network Completion of the evaluation process of three pilot WiMax systems (two of which are in the Attica region) aiming to provide broadband access services in areas where cable network access is not available or requires a long connection wire that doesn t allow for sufficient speeds Preparation of a study relating to the transformation of OTE s network, especially with regards to the design of IMS-NGN architecture and Next Generation Access (NGA) issues In 2008, OTE is planning to: Install and customize IPTV services in five major cities (Athens, Thessaloniki, Patra, Larisa, Iraklio) so as to provide television, VoD and other value-added services Expand availability of Metro Ethernet and other related services, such as IP VPN Offer VoIP services over OTE s broadband networks (initially over the ADSL network), in order to provide additional fixed-line numbers to all interested ADSL customers Employ the WiΜΑΧ network for the provision of broadband services in remote areas where broadband connection via OTE s cable network is impossible Upgrade the IP backbone network by installing Terabit routers at major PoPs (Points of Presence) in Athens, Thessaloniki and Patra in order to provide broadband services. FIXED-LINE NETWORK INFRASTRUCTURE AND QUALITY OTE s fixed-line network consists of approximately 2,400 exchanges. The installed capacity of OTE s exchanges, as of 31 December 2007, stood at 5.9 million PSTN lines, 668,000 ISDN BRA lines and around 10,000 PRA lines. In 2007, network quality indicators were as follows: Fault frequency per year (per 100 connections) Unsuccessful calls rate 2.6% 1.6% Ratio of faults repaired within one working day 78.6% 85.4% Response time for voice mail services 15 sec 15 sec Response time for directory enquiries 15 sec 20 sec Fixed-line operations are also supported by data-transfer networks such as: The ΑΤΜ (HELLASTREAM) Network, a data package transfer network based on ATM technology, with 47 points of presence all over Greece. Through the ΑΤΜ network, customers are provided with Cell Relay circuits at 2 Mbps-155 Mbps and Frame Relay up to 2 Mbps. The ATM network also carries broadband traffic from ATM DSLAMs. The Digital Leased-Lines Network (HELLASCOM Service), with 12,608 nodes installed, serves 15,886 active circuits. This network provides digital leased circuits of nx64 Kbps up to 2 Mbps. IP ACCESS The ΙΡ Access Network consists of 82 points of presence across the country and supports services such as: IP VPNs, IP Transit, VoIP VPNs, Central Connection to the ADSL Network (O.K.SY.A) and Dial-Up Internet access. Aiming to ensure the efficient operation of the ADSL network in 2006, the network was supported with BRAS technology and, as a result, points of presence climbed from 12 to 15. The number of systems that correspond to these PoPs grew from 30 to 37. IP BACKBONE OTE s IP Backbone Network consists of 7 points of presence within and outside Athens. Network nodes are connected via nx10 Gbps, 2.5 Gbps or nx622 Mbps circuits. The network supports all broadband and IP services offered by OTE.

56 OTE GROUP OPERATIONS GREECE 58 ΙP-NGN NETWORK A total of 43 points of presence are equipped with IP-NGN infrastructure with Media Gateways and also one Softswitch and eight Sip Servers. IP-NGN equipment currently supports the provision of VoIP services as part of the state-sponsored SYZEFXIS project. ETHERNET By December 31, 2007, the Metro Ethernet network had 209 points of presence throughout the country compared to 87 in Metro Ethernet offers broadband Internet and leased-line (E-Line) services. Key network features include high voice, data and image transfer capabilities, high data transfer speeds (up to 10 Gbps) and high network availability. WIRELESS ACCESS By the end of the year, there were 167 wireless multi-point narrow band systems (Point-to-MultiPoint) installed in the 1.5 GHz, 2.5 GHz and 3.5 GHz bands. In 2008, three pilot WiMAX systems are expected to become fully operational, offering broadband data (Internet, VPN) and voice (VoIP) services. In addition, there are plans for 20 new WiMAX systems to be installed throughout the country. The provision of Metro Ethernet services as an integrated product started in May Indicative products and services based on IP and Ethernet include: IP VPNs IP Transit VoIP VPNs E-Line (Layer 2 VPNs) Integrated Central ADSL Connection Dial-Up Internet Access ADSL In 2007, OTE reinforced its presence in the ADSL market, raising the number of installed ADSL ports from 760,000 at the end of 2006, to 1.1 million in The service is now available countrywide, with 1,300 points of presence and more than 3,300 DSLAMs, covering areas with less than 500 telephone connections. Broadband Internet services and VoIP services (as of the beginning of 2008 and onwards) are provided through DSLAMs. IPTV services will also be available in 2008, through Ethernet DSLAMS. LOCAL LOOP By the end of 2007, there were 274,000 local loops, compared to 19,000 in 2006, fully or partially unbundled as well as 146 physical Co-locations in OTE s local exchanges and 87 remote Co-locations.

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60 OTE GROUP OPERATIONS GREECE 62 REGULATORY FRAMEWORK Intense regulatory activity as part of the implementation of electronic communications regulation REGULATORY FRAMEWORK Law 3431/2006 defines the regulatory framework for electronic communications and networks in Greece, as well as the operation and responsibilities of the National Regulatory Authority (Hellenic Telecommunications and Post Commission EETT). Policy-making procedures, implemented by EETT for market protection, expansion and increasing competition levels include conducting hearings and consultations, regulatory and restraining measures and fines. REGULATORY MARKET DEVELOPMENTS IN 2007 Key developments in the telecommunications market in 2007 include the increased alternative operator activity with regards to voice and broadband infrastructure, via the Local Loop, as well as the launch of fixed-line service offerings by mobile operators. During the year, mobile telephony operators entered the fixedline market, offering competitive bundled products that combine fixed-line, mobile and/or broadband access services. These product offerings do not imply technological convergence. They are in fact based on the utilization of OTE s mobile telephony network and wholesale products, such as Local Loop Unbundling, Carrier Pre-selection, etc., for the provision of bundled services. This has led to stronger competition from operators that are not newcomers in the market. At the same time, traditional alternative fixed-line operators gained access to 152 physical co-location areas that cover 85% of OTE s local exchanges, and increased their market share significantly through product offerings to OTE s subscribers. EETT amended the relevant Reference Offer in 2008, thus raising standards with regards to OTE s infrastructure and wholesale services. OTE s viewpoint is that a fully competitive market, consisting of companies keen to invest in their infrastructure, has a positive effect on consumers as well as companies that operate in the market. Further more, OTE consistently responds to the

61 OTE GROUP OPERATIONS GREECE 63 obligations and requirements set by the regulatory authorities and State institutions, regarding customers and alternative providers. Nevertheless, current developments are shaping a competitive environment that little resembles that of the early years of deregulation, stirring up discussions on the status of the existing regulatory framework, Its capacity to adapt to the latest trends, and thus underlining the necessity for regulatory certainty, legal security and consumer rights protection. On this basis, OTE aims to put forward and defend its standpoint (before regulatory authorities, national, European and international bodies) on issues that refer to the following: Enhancement of the company s competitive position through the reduction of regulatory obligations in markets where the desired level of competition appears to have been achieved Protecting new technology investments against excessive regulation or regulatory interference Compliance with the obligations relating to OTE s status as Universal Service provider and intention to minimise costs incurred by these obligations Assurance of consistency in regulatory intervention Protection of consumer rights Assurance of personal data and communications confidentiality REGULATORY ISSUES IN 2007 The main regulatory issues with which the company was involved in 2007 were the revision and approval of OTE s Reference Offer for Local Loop Unbundling and all relevant issues (co-location etc.), issues relating to wholesale broadband access, the revision of the Reference Interconnection Offer (RIO), the approval of various tariff plans by EETT and finally the undermined consumer confidence incurred by certain alternative operator promotional practices. Furthermore, during 2007, OTE provided input in the following EETT consultations: Public consultation for the provision of Universal Service obligation Public consultation for the quality indicators of electronic communication services Public consultation for the terms of General Licenses that govern the provision of voice services, VoIP and/or Voice-over-Internet Services, web access services and consumer protection issues Public consultation to set the tariffs for wholesale broadband access, etc. 2008: CHALLENGES The key regulatory issues on OTE s strategic agenda for 2008 include the protection of company s investments in new technologies (such as Next Generation Access Networks) against excessive regulation or interference, the review of European Commission s proposal on the amendment of the European Framework by means of introducing functional separation as a regulatory remedy. OTE also monitors Greek State s initiatives with regards to the future Fiber Τo Τhe Home (FTTH) project, which is part of the State s strategic plan to develop broadband infrastructure. Finally, OTE will also be aiming for a reduction of its regulatory obligations in markets where the desired level of competition appears to have been reached. The company also followed closely all regulatory developments at a European level, regarding the development of Next Generation Access networks and the relevant implications for the regulatory environment, as well as European Commission s proposal on the amendment of the European Framework, regulatory interventions and their effect. OTE has proposed amendments to EU s proposal concerning the new regulatory framework.

62 OTE GROUP OPERATIONS GREECE 64 HUMAN RESOURCES Building an integrated system for the development and management of human resources 2006 VOLUNTARY RETIREMENT PROGRAM: REVIEW On the basis of the Voluntary Retirement Program, which was completed in 2006, 4,759 employees decided to leave the company (699 in 2005 and 4,060 in 2006). The program s total cash cost has been allocated in the fiscal years In 2007, the cost related to pension fund contributions and benefits for retiring employees amounted to mn, while payroll savings (including an annual 4% raise) reached mn. The qualitative impact of the plan s execution involves a drop in the average age of OTE employees, the potential ability to identify and recruit new talents, and the ability to restructure the company. SIGNIFICANT HEADCOUNT REDUCTION In 2007, OTE s headcount declined by 3.5% compared to 2006, reaching 11,348 employees. This staff reduction reflects the normal retirement of 161 employees and the early retirement of 487 employees through an employee exit plan with Incentives, which was enacted in February. Following the completion of the 2006 Voluntary Retirement Program and the recruitment of 241 new employees, the average age of OTE s employees dropped to 45 years. The age mix of OTE employees, in 2007, was as follows: OTE Employees OTE Employees Age Mix ,741 56% age ,755 11,348 29% age 15% age

63 OTE GROUP OPERATIONS GREECE 65 The 241 new employees, who were recruited in 2007 enhanced company competences in the areas of technology and IT, management and finance. The following graph depicts the distribution of OTE employees at the end of 2007 per function: OTE Employees per Function % Technical INTERNAL PERSONNEL REGULATION OTE s latest Internal Personnel Regulation, allows company s management to adopt and implement an integrated Human Resources (HR) Management and Development Program, improving thereby company s operational performance in a highly competitive and constantly changing market environment. As a result of the implementation of the revised Internal Personnel Regulation, the company was given the opportunity to renew its workforce, via the recruitment of highly trained and experienced new employees, either from within the companies of the Group or directly from the market, and simplify or rationalize its recruitment and evaluation processes. 29% Commercial-Administrative COMPANY S POLICY REGARDING DISPARATE EMPLOYEE CATEGORIES All OTE employees, including those seconded from subsidiaries, fall under the same performance evaluation and reward system, as well as to the same regulations regarding working hours, job rotation and promotions, irrespective of the years of employment with the company. 10% Other 6% Finance Furthermore, following the completion of OTENET s absorption by OTE, the 400 OTENET employees will be incorporated in OTE s organizational structure, in accordance with applicable legislation (the process is expected to be completed within 2008). These employees will continue to be subject to the same regulatory and payroll provisions which already apply for them. They will however be incorporated in the evaluation and reward system that applies for existing OTE employees. In addition, they will be eligible for promotions to senior positions under the same terms and conditions that apply for OTE s employees. MANAGEMENT OF HUMAN RESOURCES The administration of human resources is being implemented via the application of various IT solutions. Notwithstanding, the new Internal Personnel Regulation, as well as the existence of several different payroll systems (depending on the years of employment, academic qualifications and type of employment contract) require an integrated IT solution. In 2007, OTE commissioned a new Human Resources Management software to replace all existing solutions and ensure optimal results.

64 OTE GROUP OPERATIONS GREECE OVERVIEW Key projects carried out by the OTE Human Resources Department in 2007 include: Codification of the new Internal Personnel Regulation Implementation of an early retirement program for 487 employees Induction of OTENET employees into OTE s workforce Implementation of a stock option plan for executives Implementation of a benefits plan for employees with more than two children Preparation and implementation of an evaluation program for non-executive staff members Revision of the company s organizational chart Development and application of «Environmental Management System» (ISO 14001) and «Health and Security at Work» (ELOT 1801) systems in business functions, and expansion of the Quality Management System (ISO 9001) for OTEshops, in particular applied to 11 new stores, now reaching 127 Launch of implementation of the OTE-BPM project which refers to the provision of development services for OTE s Business Practise Framework, Ownership Model, and Methodological Development and Management of Business Practice Framework Completion of the digitalization of all company circulars and of their web upload In 2008 the company will also focus on the following: Identification of personnel needs, pursuant to new job descriptions Procurement of new software for Human Resources Management and Development Completion of OTENET s personnel induction into OTE s workforce Design and development of Integrated Management Systems (ISO 9001, ISO 14001, ELOT 1801) across company divisions Company Bylaws update DEVELOPMENT OF HUMAN RESOURCES The demanding and highly competitive environment in which OTE operates presupposes the adoption and implementation of a comprehensive human resources development program. This program ought to be customized and also address the special features of each position in the company. On this basis, one of the key projects for 2008 involves the identification of job tasks and operations per business function, based on the new job descriptions and their classification into job families. This project will set the foundations for the development of Human Resources Management Systems that will involve: 1. Professional development and career advancement opportunities 2. Compensation, benefits and incentives for employees 3. Training, specialization and personnel s optimal management EVALUATION SYSTEM In 2007, the company implemented a new personnel evaluation system for non-executive staff, aiming to motivate and reward employees. The new system aims to evaluate employee skills based on individual performance, their efficiency, dedication and performance with regards to task completion and target realization. A key breakthrough in this system involves the interactive feature of an interview that is held between the appraiser and the employee that is being evaluated. The interviewer, evaluates the performance of the employee during a given period in time, identifies the employee skills that need to be further developed and then thoroughly presents and justifies his/her viewpoint and evaluation summary to the interviewee. The new evaluation system aims to: Upgrade the role of the employee in the evaluation process by promoting active participation and the exercise of selfawareness on the part of the emloyee Enhance the transparency of the evaluation process Ensure fair rewarding Motivate professional development and excellence Identify training needs Moreover, the new evaluation system endorses the applicable job rotation policy of the company and therefore prepares employees for a change either in tasks or position.

65 OTE GROUP OPERATIONS GREECE 67 COMPENSATION POLICY OTE s compensation policy and more specifically the rewarding system, was implemented for the first time in 2007 in line with the target-setting, evaluation and personnel rewarding system, which is defined by a regulated process based on fair distribution. Reward in the form of bonuses may be granted by the management team to employees, in cases when performance and task realization exceed predetermined targets. PERSONNEL TRAINING OTE s active contribution to the technologically advanced and constantly evolving telecommunications setting underlines the importance of life-long training and professional development of its employees. As a result, OTE s foremost objective is to provide access to new training opportunities that will ensure successful careers and personal development for all employees. The realization of this important goal has been assigned to OTEAcademy (further information on page 116) In 2007, 6,800 ΟΤΕ Group employees (almost double compared to 3,500 employees in 2006) attended training seminars in the fields of: Telecommunication Technologies IT Customer Service Sales Human Resources Development Regulatory Issues Finance During the year, 830 employees holding executive positions attended training seminars on the implementation of the company s evaluation system. Employee participation in training programs organized either by OTE or by professional development institutions, has increased over the past two years. The collaboration between OTE s Human Resources Department and OTEAcademy (a company of the Group, responsible for the organisation of professional development programs) has resulted in the development of educational seminars that open the doors to new and specialized fields of expertise. Upon completion of the training programs, trainees are awarded vocational qualification certificates. The topics that are covered in the seminars vary, depending on the training needs derive from the company s goal-setting system and employee requests and recommendations. Overall, OTEAcademy seminars respond to the training needs arising from the rapid developments in the telecommunications market and reflect OTE s momentum for excellence in business practices.

66 OTE GROUP OPERATIONS GREECE 68 CORPORATE RESPONSIBILITY Building Ties Corporate Responsibility is an integral part of OTE s corporate strategy and business operations. The company is committed to optimising and building upon its Building Ties CR program that entails OTE s social participation and responsibility towards society, the environment, the marketplace and the employees of the Group, placing emphasis on OTE s key operations, telephony and broadband services. During 2007, OTE s Building Ties Corporate Responsibility program reflected OTE Group s strategy, which endorses the development of a dynamic, socially responsible and financially robust business model in all of OTE Group s countries of operation. The development of the program is based on international standards. The strategic directions of the program as well as the practices of the company resulted in OTE program s rating C, according to the Global Reporting Initiative for Social and Environmental Reports (GRI) and the Sustainability Reporting Guidelines. In 2007, as part of the Building Ties program, OTE implemented numerous projects with regards to the marketplace, employees, society and the environment. BUILDING TIES WITH THE MARKETPLACE The company responds to market trends and challenges through the optimal management of its infrastructure and technological competence, aiming to provide best-of-class products and services. With broadband promotion as key objective: 900 mn was invested in networks and broadband service infrastructure, in the years ,000 visitors in 33 major cities became familiar with broadband technology and services via the OTE on the Broadband road-show, that concluded its countrywide tour in 2007 Top students are provided with free broadband connection Specialized products and services are offered to people with physical disabilities (customized telephone equipment, customer service for people with hearing disabilities, card phones for people with physical disabilities) BUILDING TIES WITH SOCIETY Throughout its business operations, the company reinforces its role as social partner, supporting people in need, endorsing research and development and upholding the country s cultural heritage.

67 OTE GROUP OPERATIONS GREECE 69 Within this context, OTE : Supports, during the last ten years, the helpline Children SOS 1056, of The Child s Smile organization, offering telecommunications services and covering its operating costs Raised more than 1,800 units of blood, in 2007, from 3,000 employees through its Voluntary Blood Donation program Supported financially 2,500 students, in 2007, through its employment programs in Athens, Thessaloniki, Patra and Iraklio Welcomed more than 12,000 visitors, in 2007, at OTE s Telecommunications Museum, the only one operating in Greece since 1990 Moreover, the 54 OTE Employees Culture Centres across the country organise cultural and entertainment activities, addressing more than 20,000 active members of the OTE Group. The company also offers to almost 47,000 members of the Organisation of OTE Employees Holiday Resorts Centers affordable vacations in two resorts and various other lodgings. A full account of OTE s corporate responsibility activities is provided in the 2007 Corporate Responsibility Annual Report. BUILDING TIES WITH THE ENVIRONMENT As part of the company s commitment to environmental protection and the reduction of energy consumption, OTE is strongly geared towards the reduction of energy consumption levels, recycles used materials, opts for recyclable materials and supports Environmental NGOs (Non Governmental Organizations). In 2007, the company: Recycled 280 tons of paper in the Attica region alone Placed recycling bins for telecommunication devices and batteries in 100 OTEShops. About 20 tons of telecommunication devices were collected in the Attica region and more than 3.3 tons of batteries throughout Since 1994, 197 photovoltaic systems are operative, powering telecommunications facilities in rural areas. The company also transports 1,000 employees, daily, to and from OTE s Headquarters via 22 coaches in order to help reduce the air pollution in Athens. BUILDING TIES WITH EMPLOYEES Placing special emphasis on team building and cooperation amongst its workforce and fostering life-long professional development for its employees, the company adopts and implements an equal opportunities policy and provides its employees with considerable benefits and opportunities. Along these lines, in 2007: 147,398 hours of professional training for OTE employees were carried out by OTE Academy 761 employees received financial support via the company s Mutual Aid Fund

68 WHO: RANIA WHEN: TUESDAY WHERE: LAMIA

69 WHO: SOTIRIS WHEN: SATURDAY WHERE:KALYMNO

70 OTE GROUP OPERATIONS GREECE 72 CORPORATE GOVERNANCE Working to ensure an effective framework of Corporate Governance The OECD defines the following as key principles and best practices of corporate governance: Ensuring the basis for an effective corporate governance framework Protection of shareholders rights Equal treatment of all shareholders Acknowledgement of the role of stakeholders Acknowledgement of the role of the Board of Directors PRINCIPLES AND FRAMEWORK OF CORPORATE GOVERNANCE Τhe term Corporate governance refers to the system whereby companies are managed and controlled. The distinction between ownership and management, which is standard practice in most traded companies, stresses the need to focus on corporate governance issues. Corporate governance therefore, involves issues such as the relationship between the Management (of a company) and shareholders, the rights and equal treatment of all shareholders, transparency and information disclosure and finally, the operation of Company s Board of Directors. Corporate governance refers to a number of principles adopted by a company, aiming to uphold its performance and the interests of its shareholders and all stakeholders. A corporate governance system refers to the interactions between company s Management team, the Board of Directors, its shareholders and all stakeholders involved in the company s operations. Such a system contributes to the setting of specific company targets, the identification of all necessary actions for the realization of these targets and enhances the review process of end results. Recognizing the importance of corporate governance principles and the benefits derived from their adoption, OTE follows international practice and standards in this area and opts for the systematic implementation of these principles throughout its operations. More precisely, as a large capitalization company, listed on the Athens, New York and London Stock Exchanges, OTE complies with applicable domestic and international corporate governance legislation, incorporating regulations and compliance practices within its operations. At the same time, aiming to uphold transparency, efficient management and optimal operational performance, OTE follows practices which are not required by law but allow for company s adherence to best practices. Key Indicative and Decisions which touch on corporate governance issues, in Greece and abroad, are: Law 2190/1920, as amended by Law 3604/2007 Law 3016/2002 on Corporate Governance, as amended by Law 3091/2002 and Law 3340/2005 Decision 5/204/2005 of the Hellenic Capital Market Commission, as amended by Decision 7/372/2006 of the Hellenic Capital Market Commission Law 3556/2007 on Transparency US legislation concerning Corporate Governance, including the 2002 Sarbanes-Oxley Act, and the US Securities and Exchange Commission regulations All relevant provisions and practices are incorporated in the company s Articles of Incorporation, Internal Operations Regulation, the Code of Business Conduct and Ethics, the Internal Personnel Regulation and other company by-laws regulating its operations. CORPORATE GOVERNANCE PRACTICES IN OTE The fundamental principles of OTE s corporate governance system involve the assurance of transparency and effective control of management procedures, the two-way communication between company stakeholders and company s Management as well as the assurance of operational efficiency. The principles of corporate governance, which are embraced by both employees and Management, define all stakeholder relations.

71 OTE GROUP OPERATIONS GREECE 73 OTE applies corporate governance regulations and practices on the basis of three key priorities which include the definition of the role of the Board of Directors and executive members, the protection of shareholder rights, and the enhancement of transparency and information disclosure. BOARD OF DIRECTORS, MANAGEMENT TEAM AND CONTROL 1. Board of Directors The Board of Directors is the top administrative body of the company. Its aim is to safeguard the general interests of the company and ensure its operational efficiency. Board of Directors, Management team and Control The participation of non executive and independent members in the Board of Directors enhances the protection of shareholder rights, while the Audit Committee and the Compensation and Human Resources Committee monitor the decisions and actions of the management team effectively. Protection of Shareholder Rights Minority rights and all shareholder rights are upheld via the implementation of the one share-one vote principle, the transparent and effective operation of the General Assembly of Shareholders and the equal treatment of all stakeholders. Transparency and Information Disclosure The accuracy of financial statements and the timely disclosure of any corporate information, through press releases and electronic media communication (corporate website and investor relations website), guarantee the timely and fair information dissemination of to all stakeholders, on a continuous basis. As part of its responsibilities, OTE s Board of Directors: Convenes Ordinary or Extraordinary General Assemblies of Shareholders and proposes on their agenda Prepares and approves company s annual financial statements and submits them to the General Assembly of Shareholders Approves company s strategy and decides upon the establishment of subsidiaries or upon the company s participation in other companies (domestic or international) share capital Decides upon share capital increases through the issue of new shares and convertible bonds, pursuant to authorisation granted by the General Assembly Decides upon the issue of common convertible or exchangeable bonds. The Board of Directors may choose to transfer its authority and competence to its members, or to other company executives, third parties or Committees. THE ROLE OF THE BOARD OF DIRECTORS AND THE MANAGEMENT TEAM TRANSPARENCY AND INFORMATION DISCLOSURE PROTECTION OF SHAREHOLDERS RIGHTS The Board of Directors holds an inaugural meeting after each new election of its members by the General Assembly of Shareholders, or whenever the positions of Chairman, Managing Director or Vice-Chairman have been made vacant. The Board consists of nine or eleven members, which may be shareholders of the company or not and which are elected for a three-year term. One-third of the members of the Board are renewed each year. The Board of Directors is eligible for re-election and their office may be terminated at any time, following resolution by the General Assembly of Shareholders. Since June 2004, OTE s Board of Directors consists of eleven members. These members are executive or non-executive, of which, two at least are independent. The members of the Board of Directors are elected by the General Assembly of Shareholders, which also appoints the independent members. In 2007, the Board of Directors consisted of one executive member and ten non-executive members, of which four were independent. The Board of Directors convenes whenever necessary or pursuant to a request submitted to its Chairman by at least two members. The Board is in quorum and convenes validly when half-plus-one of its members are present and decisions are reached by absolute majority. In 2007, the Board of Directors met 31 times.

72 OTE GROUP OPERATIONS GREECE 74 Recognizing the important role of the Board of Directors independent members, the company has established a specific procedure whereby the incompatibility of independent, non-executive members is examined and controlled. This procedure ensures, on the one hand, the compliance of the company with applicable legislation (Law 3016/2002, as currently in force), as well as the credibility and integrity of independent, non executive members during the course of their office term. In 2007, ΟΤΕ s Board of Directors consisted of the following members: NAME CAPACITY COMMENCEMENT TERMINATION OF OFFICE OF OFFICE Panagis Vourloumis Chairman and Managing Director (most recent) 21/6/2010 / Executive Member Iakovos Georganas Vice-Chairman / Non Executive Member /6/2008 Georgios Bitros Non Executive Member /6/2009 Charalambos Dimitriou Non Executive Member /6/2009 Georgios Gerapetritis Independent, Non Executive Member /6/2008 Ilias Gounaris Non Executive Member /6/2010 Xeni Skorini-Paparrigopoulou Independent, Non Executive Member /6/2009 Nikolaos Stefanou Non Executive Member /6/2010 Panagiotis Tabourlos Independent, Non Executive Member /6/2010 Georgios Tzovlas Independent, Non Executive Member /6/2010 Theodoros Veniamis Non-Executive Member /6/ Board of Directors Committees Α. Audit Committee In April 1999, OTE s management established an Audit Committee. According to its Regulation, the Audit Committee is comprised of three independent non-executive members of the Board of Directors, of which, at least one is an economics expert. One of the members is appointed as Chairman. The role of the Committee is to supervise company s Internal Auditors and to assist OTE s Board of Directors with its overseeing responsibilities by monitoring the financial information published by the company, its audit systems, as well as the evaluation and coordination of the auditing process and control procedures, in compliance with applicable legislation. The Audit Committee aims to support the company s Board of Directors during the exercise of its supervising role and its attempt to fulfil its obligations towards shareholders, the investment community and third parties, especially with regards to the financial reporting process. In 2007, the Audit Committee dealt with all issues, provided in its Regulation, including, amongst others: The approval and monitoring of the company s Internal Audit activities The assessment of accuracy and consistency of Financial Statements The assurance of Chartered Auditors independence The recruitment of employees for Internal Audit Services The Audit Committee holds four ordinary meetings each year (following the preparation of quarterly financial statements and prior to their publication). The committee may also convene in extraordinary sessions whenever this is deemed necessary. The Audit Committee meets quorum requirements and lawfully convenes when its Chairman and one more member are present. In the event that such quorum exists, the third member may be represented by the Chairman or the Audit Committee member that is present. Resolutions of the Audit Committee are adopted upon an absolute majority of the total number of its members. Since June 2006, the Audit Committee consists of the following members: Panagiotis Tabourlos (Chairman), Xeni Skorini-Paparrigopoulou and Georgios Tzovlas. Β. Compensation and Human Resources Committee OTE s Board of Directors established the Compensation and Human Resources Committee in This Committee is appointed by the company s Board of Directors and consists of a minimum of three members, at least two of which are non executive. The Chairman of the Committee is also appointed by the Board of Directors. The Committee s main duties, as described in its Regulation, are the following: Setting of the principles of the company s human resources policy that will guide the decisions and actions of the Management Definition of the company s compensation and remuneration policy

73 OTE GROUP OPERATIONS GREECE 75 Approval of the compensation, benefits plans, stock option plans and reward plans for target achievement Proposal, to the Board of Directors, on the remuneration and benefits of the Managing Director Study and processing of human resources issues Setting of the principles of Corporate Social Responsibility policies. The Compensation and Human Resources Committee proposes issues, relative to its responsibilities, to the Board of Directors and the Board of Directors either approves them or proposes them to the General Assembly of Shareholders, whenever decisions ought to be made by the General Assembly of Shareholders. Along these lines, in 2007, the Compensation and Human Resources Committee was involved with the following issues: Adoption of stock option plan for OTE executive directors and for executive directors of its affiliated companies, in accordance with article 42e of the new Law 2190/1920 and article 13 par. 9 of new Law 2190/1920 Determination of the Chairman and CEO s special premium based on performance for 2006 and his remuneration for 2007, as well as the remuneration of the Board of Directors, Audit Committee and of the Compensation and Human Resources Committee members for The Committee meets at least twice a year and reports directly to the Board of Directors. Since June 2005, the Compensation and Human Resources Committee consists of the following members: Iakovos Georganas (Chairman), Georgios Gerapetritis and Ilias Gounaris. 3. Internal Audit The Internal Audit unit assists the company s Management with the decision making process, regarding the optimization of the various applicable auditing mechanisms. These auditing mechanisms aim to ensure the efficiency of all operations and activities, set by the company s business plans. Specifically, as part of its responsibilities the Internal Audit unit: Examines and evaluates the company s auditing systems and procedures Performs systems and procedures audit controls and assessment and compliance audits Identifies risks and suggests relevant solutions to the Board of Directors Focuses on and engages in the consistent development and operation of Internal Audit units across the companies of the Group Identifies and investigates telecommunications fraud cases Examines and evaluates the capabilities, the operation as well as the efficiency of applicable security measures in the company s IT and telecommunications systems The proper conduct of the Internal Audit unit is ensured by the fact that the Internal Audit is an independent business unit which reports directly to the Board of Directors, is supervised by the Audit Committee and operates within a strict framework of methodology and business ethics. 4. External Audit The company s regular audit is carried out by chartered auditors. To this end, the General Assembly of Shareholders approves every year the appointment of a company or consortium of auditors for the audit of the company s accounting and management position over a specified term. OTE s General Assembly of Shareholders in June 2007, approved the appointment of the company KPMG Kyriakou Chartered Accountants S.A. as chartered auditors of OTE for the fiscal year 2007 and assigned them with the audit of the company s financial statements for 2007 in accordance with the International Financial Reporting Standards (IFRS). Their fee, which was also approved by OTE s General Assembly of Shareholders in June 2007, was set at 450, Code of Ethics and Business Conduct The Code of Ethics and Business Conduct includes a set of rules and practices which contribute to the smooth operation of the company as well as to the proper business conduct of employees. The Code abides by applicable legislation and mainly refers to issues that define company s relations with employees, suppliers, shareholders, competitors and other external audiences. 6. Internal Operations Regulation OTE s Internal Operations Regulation -covers issues that relate to the company s decision-making bodies (and their responsibilities), the company s organizational structure, the recruitment and evaluation of executives, the internal committees and regulatory frameworks, as well as to the provisions for transactions between liable individuals or between affiliated companies.

74 OTE GROUP OPERATIONS GREECE Management Members Α. Managing Director The Managing Director is the company s chief executive officer and heads all the departments of the company. The Managing Director defines the daily agenda to be discussed at the Board of Director s meetings, presides over these meetings and administrates their operations. The Managing Director is elected by the Board of Directors during its inaugural meeting. The Managing Director mainly: Participates, represents and binds the company in all General Assemblies of Shareholders of the affiliated companies Decides upon and executes agreements of an object, up to the amount specified by resolution of the Board of Directors Decide upon the company s internal organization and takes all necessary measures for the development and optimal management of the company s human resources, and the realization of the company s objectives Represents and binds the company in all the issues related to the negotiation and conclusion of operational collective labour conventions Represents the company before all authorities Aiming to ensure the effective management and operation of the company, the company s articles of Incorporation prohibits the members of the Board of Directors and their relatives (up to 2nd degree), executive directors and their relatives (up to the 2nd degree) and the company s personnel in general from: Effecting, either on separate occasions or on a professional basis, any commercial activities similar to the objects of the company, for their own account or on behalf of third parties without the consent of the General Assembly of Shareholders Being members of the Board of Directors, senior managers, employees, or agents of companies having objects similar to those of the company Participating in the capacity of partner or holding a substantial interest in the share capital of another company, having similar objects to those of the company Β. Management Team In 2007, OTE s management team consisted of: NAME POSITION Panagis Vourloumis Iordanis Aivazis Ilias Drakopoulos (since 20/12/2007) Athanassia Evans (until 20/12/2007) Maria Efthimerou Konstantinos Kappos Andreas Karageorgos Christos Katsaounis Kosmas Liaros Paraskevas Passias Konstantinos Ploumbis Panos Sarantopoulos (since 20/12/2007) Christini Spanoudaki Nikolaos Tsatsanis Chairman and Managing Director Chief Operating Officer Chief Commercial Officer for Corporate and Business Customers Chief Commercial Officer for Business and Residential Customers Chief Technology Officer Chief Information Officer Chief Regional Officer Chief Officer of National Wholesale Services Chief Internal Audit Officer General Counsel Chief Regulatory Officer Chief Commercial Officer for Residential Customers Chief Financial Officer Chief Human Resources Officer

75 OTE GROUP OPERATIONS GREECE Stock-Option Plan for Company Executives On April 3, 2007, and following the relevant resolution of the Extraordinary General Assembly of Shareholders the company adopted a stock option plan based on performance criteria for its executive directors and the directors of affiliated companies (as per Article 42e of new Law 2190/1920). Request the audit of the company by the appropriate court (having jurisdiction in the region where the company has its registered offices) in cases when it appears likely that the management of the company affairs was not conducted in a manner compatible with ethical and sound management principles The plan aims to reward but also to commit executive directors to contribute to the company s operational performance through the creation of value for the company and its shareholders. It is a long-term plan and is linked directly to the performance indicators of the 3-year business plan of the company. Amongst other things, the plan encourages the participation of executive directors of subsidiaries in the implementation of OTE s strategy. SHAREHOLDERS 1. Shareholders Rights Α. Minority Rights According to the company s Articles of Incorporation and Law 2190/1920 as this was amended by Law 3604/2007, minority shareholders have the right (depending on the case) to: Request from the Board of Directors to convene an Extraordinary General Assembly of Shareholders, setting precisely the items of its agenda Request the inclusion of additional items in the agenda of a General Assembly of Shareholders that has already convened, provided that this request takes place within the time restrictions set by Law Request, from the Chairman of the General Assembly of Shareholders, only once, to defer a resolution and set the date of its adjournment. Request, in view of a General Assembly of Shareholders, information on company matters and its business assets. Provided this request takes place within the time restrictions set by the Law, the company s Board of Directors is obliged to provide this information (with the exception of certain instances specified by Law) Request the adoption of a resolution to be effected on a name-by-name basis. Request the audit of the company by the appropriate court (having jurisdiction in the region where the company has its registered offices) in cases when it is considered likely that the provisions of law or of the company s Articles of Incorporation or of the resolutions of the General Meeting of Shareholders have been violated Β. Allocation of Profits According to the company s Articles of Incorporation, allocation of profits is preceded by the withholding of the amount necessary for ordinary capital reserve. Such withholding is no longer mandatory by way of law, when the capital reserve is equal to at least 1/3 of the paid-in share capital. The minimum permissible limit of the dividend is set at the greatest of 6% of the company s share capital or 35% of net profits. The Articles of Incorporation allow for the General Assembly of Shareholders to decide to allocate the remaining profits at its own discretion. C. Payment of Dividend The shareholders participate in the net profits of the company upon approval of the annual financial statements by the General Meeting of Shareholders. The amount approved to be allocated is paid to shareholders according to the Athens Stock Exchange regulation which is each time in force. 2. General Assembly Of Shareholders According to Law 2190/1920, as currently in force, and the company s Articles of Incorporation, the General Assembly of Shareholders is the foremost body of the company and has the right to resolve upon all matters concerning the company, unless otherwise specified in the Articles of Incorporation. The General Assembly of Shareholders is convoked by the Board of Directors, at least once a year, and in any case always within the first six months, as of the expiry of every fiscal year, when also the annual financial statements are approved and when the chartered auditors, as well as the members of the Board of Directors, are absolved from any potential indemnity. The Board of Directors may convoke the General Assembly of Shareholders in an extraordinary Assembly if deemed necessary. The invitation to the General Assembly of Shareholders is published according to the law in the Official Government Gazette, and in a political, financial and local newspaper. In the event of repetition of the General Assemblies of Shareholders and provided that the date and venue of a potential adjourned meeting are stated in the initial invitation, no additional announcement is required. Shareholders wishing to participate in

76 OTE GROUP OPERATIONS GREECE 78 the General Assemblies of Shareholders must reserve in part or in full their shares through their custodian and submit evidence of such reservation at the company s counters at least five days prior to the Assembly and may attend the Assembly either in person or through a proxy. One share provides the right for one vote. The General Assembly is in quorum and convenes validly on the issues of the agenda when it is represented by one-fifth (1/5) of its paid-in share capital, except for special cases, as provided in the Articles of Incorporation, when 2/3 of its paid-in share capital is present or represented. In the event that a quorum does not exist during the first convocation a new repeated assembly is held within 20 days. In case quorum is achieved this repeated assembly convenes validly, irrespective of the present or represented paid-in share capital. In cases when special quorum is required 1/2 of the paid-in share capital must be present or represented, otherwise a second repeated assembly is convened where 1/5 of the paid-in share capital must be present or represented. The resolutions of the General Assembly, when ordinary quorum is required, are adopted upon an absolute majority of the votes represented at the assembly. In cases when special quorum is required, 2/3 of the present shareholder votes are required for the adoption of the General Assembly s resolutions. INFORMATION DISSEMINATION AND TRANSPARENCY 1. Established Procedures Ensuring Transparency Placing special emphasis on transparency, OTE has established a regulated information disclosure process, on the grounds of Law 3556/2007, Decision 1/434/ and Circular (letter) No.33 of the Hellenic Capital Markets Commission that refer to information disclosure and transparency requirements for companies which are publicly traded on organized markets (stock exchanges). The aim of this disclosure process is to inform, in a timely and valid manner, the investment community and all interested parties of any changes in participations (acquisitions or sales of share capital and voting rights participations), under Law 3556/2007 and to ensure OTE s compliance with applicable law. Publication of financial and other types of corporate documents (Annual Report, 20-F, Corporate Social Responsibility Report), enhancing thereby the continuous flow of information on issues that relate to the company s strategy, targets, operation and performance. Establishment of a two-way communication channel between company representatives and the investment community, through the organization of conferences, corporate presentations, road-shows (in Greece and abroad) conference calls, both on a regular basis (i.e on the announcement of quarterly financial results) and occasionally, whenever deemed necessary. 2. Investor Relations OTE s Investor Relations Department is responsible for the provision of information and support to shareholders. Investor Relations activities include: Provision of information to institutional investors and financial analysts, in Greece and abroad Timely and equal distribution of information to all shareholders and support in relation to the exercise of their rights Assurance of the company s compliance with the legal framework, regulating the capital markets and stock exchanges on which the company is listed. The Investor Relations Department is headed by Mr Dimitris Tzelepis. His details are as follows: Tel: Fax: [email protected] Address: 99 Kifissias Ave., Maroussi, Athens Call Centre: Investor Relations Webpage: In compliance with Law 3340/2005 (referring to the protection of the Greek capital market from actions of individuals with access to inside information and from intended actions to manipulate the market), OTE has incorporated in its Internal Operations Regulation a transactions disclosure process for all individuals liable (as defined by applicable law) under applicable law, as well as a process that deters the improper use of inside information. Apart from established procedures that ensure transparency, OTE has adopted a number of other practices that enhance information dissemination to all interested parties, such as: Posting of information, relating to corporate developments, on OTE s corporate website, which contributes to a faster, and more effective communication of information and also to the granting of equal access to information to all interested parties

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78 OTE GROUP OPERATIONS GREECE 80 SHARE INFORMATION OTE s shares are traded on the Athens Exchange, the New York Stock Exchange (in the form of ADRs) and the London Stock Exchange (in the form of GDRs). Athens NYSE Stock Exchange Ticker Symbol OTE OTE Bloomberg Ticker Symbol HTO GA OTE US Reuters Ticker Symbol OTEr.AT OTE.N December 31, 2007 Capitalisation 12,351.8mn - Year High $ Year Low $ Average Daily Trading Volume 2,139,423 58,536 *1 ADR=0.5 ΟΤΕ share OTE is included in 35 stock exchange indices, the most important being the following: The chart below illustrates OTE s stock performance between January 2007-January 2008, in relation to the European telecommunications index DJ STOXX (SXΚE) and the Athens Exchange General (source: Bloomberg). During this period, OTE s stock price rose by 3%, while the SXKE benchmark index rose by 13.7% and the Athens Exchange General Index by 4%. Throughout the year, OTE s share price performance was stable, in line with the performance of the Athens Exchange General Index. Apart from the overall conditions that affected the Greek equity market, other factors that may have affected OTE s short-term price performance in the first half of 2007 were the following: the presentation of the Business Plan by OTE s management and the placement of a 10.7% stake by the Greek State to foreign institutional investors. Other significant events that may have had a considerable impact on the performance of OTE s stock price during the year were, firstly a new significant investor that appeared in the company s registry in the second half of 2007, whose participation rose to almost 20% in the Company s share capital, as well as the launch of the successful public offer to acquire the minority shares in Cosmote. Symbol Description Percentage ASE ASE General Index 8,15% FTASE FTSE/ASE 20 Index 8,30% BE 500 Bloomberg Europe 0,13% SXXE DJ Euro Stoxx PR 0,21% SXKE DJES Euro Telecom 3,04% E300 FTSE Eurοfirst 300 0,12% SPEU S&P Euro Index 0,23% SEUTELS S&P Euro Telecom 2,90% MSER MSCI EURO 0,19% The Dow Jones EURO STOXX Telecommunications index (SXKE) is a capitalization-weighted index, which includes twelve EUbased telecommunications stocks (excluding the UK). At the end of December 2007, the total market capitalization of the index exceeded 300 bn. Last update March 31, 2008

79 OTE GROUP OPERATIONS GREECE 81 Relative Performance Graph from 1/1/07 to 15/1/ OTE SXKE ASE JAN. 07 FEB. 07 MAR. 07 APR. 07 MAY. 07 JUN. 07 JUL. 07 AUG. 07 SEPT. 07 OCT. 07 NOV. 07 DEC. 07 JAN ,0 ΟΤΕ Share Performance Graph ( ) from 1/1/07 to 15/1/08 27,5 25,0 22,5 OTE 20, ,0 12,5 10,0 JAN. 07 FEB. 07 MAR. 07 APR. 07 MAY. 07 JUN. 07 JUL. 07 AUG. 07 SEPT. 07 OCT. 07 NOV. 07 DEC. 07 For more info: ΟΤΕ Investor Relations 99 Kifissias Ave., Maroussi, Athens, GREECE Tel: Fax: Ε-mail: [email protected] American Depository Receipts (ADRs): The Bank of New York 101 Barclay Street, New York, NY USA Shareholder Relations: (888BNY-ADRS) Website:

80 OTE GROUP OPERATIONS SE EUROPE 82 MOBILE TELEPHONY Over 15 million subscribers in Southeast Europe Cosmote, the mobile arm of the ΟΤΕ Group, maintained its leading position in the Greek mobile telephony market in 2007, remains the leading provider of mobile communications services in Albania, while its mobile operations in Bulgaria, FYROM and Romania are rapidly growing. In 2007, following the acquisition of GERMANOS S.A. (Germanos) by the OTE Group, Cosmote sustained its outstanding performance both in the mature Greek market and also in the developing mobile markets of Southeast Europe. Compared to 2006, subscriber numbers increased by 20.1% in Greece, 20.7% in Albania, 18.4% in Bulgaria and 25.5% in FYROM. In Romania, where commercial activity was launched in December 2005, the total number of subscribers increased by 195%. 07 Customer Base (000) 6,269 Capitalizing on the Germanos retail distribution network, OTE Groups mobile customer base, including all markets in which Cosmote operates, exceeded 15.5 million (surpassing the target of 15 million customers that the management had set for 2009), posting an increase of 39.1% compared to the previous year. This figure corresponds to more than one-third of the region s (in which the company operates) total population ,218 4, , ,873 3, ,394 1,226 1, Greece Romania Bulgaria Albania FYROM

81 OTE GROUP OPERATIONS GREECE 83 GREECE (COSMOTE) Sustained Growth In Greece Leading the Greek market in terms of subscriber numbers since June 2001, Cosmote commanded a 38.6% market share at the end of 2007, which corresponds to 6.27 million subscribers. Despite the high mobile telephony penetration rate in Greece, which is estimated at 150% (based on data published by mobile operators) for 2007, latest trends indicate that there is further room for growth within the Greek mobile market with regards to customer numbers as well as to voice traffic and services. The data services market also provides further room for growth. Cosmote intends to place further emphasis on data services, capitalizing on its significant competitive advantage in 3G and HSPA coverage. In 2007, Cosmote responded to an increased demand for high-speed internet access through mobile telephony networks, with HSPA-technology products and services through its 3G network. With regards to mobile telephony activities, along with the gradual maturity of the market, the right conditions are in place for the development of new individual markets oriented towards cost control and the development of innovative products and services, combining voice (fixed and mobile), data and image services. Customer Base (000) Greece 4,229 Pre-paid 3,368 Pre-paid 2,920 Pre-paid 1,725 Contract 1,850 Contract 2,039 Contract

82 OTE GROUP OPERATIONS GREECE 84 MOBILE NETWORK INFRASTRUCTURE Mobile telephony services are supported by the GSM/GPRS and UMTS (3rd generation) networks. The GSM/GPRS network provides voice, text messaging and data switching services across the country through GPRS technology. The 3rd generation UMTS network provides video telephony and data switching services, such as i-mode, Multimedia Messaging Service (MMS), WAP services, Internet access, services and Intranet access speeds reaching up to 7.2 Mbps etc. In December 2007, the GSM/GPRS network covered 99.6% of the country s population, 96% of its mainland and approximately 98% of its territorial waters. The 3rd generation network covers most major Greek cities and 84% of the Greek population. During 2007, Cosmote boasted an almost 99% call success rate while the successful call restoration rate exceeded 99%. In 2007, Cosmote continued to upgrade its network, aiming to provide wireless HSPA broadband services throughout the country. Cosmote has also developed a Fixed Wireless Access (LMDS) mainly offered to business clients, in the greater areas of Athens and Thessaloniki. In 2008, Cosmote expects to increase its network capacity in order to meet the demand for new, advanced, value-added services. As far as the 3G (UMTS) services are concerned, the company plans to expand the 3G network s bandwidth and capacity. The overall planned expansion of the 2G and 3G networks in Greece, as well as in all other countries where Cosmote operates, is expected to respond to the needs of a growing subscriber base in the upcoming year. Finally, in 2008 Cosmote will further upgrade and develop its Fixed Wireless Access (LMDS) network, mainly in the Attica region. DYNAMIC PERFORMANCE As a result of the continuous investments in the upgrade of its network infrastructure, Cosmote today owns a technically superior network. Moreover, through its extensive distribution network the company continuously provides the market with new, competitive and innovative products that meet customer needs. As a result of these activities, Cosmote retained its leading position in Greece at the end of 2007, with 6.27 million subscribers. During 2007, and as part of its commercial strategy, Cosmote achieved the following: Consolidation of its leading position in the market with almost 1.1 million new subscribers, a 20% increase compared to 2006 Increase of contract subscribers number, exceeding 2 million at the end of 2007 and posting an increase of 10% year on year Increased take up of voice services Commercial launch of innovative products and services, such as the FREEZE service and contract services based on the HomeZone application Operation of HSPA technology, with a countrywide coverage, which allows for Internet access from the 3G network at speeds of up to 7.2 Mbps The significant growth of Cosmote s customer base, in 2007, reflects the company s successful commercial policy, the acquisition of the Germanos retail distribution network as well as the strong penetration of the FROG brand in the pre-paid customer segment. COMPETITIVE PRODUCTS AND SERVICES Aiming to respond to constantly growing market demands, Cosmote introduced innovative communication products (e.g. FREEZE) and proceeded with the upgrade of its infrastructure (e.g. 3G network), so as to provide advanced broadband services (Broadband HSDPA). Contract Services Cosmote maintained its successful performance, in terms of subscriber numbers, in a highly competitive environment, achieving the 1st place in this market segment in The company s products and services portfolio was enhanced in 2007 with the introduction of new, innovative services (e.g. FREEZE, OnePhone), new tariff plans (such as the zero-tariff plan etc), and the further development of existing products such as the cost-control plan, marketed as Kartosimvolaio. The following services outperformed in terms of sales in 2007: Cosmote FREEZE service, whereby call charges freeze between the 3rd and the 30th minute Cosmote One Phone service, providing fixed telephony charges for calls from mobile phones to fixed telephony numbers. Calls originate from within the user s home, thus offering more flexibility to customers wishing to call all destinations while using only one handset

83 OTE GROUP OPERATIONS GREECE 85 Pre-paid Services In 2007, Cosmote s performance in the highly competitive market of pre-paid services was very successful, as the company managed to reinforce its presence and consolidate its leading position in this market segment through the utilization of alternative distribution channels and the development of innovative product offerings. During the year the company offered a series of competitive and innovative services including the free SMS service with every top-up card for all WHAT S UP subscribers, call charges of only 0.01/ minute for calls to two selected Cosmote numbers, top-up cards worth 3, etc. The pre-paid connection pack FROG which managed to capture a considerable share of the pre-paid telephony market and counter competition in Greece, was also successfully expanded in the Balkan region (Bulgaria, FYROM). New Net Contract Additions (000) Greece Business Programs In the traditionally competitive market segment of business customers, and in response to its business customers needs, Cosmote offers a wide range of specially designed low-cost programs and services for businesses. The products and services that outperformed in 2007 in terms of sales included the new attractive contract programs, the Microsoft service, the VPN SMS service and the international calls service. In addition, Cosmote was the first operator to offer mobile broadband HSDPA services at speeds of 1.8 Mbps and 3.6 Mbps, as well as HSUPA services (at 384 Kbps access speed), through its extensive 3rd generation network in Greece. Roaming Services By the end of 2007, Cosmote had 436 roaming agreements in 190 countries, of which, 356 in 170 countries, were already in operation. At the same time, the company provided its pre-paid customers with full roaming services in agreement with 76 networks in 35 countries. Contract customers, gained access to the company offered a GPRS Roaming service in co-operation with 148 networks in 80 countries, and the 3G Roaming service with 39 networks in 25 countries. Moreover, Cosmote provides subscribers of 135 foreign networks (using Cosmote s network) with access to a Virtual Home Environment (VHE) service, which provides access to home short codes.

84 OTE GROUP OPERATIONS GREECE 86 RETAIL DISTRIBUTION NETWORK Recognizing the importance of a comprehensive sales and distribution network within a highly competitive environment, Cosmote restructured its distribution network in 2007 as part of its strategy to increase the efficiency of its sales network operations and enhance its customer care. At the end of 2007, Cosmote s distribution network consisted of 410 Germanos stores throughout the country (compared to 370 in 2006)with a dynamic wholesale distribution presence, of 383 OTEShops, 24 exclusive Cosmote shops, as well as a considerable number of freelance partners in both retail and wholesale markets. In 2007 mobile traffic volume increased by 29% on an annual basis while the average customer usage amounted to 170 minutes per month, compared to 153 minutes in The company s revenues increased by 6.5%, to 1,735.9 mn and operating income before depreciation and amortization grew by 3.2%, reaching mn. Cosmote Greece Financial Data Summary ( mn) Change Total Revenues 1, , % CUSTOMER CARE In 2007 Cosmote invested considerably in its customer service and support system, upgrading IT systems (e.g. implementation of SIEBEL platform) and simplifying customer care procedures. Customers positive feedback on the company s customer care and services, differentiates the company from its competitors. In response to increased competition Cosmote remains focused on building upon its customer relations. Operating income before % depreciation & amortization Operating income before % -1.4pp depreciation & amortization margin Cosmote s Customer Care department handles both oral and written requests from corporate clients, residential contract subscribers and pre-paid subscribers. More than 1.2 million calls and 200,000 customer changes in services and tariff plans are handled and processed each month. Aiming to respond to a large volume of requests in the least possible time, the company provides for best-of-class customer care at every sale point. REGULATION OF MOBILE TELEPHONY MARKET The EU (European Union) Roaming Regulation was enacted in June Since August 30, 2007, the Eurotariff roaming service is available to EU subscribers with charges of 0.49/min for outgoing and 0.24/min for incoming calls.

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86 OTE GROUP OPERATIONS ALBANIA 88 ALBANIA (ΑΜC) Consolidation of the leading position in the Albanian mobile telephony market Cosmote has been present in Albania since 1996 through its subsidiary, AMC. Until August 2001, AMC was the sole mobile operator in the country. In 2007, the company continued to hold its leading market position, with a 52% share in a market with three mobile operators. The company operates a 2nd generation network which supports both GSM 900 and DCS 1800 services, providing a geographical and population coverage of 98.91% and 86.24% respectively. COMMERCIAL ACTIVITIES In 2007, AMC continued to offer the successful tariff plans that had been launched at the end of 2006, aiming to attract new business customers. In September 2007, the company also introduced the WHAT S UP package, a pre-paid telephony product that targets young customers. AMC Financial Data Summary ( mn) Change Total Revenues % Operating income before % depreciation & amortization Operating income before 60.3% 62.0% +1.7pp depreciation & amortization margin Customer Base (000) AMC s retail distribution network consists of 63 exclusive stores and an extensive number of dealers. During the course of the year, AMC increased its customer base by 20.7% compared to 2006, reaching 1,195,183 subscribers. The largest part of the mobile market, as well as AMC s subscriber base (nearly 93%) is comprised of pre-paid customers , In terms of financial performance, AMC s revenues amounted to 176.2mn, up 16.7%, while the operating income before depreciation and amortization margin increased by 1.7 percentage points despite the rapid growth of the company s customer base.

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88 OTE GROUP OPERATIONS BULGARIA 90 BULGARIA (GLOBUL) Sustained market share despite the emergence of a third mobile operator In Bulgaria, Cosmote s subsidiary, Globul, ranks second in terms of subscriber numbers. Globul owns one of the three mobile telephony licenses of the country, one of the three 3rd generation (3G) network (UMTS) licenses, as well as one fixed-line telephony license. Globul operates 2G (GSM),2.5G (GPRS) and 3G (UMTS, HSDPA) networks. In 2007, the company continued to invest in the upgrade of its network infrastructure, aiming to respond to the needs of an enlarged customer base and accomodate an increasing mobile traffic. At the end of 2007, Globul s 2nd generation network covered 99.95% of the population and 98.86% of the country s geographical area, while its 3rd generation network covered 49.03% of the population. In April 2008, the Bulgarian Regulatory Aythority announced its intention to grant a free frequency band of 2x5MHz in 1800MHz. Based on available interest this frequency band will be granted with or without an auction. Globul achieved significant customer growth in 2007, both in terms of total customer numbers and contract subscriber numbers, as a result of the company s dynamic commercial policy and the integration of the Germanos distribution network. The company relays its products and services to the end-consumer through a countrywide distribution network that comprises 846 points of sale, including 36 exclusive Globul stores, 125 Germanos stores, an additional network of sales representatives and Globul s direct sales team for business customers. Globul s revenues, in 2007, rose by 20.4%, while operating income before depreciation and amortization increased by 28.0% compared to 2006, reaching mn. The operating income before depreciation and amortization margin improved by 2.3 percentage points in 2007, as a result of sustained efforts focused on reducing expenses. Globul Financial Data Summary ( mn) Change COMMERCIAL ACTIVITIES In collaboration with the Germanos distribution network, Globul focused on attracting contract subscribers, and on introducing innovative value-added services such as the Blackberry service, for contract subscribers. Moreover, in September 2007 and, for the first time in the Bulgarian market, Globul offered to its business customers the Globul Office Zone product, an integrated solution combining fixed and mobile telephony services. Finally, the company launched the FROG pre-paid telephony service in February 2008, aiming to address the needs of a specific market segment. Total Revenues % Operating income before % depreciation & amortization Operating income before 36.9% 39.2% +2.3pp depreciation & amortization margin Globul s customer base, at the end of 2007, amounted to 3.9 million, up by 18.4% compared to Contract subscribers (comprising more than 43% of the total customer base), increased by 46% over the prior year. Globul s market share remained at 40%, despite the entry of a third operator in the Bulgarian mobile telephony market at the end of Customer Base (000) ,873 3,271 2,394

89 OTE GROUP OPERATIONS FYROM 91 FYROM (COSMOFON) Sharp rise in profitability in FYROM Cosmofon, which launched its commercial operations in June 2003 as the owner of the second mobile telephony license in the country, today ranks second in terms of subscriber numbers. A third mobile operator entered the market in September 2007, thus raising competition for the existing players. Cosmofon owns a 2nd generation network( 2G and 2.5G) which operates in the GSM 900 and DCS 1800 frequency bands, covering almost 99.9% of the country s population. In January 2008, the company also acquired a 3rd generation network license. COMMERCIAL ACTIVITIES In June 2007, Cosmofon launched its new corporate identity as part of Cosmote s group of companies.in October 2007 the company launched the FROG pre-paid telephony service, which targets customers that opt for basic mobile telephony services at very attractive tariffs. In 2007, revenues amounted to 62.2 mn, while the operating income before depreciation and amortization margin improved by 13.7 percentage points, reaching 31.0%. Cosmofon Financial Data Summary ( mn) Change Total Revenues % Operating income before % depreciation & amortization Operating income before 17.3% 31.0% +13.7pp depreciation & amortization margin Cosmofon s distribution network consists of 10 exclusive Cosmofon stores, 31 Germanos stores, 2 main representatives and an additional network of dealers was characterised by an increased take up of mobile telephony services and the significant expansion of Cosmofon s customer base. As a result, Cosmofon achieved significant growth in revenues,improved its operating income before depreciation and amortization and for the first time since the launch of its commercial operations, the company achieved profitability. The total number of customers increased by 25.5% from 2006, while the number of contract subscribers increased by 65% year on year. Customer Base (000)

90 OTE GROUP OPERATIONS ROMANIA 92 ROMANIA (COSMOTE ROMANIA) Over 3.6 million subscribers within two years of commercial operation Cosmote Romania is expected to play a significant role in OTE Group s future growth, due to the favourable demographics and the promising outlook of the Romanian mobile telephony market. As early as 2007, the company attained key targets which had been defined as milestones by the management. Within two years of commercial operation, Cosmote Romania s customer base amounts to 3.6 million, while the company s market share jumped to 16% in 2007, from less than 7% at the end of Cosmote Romania, which was founded by RomTelecom in January 1999, is today Romania s third largest mobile GSM operator. In July 2005 Cosmote acquired a 70% stake in the company s share capital, and in December 2005 Cosmote Romania launched operations as Cosmote Romania, parting with the Cosmorom name. Cosmote Romania s telecommunication network operates in the EGSM 900 and GSM 1800 frequency bands. In 2007, the company continued to invest heavily in the expansion, upgrade and increase of its telecommunications network s capacity and coverage. Today, Cosmote Romania s network covers 98.2% of the population and more than 87.5% of the country s territory, catching up with competition, within two years of operation and surpassing it in terms of network quality. Significant network investments will continue in 2008, as a means to respond to the increasing needs of the company s expanding customer base and to provide better coverage, increased network capacity and offer new services in the Romanian market. COMMERCIAL ACTIVITIES In 2007, Cosmote Romania introduced a range of competitive packages, offering low rates, for on-net calls, to pre-paid users and attractive tariff plans to contract subscribers. Furthermore, the company provides contract subscribers, as well as pre-paid users with considerably attractive packages that combine on-net voice and SMS services. Having achieved brand awareness in the highly competitive Romanian market, during the second quarter of 2007 Cosmote Romania launched new contract-based plans for business and residential customers. Following the acquisition of the Germanos distribution network, Cosmote Romania today owns the most effective distribution network in the country. This quality is reflected in the 195% growth of the company s customer base in In the second half of 2007 more than 21% of Cosmote Romania s new customers were contract subscribers, mostly with two-year contract terms, compared to only 13% in the first half of the year. At the end of 2007, the number of contract subscribers had rocketed by 192%, compared to2006. Given Cosmote s state-of-the-art telecommunications network, the increase in the number of contract subscribers underlines the success of the company s commercial policy and the efficiency of the distribution network, two factors that are expected to contribute even further to the future growth of this operation.

91 OTE GROUP OPERATIONS ROMANIA 93 The company s distribution network comprises over 830 stores, including those of Cosmote, Germanos, RomTelecom, Internity and other representatives, while the number of points of sales throughout the country exceeds 20,000. The number of Germanos stores, offering exclusively Cosmote Romania products and services since November 2006, was 203 at the end of 2007, compared to 144 in Customer Base (000) 3,616 Losses at the level of operating income before depreciation and amortization were contained in 2007, as a result of the significant increase of the company s customer base. The impact of the company s strategic initiatives, which involve amongst others, the attraction of new customers, will become more apparent in 2008, through the realization of Cosmofon s target of increased operating revenues and profits. Cosmote Romania Financial Data Summary ( mn) , Total Revenues Operating income/(loss) (65.7) (39.2) before depreciation & amortization New Net Contract Additions (000)

92 OTE GROUP OPERATIONS SE ΕUROPE 94 GERMANOS S.A. Leveraging on the competitive advantage of the leading telecommunications retail distribution network in Southeast Europe At the end of 2006, Cosmote acquired GERMANOS S.A. through its subsidiary holding company COSMOHOLDING CYPRUS LIMITED. The Germanos retail distribution network plays an integral role in the implementation of Cosmote s and OTE Group s strategy with regards to fixed and mobile telephony as well as broadband services. Germanos boosts the Group s growth both locally and abroad based on the competitive advantages of an extended distribution network (at retail and wholesale levels). With 769 stores, at the end of 2007, and operations in four Southeast European countries, Greece, Bulgaria, FYROM and Romania, Germanos boasts the leading telecommunications retail distribution network in the region. telephony revenues. In 2007, the Germanos retail network contributed to Cosmote s customer base growth by adding approximately 2.4 million new subscribers, compared with 1.2 million in Cosmote New Net Additions per Retail Network (000)* 2,416 Germanos The chain of (Germanos) stores and the consumer products distribution network are the company s two key operations. The retail store chain covers a broad geographical area, and underpinned by a successful marketing strategy, has resulted in high brand awareness for Germanos in telecommunications products and services both locally and abroad. In addition, the company s largest distribution network is one of the largest in Greece and Romania, with a market share that exceeds 30%. 1,550 Cosmote & others 1,199 Germanos 1,748 Cosmote & others Germanos is the springboard for Cosmote s customer base growth in all geographical markets, leading to higher market shares (especially in contract subscribers), enhancing the qualitative aspects of the customer base and, therefore, boosting mobile * Excluding the Albanian market

93 OTE GROUP OPERATIONS SE ΕUROPE 95 The Germanos retail chain has also contributed strongly in Cosmote s market share gains in Greece and Romania. In the Greek market, following the acquisition of Germanos, Cosmote retained its dominant position in the number of new customer additions, both contract and pre-paid. During the year, Cosmote won 49% of the market s total net additions, with Germanos contributing 87% of Cosmote s new customers. COMMERCIAL ACTIVITIES In 2007, Cosmote continued to expand its retail store network with the number of Germanos stores increasing from 610 at the end of 2006, to 769 a year later. At the end of 2007, Germanos had 410 stores in Greece, 125 are located in Bulgaria, 31 in FYROM and 203 in Romania. At the same time, the company expanded its pre-paid telephony distribution network in Greece and Romania. The impressive growth in the number of customer visits at Germanos stores is indicative of the strong Germanos brand in Greece. Customer visits increased by 8% from 2006 levels and stood at 12.5 million at the end of 2007, despite the fact that since May 2007 the company sells exclusively Cosmote s products and services. In all other Southeast European markets, the number of customer visits at Germanos stores increased significantly compared to 2006: +34% annual growth in Bulgaria +31% in Romania +32% in FYROM OTE Group gained control of Germanos through Cosmote, at the end of Consequently, 2007 is the first year that Germanos s results have been fully consolidated in OTE Group s financial statements. In 2007, revenues for Germanos amounted to mn, operating income before depreciation and amortization reached 31.7 mn, for an operating income before depreciation and amortization margin of 3.2%. Germanos Financial Data Summary ( mn) 2007 Total Revenues Operating income before 31.7 depreciation & amortization Germanos and Cosmote Retail Distribution Networks Operating income before 3.2% depreciation & amortization margin 410 Germanos 203 Germanos 125 Germanos 24 Cosmote 16 Cosmote 36 Cosmote 31 Germanos 10 Cosmote 63 Cosmote Greece Romania Bulgaria FYROM Albania

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96 OTE GROUP OPERATIONS ROMANIA 98 ROMTELECOM Rapid growth in broadband Internet and Pay-TV services Population Penetration Romania 2007 RomTelecom Market Shares (based on subscribers) % Mobile telephony RomTelecom, an OTE Group subsidiary since 1998, is the incumbent fixed-line operator in Romania, offering besides traditional voice services, broadband access, data services and satellite TV. 70% Fixed-line MARKET TRENDS The company operates in a rather unique telecommunications market, compared to neighbouring countries (with similar levels of development and economic growth). Fixed-line penetration in Romania is considerably low, while mobile telephony and cable TV penetration levels approximate the average penetration levels of highly developed European markets. As a result, RomTelecom is faced with the challenge to respond not only to growing fixed-tomobile substitution trends but also to the strong competition from cable TV companies which offer broadband and traditional voice services at competitive rates. The Romanian telecommunications market, boosted by the country s increased annual economic growth rate, over the last years, the dynamic growth of the construction industry, the surge of new businesses and Romania s recent (in 2007) accession to the European Union, provides opportunities for further growth. During 2007, total revenues of the telecommunications industry stood at 4.2 bn. Of this total, mobile telephony services accounted for 2.7 bn, followed by fixed line services ( 0.8 bn), cable TV ( 0.4 bn), and broadband services ( 0.3 bn). The key challenge for RomTelecom, in response to the unique market conditions, is to succeed in reducing customer churn rate in traditional services and attracting new customer groups through the launch of new, innovative services and product offerings. Within this context, during 2007 RomTelecom placed special emphasis on the promotion of services in the rapidly growing markets of Pay-TV and broadband services, as well as on customer retention through improved tariff policies and specialized customer care centers. 20% Fixed-line 17% Cable TV 9% Broadband services 9% DTH TV 20% Broadband services 8% DTH TV

97 OTE GROUP OPERATIONS ROMANIA 99 COMMERCIAL ACTIVITIES As part of the company s restructuring plan, and aiming to improve customer service and support, in 2007 the company split it s Commercial Division into two separate entities, the Division of Residential Customers and the Division of Business Customers. The new organizational structure will enable the development of new products and services that respond to the specialized needs of specific customer groups, and enhance customer relations, building upon the existing Technical Service and Support Center communication channels. In December 2007, for the first time after three years of decline, the company managed to contain fixed-line customer churn rate. This was a result of the combined efforts of all company divisions, enhanced by the new tariff policies and the specialized customer care centers. These initiatives enhanced the competitiveness of product offerings and reflected the new customer- oriented approach adopted by the company. As a result, the company managed to retain customers that could have otherwise reverted to competition and attract new customers through its broadband and DTH-TV offering. Net Line Additions/ (Losses) (000) 11 Q4 07 (63) Q3 07 (135) Q2 07 (181) Q1 07 In 2007, the company focused on increasing its market share in the fast developing segments of broadband services and Pay-TV. A new, more competitive tariff policy was adopted, connection speeds were doubled at mid-2007 and attractive packages combining broadband services with PC s were offered. As a result, the total number of ADSL customers increased by 270,000 year on year, reaching a total of 360,000 at year end. At the same time, RomTelecom s satellite TV service Dolce, which had been launched in November 2006, was further promoted and as a result, the total number of subscribers at the end of 2007 reached 390,000, corresponding to an 8% market share of the total Pay-TV market. Moreover, during the year the company marketed its bundled voice services for residential and business customers (introduced in 2006) successfully, and recorded an increased take up of its value-added data services (VPN, IPFix, Metronet) for business customers. NETWORK RomTelecom s fixed telephony services are supported by a 3-tier network which comprises 2 international gateways, ten fullyconnected transit switches and 97 local switches. Intelligent and value-added services are supported by IN and messaging platforms. (555) 2006

98 OTE GROUP OPERATIONS ROMANIA 100 New Services Subscribers (000) 390 Satellite TV 360 ADSL 89 ADSL 8 ADSL 15 Satellite TV 0 Satellite TV The IP/MPLS network is built on two hierarchical levels: edge and core. Connections between IP/MPLS edge and core network elements are dual-home, based on DWDM wavelengths in core and EoSDH regional rings in edge, served by 242 nodes. Metropolitan Ethernet networks operate in Bucharest and in all major towns, based on Gigabit Ethernet technology. The IP/MPLS network is connected to six upstream networks for Internet access (total capacity of 15.6 Gbps) and has major national peering links with providers (total capacity of 18.5 Gbps). Fixed-line and IP/MPLS networks are supported by a solid transmission network, based on optical fiber, DWDM and SDH technologies. The fiber optic network has over 31,900 Km of fiber optic cable deployed on 3 levels: backbone (3,500 Km), regional (9,600 Km) and local (18,800 Km). Besides the support of all service networks, the transmission network is used to provide long distance leased lines. The upgrade of the IP/MPLS network was completed in February 2008, while continuous efforts are made to shorten the local loop, in order to facilitate ADSL higher bandwidth. The company also launched various VoIP-related pilot projects (for residential and business customers) during the year and examined the feasibility of Dolce DTH service provision to multiple homes, aiming to reduce the line of sight restrictions and installation costs.

99 OTE GROUP OPERATIONS ROMANIA 101 REGULATORY DEVELOPMENTS In 2007 certain key developments altered the regulatory framework, such as the setting of a retail prices cap and the symmetry in mobile termination rates for domestic and international calls to mobile operators. Since August 2007, termination rates for calls to cable TV companies that provide telephony services, have also been lowered OUTLOOK RomTelecom s strategy for 2008 involves a further revenue growth from new services, the establishment of new retail distribution channels and the introduction of new broadband technologies (VDSL / FTTB) and new bundled products. The company also plans to set up a specialized call centre for business customers and launch a door-to-door campaign in order to win-back customers, targeting less competitive areas, such as rural areas. At the same time, cost reduction effected by the optimal management of human resources and the adoption of more efficient operational procedures in all supporting functions, remain high on the company s agenda. These cost reductions will partly offset the inevitable increase in customer acquisition costs and the decline in revenues from traditional voice services. Revenue Breakdown 2007 RomTelecom s revenues for 2007, which amounted to mn declined by approximately 2.6% year on year, mainly due to the reduction of fixed-line subscribers and the lower tariff rates for voice and broadband services, which were adopted during the second quarter of Operating income before depreciation and amortization stood at mn, decreased by 11.2% compared to % PSTN - ISDN* 6.0% Data & value-added services 15.4% Interconnections & wholesale leased lines 4.3% ADSL 6.1% Other 4.6% Equipment 1.2% Content services (*Including revenues from monthly connection fees and calls)

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106 OTHER OPERATIONS IN GREECE AND ABROAD 108 ΟΤΕ ESTATE Highlighting the value of OTE s real estate assets OTE s subsidiary, OTEestate, which was established in 2003, is responsible for the management of the Group s real estate assets and for the generation of incremental value for the Group, through the efficient management and commercial exploitation of its real estate portfolio. Space (1,14 mn sq. m.) allocation 53.4% Office space REAL ESTATE PORTFOLIO The real estate portfolio managed by OTEestate consists of a large number of buildings, land, offices and stores across Greece. 73% of the buildings have been built after 1985, 5.5% of them are situated in the centre of urban areas. OTEestate s real estate portfolio includes, amongst others, the following: 25.3% Local exchanges Plots/Land Total Number 2,293 Total Surface 9.25 million sq. m. Number of Plots with Buildings 1,771 Buildings Total Number 2,258 Total Surface 1.14 million sq. m. 11.0% Shops 6.6% Storage 3.6% Facilities The largest part of the value of OTEestate s portfolio is derived from a small number of plots and buildings. The OTE Headquarters building alone accounts for almost 15% of the total real estate value, while the 150 largest real estate assets account for 70% of the total real estate value. Moreover, 50% of the value of the total real estate portfolio is derived by land and buildings in the broader area of Athens. Based on their use, OTEestate s buildings are classified as follows: During 2007, OTEestate placed emphasis on the optimal management of vacant and unutilized buildings and office space, following the completion of OTE s 2006 Voluntary Retirement Program. As a result of the VRP (Voluntary Retirement Program), a significant number of employees left the company, providing the company with the opportunity to optimize free space utilization. In this context, OTEestate together with OTE, implemented a personnel

107 OTHER OPERATIONS IN GREECE AND ABROAD 109 relocation program, whereby employees were relocated either within the same building or to suitable nearby premises, so as to maximize occupancy. This optimization process released a large number of buildings which are now available for lease by third parties. Another key project, implemented by OTEestate during 2007, was the valuation (by an independent appraisal firm) of its real estate portfolio in accordance with International Financial Reporting Standards, so as to indicate/reveal its fair value. The present value of OTEestate s portfolio was calculated on the basis of OTE s lease agreements with OTEestate, and the result (including all necessary adjustments) was included in OTEestate s financial statements. This value of the company s real estate portfolio, as at December 31, 2007 amounted to 1.8 bn. To OTEestate s advantage, this valuation process effected the development of a solid database of comparative values (based on market-rate lease agreements), which will assist the company with the evaluation of alternative projects and will also serve as a reference tool for all future valuations. Other projects completed by OTEestate in 2007 include: Signing of lease agreements with organizations and companies outside the Group, which led to an increase in revenues from third parties. These currently account for 4% of total revenues, a revenue contribution which OTEestate intends to increase further in the near future Completion of technological and economic studies related to the reformation of the company s land and buildings in Agravli (Kifisia), Taraboura (Patras), Haidari Forest (Athens), and the development of the former warehouses in Florina and Aharnes (Athens) Completion of development studies related to key real estate assets of the company Identification of attractive projects within the real estate market Implementation of civil engineering studies and projects (maintenance, refurbishment, installations) related to buildings occupied by OTE One of OTEestate s key projects for 2008 involves the establishment and subsequent listing on the Athens stock exchange of a Real Estate Investment Company (REIC), as a means to create value for the Group s shareholders. Real estate investment companies enjoy considerable tax benefits such as transfer tax relief, while their annual tax fee obligation is fulfilled with the payment of a 0.3% tax on the average value of real estate capital investments each year. Furthermore, real estate investment companies do not depreciate but simply revaluate their assets (subsequently reporting revaluation gains or losses in their financial statements). At the same time, efficient management as well as portfolio diversification, both required by law, enable return maximization and risk minimization. In view of these key advantages, OTEestate has decided to proceed with the set up of a real estate investment company under the name OTE Properties Real Estate Investment Company and has filed the relevant application with the Hellenic Capital Market Commission in order to get the necessary permission. OTEestate plans to list OTE Properties Real Estate Investment Company on the Athens Stock Exchange by the end of As part of its strategy for growth, during 2008, OTEestate will proceed with the following: Adoption of a new policy with regards to workspace allocation Amendment of the master lease agreement between OTE and OTEestate, so as to rationalize occupancy in OTE buildings and incorporate them in the Real Estate Investment Company portfolio Investments in selected real estate assets (stores, selfcontained properties etc.) which will ultimately enhance both OTEestate s and the Real Estate Investment Company s portfolios Increase in revenues from other OTE Group subsidiaries Increase in revenues from the development of commercial, business and residential projects Reduction of energy consumption in buildings, certification of mechanical equipment, infrastructure optimization in line with EU regulations, antiseismic and structural evaluation of buildings In 2007, OTEestate s revenues amounted to 71.9 mn, up by 8.2% compared to the previous year, as a result of new leases signed with public and private sector entities and physical persons. Operating income before depreciation and amortization increased significantly, from 55.6 mn in 2006, to mn in 2007, following the revaluation of real estate assets to their fair value.

108 OTHER OPERATIONS IN GREECE AND ABROAD 110 HELLAS SAT Consolidating OTE Group s position in the satellite services market Hellas Sat provides international fixed satellite services through its wholly owned satellite Hellas Sat 2, which occupies the orbital position of 39 degrees East. The company offers satellite capacity services for video broadcasting applications and wholesale data services in Europe, the Middle East and South Africa. More specifically, the company offers: Satellite capacity for: Broadcasting (DTH, Video contribution, Program distribution) IP trunking & direct access services Corporate networks Occasional use Retail broadband services In 2007, Hellas Sat consolidated its position in the international satellite market of Europe placing emphasis on its strong presence in Greece and Cyprus, where occupied capacity approached 100%. At the end of 2007, total occupied capacity of the total of 28 satellite transmitters reached 79% (from 70% in 2006), and is expected to exceed 85% by the end of Reflecting the successful take up of the Dolce DTH platform in Romania, launched by OTE s subsidiary RomTelecom, as well as of the relevant Bulsatcom platform in Bulgaria, the total number of DTH subscribers on the satellite exceeded 1 million. Moreover, in 2007 the company extended its operations to South Africa, following collaboration with the country s telecoms incumbent. Today, Hellas Sat, with more than 100 customers in 35 countries, provides satellite capacity services to Europe, the Middle East and South Africa. On the occasion of the 50th Anniversary of the launch of the first satellite in space, the European Satellite Operators Association (ESOA) together with the OTE Group welcomed delegates from the field of satellite technology, in Athens, in May 2007, for an event dedicated to the promotion of broadband services and the bridging of the digital gap between European countries, through satellite technology. BROADBAND INTERNET VIA SATELLITE Since January 2006, through Hellas Sat Net!, Hellas Sat provides satellite broadband services to areas where no other type of broadband access is possible. Hellas Sat aims to contribute to the Group s efforts for the rapid expansion of broadband services and provide a new range of products that will have a positive effect on citizens lives and on businesses operational efficiency. Two-way satellite Internet is an ideal means of point-to-point interconnection for remote geographical areas and is thus, currently chosen by corporations whose facilities are located in remote geographical areas, and who need to be connected with central inventory and office automation systems, or need to transfer data, inspect the security of their premises via remote camera or need to have access to other value-added services such as , webhosting etc. Demand for satellite broadband services increased significantly during 2007 and as a result the number of terminals installed, reached 520, compared to 320 in Aiming to extend its operations to the residential customers market, in 2007, the company promoted Internet access services by means of user-friendly and low-cost equipment, low monthly tariffs and high access speeds. Hellas Sat s new broadband services are based on the successful completion of the SATMODE project, sponsored by the European Space Agency and implemented by the company in collaboration with major manufacturers of satellite systems. In order to enhance its value-added services offering, Hellas Sat will soon acquire a state-of-the-art digital platform for Internet access via satellite. In 2007, the company participated in a series of European programs and initiatives that aimed to develop and promote satellite broadband services, such as the HOST project. This project is sponsored by the European Space Agency (ARTES 3) and

109 OTHER OPERATIONS IN GREECE AND ABROAD 111 relates to the design, implementation and commercial use of a DVB-RCS satellite network, with pilot applications in the fields of distance-learning, distance-medicine, secure government data networks, corporate operations and Internet access through local wireless and satellite backbone networks. The same project will involve the design and construction of a vehicle that will enable the provision of satellite as well as terrestrial fixed-network connection in areas affected by natural disasters, as a means to repair telecommunication network damages. Hellas Sat also participates in other programs, such as the RURAL WINGS program which is sponsored by the European Union and focuses on the pilot use of applications such as distance-learning in remote areas via the Eutelsat and Hellas Sat satellites, and the Small GEO program which is sponsored by the European Space Agency and aims to develop a low-cost and low-weight satellite equipped with thirty transmitters, to be placed at geostatic orbit. Revenue Breakdown % Capacity (long-term agreements) Given that Hellas Sat has utilized most of its free capacity with respect to Europe and the Middle East, during 2008, the company intends to promote all available satellite capacity in the area of South Africa. At the same time Hellas Sat aims to increase its customer base, increasing revenues both in terms of absolute numbers as well as in terms of income per transmitter. 5.1% Occasional transmissions In addition, the company aims to target remote residential users in Greece and Cyprus with the launch of a new broadband Internet service offering at an attractive rate. 3.9% Broadband services & terminals In 2007, Hellas Sat s total revenues increased by 57.6% compared to 2006 and reached 23.5 mn while operating income before depreciation and amortization stood at 13.1 mn, compared to a negative 1.4 mn the previous year. This improvement in revenues was effected by the consolidation of the company s position in the markets of Central and Eastern Europe, and the signing of agreements with new customers. 2.0% Other income

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112 OTHER OPERATIONS IN GREECE AND ABROAD 114 OTESAT-MARITEL Integrated telecom solutions for the Greek and global shipping industry OTESat-Maritel, is one of the four major providers of Immarsat satellite maritime communication services providers in the world, holds a 54% market share of the ship-to-shore communications market in Greece, while the company s operations extend to Cyprus, Turkey, the United Kingdom, USA, Dubai, Singapore and Hong Kong. and Iridium systems. The company also plans to further expand its international operations, and capitalise on the commercial launch of new value-added services through the provision of integrated telecom solutions, bundling terminal equipment, software, airtime, commercial and technical support. OTESat-Maritel has been a member of the ΟΤΕ Group since Its main activities include the provision of Immarsat services with global coverage through the Thermopyle earth satellite station as well as of integrated telecommunication solutions for the Greek and global maritime industry, combining satellite and earth telecommunication networks and IT applications. In addition, the company offers valueadded services such as account clearance services for ships (via the GR01 and GR12 codes), ship-to-shore data transfer services, and crew telecommunications (telephony and mail for the crew). OTESat-Maritel s, revenues for 2007 reached 22.0 mn, while operating income before depreciation and amortization stood at 1.2 mn. Revenue Breakdown % Satellite telecommunications In 2007, OTESat-Maritel signed further commercial and business agreements that significantly enhance the company s service portfolio such as: Agreement with Immarsat, to operate as Distributor Partner for Fleet Broadband Services Agreement with Iridium, to offer the latter s products and services Agreement with Thrane & Thrane A/S, to operate as Certified Partner for the resale of satellite and terminal equipment Agreement with Monarch Telecom Limited, to offer the latter s products and services in Cyprus and the Middle East During the course of the year, the company upgraded its systems and processes, so as provide its customers with best-of quality services at attractive rates. The company also upgraded all relevant pre- and post-sales customer care systems, allowing for the provision of seamless technical and commercial support to customers 24 hours a day, seven days a week. In 2008, OTESat-Maritel plans to introduce new satellite systems such as: Immarsat Fleet Broadband, Iridium Open Port 128 Kbps, and an IP Signature software for broadband services on Immarsat 3.9% Sales of equipment 3.1% Other income 1.9% Other telecommunications services

113 OTHER OPERATIONS IN GREECE AND ABROAD 115 OTE PLUS Specialized consulting services on technological transformation and organizational development ΟΤΕplus, a member of the OTE Group since 1987 provides consultancy services and integrated solutions, related to technological upgrade and corporate restructuring issues, to companies of the Group and other public and private entities. KNOW-HOW AND CONSULTING SERVICES ΟΤΕPlus provides feasibility studies related to specialised technological upgrades (CRM, DWH/BI, portals, e-government, etc.) and to IT and telecom systems development. With regards to its business solutions, ΟΤΕplus develops business plans, new procedures and key performance indicators (KPIs), and offers organisational and commercial restructuring solutions. The company also offers human resources management solutions, including systems for the development of personnel skills, as well as appraisal and reward systems for private and public entities. During 2007, ΟΤΕPlus launched a number of key long-term projects, such as: Provision of specialised support services for OTE s cost accounting system Provision of technical support and consultancy services on issues that relate to the infrastructure, management and operation of OTE s network Provision of technical support and consultancy services to OTE s IT Department Development and operation of support systems for the Business and Technology Development Centers, run by the Ministry of Development Business processes restructuring services,within the context of OTE s CRM (Customer Relations Management) program Supply chain management and optimization services Consultancy services related to OTE s distribution network, call centers and HelpDesk operations. Customer Mix by Sector % Business operations 20% Technology 15% Research & Development OTEPlus revenues for 2007 rose by 26.4%, compared to 2006, to 31.5 mn, while operating income before depreciation and amortization exceeded 1.7 mn, posting a 16.8% increase.

114 OTHER OPERATIONS IN GREECE AND ABROAD 116 ΟΤΕ ACADEMY Integrated professional development services for the Group, the wider public and private sectors OTEAcademy offers advanced vocational training as part of OTE s aim to deliver professional development choices that cater for training needs of both ΟΤΕ Group employees and of the wider public and private sectors. OTEAcademy is a certified Cisco Academy, providing CCNA training and certification, and an authorised examination center, approved by Certiport, for Microsoft Office Specialist and IC3. The company also operates certified Vocational Training Centres in Athens and Thessaloniki. OTEAcademy s philosophy and training programs are based on the LEAP (Learn & Apply) concept and on a blended learning model, combining class teaching, evidential training, e-learning, business games and other activities. OTEAcademy s activities in 2007 included the following: Expansion of the range of topics covered in its seminars (new courses on Strategy and Management, Sales, Project Management, Regulatory Framework, Health and Security and others were developed) Development of new courses tailored to the needs of specific customer groups Collaboration and signing of agreements with major companies and institutions from the IT and Telecommunications industry, which enable the company to offer specialised courses on new technology related issues Agreements for the exclusive provision of educational services that lead to certification Design and execution of training programs for special social groups (unemployed, part-time employed etc.), sponsored by the European Social Fund

115 OTHER OPERATIONS IN GREECE AND ABROAD 117 As a result of these initiatives, OTEAcademy currently provides an enhanced integrated training services portfolio which will contribute greatly to the increase of company s penetration levels in the vocational training market. During 2007, OTEAcademy, in collaboration with certain departments of OTE, monitored closely the training needs OTE Group s employees, and then proceeded with the development of an integrated employee vocational training program, which responds to both general training requests as well as to specialized training needs in the fields of Management, Sales, Engineering for Non-Engineers, Finance for Non-Financials and courses in other subject areas, which are in demand by OTE Group s employees. Finally during 2007, OTEAcedemy completed an Induction Course for OTE s 1,300, newly hired employees. OTEAcademy s revenues in 2007 increased by 49% year on year and amounted to 5.3mn. Seminar Subject Areas Breakdown % Technical 22% IT 21% Specialized courses 20% Management 3% OTE s induction course

116 OTHER OPERATIONS IN GREECE AND ABROAD 118 COSMOONE E-commerce applications for businesses The expansion of broadband services in Greece, coupled with increased public awareness on the opportunities introduced by the Internet, and a series of EU (European Union) initiatives, contributed to the high growth of the domestic e-commerce market in CosmoONE, a member of the OTE Group operates an electronic marketplace for the provision of B2B (Business to Business) electronic commerce applications and services. The company provides services that cover the whole spectrum of the commercial supply chain, from sourcing to invoicing. CosmoONE s major sources of revenue during 2007 were: Besides the companies of the Group, CosmoONE s largest customers include companies from the telecommunications, banking, insurance, technology and commerce industries. CosmoONE s services do not entail the installation of hardware or software to clients, but rather relate to the efficient operation of e-commerce systems, where CosmoONE s know-how and expertise enhance customers business processes efficiency. During 2008 the company will launch a new product, a portal environment with e-commerce applications, portalone. This product will be marketed as software and not as service and will be gradually enhanced with new, additional features. Additionally, as part of its commercial strategy for 2008, the company intends to actively promote its e-supply services to the wider public sector via presentations, exhibitions and the implementation of pilot programs. CosmoONE s revenues for 2007 amounted to 1.9 mn. Revenue Breakdown % Electronic offers 42.5% Electronic orders 3.2% Invoice transfers 24.8% Electronic auctions 17.9% Special projects & services 5.0% Smart reports 3.4% Electronic offers 2.2% Electronic sales 1.1% Resources management

117 OTHER OPERATIONS IN GREECE AND ABROAD 119 TELEKOM SRBIJA Growth primarily driven by mobile telephony OTE Group is present in the Serbian telecommunications market through its 20% stake in Telekom Srbija, the Serbian telecoms incumbent, offering fixed telephony (voice and broadband Internet services), mobile telephony as well as Pay-TV services. The fixed-line population penetration rate in Serbia stands at 39%, mobile telephony penetration exceeds 100%, while broadband penetration rate is only 2%. Telekom Srbija s fixed -line market share is 100%, while the company also enjoys a 60% market share in mobile telephony and a 50% market share in broadband. Mobile Telephony Customer Base (000) 3,500 Pre-paid subscribers 4,300 Pre-paid subscribers Mobile telephony operations were the driver of growth for the company in 2007, as the migration of customers from pre-paid to contract services continued at a rapid pace, while broadband services take up increased significantly. The company s mobile telephony customer base grew by 28% compared to 2006, reaching 5.3 million in total, with contract subscribers reaching 987 thousand, increased by 60% year on year. 619 Contract subscribers Contract subscribers 2007

118 OTHER OPERATIONS IN GREECE AND ABROAD 120 The company has also entered the e-commerce and entertainment markets (e.g. Telekom Srbija web portal: Nadlanu and Mondo), and has communicated its intention to enter the IPTV and satellite TV markets as well. Revenue Breakdown ( mn) Fixed-line 601 Fixed-line In 2008, Τelekom Srbija plans to launch new broadband, multimedia, and bundled services, which refer to, amongst other things, IPTV services, triple-play packages, web-hosting, and audiovideo streaming services. 273 Mobile telephony 349 Mobile telephony Telekom Srbija s retail distribution network comprises of 70 mobile telephony and 29 fixed-line stores. In 2007, Telekom Srbija s distribution network was enhanced through the launch of m:shops in supermarkets and the establishment of an electronic sales system. With regards to customer care, the company operates separate call centers for fixed-line and mobile telephony services and customer requests Telekom Srbija continued with the upgrade of its fixed-line network in 2007, whose digitalization level reached 94% at the end of 2007, compared to a digitalization level of 83% in The company aims for the full digitalization of the network by the end of Telekom Srbija is also planning to install CDMA technology and increase the number of IP-based exchanges. As part of its strategic objectives with regards to mobile telephony, the company plans the upgrade of its GSM and UMTS networks. It should also be noted that Telekom Srbija owns a 3G (3rd generation) network since Finally, during the year, Telekom Srbija acquired 65% of Telekom Srpske (the incumbent telecom operator of Republika Srpska). By virtue of this acquisition, Τelekom Srbija expands its geographical footprint, and is presented with the opportunity to leverage on the untapped potential of developing telecommunications markets. In 2007, Telekom Srbija s revenues increased by 17% year on year and reached 950 mn, while operating income before depreciation and amortization amounted to 332 mn. Telekom Srbija s financial results are not consolidated in OTE Group s financial statements.

119 OTHER OPERATIONS IN GREECE AND ABROAD 121 INFOTE The sale of Yellow Pages as part of the rationalization of OTE Group s operations From 2001 until the end of 2007, OTE offered directory services via printed and electronic media through its 100% owned subsidiary, InfOTE. Until December 2007, when InfOTE was sold, the company s revenues amounted to 57.5 mn, while operating income before depreciation and amortization stood at 10.5 mn. As part of the Group s restructuring and portfolio rationalization, InfOTE was sold to the companies Rhone Capital LLC and Zarkona Trading Limited, for a total consideration of 300 mn.

120 WHO: TINA WHEN: THURSDAY WHERE: ATHENS

121 WHO: XENIA WHEN: TUESDAY WHERE: KALAMATA

122 WHO: LILA WHEN: WEDNESDAY WHERE: ATHENS

123 ΠΟΙΟΣ: ΑΛΕΚΑ ΠΟΤΕ: ΣΑΒΒΑΤΟ ΠΟΥ: ΑΘΗΝΑ FINANCIAL STATEMENTS

124

125 FINANCIAL STATEMENTS 127 Annual Financial Statements (Separate and consolidated) for the year ended 31 December 2007 in accordance with International Financial Reporting Standards

126 FINANCIAL STATEMENTS 128

127 FINANCIAL STATEMENTS 129 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. BALANCE SHEETS (SEPARATE AND CONSOLIDATED) AS AT 31 DECEMBER 2007 (Amounts in millions of Euro) 31 DECEMBER DECEMBER 2006 Notes COMPANY GROUP COMPANY GROUP ASSETS Non - current assets Property, plant and equipment 4 2, , , ,583.5 Goodwill Telecommunication licenses Investments 7 4, , Advances to pension funds Deferred taxes Other non-current assets Total non - current assets 6, , , ,4 Current assets Inventories Trade receivables , ,160.5 Other current assets Cash and cash equivalents , ,042.5 Total current assets 1, , , ,856.2 TOTAL ASSETS 8, , , ,548.6 EQUITY AND LIABILITIES Equity attributable to shareholders of the Company Share capital 12 1, , , ,171.5 Share premium Statutory reserve Consolidation reserve 7 - (2,533.8) - (580.3) Retained earnings 13 1, , , , , , , ,664.8 Minority interests - 1, ,223.9 Total equity 3, , , ,888.7 Non current liabilities Long-term loans 15 1, , , ,037.3 Provision for staff leaving indemnities Provision for voluntary leave scheme Cost of Youth account Other non current liabilities Total non current liabilities 2, , , ,001.4 Current liabilities Suppliers Short-term loans 18 1, , Short-term portion of long-term loans Income tax Deferred revenue Cost of voluntary leave scheme Dividends payable Other current liabilities Total current liabilities 2, , , ,658.5 TOTAL EQUITY AND LIABILITIES 8, , , ,548.6 The accompanying notes on pages form an integral part of these Financial Statements. The Financial Statements presented on pages , were approved by the Board of Directors on 19 March 2008 and are signed on its behalf by: Chairman & Managing Director Vice-Chairman Chief Financial Officer Chief Accounting Officer Panagis Vourloumis Iakovos Georganas Christini Spanoudaki Konstantinos Vasilopoulos

128 FINANCIAL STATEMENTS 130 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. INCOME STATEMENTS (SEPARATE AND CONSOLIDATED) FOR THE YEAR ENDED 31 DECEMBER 2007 (Amounts in millions of Euro, except the number of shares and per share data) Revenues Notes COMPANY GROUP COMPANY GROUP Domestic telephony 21 1, , , ,260.6 International telephony Mobile telephony 21-2, ,975.8 Other income , ,308.0 Total revenues 2, , , ,891.3 Operating expenses Employee costs (723.8) (1,241.3) (764.9) (1,241.6) Cost of voluntary leave scheme 16 (22.1) (22.1) Charges from international operators (146.8) (216.4) (143.9) (208.8) Charges from domestic operators (323.9) (655.3) (366.8) (720.9) Depreciation and amortization (502.2) (1,171.8) (528.0) (1,128.5) Cost of telecommunications equipment (101.1) (672.8) (128.3) (363.5) Other operating expenses 22 (526.3) (1,293.2) (520.3) (1,189.5) Total operating expenses (2,346.2) (5,272.9) (2,402.4) (4,803.0) Operating income before financial results , ,088.3 Financial Results Interest expense (98.4) (238.7) (199.2) (278.8) Interest income Foreign currency differences (0.5) (4.8) Dividend income Gains from investments Total financial results (4.5) Profit before tax , ,083.8 Income tax 19 (211.8) (381.8) (124.6) (353.0) Profit for the year Attributable to: Shareholders of the parent Minority interests Basic earnings per share 23 1,1762 1, Diluted earnings per share 23 1,1762 1, Weighted average number of shares 490, ,150, ,150, ,150,389 The accompanying notes on pages form an integral part of these Financial Statements.

129 FINANCIAL STATEMENTS 131 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. STATEMENTS OF CHANGES IN EQUITY (SEPARATE) FOR THE YEAR ENDED 31 DECEMBER 2007 (Amounts in millions of Euro) Share Capital Share Premium Treasury Shares Statutory Reserve Retained Earnings Total equity Balance at 31 December , (5.9) ,707.9 Appropriation to statutory reserve (26.6) - Unrealized gains on availablefor- sale securities Treasury shares cancelled (1.0) (0.7) 5.9 (4.2) - Net income recognized directly in equity (1.0) (0.7) (20.2) 10.6 Profit for the year Balance at 31 December , , ,249.7 Balance at 31 December , , ,249.7 Appropriation to statutory reserve (28.8) - Dividends paid (269.6) (269.6) Unrealized gains on available -for-sale securities Net income recognized directly in equity (288.6) (259.8) Profit for the year Balance at 31 December , , ,566.4 The accompanying notes on pages form an integral part of these Financial Statements.

130 FINANCIAL STATEMENTS 132 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. STATEMENTS OF CHANGES IN EQUITY (CONSOLIDATED) FOR THE YEAR ENDED 31 DECEMBER 2007 (Amounts in millions of Euro) Share Capital Attributable to equity holders of the parent Share Premium Treasury Shares Consolidation Legal Reserve Reserve Retained Earnings Total Minority Interest Total equity Balance at 31 December , (5.9) (238.8) 1, , , ,513.4 Appropriation to statutory reserve (26.6) Dividends paid (116.0) (116.0) Treasury shares cancelled (1.0) (0.7) (4.2) Unrealized gains on available-for- sale securities Foreign currency translation Net change in investment in subsidiaries (341.5) 18.8 (322.7) (118.5) (441.2) Net income recognized directly in equity (1.0) (0.7) (341.5) 89.4 (221.3) (134.2) (355.5) Profit for the year Balance at 31 December , (0.0) (580.3) 2, , , ,888.7 Balance at 31 December , , , , ,888.7 Appropriation to statutory reserve (28.8) Dividends paid (269.6) (269.6) (81.2) (350.8) Unrealized gains on available-forsale securities Foreign currency translation (82.6) (82.6) (84.7) (167.3) Net change of investment in subsidiaries (1953.5) - (1,953.5) (145.3) (2,098.8) Net income recognized directly in equity (371.2) (2,295.9) (311.2) (2,607.1) Profit for the year (1953.5) Balance at 31 December , (2,533.8) 2, , , ,054.6 The accompanying notes on pages form an integral part of these Financial Statements.

131 FINANCIAL STATEMENTS 133 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. STATEMENTS OF CASH FLOWS (SEPARATE AND CONSOLIDATED) FOR THE YEAR ENDED 31 DECEMBER 2007 (Amounts in millions of Euro) COMPANY GROUP COMPANY GROUP Cash flows from operating activities Profit before taxes , ,083.8 Adjustments for: Depreciation and amortization , ,128.5 Cost of voluntary leave scheme (49.8) (49.8) Provisions Foreign currency translation differences (2.6) (4.2) Investment (income)/losses (576.5) (351.4) (540.3) (270.1) Amortization of advances to EDEKT pension fund Interest expense and related expenses Adjustments for charges in working capital Decrease/ (increase) in inventories 1.4 (2.0) (6.4) (30.3) Decrease/ (increase) in trade receivables (102.4) (127.9) Decrease in liabilities (except bank liabilities) (266.3) (292.6) (439.9) (293.6) Minus: Interest paid and related expenses paid (78.9) (216.4) (105.9) (178.5) Income taxes paid (158.5) (384.9) - (210.4) Net cash from operating activities , ,786.2 Cash flows from investing activities Acquisition of subsidiaries, associates, joint ventures and other investments 2,137.3 (2,119.0) (192.3) (1,672.2) Loans granted (181.6) (121.6) (77.6) (66.4) Proceeds from loans Other long-term liabilities Purchase of property, plant and equipment and intangible assets (295.0) (1,101.3) (225.7) (962.4) Proceeds from sale of property, plant and equipment and Investments Interest received Dividends received Net cash from /(used in) investing activities (2,001.2) (2,780.2) 78.1 (2,308.1) Cash flows from financing activities Proceeds from minority shareholders for increase of subsidiary s share capital Proceeds from issue of receipt of loans 1, , ,369.1 Repayment of loans (16.1) (558.4) (662.6) (1,211.7) Dividends paid to shareholders of the Company (269.3) (269.3) (1.6) (1.6) Dividends paid to minority shareholders - (81.6) - (115.6) Net cash from/(used) in financing activities 1, (664.2) 1,052.2 Net increase/(decrease) in cash and cash equivalents (361.6) (726.2) (29.6) Cash and cash equivalents at beginning of year , ,512.2 Cash and cash equivalents at end of year , ,042.5 The accompanying notes on pages form an integral part of these Financial Statements.

132 FINANCIAL STATEMENTS 134 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 1. COMPANY S FORMATION AND OPERATIONS Hellenic Telecommunications Organization S.A. (hereinafter referred to as the Company or OTE ), was founded in 1949 in accordance with Law 1049/49, as a state-owned Société Anonyme and operates pursuant to Law 2246/94 (as amended), Law 2257/94 (OTE s Charter), Presidential Decree 437/95 and C.L. 2190/1920. OTE s main activities are to provide telecommunications and other related services. The address of its registered office is: 99 Kifissias Avenue Maroussi Athens, Greece, while its website is Up until 31 December 2000, based on an extension granted by the European Commission to the Greek State, OTE had the exclusive right to install, operate and exploit the public fixed switched telecommunications network in Greece and to provide public fixed switched voice telephony services. Effective 1 January 2001 and pursuant to the provisions of the new Telecommunications Law 2867/2000, which came into force in December 2000, amending certain provisions of the previous Law 2246/1994, the above mentioned exclusivity right expired and the relevant market is open to competition. The accompanying Separate and Consolidated Financial Statements (hereafter the «Financial Statements») as at 31 December 2007 were approved for issuance by the Board of Directors on 19 March 2008 while they are subject to the final approval of OTE s General Assembly. The OTE Group (hereafter referred to as the Group ) include the financial statements of OTE and the following subsidiaries over which OTE has control: Company Name Line of Business Country Ownership interest Direct ownership 31/12/ /12/2006 COSMOTE MOBILE TELECOMMUNICATIONS S.A. ( COSMOTE ) Mobile telecommunications services Greece 90.72% 67.00% OTE INTERNATIONAL INVESTMENTS LTD Investment holding company Greece % % OTE AUSTRIA HOLDING GMBH Investment holding company Austria % HELLAS SAT CONSORTIUM LIMITED («HELLAS-SAT ) Satellite communications Cyprus 99.05% 99.05% COSMO-ONE HELLAS MARKET SITE S.A. ( COSMO-ONE ) E-commerce services Greece 58.87% 51.55% OTENET S.A. ( OTEΝΕΤ ) Internet services Greece % 94.59% HELLASCOM S.A. ( HELLASCOM ) Telecommunication projects Greece % % OTE PLC Financing services U.K % % OTE SAT-MARITEL S.A. ( OTE SAT MARITEL ) Satellite telecommunications services Greece 94.08% 94.08% OTE PLUS S.A ( OTE PLUS ) Consulting services Greece % 99.00% ΟΤΕ ESTATE S.A. ( ΟΤΕ ESTATE ) Real estate Greece % % INFOTE S.A. ( INFOTE ) Directory and other information services Greece % OTE INTERNATIONAL SOLUTIONS S.A. (OTE- GLOBE ) Wholesale telephony services Greece % % HATWAVE HELLENIC-AMERICAN TELECOMMUNICATIONS WAVE LTD. ( HATWAVE ) Investment holding company Cyprus 52.67% 52.67% OTE INSURANCE AGENCY S.A. ( OTE INSURANCE ) Insurance brokerage services Greece % % ΟΤΕ ACADEMY S.A. ( OTE ACADEMY ) Training services Greece % %

133 FINANCIAL STATEMENTS 135 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Company Name Line of Business Country Ownership interest Indirect ownership 31/12/ /12/2006 ROMTELECOM S.A. ( ROMTELECOM) Fixed line telephony services Romania 54.01% 54.01% S.C. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS S.A. ( COSMOTE ROMANIA ) Mobile telecommunications services Romania 79.71% 63.10% OTE MTS HOLDING B.V. Investment holding company Holland 90.72% 67.00% COSMOFON MOBILE TELECOMMUNICATIONS SERVICES A.D. SKOPJE ( COSMOFON ) Mobile telecommunications services Skopje 90.72% 67.00% COSMO BULGARIA MOBILE EAD ( GLOBUL ) Mobile telecommunications services Bulgaria 90.72% 67.00% COSMO-HOLDING ALBANIA S.A. ( CHA ) Investment holding company Albania 88.00% 64.99% ALBANIAN MOBILE COMMUNICATIONS Sh.a ( AMC ) Mobile telecommunications services Albania 74.80% 55.24% COSMOHOLDING CYPRUS LTD ( COSMOHOLDING CYPRUS ) Investment holding company Cyprus 81.65% 67.00% GERMANOS S.A. Retail services Greece 81.65% 66.35% E-VALUE S.A. Marketing services Greece 81.65% 46.44% GERMANOS TELECOM SKOPJE S.A. Retail services Skopje 81.65% 66.35% GERMANOS TELECOM ROMANIA S.A. Retail services Romania 81.64% 66.34% TEL SIM S.R.L Retail services Romania 81.65% - SUNLIGHT ROMANIA S.R.L. -FILIALA Retail services Romania 81.64% 66.34% GERMANOS TELECOM BULGARIA A.D. Retail services Bulgaria 81.65% 66.35% MOBILBEEEP LTD Retail services Greece 81.65% 67.00% GRIGORIS MAVROMICHALIS & PARTNERS LTD Retail services Greece 80.82% 65.68% GEORGIOS PROKOPIS & PARTNERS LTD Retail services Greece % IOANNIS TSAPARAS & PARTNERS LTD Retail services Greece 41.64% 33.84% ALBATROS & PARTNERS LTD Retail services Greece 81.64% - VOICENET A.E. ( VOICENET ) Telecommunications services Greece 84.07% 79.52% ΟΤΕΝΕΤ CYPRUS LTD Investment holding company Cyprus 76.33% 70.02% ΟΤΕΝΕΤ TELECOMMUNICATIONS LTD Telecommunications services Greece 71.61% 67.14% HELLAS SAT S.A. Satellite communications Greece 99.05% 99.05% ΟΤΕ INVESTMENT SERVICES S. A. Investment holding company Greece % % OTE PLUS BULGARIA Consulting services Bulgaria % 99.00% OTE PLUS ROMANIA Consulting services Romania % 99.00%

134 FINANCIAL STATEMENTS 136 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The Financial Statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as these have been adopted by the European Union. The Financial Statements have been prepared on the historical cost basis except for specific assets and liabilities which are measured at fair values in accordance with IFRS. All amounts are presented in millions of Euro, unless otherwise stated. The accounting policies presented below (See Note 3), have been applied consistently to all years presented by the Group entities. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied for the preparation of the accompanying Financial Statements under IFRS are as follows: 1. Basis of Consolidation and Investments: a) Subsidiaries: The Consolidated Financial Statements include the financial statements of the Company and all subsidiaries controlled by the Company. Control exists when Company has the power to govern the financial and operating policies of the subsidiaries so as to obtain benefits from their activities. The financial statements of the subsidiaries are prepared as of the same reporting date with those of the parent, applying accounting policies consistently. Appropriate adjustments are made when necessary to ensure consistency in accounting policies used. Ιntercompany balances and transactions and any intercompany profit or loss on assets remaining within the Group, are eliminated in the Consolidated Financial Statements. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the purchase method of accounting that measures the acquiree s assets and liabilities at their fair value at the date of acquisition. b) Associates: Associates are those entities, in which the Group has significant influence, but not control, over their financial and operating strategy. Significant influence is presumed to exist when the Company has the right to participate in the financial and operating policy decisions, without having the power to govern these policies. Investments in associates in which the Group has significant influence are accounted for using the equity method. Under this method the investment is carried at cost, and is adjusted to recognize the investor s share of the earnings or losses of the investee from the date that significant influence commences until the date that significant influence ceases and also for changes in the investee s net equity. Gains or losses from transactions with associates are eliminated in proportion to the investors participation in there. Furthermore, the investment s value is adjusted for any accumulated impairment loss. When the Group s share of losses exceeds the carrying amount of the investment, the carrying amount of the investment is reduced to nil and recognition of further losses is discontinued, except to the extent the Group has created obligations or has made payments on behalf of the associate. Dividends received from associates are eliminated against the carrying value amount of the investment. In the Separate Financial Statements, investments in subsidiaries and associates are accounted for at cost adjusted for any impairment where necessary. 2. Investments in Financial Assets: Financial assets are initially measured at their fair value, which is normally the acquisition cost. After initial recognition, according to the purpose for which the assets were acquired, they are classified in the following categories: Financial Assets at Fair Value Through Profit or Loss, Held-to-Maturity and Available for Sale Financial Assets. Financial Assets at Fair Value through profit or loss are measured at fair value and gains or losses are recognized in income. Held-to-maturity investments are measured at amortized cost using the effective interest method and gains or losses through the amortization process are recognized in income. Available for sale financial assets are measured at fair value and gains or losses are recognized directly in equity while upon sale realized gains or losses are recognized in the income statement. The fair values of quoted investments are based on quoted market bid prices. For investments where there is no quoted market price, fair value is determined using valuation techniques. 3. Use of Estimates and Judgements: The preparation of the Financial Statements in accordance with IFRS requires management to make estimates and assumptions which may affect the application of the accounting policies and the amounts recorded in the financial statements. These estimates and assumptions are revised on an on-going basis. These revisions are recognized in the period they incurred and affect the related reporting periods. These estimates and assumptions are based on existing experience and on

135 FINANCIAL STATEMENTS 137 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) various factors considered reasonable, under the current conditions. These estimates and assumptions are the basis for decision making relating to the accounting value of assets and liabilities, which are not available from other sources. The actual final results may differ from these estimates and these variations may have significant effect on the Financial Statements. 4. Foreign Currency Translation: OTE s functional currency is the Euro. Transactions involving other currencies are translated into Euro at the exchange rates, ruling on the date of the transactions. At the balance sheet date, monetary assets and liabilities, which are denominated in foreign currencies, are retranslated at the exchange rates at that date. Gains or losses resulting from foreign currency translation are recognized in Income. Non-monetary items denominated in foreign currencies that are measured at historical cost are retranslated at the exchange rate at the date of the initial transaction. Non-monetary items denominated in foreign currencies that are measured at fair value are retranslated at the exchange rates at the date that the fair value was determined. The foreign currency differences arising from part of gains or losses from the change of the fair value and are recognized in Income or directly in equity depending on the underlying monetary item. Except for operations in highly inflationary economies, where the financial statements are restated to current purchasing power prior to translation to the reporting currency, the functional currency of the Group s operations outside Greece is the local country s currency. Assets and liabilities of operations outside Greece, including goodwill and the fair value adjustments arising from consolidation, are translated into Euro using exchange rates ruling at the balance sheet date. Revenues and expenses are translated at the average exchange rates prevailing during the year which approximate the exchange rates ruling on the date of the transactions. All resulting foreign exchange differences are recognized as a separate component of shareholders equity and are recognized in the Income on the disposal of the foreign entity. 5. Goodwill: All business combinations are accounted for using the purchase method. For business combinations occurring subsequent to the date of transition to IFRS, goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired. For business combinations occurring prior to the date of transition to IFRS, goodwill is recorded at the carrying value at the date of transition, based on previous GAAP. Goodwill is tested for impairment at least annually. The goodwill impairment test is a process required by IAS 36 Impairment of assets. Thus, after initial recognition, goodwill is measured at cost less any accumulated impairment losses. An impairment loss recognized for goodwill shall not be reversed in a subsequent period. Goodwill on acquisition of subsidiaries is presented as an intangible asset. Negative goodwill on acquisition of subsidiaries is recorded directly in Income. Goodwill on acquisition of associates is included in the carrying amount of the investment. Goodwill arising on the acquisition of a minority interest in a subsidiary, where control already exists, is recorded directly in equity. 6. Property, Plant and Equipment: Items of property, plant and equipment are measured at cost, net of subsidies received, plus interest costs incurred during periods of construction, less accumulated depreciation and any impairment in value. Any statutory revaluations based on Greek legislation, are reversed. Subsidies are presented as a reduction of the cost of property, plant and equipment and are recognized in Income over the estimated life of the assets through reduced depreciation expense. The cost of self-constructed assets includes the cost of materials, direct labour costs, relevant general overhead costs, as well as the cost relating to asset retirement obligations in the period in which they are generated and to the extent that their fair value can be reasonably estimated. The relevant asset retirement costs are capitalized as part of the value of the property, plant and equipment and are depreciated accordingly. Repairs and maintenance are expensed as incurred. The cost and related accumulated depreciation of assets retired or sold are removed from the corresponding accounts at the time of sale or retirement, and any gain or loss is included in the income statement. Expenditure relating to the replacement of part of an item of property, plant and equipment is added to the carrying amount of the asset if it is probable that future economic benefits will flow to the Group and its cost can be measured reliably. All other expenditures are recognized in the income statement as incurred.

136 FINANCIAL STATEMENTS 138 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 7. Depreciation: Depreciation is recognized on a straight-line basis over the estimated useful lives of property, plant and equipment, which are periodically reviewed. The estimated useful lives and the respective rates are as follows: Estimated Useful Life Depreciation Rates Classification Buildings building installations years 2.5-5% Telecommunication equipment and installations: Telephone exchange equipment 8-12 years % Radio relay stations 8 years 12.5% Subscriber connections 10 years 10% Local and International network 8-17 years % Other 5-10 years 10-20% Transportation equipment 5-8 years % Furniture and fixtures 3-5 years 20-33% 8. Employee Benefits: a) Defined Contribution Plans: Obligations for contributions to defined contribution plans are recognized as an expense in Income as incurred. There are no further legal or constructive obligations to pay any further amounts. b) Defined Staff Benefit Plans: Obligations derived from defined staff benefit plans are calculated separately for each plan by estimating the amount of future benefits employees have earned in return for their service as of the balance sheet date. These benefits are discounted to their present value after the deduction of the fair value of any plan asset. The discount rate is the yield of Greek Government bonds with maturity that approximates the term of the obligations. These obligations are calculated on the basis of financial and actuarial assumptions which are carried out by independent actuaries using the Projected Unit Credit Method. Net pension cost for the period is recognized in Income and consists of the present value of the accrued benefits, interest cost on the benefits obligation, prior service cost and actuarial gains or losses. Prior service costs are recognized on a straight-line basis over the average period until the benefits become vested. All actuarial gains or losses are recognised during the average remaining working life of active employees and are included in the service cost of the year, if at the beginning of the year they exceed 10% of the projected benefit obligation. Contributions that are related to employees who retire under the voluntary retirement program are recognized when employees accept the offer and the amounts can be reasonably estimated. 9. Taxes: Income taxes include current and deferred taxes. Current tax is measured on the taxable income for the year using enacted tax rates at the balance sheet date. Deferred taxes are provided using the balance sheet method on all temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, measured at the tax rates that are expected to be applied when the differences are expected to reverse. Deferred tax assets are recognized for all deductible temporary differences and unused tax losses carried forward, to the extent that it is probable that future taxable profits will be available against which they can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilized. Income tax for the year (current and deferred) is recognized in Income, except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

137 FINANCIAL STATEMENTS 139 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 10. Cash and Cash Equivalents: For purposes of the Cash Flow Statement, time deposits and other highly liquid investments with original maturities of three months or less, are considered to be cash. 11. Advertising Expenses: All advertising costs are expensed as incurred. 12. Research and Development Costs: Research and development costs are expensed as incurred. 13. Recognition of Revenues and Expenses: Fixed revenues primarily consist of connection charges and subscription fees, monthly network services fees, exchange network and facilities usage charges, other value added communication services fees, and sales of handsets and accessories. Revenues are recognized as follows: Connection charges: Connection charges for the fixed network are deferred and amortized to income over the estimated service life of the connection. No connection fees are charged for mobile services. Monthly network service fees: Revenues related to the monthly network service fees are recognized in the month that the telecommunication service is provided. Usage Charges and Value Added Services Fees: Call fees consist of fees based on airtime and traffic generated by the caller, the destination of the call and the service utilized. Fees are based on traffic, usage of airtime or volume of data transmitted for value added communication services. Revenues for usage charges and value added communication services are recognized in the period when the services are provided. Revenues from outgoing calls made by OTE s subscribers to subscribers of mobile telephony operators are presented at their gross amount in the income statement as the credit and collection risk remains solely with OTE. Interconnection fees for mobile-to-mobile calls are recognized based on incoming traffic generated from other mobile operators networks. Unbilled revenues from the billing cycle date to the end of each period are estimated based on traffic. Revenues from the sale of prepaid airtime cards and the prepaid airtime, net of discounts allowed, included in the Group s prepaid services packages, are recognized based on usage. Such discounts represent the difference between the wholesale price of prepaid cards and boxes (consisting of handsets and prepaid airtime) to the Group s Master Dealers and the retail sale price to the ultimate customers. Unused airtime is included in Deferred revenue on the balance sheet. Upon the expiration of prepaid airtime cards, any unused airtime is recognized to Income. Airtime and acquisition commission costs due to the Group s Master Dealers for each subscriber acquired through their network are expensed as incurred. Commissions paid for each contract subscriber acquired by the Master Dealers as well as bonuses paid to Master Dealers in respect of contract subscribers who renew their annual contracts, are deferred and amortized as expenses over the contract period. Bonuses for the achievement of mutually agreed targets and commissions based on revenues billed to each subscriber acquired by the Master Dealers are expensed as incurred. Sales of telecommunication equipment: Revenues from the sale of handsets and accessories, net of discounts allowed, are recognized at the point-of-sale, when the significant risks and rewards of ownership have passed to the buyer. Revenues from dividends: Revenues from dividends are recognized when the right to receive payment is established with the approval for distribution by the General Assembly of shareholders. Interest income: Interest income is recognized as the interest accrues (using the effective interest method). Revenues from construction projects: Revenues from construction projects are recognized in accordance with the percentage of completion method. In a principal and agency relationship, amounts collected by the agent on behalf of the principal do not result in increases in equity of the agent and thus, they are not revenues for the agent. Revenue for the agent is the amount of commission received by the principal. On the other hand, the principal s revenues consist of the gross amounts described above and the commission paid to the agent is recognized as an expense. 14. Earnings per Share: Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during each year. 15. Segment Reporting: IAS 14 Segment Reporting sets criteria for the determination of the reportable business and geographical segments of enterprises. Segments are determined based on the Group s legal structure, as the Group s chief operating decision makers review financial information separately reported by the Company and each of the consolidated subsidiaries. The reportable segments are determined using the quantitative thresholds required by the Standard. Information for operating segments that do not

138 FINANCIAL STATEMENTS 140 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) constitute reportable segments is combined and disclosed in the All Other category. Each segment performance is evaluated based on operating income and net profit. 16. Dividends: Dividends declared to the shareholders are recognized and reflected as a liability in the period they are approved by the Shareholders General Assembly. 17. Long-term Assets/ Liabilities: Long-term assets and liabilities are initially recorded at their fair value. Subsequent to the initial recognition, they are measured at amortized cost and the differences between that cost and the amount of receipt/payment are recognized in Income over the life of the asset/ liability using the effective interest rate. 18. Share Capital Issuance Costs: Share issuance costs, net of related deferred tax, are reflected as a deduction of Share Premium. 19. Treasury Shares: Treasury shares consist of OTE s own shares, which have been issued, subsequently reacquired by the Company and not yet cancelled. Treasury shares do not reduce the number of shares issued but reduce the number of shares in circulation. The gross cost of the shares reacquired is reflected as a reduction to equity. Upon retirement, the acquisition cost of treasury share reduces the Share Capital and Share Premium and any difference is charged to Retained Earnings. 20. Leases: A lease that transfers substantially all of the rewards and risks incident to ownership of property is accounted for by the lessee as the acquisition of an asset and the incurrence of a liability, and by the lessor as a sale and/ or provision of financing. Lease payments are apportioned between finance charges (interest),which are recognized in Income and reduction of the lease liability. Finance charges are recognized directly as an expense. Financial leases are presented at the lower amount, between their fair value and the present value of the minimum lease payments at the beginning of the lease, reduced by the accumulated depreciation and any impairment losses. If the lease does not transfer substantially all of the rewards and risks incident to ownership of property, it is classified as an operating lease by the lessee and the rental payments are recognized as an expense as incurred. 21. Related Parties: Related party transactions and balances are disclosed separately in the financial statements. Such related parties principally consist of a company s principal owners and management, companies with common ownership and/ or management with the company and its consolidated subsidiaries, or other affiliates of such companies. 22. Telecommunication Licenses: Telecommunication licenses are accounted for at cost, are amortized over their term of life and they are tested for impairment at least annually. 23. Materials and Supplies: Materials and supplies are measured at the lower of cost and net realizable value. The cost is based on the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. In the case of any subsequent increase of the net realizable value of materials and suppliers that have been written-down, the amount of the write-down is reversed. 24. Trade Receivables and Allowance for Doubtful Accounts: Trade receivables are initially recognized at their fair value. Subsequently they are measured at fair value less an allowance for any probable uncollectible amounts. At each reporting and financial statements date, all trade receivables are assessed based on historical trends and statistical information and a provision for the probable and reasonably estimated loss for these accounts is recorded. The balance of such allowance for doubtful accounts is adjusted by recording a charge to Income at each reporting period. Any customer account balances written-off are charged against the existing allowance for doubtful accounts. 25. Intangible Assets: Intangible assets acquired separately are measured at cost, while those acquired from a business combination are measured at fair value on the date of acquisition. Subsequently, they are measured at that amount less accumulated amortization and accumulated impairment losses. The useful lives of the intangible assets are assessed to be either finite or indefinite. Intangible assets with a finite useful life are amortized on a straight-line basis over their useful life. Amortization of intangible assets with a finite useful life begins when the asset is available for use. Intangible assets with an indefinite useful life are not amortized but instead they are tested for impairment at least annually in accordance with IAS 36 Impairment. No residual values are recognized. The useful lives of the intangible assets are reviewed on an annual basis, and adjustments, where applicable, are made prospectively. Intagible assets are assessed for impairment at least annually on an individual basis or on a cash generating unit basis. 26. Borrowing Costs: Assumptions, legal and other direct costs incurred in connection with the issuance of long-term loans adjust the carrying amount of the loans and are amortized in Income using the effective interest rate method over the life of the loan. Borrowing costs incurred during the construction period of property, plant and equipment attributable to these assets, are capitalized to the cost of these assets. All other borrowing costs are recognized as an expense in the income statement when incurred.

139 FINANCIAL STATEMENTS 141 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 27. Borrowings: All loans and borrowings are initially recognized at fair value, net of direct costs associated with the borrowing. After initial recognition, borrowings are measured at amortized cost using the effective interest rate method. Gains or losses through the amortization process are recognized in Income as finance revenue or cost. 28. Provisions: Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are measured by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase of the provision due to the passage of time is recognized as a borrowing cost. Provisions are reviewed at each balance sheet date and if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, are reversed. Provisions are used only for expenditures for which they were originally recognized. No provisions are recognized for future operating losses. Contingent assets and contingent liabilities are not recognized. Provisions for restructuring are recognized when the Group has an approved, detailed and formal restructuring plan, which has either started to be implemented or has been publicly announced to those affected by it. Future operating costs are not provided for. 29. Impairment of Assets: The carrying values of the Group s assets are tested for impairment, whenever indications exist that their carrying amount is not recoverable. In such cases, the recoverable amount is estimated and if the carrying amount of the asset exceed its estimated recoverable amount, an impairment loss is recognized in Income. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In measuring value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. If an asset does not generate cash flows individually, the recoverable amount is determined for the cash generating unit to which the asset belongs. At each reporting date the Group assesses whether there is an indication that an impairment loss recognized in prior periods may no longer exist. If any such indication exists, the Group estimates the recoverable amount of that asset and the impairment loss is reversed, increasing the carrying amount of the asset to its recoverable amount, to the extent that the recoverable amount does not exceed the carrying value of the asset that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. 30. Share-Based Compensations and Other Rights: The fair value of share-based compensations is recognized as an expense with a corresponding increase in equity, while the fair value of any other rights is recognized as an expense with a corresponding increase in liabilities. Fair value is determined at the grant date and is allocated to the vesting period without any vesting conditions. Fair value is measured based on generally accepted methods, taking into account the terms and conditions (except market conditions) under which these rights have been granted. For share-based compensations, the amount expensed is revised to equal the actual number of equity instruments that ultimately vest, except for the case that the withdrawal of the right is due to the fact that share prices have not met the registration limit. For all other rights, the liability is remeasured at each balance sheet date and at the date of settlement, with any changes in fair value recognized as interest expense. 31. Derivative Financial Instruments and Hedging Instruments: Derivative financial instruments include interest rate swaps, currency swaps and other instruments. Derivatives for trading purposes: Derivatives that do not qualify for hedging, are considered as derivatives for trading purposes. Initially, these derivatives are recognized at their fair value (which is essentially the transaction cost) at the commencement date. Subsequent to the initial recognition, they are measured at fair value based on quoted market prices, if available, or based on valuation techniques such as discounted cash flows. These derivatives are classified as assets or liabilities depending on their fair value, with any changes recognized in the income statement. Hedging: Hedging relationships are the following: Fair Value Hedge, where the exposure to changes in the fair value of a recognized asset or liability is hedged, or Cash Flow Hedge, where the exposure to variability in cash flows associated with a recognized asset or liability is hedged. At the inception of the hedge there is formal documentation which includes identification of the hedging

140 FINANCIAL STATEMENTS 142 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) instrument, the hedged item, the hedging relationship, the nature of the risk being hedged and the Company s risk strategy. Furthermore, the documentation includes an analysis of whether the hedging is effective in offsetting the exposure to changes in the fair value or cash flows attributable to the hedged risk. In a Fair Value Hedge, the gain or loss from remeasuring the hedging instrument at fair value is recognized in Income and the gain or loss on the hedged item adjusts the carrying amount of the hedged item and is recognized in Income. In a Cash Flow Hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in equity and the ineffective portion of the gain or loss on the hedging instrument is recognized in Income. 32. Presentation Changes: In the 2006 consolidated Financial Statements an amount of EUR which was previously included under Retained Earnings was presented separately to conform with the presentation of the 2007 Consolidated Financial Statements. For further details on the nature of this amount see Note 7. For comparability reasons certain reclassifications on the disclosures were made. These reclassifications did not have an impact on the 2006 Financial Statements. 33. New Standards, Interpretations and Amendments to existing Standards not yet adopted: The International Accounting Standard Board (IASB) and the International Financial Reporting Interpretation Committee (IFRIC), have issued new IFRS, amendments and interpretations to existing standards that are not mandatory for the year ended 31 December 2007 and have not been applied in preparing these Financial Statements: IFRS 8 Operating Segments is effective for financial periods beginning on or after 1 January IFRS 8 replaces IAS 14 and introduces the management approach to segment reporting. IFRS 8 will require the disclosure of segment information based on the internal reports regularly reviewed by the Group s Chief Operating Decision Maker in order to assess each segment s performance and to allocate resources to them. The new Standard is not expected to have a significant effect on the Group s financial statements. IFRIC 11 IFRS 2 Group and Treasury Share Transactions is effective for financial periods beginning on or after 1 March IFRIC 11 requires a share-based payment arrangement in which an entity receives goods or services as consideration for its own equity instruments to be accounted for as an equity-settled share-based payment transaction, regardless of how the equity instruments are obtained. It is not expected to have a significant effect on the Group s financial statements. IFRIC 12 Service Concession Arrangements is effective for financial periods beginning on or after 1 January IFRIC 12 provides guidance on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. It is not expected to have any significant effect on the Group s financial statements. IFRIC 13 Customer Loyalty Programmes is effective for financial periods beginning on or after 1 July IFRIC 13 addresses the accounting by entities that operate, or otherwise participate in customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. It is not expected to have any significant effect on the Group s financial statements. IFRIC 14 IAS 19 The Limit in a Defined Benefit Asset, Minimum Funding Requirments and their Interaction is effective for financial years beginning on or after 1 Junary IFRIC 14 clarifies when refunds or reductions in the future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. It also addresses when a MFR might give rise to a liability. The Group has not yet determined the potential effect of the interpretation, which has not been approved by the European Union. Amendments to IAS 1 Presentation of Financial Statements are effective for financial periods beginning on or after 1 January IAS 1 has been revised to upgrade the quality if the information presented in financial statements. The main changes relate to the statement of changes in equity, which is required to include only the transactions with the shareholders, the introduction of a new statement of comprehensive income, which presents all components of recognized income and expenses that are in the statement of comprehensive income and the requirement to present the effect of the application of new standards on prior periods in a separate column on the financial statements. The revised standard has not been approved by the European Union. Revised IAS 23 Borrowing Costs is effective for financial periods beginning on or after 1 January It does not permit the option of immediately recognizing all borrowing costs as an expense and requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised standard is not expected to impact the Group s Financial Statement given the fact that the Group already capitalizes all borrowing costs. The revised standard has not yet been approved by the European Union yet. Revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements is effective for financial periods beginning on or after 30 June The revised IFRS 3 introduces a series of changes in the accounting treatment of business combinations which will affect the amount of the recognized goodwill, the income statement for the year that the

141 FINANCIAL STATEMENTS 143 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) business combination takes place and future results. These changes include the recognition as expenses of the costs related to the acquisition and the recognition of the future changes in fair value of the consideration in Income (instead the adjusting of goodwill). Revised IAS 27 requires that acquisitions of minority interests are recognized in equity. Therefore, they do not affect goodwill or create a result in Income (gain or loss). Furthermore, the revised standard is applicable for the transactions after the transition date. The above mentioned changes have not yet been approved by the European Union. Amendments to IAS 32 Financial Instruments and IAS 1 Presentation of Financial Statements Puttable Financial Instruments are effective for financial periods beginning on or after 1 January The amendments to IAS 32 require that puttable financial instruments and obligations arising in liquidation are classified as equity if and only if they meet certain conditions. The amendments to IAS 1 require disclosures with respect to the puttable financial instruments that are classified as equity instruments. These amendments are not expected to have a significant impact to the Group s financial statements and have not been approved by the European Union yet..

142 FINANCIAL STATEMENTS 144 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is analyzed as follows: COMPANY Buildings Telecommunication equipment Transportation Means Furniture Construction and fixtures in progress Investment supplies Total 31/12/2005 Cost , ,568.1 Accumulated depreciation (4.0) (4,343.0) (31.2) (157.7) - - (4,535.9) Net Book Value 31/12/ , , /1/2006 Net Book Value 1/1/ , ,032.2 Additions Other value adjustments (0.5) Disposals, cost (0.6) (271.3) (0.8) (2.8) (359.0) (58.3) (692.8) Disposals, accumulated depreciation Depreciation for the year (1.9) (516.4) (2.3) (6.8) - - (527.4) Other accumulated depreciation adjustments - (463.6) (462.0) Net Book Value 31/12/ , , /12/2006 Cost , ,991.8 Accumulated depreciation (5.2) (5,089.4) (32.7) (160.1) - - (5,287.4) Net Book Value 31/12/ , , /1/2007 Net Book Value 1/1/ , ,704.4 Additions Spin off OTE-GLOBE, Cost - (203.1) - - (5.1) - (208.2) Disposals, cost - (10.4) (1.6) (5.0) (190.8) (74.5) (282.3) Disposals, accumulated depreciation Depreciation for the year (1.5) (492.1) (1.6) (6.6) - - (501.8) Spin off OTE-GLOBE,accumulated depreciation Net Book Value 31/12/ , , /12/2007 Cost , ,062.0 Accumulated depreciation (6.7) (5,498.9) (32.8) (161.7) - - (5,700.1) Net Book Value 31/12/ , ,361.9 There are no restrictions on title on property, plant and equipment. The amount of borrowing costs capitalized during 2007 is EUR 5.2.

143 FINANCIAL STATEMENTS 145 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) GROUP Land Buildings 31/12/2005 Telecommunication equipment Transportation Means Furniture and fixtures Construction in progress Investment supplies Cost , ,223.7 Accumulated depreciation - (245.2) (5,914.5) (40.0) (284.4) - - (6,484.1) Net Book Value 31/12/ , , /1/2006 Net Book Value 1/1/ , ,739.6 Subsidiary acquisition, cost Subsidiary acquisition, accumulated depreciation - (7.2) (4.4) (0.7) (27.6) - - (39.9) Additions ,457.5 Disposal of subsidiary, cost - (31.0) (280.2) (2.5) (4.6) (64.2) (5.5) (388.0) Disposal of subsidiary,accumulated depreciation Other value adjustments (0.4) (0.1) (3.1) Disposals, cost - (3.8) (302.6) (2.3) (10.6) (440.8) (78.9) (839.0) Disposals, accumulateddepreciation Foreign exchange differences, cost Foreign exchange differences,accumulated depreciation - (26.1) (216.7) (2.9) (7.1) - - (252.8) Depreciation for the year - (29.6) (1,023.0) (4.0) (35.2) - - (1,091.8) Sundry accumulated depreciation adjustments - (6.6) (448.3) (452.3) Net Book Value 31/12/ , , /12/2006 Cost , ,455.7 Accumulated depreciation - (304.4) (7,186.2) (43.7) (337.9) - - (7,872.2) Net Book Value 31/12/ , , /1/2007 Net Book Value 1/1/ , ,583.5 Additions , ,244.1 Disposal of subsidiary, cost (0.7) - (5.7) - (7.1) (15.7) - (29.2) Disposal of subsidiary, accumulated depreciation Other value adjustments - (3.0) (10.6) - - (3.0) Disposals, cost - (3.9) (173.0) (8.6) (14.9) (1,030.4) (166.1) (1,396.9) Disposals, accumulated depreciation Foreign exchange differences, cost (0.5) (39.3) (312.6) (2.5) (10.6) (3.1) (10.9) (379.5) Foreign exchange differences, accumulated depreciation Depreciation for the year - (35.3) (1,012.1) (5.5) (36.0) - - (1,088.9) Other accumulated depreciation adjustments (8.0) Net Book Value 31/12/ , , /12/2007 Cost , ,891.2 Accumulated depreciation - (313.5) (7,287.4) (39.1) (339.8) - - (8,519.8) Net Book Value 31/12/ , ,371.4 Total

144 FINANCIAL STATEMENTS 146 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 5. GOODWILL Goodwill included in the Consolidated Financial Statements is analyzed as follows: Net Book Value 1/1/ Additions Transfer from acquired subsidiary 4.8 Foreign exchange differences (0.2) Net Book Value 31/12/ Foreign exchange differences 0.7 Net Book Value 31/12/ Additions to goodwill in 2006 arose from the acquisition of GERMANOS S.A. by COSMOTE. Foreign exchange differences arise from the translation of the acquired goodwill on AMC in the reporting currency (Euro) with the current foreign exchange at each balance sheet date. The above mentioned goodwill has been allocated to the reporting units that it relates. The fair value of the reporting units as at 31 December 2007 was above the carrying amount of such goodwill, thus there is no indication of impairment of goodwill. 6. TELECOMMUNICATION LICENSES Telecommunication Licenses is analyzed as follows: 2006 COMPANY GROUP Net Book Value 1/1/ Additions Foreign exchange differences, cost Amortization for the year (0.4) (32.8) Foreign exchange differences, accumulated amortization - (2.0) Net Book Value 31/12/ /12/2006 Cost Accumulated amortization (2.4) (127.6) Net Book Value Net Book Value 1/1/ Additions Foreign exchange differences, cost - (4.0) Amortization for the year (0.4) (47.2) Foreign exchange differences, accumulated depreciation Net Book Value 31/12/ /12/2007 Cost Accumulated amortization (2.8) (170.8) Net Book Value 31/12/

145 FINANCIAL STATEMENTS 147 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 7. INVESTMENTS Investments is analyzed as follows: COMPANY GROUP COMPANY GROUP (a) Investments in subsidiaries 3, , (b) Other investments , , (a) Investments in Subsidiaries is analyzed as follows: Country COSMOTE Greece 2, OTE INTERNATIONAL INVESTMENTS LTD Cyprus OTE AUSTRIA HOLDING GMBH Austria HELLAS-SAT Cyprus COSMO-ONE Greece OTENET Greece HELLASCOM Greece OTE SAT- MARITEL Greece OTE PLC U.K ΟΤΕ PLUS Greece ΟΤΕ ESTATE Greece INFOTE Greece OTE-GLOBE Greece OTE INSURANCE Greece OTE ACADEMY Greece , ,668.8 Included in Investments in Subsidiaries are the amounts of loans granted by ΟΤΕ to its subsidiaries and are outstanding at the balance sheet date. As at 31 December 2007, the outstanding loans included in investments amount to EUR 35.0 and relate to a loan that OTE granted to OTE PLC. The movement of Investments in Subsidiaries is as follows: COMPANY Balance at 1 January ,526.3 Acquisition of additional shares in subsidiary Sale of investments (55.0) Share Capital increase of subsidiary 6.4 Balance at 31 December ,668.8 Balance at 1 January ,668.8 Acquisition of additional shares in subsidiary 2,105.0 Sale of investments (12.4) Share Capital increase of subsidiary Reduction of subsidiary s share capital (12.0) Transfer of loan to subsidiary 35.0 Liquidation of subsidiary (OTE AUSTRIA HOLDING GMBH) (0.1) Balance at 31 December ,947.1

146 FINANCIAL STATEMENTS 148 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The movements that took place during the year as presented in the table above are as follows: Acquisition of minority of COSMOTE: As at 31 December 2006, OTE had 223,572,294 shares, which represented approximately 67.00% of the total issued share capital and voting rights of COSMOTE. On 9 November 2007, following the Board of Director s approval, OTE announced the submission of a public tender offer for the acquisition of the total outstanding common shares of COSMOTE at a consideration of EUR (in absolute figure). As at that date OTE had 227,086,941 shares, which represent approximately 67.83% of the total issued share capital and voting rights of COSMOTE, out of which 3,154,647 shares were acquired through the Stock Exchange in 2007 at a total consideration of EUR The public tender offer related to the 107,695,259 shares, which represented approximately 32.17% of total issued share capital and voting rights of COSMOTE. At the same time, as required by law, OTE submitted the respective Information Prospectus with all the terms of the public tender offer for approval by the Stock Exchange Committee, the Board of Directors of which approved it on 29 November Since the date of the Acceptance Period till 31 December 2007, OTE acquired through the Stock Exchange additionally 76,638,257 shares (or 22.89% of COSMOTE s share capital) with the corresponding voting rights for a total consideration of EUR 2,011.7, resulting to a total holding of 303,725,198 shares which represented approximately 90.72% of COSMOTE s share capital and voting rights. The goodwill of EUR 1,946.5, which resulted from the acquisition of COSMOTE s minority rights, was recognized directly in Equity in the Consolidated Financial Statements as it relates to the acquisition of minority in entities that control already exists. Acquisition of shares in OTENET On 24 February 2007 OTE s Board of Directors decided to acquire the total remaining portion of OTENET s minority shares. Following this decision OTE proceeded with the acquisition of the remaining 5.41% share capital of OTENET from minorities at EUR 7.4 increasing its participation in this subsidiary at 100%. In May 2007 OTE s management announced its decision to merge OTENET and incorporate its business activities. The absorption was approved by the Board of Directors of OTE on 18 December 2007 and by OTENET s Board of Directors on 28 December The date of the conversion balance sheet, was set to be 31 December The absorption is expected to be completed within the first semester of 2008 after obtaining all necessary and required approvals by the authorized parties. The goodwill of EUR 7.0 which resulted from the acquisition of OTENET s minority, was recognized directly in Equity in the Consolidated Financial Statements as it relates to the acquisition of minority to entities that control already exists. Total goodwill resulting from the acquisition of minority rights in entities that control already exists which in the Consolidated Financial Statements have been recognized directly in Equity, is analyzed as follows: Entity COSMOTE 2, GERMANOS OTENET HELLASCOM (3.3) (3.3) HELLAS SAT , Spin-Off of OTE-GLOBE On 19 April 2007, OTE s Board of Directors decided to spin-off international facilities and cables infrastructure of OTE as well as the licenses to use INTEC-ITU billing system (the Sector ) and contribute these items to the subsidiary OTE-GLOBE. The demerge and spin-off were approved by OTE s and OTE-GLOBE s General Assembly on 21 June 2007 and 29 June 2007 respectively and were completed according to the provisions of Law 2166/1993 and Article 36 of Law 2937/2001. The Net Asset position of the Sector as this was determined by the Accounting Statements as of 31 March 2007, amounted to EUR amount by which the share capital of OTE-GLOBE increased with the issuance of 45,330,534 registered shares of a nominal value of EUR 2.93 (in absolute figure) each with a corresponding increase of OTE s investment in this subsidiary.

147 FINANCIAL STATEMENTS 149 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) In October 2007 OTE following the Board of Directors decision participated in the share capital increase of the subsidiary OTE-GLOBE in cash amounting to EUR 30.0 with the issuance of 10,238,907 registered shares at a nominal value of EUR 2.93 (in absolute figures) each. OTE s investment in the total share capital increase of its subsidiary, during the year amounts to EUR INFOTE Sale On 19 December 2007, following the relevant Board of Directors decision, the sale of the wholly owned subsidiary INFOTE, which provides directory and information services, to Rhone Capital LLC and Zarkona Trading Ltd was completed. The total cash consideration amounted to EUR and the relevant selling costs amounted to approximately EUR 5.4. As a result of the above transaction and given that the carrying value of this investment in OTE s books amounted to Euro 12.4, a pretax gain of Euro was recognized, and is included in OTE s Separate 2007 income statement under Gains from investments. INFOTE is included in the Consolidated Financial Statements until the date the Group ceased to control that company (19 December 2007). The following table presents INFOTE s condensed income statements for the fiscal year 2006 and for the consolidated period 1 January December 2007: Period 1/1/ /12/2007 Year 2006 Turnover Operating expenses (40.7) (48.7) Operating income before financial results Financial results Profit before tax Income Tax (6.6) (4.6) Profit for the period In the Consolidated Financial Statements, the gain from the sale was determined as the difference between the selling price less related expenses and the value of INFOTE s net assets at the date of disposal. The assets and liabilities of INFOTE at the date of disposal (19 December 2007) are as follows: ASSETS Non current assets 29.0 Cash and cash equivalents 12.9 Other currents assets 25.2 Total Assets 67.1 LIABILITIES Long-term liabilities 1.8 Short-term liabilities 15.2 Total Liabilities 17.0 Net assets sold 50.1 OTE s share in INFOTE s net assets sold (100%) 50.1 Selling Price Disposal expenses (5.4) OTE s stake in INFOTE s net assets (100%) (50.1) Gain from sale of investment in the Consolidated Income Statement The effect of the above transaction on the Consolidated Cash Flow Statement is as follows: Selling Price Less cash and equivalents disposed (12.9) Less expenses related to the completion of the sale (5.4) Net inflow from the sale of subsidiary 281.9

148 FINANCIAL STATEMENTS 150 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Acquisition of minority of OTE PLUS Following the decision of the Board of Directors of 21 September 2006, on 8 February 2007 OTE acquired the remaining 1.0% minority interests in OTE PLUS for a cash consideration of Euro After the completion of the transaction OTE owns 100% of the share capital in OTE PLUS. Share Capital reduction of HELLASCOM In December 2007, HELLASCOM following the decision, of the Extraordinary General Assembly of the Shareholders dated 30 July 2007, proceeded with the reduction of its share capital by EUR 12.0 which was returned to OTE and accordingly reduced the investment value of the parent in the specific subsidiary. Change in participation in COSMOHOLDING CYPRUS and completion of GERMANOS acquisition On 15 January 2007 Mr. Panos Germanos acquired a participation of 10% in the share capital of COSMOTE s subsidiary COSMOHOLDING CYPRUS, by subscribing 100 registered shares (Class B) for a total amount of Euro 144.5, through the 100% controlled by him Cypriot holding Company, MICROSTAR Ltd. In accordance with the issuance terms of Class B shares, for which COSMOTE guaranteed, these shares do not have dividend rights, return of capital rights or any capital, profit or any other kind of distribution rights. These shares are redeemable by COSMOHOLDING CYPRUS or any other party indicated by COSMOTE on 31 December 2009 or on 31 December 2011, if the controlling shareholder MICROSTAR Ltd chooses to, at a price which depends on the achievement of certain corporate targets until the acquisition date. In addition, the Class B shares could be prematurely purchased after the request either of the holder in the case of change of control of COSMOTE or OTE, or COSMOHOLDING CYPRUS in the case COSMOTE decides to sell its stake in COSMOHOLDING CYPRUS to third parties not under its direct or indirect control. The amount of EUR plus EUR 8.8 which relates to accrued interest presented in the Consolidated Balance Sheet under Other Long-Term liabilities (See note 17). On 9 February 2007, GERMANOS Extraordinary General Assembly decided, following the request of COSMOHOLDING CYPRUS, the submission of application to the Capital Market Committee for the delisting of GERMANOS from the Athens Stock Exchange. The Capital Market Committee approved the above application on 8 March On 10 April 2007, the squeeze-out of the remaining shares of GERMANOS, was completed. During this process COSMOHOLDING CYPRUS paid for the acquisition of the remaining shares of GERMANOS for a total amount of EUR According to the 427/ decision of the Board of the Capital Market Committee, the delisting of GERMANOS was approved since 11 May Following the completion of the acquisition, the participation interest of COSMOHOLDING CYPRUS in GERMANOS is % and the Group s indirect participation interest in COSMOHOLDING CYPRUS and GERMANOS as of 31 December 2007 is 81.65%. On 21 November 2007, according to the Share Purchase Agreement dated 9 May 2006 between COSMOTE and Mr. P. Germanos, the return of the amount of EUR 20.0 by Mr. P. Germanos to COSMOHOLDING CYPRUS took place. (b) Other investments The movement of Other Investments is as follows: COMPANY GROUP Balance at 1 January Other movements - (0.3) Balance at 31 December OTE s Other Investments is analyzed as follows: TELEKOM SRBIJA Other The Group has a participation stake to TELEKOM SRBIJA at 20%. The investment is stated at cost as the Group has no significant influence.

149 FINANCIAL STATEMENTS 151 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Dividend Income comes from the following entities: COMPANY COSMOTE OTE INTERNATIONAL INVESTMENTS LTD OTE ESTATE INFOTE OTE-GLOBE OTESAT MARITEL ARMENTEL TELEKOM SRBIJA Other GROUP TELEKOM SRBIJA Other OTHER NON-CURRENT ASSETS Other Non-Current Assets is analyzed as follows: COMPANY GROUP COMPANY GROUP Loans and advances to employees Discounting of loans (4.0) (4.0) (3.2) (3.2) Loans to COSMOFON Intangible assets due to the acquisition of GERMANOS Other intangible assets Deferred expenses (long-term) Other Loans and Advances to Employees includes mainly loans granted to employees with service period exceeding 25 years against the accrued indemnity payable to them upon retirement. The effective interest rate on these loans is 1.58% for the financial year 2007 and 1.55% for the financial year The discounting factor of these loans is the difference between the above interest rate and the rate used for the actuarial valuation of staff leaving indemnities which is 4.8% for 2007 and 4.1% for 2006 (See Note 16). Loans to COSMOFON relates to two loans of Euro 22.0 and Euro 34.2 granted by OTE. COSMOFON was OTE s subsidiary until August 2005, when it was sold to COSMOTE. The loans were granted at 6.5% fixed interest rate and their maturity is to 2010 and 2012 respectively. During 2007, OTE collected EUR 5.0 from the first loan. The Group s Intangible Assets recognized in 2006 related to the acquisition of GERMANOS by COSMOTE and include mainly brand name (EUR ) which has indefinite useful life.

150 FINANCIAL STATEMENTS 152 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 9. TRADE RECEIVABLES Trade Receivables is analyzed as follows: COMPANY GROUP COMPANY GROUP Subscribers 1, , , ,553.2 International traffic Due from subsidiaries Unbilled revenues , , , ,871.9 Minus Allowance for doubtful accounts (623.6) (791.5) (568.0) (711.4) , ,160.5 The movement in the allowance for doubtful accounts is as follows: COMPANY GROUP Balance at 1/1/2006 (504.1) (624.1) Addition for the year, net of receipts (65.5) (97.9) Write-offs Foreign exchange differences - (0.2) Balance at 31/12/2006 (568.0) (711.4) Balance at 1/1/2007 (568.0) (711.4) Addition for the year, net of receipts (55.7) (88.0) Write-offs Foreign exchange differences Balance at 31/12/2007 (623.6) (791.5)

151 FINANCIAL STATEMENTS 153 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 10. OTHER CURRENT ASSETS Other Current Assets is analyzed as follows: COMPANY GROUP COMPANY GROUP Investments in financial assets Advances to pension funds (See Note 16) Due from State for income tax advance (See Note 19) Due from ΟΤΕ Leasing customers (See Note 27 (i)) Loans and advances to employees Tax on sale of investments VAT recoverable Other prepayments Deferred expenses Other Investments in Financial Assets arise from equity securities listed on the Athens Stock Exchange and are classified as Available for Sale Financial Assets. Except for the equity securities, Group s Financial Assets include bonds and other securities. 11. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents is analyzed as follows: COMPANY GROUP COMPANY GROUP Cash in hand Short term bank deposits , , , , SHARE CAPITAL OTE s share capital as at 31 December 2007 and 2006, amounted to EUR 1,171.5, divided into 490,150,389 registered shares, with a nominal value of EUR 2.39 (in absolute figure) each and the respective Share Premium as at 31 December 2007 and 2006 amounted to EUR The Hellenic State is OTE a major shareholder. As at 31 December 2006 its direct participation was approximately 35.66% while together with D.E.K.A. S.A. its participation was 38.73%. On 29 June 2007, Hellenic State, OTE s major shareholder, sold 52,446,092 common registered shares embedding voting rights through an accelerated book build, representing 10.7% of the OTE s Share Capital. After the completion of the above transaction the direct participation of the Hellenic State changed from 35.66% (or 174,796,804 shares) to 24.96% (or 122,350,712 shares), while it s indirect participation through D.E.K.A. S.A. is approximately 3.07% (or 15,052,773 shares) resulting in a total participation direct and indirect from 189,849,577 shares to 137,403,485 shares, with the corresponding voting rights, or from 38.73% to 28.03% respectively. In July 2007 following the decision of the Capital Market Committee with reference number 12/435/ , OTE was granted the permission to proceed with the sale of a total of 896,967 shares, which had not been dematerialized, on behalf of the beneficial owners of the securities. The sale of shares commenced on 23 July 2007 and is conducted according to the provisions and regulations of the Hellenic Capital Market Committee and the Athens Stock Exchange.

152 FINANCIAL STATEMENTS 154 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) On 8 November 2007 the Extraordinary General Assembly convened and decided the following: a. Approved the acquisition by OTE of own shares in accordance with article 16 of C.L. 2190/1920 up to 10% of total paid up share capital at a price ranging between EUR 15 to EUR 35 per share (in absolute figures) and simultaneous cancellation of the relevant decision of the General Assembly dated 21 June b. The amendment of the Articles of Association with the addition of the new Article 5a (Shares) and amendment of Article 8 (Board of Directors), 10 (Composition and operation of the Board of Directors), 17 (Invitation, Agenda of Company s Shareholders General Assembly) and 21 (extraordinary provision and majority) On 31 December 2007 MARFIN Investment Group s participation in OTE share capital, after purchases through Athens Stock Exchange, reached 18.89% or 92,592,156 shares and the corresponding voting rights. The investment includes: a.6.29% stake or 30,819,186 shares with embedded voting rights that MARFIN Investment Group owns directly and b.12.60% stake or 61,772,970 shares with embedded voting rights that MARFIN Investment Group has the right to acquire in accordance with the total return equity swaps conditions which voting rights are exercised based of their instructions. It is noted that within the 12.60% stake are included the following: 8.52% stake or 41,772,970 shares with corresponding embedded voting rights that derive from the total return equity swap agreement between MARFIN Investment Group and COMMERZBANK AG, and 4.08% stake or 20,000,000 shares with corresponding embedded voting rights that derive from the total rerutn equity swap agreement between MARFIN Investment Group and ROYAL BANK OF SCOTLAND PLC. 13. STATUTORY RESERVE - RETAINED EARNINGS Under Greek Company Law, entities are required to transfer a minimum of five percent of their annual net profit to a statutory reserve, until such reserve equals one-third of the issued share capital. As at 31 December 2007 and 2006, this reserve amounted to EUR and EUR respectively. This statutory reserve cannot be distributed to shareholders. Retained Earnings include undistributable taxable profits and untaxed and specially taxed reserves which upon distribution will be subject to income tax. During 2007, the Company in accordance with L.3299/2004 formed an untaxed reserve of EUR 30.0 which relates to investments in broadband network infrastructure and restricted from previously taxed profits EUR 7.5 as own contribution to the cost of the investment. 14. DIVIDENDS Under Greek Company Law (per published financial statements), each year companies are generally required to declare from their statutory profits, dividends of at least 35% of after-tax profits, after allowing for statutory reserve, or a minimum of 6% of the paid-in share capital, whichever is the greater. However, companies can waive such dividend payment requirement with the unanimous consent of their shareholders. On 21 June 2007 the General Assembly of OTE s Shareholders approved the distribution of a dividend from the 2006 profits of a total amount of EUR or EUR 0.55 (in absolute figure) per share. The Board of Directors of OTE S.A. will propose to the Annual General Assembly of the Shareholders the distribution of a dividend from the 2007 profits of a total amount of EUR or EUR 0.75 (in absolute figure) per share.

153 FINANCIAL STATEMENTS 155 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 15. LONG-TERM LOANS Long-term Loans is analyzed as follows: COMPANY (a) Loan from European Investment Bank / Hellenic State (b) Intercompany loans from ΟΤΕ PLC 1, ,265.5 Total long-term debt 1, ,318.0 Short-term portion (17.5) (16.1) Long-term portion 1, ,301.9 GROUP (a) Loan from European Investment Bank / Hellenic State (b) Consortium loans (c) Eurobond EUR 1,100, 6.125%, maturity February (e) Global Medium-Term Note Programme 3, ,353.1 (f) Other bank loans Total long-term debt 4, ,565.3 Short-term portion (83.3) (528.0) Long-term portion 3, ,037.3 COMPANY (a) Loan from European Investment Bank/ Hellenic State The long-term loan to OTE by the European Investment Bank / Hellenic State was granted in 1995 and is denominated in Euro. The loan bears interest at 8.3% and after an amendment to the agreement on 30 June 2003, is repayable in annual installments through to During 2007 OTE paid EUR 16.1 (2006: EUR 14.9) of capital against the loan (the installment amounted to EUR 20.5). The amount of capital that will be paid in July 2008 (EUR 17.5) has been transferred to the Short-term portion of Long-term loan. (b) Intercompany loans from OTE PLC The intercompany loans from OTE PLC as at 31 December 2007 are analyzed as follows: Loan of EUR 1,209.0, interest rate 5.22%, issued in August 2003 maturing in August The outstanding balance as of 31 December 2007 is EUR 1,120.8 (2006: EUR 1,121.2). Loan of EUR 650.0, interest rate 3.80%, issued in November 2005 maturing in November The outstanding balance as of 31 December 2007 is EUR (2006: EUR 144.3). GROUP (a) Loan from European Investment Bank / Hellenic State See the above analysis for the Company. (b) Consortium Loans On 2 September 2005, OTE PLC signed a Euro 850 million Syndicated Credit Facility with banks, guaranteed by OTE. The facility matures in September 2010 and has an extension option of 1+1 year subject to lenders consent. The facility consists of: a) a EUR 500 million Term Loan bearing interest at Euribor % and b) a EUR 350 million Revolving Credit Facility bearing interest at Euribor %. The margin is adjustable based on OTE s long-term credit rating. In the loan agreement there is a change of control clause which is triggered when there is a change of control in OTE which will result in a credit rating of OTE or the new legal entity at a level lower of BBB/Baa2. In the case the clause is triggered, OTE PLC is obliged to notify the banks, which can request the immediate repayment of the loan. On 6 September 2005 OTE PLC drew EUR 500 million under the Term Loan. Up to 31 December 2007 no drawdowns have been made from the Revolving Credit Facility.

154 FINANCIAL STATEMENTS 156 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) At OTE PLC s request and the banks relative consent, the maturity of the Loan was extent as follows: a) For EUR 25.8 (Term Loan) and EUR 18.0 (Revolving Credit Facility) to September 2010 b) for EUR 29.0 (Term Loan) and EUR 20.3 (Revolving Credit Facility) to September 2011 and c) for EUR (Term Loan) and EUR (Revolving Credit Facility) to September Due to downgrading of OTE s credit rating by Moody s, the margins were adjusted as following: For the Term Loan from % to 0.225% and for the Revolving Credit Facility from % to 0.20%. (c) Bond, EUR 1,100, 6.125%, maturity February 2007 On 7 February 2000 ΟΤΕ PLC issued a bond of EUR 1,100 fully and unconditionally guaranteed by OTE, bearing fixed interest at 6.125%, maturing on 7 February On 6 February 2007 the Group through the subsidiary OTE PLC fully repaid the remaining balance, which after the completion of the Exchange Programme in order to refinance part of the loan in November 2005, amounted to EUR This balance resulted from the bond exchange and the issuance of a new bond amounting to EUR 650 in November (d) Global Medium Term Note Programme In November 2001, OTE PLC established a Global Medium Term Note Program for guaranteed by OTE, of EUR 1,500 with 10 years maturity. In June 2003 the maturity was extended to 30 years. OTE s Board of Directors approved sequential increases of the aggregate principal amount with the corresponding increases of the guaranteed amounts provided by the parent company to its subsidiary, as follows: In 2003 increase of the aggregate principle amount for EUR 1,500 to EUR 2,500. In 2005 increase of the aggregate principle amount for EUR 2,500 to EUR 3,500. In 2006 increase of the aggregate principle amount for EUR 3,500 to EUR 5,000. In 2007 increase of the aggregate principle amount for EUR 5,000 to EUR 6,500. As at 31 December 2007 notes for a total of EUR 3,400 under the Global Medium Term Note Programme were issued, as follows: (i) EUR 1,250.0 notes fixed rate 5%, issued in August 2003, maturing in August (ii) EUR notes fixed rate 3.75%, issued in November 2005 maturing in November (iii) EUR notes fixed rate 4.625%, issued in November 2006 maturing in May (iv) EUR notes floating rate, issued in November 2006 maturing in November These bonds are traded in the Luxembourg Stock Exchange. (e) Other bank loans ROMTELECOM has obtained long-term loans in EUR and Korea Won, amounting to EUR 78.1 as at 31 December From these loans two with outstanding balances of EUR 15.9 and EUR 20.1 are in EUR with fixed interest rates of 6.12% and 5.00% maturing in 2009 and 2012 respectively. The remaining three loans with outstanding balances of EUR 12.3, EUR 17.9 and EUR 11.9 are in Korean Won with a fixed interest rate 4.20%, 2.50% and 2.50% and maturing in 2014, 2018 and 2020 respectively. During 2007, ROMTELECOM repaid an amount of EUR 20.3 out of its long-term debt. On 10 May 2005, GLOBUL entered into a credit facility agreement with Bank Austria, with a three year credit facility of EUR 75.0, bearing interest at Euribor %. Draw-downs under the facility through to 31 December 2007, amounted to EUR 50.0, which were partially used for the repayment of the company s short term borrowings. E-VALUE, a GERMANOS subsidiary, entered into a credit facility of EUR 3.0 with EFG Eurobank, maturing in 2008 with a floating interest of EURIBOR +1.20%. the outstanding balance as at 31 December 2007 was EUR 2.0.

155 FINANCIAL STATEMENTS 157 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 16. PROVISIONS FOR PENSIONS, STAFF RETIREMENT INDEMNITIES AND OTHER EMPLOYEE BENEFITS OTE employees are covered by various pension, medical and other benefit plans as summarized below: Defined Contribution Plans: (a) Main Pension Fund (TAP-OTE): The TAP-OTE Fund, a multi-employer fund to which OTE contributes, is the main fund providing pension and medical benefits to OTE employees. The employees of the National Railway Company and the Greek Post Office are also members of this Fund. According to Law 2257/1994, OTE was liable to cover the annual operating deficit of TAP-OTE up to a maximum amount of EUR 32.3, which could be adjusted with the Consumer Price Index. Pursuant to Greek legislation (Law 2768/1999), a fund was incorporated on 8 December 1999, as a société anonyme under the name of EDEKT-OTE S.A. ( EDEKT ), for the purpose of administering contributions to be made by OTE, the Hellenic State and the Auxiliary Pension Fund, in order to finance the TAP-OTE deficit. The Hellenic State s and the Auxiliary Pension Fund s contributions of the Fund were set to EUR and EUR 410.9, respectively. Pursuant to Law 2937/2001, OTE s contribution has been set at EUR 352.2, representing the equivalent to the net present value of ten (10) years ( ) contributions to TAP-OTE. This amount was paid on 3 August 2001 and is being amortized over the ten-year period. Pursuant to Law 2843/2000, any deficits incurred by TAP-OTE are covered by the Hellenic State. Pursuant to Law 3029/2002, TAP-OTE s Pension Fund part only, was to merge with IKA-ETEAM (the main social security Fund in Greece) the latest by 1 January In accordance with the provisions of this Law, the duration of employers obligations to cover the annual operating deficits of their employees Pension Funds, as defined by Law 2084/92 will be determined through a Ministerial Decision. (b) Auxiliary Pension Fund: (i) The Auxiliary Fund-Lump Sum sector provides members with a lump sum benefit upon retirement or death. (ii) The Auxiliary Pension Benefit Fund provides to those members, who were members prior to 1993, with a pension of 20% of salary after 30 years service. Law 2084/92 has fixed minimum contributions and maximum benefits, after 35 years of service, for new entrants from Based on actuarial studies performed in prior years and on current estimations, these pension funds show (or will show in the future) increased deficits. OTE does not have a legal obligation to cover any future deficiencies of these funds and, according to management, neither does it voluntarily intend to cover such possible deficiencies. However, there can be no assurance that OTE will not be required (through regulatory arrangements) to make additional contributions in the future to cover operating deficits of these funds. Loans and Advances to Pension Funds is analyzed as follows: Loans and advances to: EDEKT Auxiliary Fund Interest bearing loan to Auxiliary Fund Unamortized discounted amounts based on imputed interest rates of 4.6% for 2007 and 4.0% for 2006 for: Auxiliary Fund advance (0.7) (0.6) Interest bearing loan to Auxiliary Fund (67.4) (23.3) Long-term portion Loans and advances to: EDEKT Auxiliary Fund Short-term portion (See Note 10)

156 FINANCIAL STATEMENTS 158 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Advances to pension funds are reflected in the financial statements at their present values, discounted by the use of risk-free interest rates prevailing in the Greek market, for periods approximating the periods of the expected cash flows. Discount derived from the initial recognition of present values and amortization are included in interest expense and interest income, respectively, in the income statements. According to Law 3371 of 2005 and the provisions of the related Ministerial Decision, OTE should grant an interest bearing loan to the Auxiliary Fund in order to cover the Lump Sum benefits upon retirement due to the Voluntary Retirement Program. On 23 October 2006 the loan agreement was signed and its main terms are as follows: The total amount of the loan is up to EUR 180, which will be granted partially in accordance with the Fund s needs, as determined by the above mentioned Law and the related Ministerial Decision. If the Lump Sum benefits exceed the amount of EUR 180, OTE will grant the additional amount, which could not exceed the amount of EUR 10. In this case the above mentioned contract will be amended in order to include the final amount of the loan and to update the repayment schedule. Following the above mentioned terms, on 30 October 2007 an amendment to the loan agreement was signed based on which an additional amount of EUR 8.0 was granted and the repayment schedule was updated. The loan is repayable in 21 years including a two year grace period, meaning that the repayment will start on 1 October 2008 through monthly installments. The loan bears interest at Because the above rate does not reflect the current market conditions, OTE recognized a provision of EUR 63.1, which is included in Interest Expense in the 2006 Income Statement. As at 31 December 2007 the part of the provision (EUR 39.8) which relates to the amount of the loan that was not yet granted, was, included in Other Non-Current Liabilities (See Note 17), while as at 31 December 2007 due to the fact that the whole loan was granted the discounting effect is included in the receivable balance. Defined Benefit Plans: (a) Provision for Staff Retirement Indemnities Under Greek labor law, employees are entitled to termination payments in the event of dismissal or retirement with the amount of payment varying in relation to the employee s compensation, length of service and manner of termination (dismissal or retirement). Employees who resign (except those with over fifteen years of service) or are dismissed with cause are not entitled to termination payments. The indemnity payable in case of retirement is equal to 40% of the amount which would be payable upon dismissal. In the case of OTE employees, the maximum amount is limited to a fixed amount (EUR 0.02 and is adjusted annually according to the inflation rate), plus 9 months salary. In practice OTE employees receive the lesser amount between 100% of the maximum liability and EUR 0.02 plus 9 months salary. Employees with service exceeding 25 years are entitled to draw loans against the accrued indemnity payable to them upon retirement. The provision for staff leaving indemnity is reflected in the Financial Statements in accordance with IAS 19 and is based on an independent actuarial study. The components of the staff retirement indemnity expense are as follows: Service benefits earned during the year Interest cost on projected benefit obligation Amortization of past service cost Amortization of unrecognized actuarial loss

157 FINANCIAL STATEMENTS 159 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The following is a reconciliation of the projected benefit obligation to the liability recorded for staff leaving indemnities in OTE s Financial Statements: Projected benefit obligation at beginning of year Service cost Interest cost Amortization of past service cost Amortization of unrecognized actuarial loss Benefits paid (28.1) (18.8) Termination benefits based on Voluntary Leave Scheme Projected benefit obligation at end of year The assumptions underlying the actuarial valuation, in percentages, of staff leaving indemnities are as follows: Discount rate 4.8% 4.1% Assumed rate of future salary increases 5.5% 5.5% (b) Provision for Youth Account The Youth Account provides OTE s employees children a lump sum payment generally when they reach the age of 21. The lump sum payment is made up of employees contributions, interest thereon and OTE s contributions which can reach up to a maximum 10 months salary of the total average salary of OTE employees depending on the number of years of contributions. The provision for benefits under the Youth Account is based on an independent actuarial study. The amount of the Youth Account provision recognized in Income is as follows: Service cost-benefits earned during the year Interest cost on projected benefit obligation Amortization of unrecognized actuarial loss Amortization of past service cost The following is a reconciliation of the projected benefit obligation to the liability recorded for the Youth Account benefits: Projected benefit obligation at beginning of year Service cost-benefits earned during the year Interest cost on projected benefit obligation Amortization of unrecognized actuarial loss Amortization of past service cost Benefits paid (51.5) (49.0) Projected benefit obligation at end of year Employee s accumulated contributions

158 FINANCIAL STATEMENTS 160 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The assumptions underlying the actuarial valuation, in percentages, of the Youth Account benefits are as follows: Discount rate 4.5% 4.0% Assumed rate of future salary increase 4.5% 4.5% Voluntary Leave Scheme On 25 May 2005 OTE management and OME-OTE (the personnel union body) signed a collective labour agreement, which stipulates the staff hiring procedures. In accordance with this agreement, all new recruits by OTE will be covered with indefinite-pension service agreements. The agreement became effective from the date the relevant law for the voluntary leave of OTE staff came into force. The enactment of Article 74 of Law 3371/2005 (Government Gazette 178/ ) and the collective labor agreement signed between OTE and its employees on 20 July 2005, instituted the framework for the voluntary retirement scheme. Pursuant to this Law and the collective labor agreement, employees who would complete the number of years of service required for retirement up to 31 December 2012 will be entitled to full pension and other benefits. To the employees that wished to come under the provisions of the above mentioned Law, with the decision of TAP OTE is recognized such factitious time insured as the one required for the vesting of the retirement right. The same decision of recognition of factitious time is taken by the Auxiliary Fund. The costs of the components scheme are: The cost of employer s and employees contributions to TAP-OTE for the period required for the employees to be entitled to pension. The amount of pensions TAP OTE will be required to prepay to these employees. The total cost of employer s and employees contributions to the Auxiliary Fund for the period required for the employees to be entitled to pension. The amount of pensions the Auxiliary Fund will be required to prepay to these employees. The total cost of employees contributions to Auxiliary Fund for the Lump Sum benefit. The total cost of bonuses based on the collective labor agreement signed on 20 July The termination payments upon retirement of the employees (staff retirement indemnities). Because of the periodical payments of the majority of the above mentioned costs (payments through to 2012), the nominal amounts of these liabilities were discounted at their present values, and the initial cost was estimated in 2005 at EUR which was included in the 2005 Income Statement under voluntary leave scheme cots. Based on the actual data and the current estimations of the factors affecting the cost of the Voluntary Leave Scheme, on 31 December 2006 the cost was reassessed and the established provision was adjusted to reflect the best current estimation of the Company s liability at the balance sheet date. The revised cost amounted to EUR and the difference of EUR 49.8 was included in the 2006 Income Statement as a credit. The increase which resulted during 2006 due to the discounting of the provision due to the passage of time amounted to EUR 26.8 and was included in the 2006 Income Statement under Interest Expense. The increase which resulted during 2007 due to the discounting of the provision from the passage of time amounted to EUR 12.3 and is included in 2007 Income Statement under Interest Expense. Based on the estimated period of payment, these obligations are classified as follows: 31/12/ /12/2006 Short-term portion of provision for Voluntary Leave Scheme Long-term portion of provision for Voluntary Leave Scheme Total

159 FINANCIAL STATEMENTS 161 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The movement on the provision for the Cost of the Voluntary Leave Scheme is as follows: Balance at 1/1/2006 1,038.7 Payments during year 2006 (337.6) Adjustment due to re-estimation (49.8) Adjustment of discounted amount due to passage of time 26.8 Balance at 31/12/ Balance at 1/1/ Payments during year 2007 (256.2) Adjustment due to re-estimation (see note 16a) (16.5) Adjustment of discounted amount due to passage of time 12.3 Balance at 31/12/ Based on Law 3371/2005, the Hellenic State will contribute a 4% stake in OTE s share capital to TAP-OTE for the portion of the total cost that relates to employer s and employees contributions to TAP-OTE and to the amount of pensions TAP OTE will be required to prepay. This contribution is subject to EU approval. In May 2007 the European Commission by its relevant decision with reference number C 2/2006 (ex L 405/2005) judged that Hellenic State s proposal to grant a 4% of its stake to TAP OTE, according to the Article 74 of L.3371/2005 was not against common market regulations as defined in Article 87 paragraph 3. The total contribution of the Hellenic State to TAP OTE according to the above decision could not exceed the amount of EUR The exact amount will depend on the timing and the procedures that will be followed by the Hellenic Republic for the implementation of the decision. On 28 February 2007 the management of OTE and OME-OTE (the employee s union) signed a Collective Labor Agreement, according to which employees who would complete the number of years required for retirement by 29 December 2007 would be entitled to benefits in order to retire the latest by 31 December The deadline for the applications for participating in this Voluntary Scheme was due on 31 March Applications were irrevocable. The respective cost amounted to EUR 22.1 and is included in the cost of Voluntary Leave Scheme in 2007 results. 17. OTHER NON-CURRENT LIABILITIES Other Non-current Liabilities is analyzed as follows: COMPANY GROUP COMPANY GROUP Provision for employee s contributions under Voluntary Leave Scheme Asset retirement obligation Provision for obligation of free units Deferred revenue (long-term) MICROSTAR (see Note 7) Discounted financial cost of the Auxiliary s Fund loan (See Note 16) Other

160 FINANCIAL STATEMENTS 162 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 18. SHORT-TERM LOANS The outstanding balance on 31 December 2007 amounts to EUR 1, The weighted average interest rates on short-term borrowings for the years ended 31 December 2007 and 2006, was approximately 4.5% and 4.2% respectively. The outstanding balance of short-term loans is analyzed as follows: On 9 November 2007, OTE PLC signed a short term credit facility agreement for an amount of EUR 2.7 billion with a consortium of banks, under the full guarantee of OTE, for the financing of the acquisition of minority shares of COSMOTE by OTE. The loan has a tenor of 1 year with a 3-month extension option and bears interest defined as Euribor plus a margin adjustable on the basis of the long term credit rating of OTE. According to the current credit rating of OTE the margin was set at 0.30%. As at 31 December 2007 OTE PLC had drawn-down EUR 1.5 billion and the related insurance expenses of EUR 6.8 are amortized over the duration of the loan, with the corresponding charge of EUR 1.0 in the 2007 results. The proceeds of the loan were lent to OTE through an intercompany loan of an equivalent amount, signed also on 9 November 2007 which includes similar terms and conditions. The loan agreement includes standard restrictions and among others, a Change of Control clause. This clause is triggered in case there is a change of control in OTE, and as a result of this change the credit rating of OTE or the surviving entity is downgraded below BBB/ Baa2. In the event that this clause is triggered, OTE should proceed with mandatory prepayment of the loan. OTE PLUS and its subsidiaries draw-downs of EUR 1.6 and, OTENET s and its subsidiaries draw-downs of EUR INCOME TAXES - DEFERRED TAXES In accordance with the Greek tax regulations (Law 3296/2004), the income tax rate,was 29% for 2006 and 25% for 2007 and onwards. Greek tax regulations and related clauses are subject to interpretation by the tax authorities and administrative courts of law. Tax returns are filed annually but the profits or losses declared for tax purposes remain provisional until such time as the tax authorities examine the returns and the records of the tax payer and a final assessment is issued. Net operating losses which are tax deductible, can be carried forward against taxable profits for a period of five years from the year they are generated. Under Greek tax regulations, an income tax advance calculation on each year s current income tax liability is paid to the tax authorities. Such advance is then netted off with the following year s income tax liability. Any excess advance amounts are refunded to the companies following a tax examination. The parent company and its subsidiaries have not been audited by the tax authorities as described below: Company OPEN TAX YEARS Direct ownership OTE From 2006 COSMOTE From 2006 OTE INTERNATIONAL INVESTMENTS LTD From 1998 HELLAS SAT CONSORTIUM From 2003 COSMO-ONE From 2002 OTENET From 2007 HELLASCOM From 2006 OTE PLC From 2005 OTE SAT-MARITEL From 2004 OTE PLUS From 2005 ΟΤΕ ESTATE From 2001 OTE GLOBE From 2002 OTE INSURANCE From 2003 OTE ACADEMY From 2000 HATWAVE From 1996

161 FINANCIAL STATEMENTS 163 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Company OPEN TAX YEARS Indirect ownership OTE INVESTMENTS SERVICES S.A. From 2005 ROMTELECOM From 2001 AMC From 2006 COSMOFON From 2001 GLOBUL From 2005 COSMOTE ROMANIA From 2004 GERMANOS From 2004 E-VALUE S.A. From 2003 GERMANOS TELECOM SKOPJE S.A. From 2003 GERMANOS TELECOM ROMANIA S.A. From 2003 SUNLIGHT ROMANIA S.R.L. -FILIALA From 2001 GERMANOS TELECOM BULGARIA A.D. From 2005 MOBILBEEEP LTD From 2005 GRIGORIS MAVROMICHALIS & PARTNERS LTD From 2006 IOANNIS TSAPARAS & PARTNERS LTD From 2004 ALBATROS & PARTNERS LTD From 2006 TEL SIM S.R.L Since establishment 2007 HELLAS SAT S.A. From 2002 VOICENET From 2004 OTENET CYPRUS S.A. From 2000 OTENET TELECOMMUNICATIONS LTD. From 2001 OTE MTS HOLDING B.V. From 2001 COSMO-HOLDING ALBANIA From 2007 COSMO-HOLDING CYPRUS From 2006 OTE PLUS ROMANIA -- OTE PLUS BULGARIA Tax exemption The tax audit of the parent company for the fiscal years was completed early in Tax authorities imposed additional taxes and fines amounting to EUR 84.4 for years and reduced 2005 tax losses carried forward which resulted to an increase of 2006 taxable profits and a corresponding increase in taxes by EUR 6.4, after the recognition of the expenses in 2006 that were disallowed by the tax authorities in The Company has formed a provision of EUR 42.0 in previous years. In GERMANOS the tax examination for the years 2004 and 2005 is in progress, and is expected to be completed within In ROMTELECOM, the tax examination of the company s books for the fiscal years 2001 though to 2005 is in the final stage of completion. In OTE ESTATE, the tax examination of the company s books for the fiscal years 2001 and 2002 is in progress and is expected to be completed within In OTESAT - MARITEL, the tax examination of the company s books for the fiscal years 2004 and 2005 is in progress and is expected to be completed within In OTENET, the tax examination of the company s books for the fiscal years 2004 through to 2006 was completed in In COSMOTE ROMANIA the tax examination for the fiscal years 2004 through to 2006 is in progress, and is expected to be completed within In E-VALUE the tax examination of the Company s books for the fiscal years 2003 through to 2005 is in progress and is expected to be completed within The income tax changes to income statement is analyzed as follows: COMPANY GROUP COMPANY GROUP Current income tax Deferred income tax Total income tax

162 FINANCIAL STATEMENTS 164 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The reconciliation of income taxes included in Income to the amount determined by the application of the Greek statutory tax rate (2007: 25%, 2006: 29%), to the profit before tax is summarized as follows: COMPANY GROUP COMPANY GROUP Profit before tax , ,083.8 Statutory tax rate 25% 25% 29% 29% Non-taxable and specially taxed income (42.7) - (80.4) - Effect of difference from tax rates of the combined Expenses non-deductible for tax purposes Tax examination differences Untaxed reserve (L. 3299/2004) (7.5) (7.5) - - Other (10.5) 3.1 Income tax Deferred taxes are recognized on the temporary differences arising between the carrying amounts of assets and liabilities foe financial reporting purposes and the amounts used for taxation purposes and are analyzed as follows: COMPANY GROUP COMPANY GROUP Employee benefits Provision for litigation and other liabilities Net operating losses carried forward Property, plant and equipment (117.9) (106.6) (130.8) (123.4) Assets Liabilities valuation Subsidiary acquisition - (110.3) - (113.8) Other losses Total deferred taxes OTHER CURRENT LIABILITIES Other Current Liabilities is analyzed as follows: COMPANY GROUP COMPANY GROUP Employer contributions Payroll Other taxes - duties Interest payable Provision for employer contributions Provisions for litigation and other liabilities Customer advances Other

163 FINANCIAL STATEMENTS 165 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 21. REVENUE Revenue includes the following income categories: COMPANY GROUP (i) Domestic Telephony Monthly network service fees Local and long-distance calls - Fixed to fixed Fixed to mobile ,172.8 Other , , , ,260.6 (ii) International Telephony International traffic Dues from international operators Dues from mobile operators (iii) Mobile Telephony - - 2, ,975.8 (iv) Other income Prepaid cards Directories Leased lines and Data ATM communications Integrated Services Digital Network Sales of telecommunication equipment Internet/ ADSL Provision for services Interconnection charges Miscellaneous Total other income , ,308.0 Total revenue 2, , , ,891.3

164 FINANCIAL STATEMENTS 166 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 22. OTHER OPERATING EXPENSES Other Operating Expenses is analyzed as follows: COMPANY GROUP Third party fees Cost of telecommunication materials, repairs and maintenance Advertising and provision costs Utilities Provision for doubtful accounts Other provisions Travel costs Commissions to independent commercial distributors Payments to Audiotex providers Rents Other taxes,other than income taxes Transportation Other , , EARNINGS PER SHARE Earnings after income taxes, per share are calculated by dividing the profit attributable to the shareholders of the Company by the weighted average number of shares in circulation during the period, excluding the average number of own shares that the Company held during the period. Earnings per share after income taxes is analyzed as follows: COMPANY GROUP Net earnings Weighted average number of shares 490,150, ,150, ,150, ,150,389 Basic earnings per share Diluted earnings per share Earnings per share are in absolute figures. 24. SEGMENT REPORTING The following information is provided for the reportable Segments, which are separately disclosed in the Financial Statements and is regularly reviewed by the Company s chief operating decision makers. Segments were determined based on the Group s legal structure, as the Group s chief operating decision makers review financial information separately reported by the parent company (OTE) and each of the Group s consolidated subsidiaries. Using the quantitative thresholds OTE, COSMOTE and ROMTELECOM, have been determined as Reportable Segments. Information about Operating Segments that do not constitute Reportable Segments has been combined and disclosed in an All Other category. Accounting policies of the Operating Segments are the same as those followed for the preparation of the Financial Statements. The Group evaluates segment performance based on operating income and net income.

165 FINANCIAL STATEMENTS 167 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Segment information and reconciliation to the Group s consolidated figures are as follows: Year 2007 OTE COSMOTE ROMTELECOM ALL OTHER TOTALS ADJUSTMENTS- ELIMINATIONS GROUP Revenues from external customers 2, , , ,319.8 Intersegment revenues (742.9) - Interest income (192.6) 77.8 Interest expense (98.4) (145.3) (5.4) (185.2) (238.7) Depreciation and amortization (502.2) (367.9) (255.8) (47.3) 1, (1,171.8) Investment income Income tax expense (211.8) (145.6) (2.4) (21.9) (381.8) - (381.8) Operating income ,047.8 (0.8) 1,046.9 Net income ,011.8 (349.2) Investments Segment assets 8, , , , ,489.4 (10,956.4) 11,533.0 Segment liabilities 4, , , ,617.9 (6,139.5) 8,478.4 Expenditures for segment assets , ,101.3 Year /2006 OTE COSMOTE ROMTELECOM ALL OTHER TOTALS ADJUSTMENTS- ELIMINATIONS GROUP Revenues from external customers 2, , , ,891.3 Intersegment revenues (595.5) - Interest income (141.1) 70.8 Interest expense (199.2) (75.0) (8.5) (139.7) (422.4) (278.8) Depreciation and amortization (528.0) (318.9) (217.5) (67.7) (1,132.1) 3.6 (1,128.5) Investments income Income tax expense (124.6) (159.8) (16.3) (52.3) (353.0) - (353.0) Operating income , ,088.3 Net income ,060.4 (485.8) Investments Segment assets 6, , , , ,183.7 (7,635.1) 12,548.6 Segment Liabilities 3, , , ,617.1 (4,957.2) 7,659.9 Expenditures for segment assets

166 FINANCIAL STATEMENTS 168 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 25. RELATED PARTY TRANSACTIONS OTE s related parties have been identified based on the requirements of IAS 24 and are the following: Its subsidiaries, the members of the Board of Directors, the key management personnel and their close family members. The Company purchases goods and services from these related parties, and provides services to them. Furthermore, OTE grants and receives loans to / from its subsidiaries and receives dividends. OTE s purchases and sales with related parties are analyzed as follows: ΟΤΕ s Sales ΟΤΕ s Purchases ΟΤΕ s Sales ΟΤΕ s Purchases COSMOTE OTE INTERNATIONAL INVESTMENTS LTD ROMTELECOM ARMENTEL HELLAS-SAT COSMO-ONE OTENET HELLASCOM OTE SAT- MARITEL ΟΤΕ PLUS ΟΤΕ ESTATE INFOTE OTE GLOBE OTE ACADEMY OTE s interest income and interest expense with related parties from the loans granted / received, are analyzed as follows: OTE s interest income ΟΤΕ s interest expense ΟΤΕ s interest income ΟΤΕ s interest expense ARMENTEL COSMOFON HELLAS-SAT OTE PLC Dividends received from related parties, are analyzed as follows : COSMOTE OTE INTERNATIONAL INVESTMENTS LTD INFOTE OTE GLOBE OTE ESTATE OTE SAT- MARITEL ARMENTEL

167 FINANCIAL STATEMENTS 169 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) OTE s receivables and payables with its related parties from their operating transactions, are analyzed as follows: ΟΤΕ s receivables ΟΤΕ s payables ΟΤΕ s receivables ΟΤΕ s payables COSMOTE OTE INTERNATIONAL INVESTMENTS LTD ROMTELECOM - - HELLAS-SAT COSMO-ONE OTENET HELLASCOM OTE SAT- MARITEL ΟΤΕ PLUS ΟΤΕ ESTATE INFOTE OTE GLOBE OTE ACADEMY OTE s receivables and payables with its related parties from loans granted and received, are analyzed as follows: ΟΤΕ s receivables ΟΤΕ s payables ΟΤΕ s receivables ΟΤΕ s payables COSMOFON OTE PLC , , , ,268.0 The nature of the transactions between Group companies is described below: a. ΟΤΕ-GLOBE i. OTE-GLOBE has assumed the provision and administration on behalf of OTE of services relevant to International telephony to international provides and invoices OTE with its fees. ii. OTE-GLOBE invoices OTE and OTE invoices OTE-GLOBE for the telecommunication traffic which passes through international networks of OTE-BLOGE or international telephone networks of OTE as the case may be. In addition, the two entities have commercial transactions in relation to leased lines. b. INFOTE (until the date that ceased being related party) i. INFOTE invoices OTE for the production of the white pages directories. ii. INFOTE earns revenues from the advertisement of its customers in the directories published. OTE collects these revenues from its subscribers on behalf of INFOTE and pays them back to INFOTE. iii. ΟΤΕ invoices INFOTE with a commission for the agency relationship described in (ii) above. iv. INFOTE invoices ΟΤΕ for a part of revenues generated from additional entries made in the directories. c. OTENET i. OTE is acting as a dealer selling internet services and other products on behalf of OTENET and collects these amounts on behalf of OTENET and pays them back to OTENET. Additionally, OTE invoices OTENET with a commission for this agency relationship. ii. OTE purchases products and services from OTENET, which are sold to its customers. d. OTE ESTATE i. OTE ESTATE earns rental revenue from OTE and its subsidiaries. ii. OTE invoices OTE ESTATE for additions made to the land and buildings that belong to OTE ESTATE. The related costs of these additions, representing labor and materials costs, are included in OTE s Income.

168 FINANCIAL STATEMENTS 170 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) e. ΟΤΕ INTERNATIONAL INVESTMENTS LTD OTE INTERNATIONAL INVESTMENTS LTD invoices OTE and its subsidiaries for the administration services provided to foreign subsidiaries. f. COSMO-ONE COSMO-ONE invoices OTE and its subsidiaries for e-commerce services. g. OTE SAT MARITEL i. ΟΤΕ invoices ΟΤΕ SAT- MARITEL for the usage of OTE s facilities for INMARSAT services. ii. OTE SAT - MARITEL invoices ΟΤΕ for fixed to mobile connection, which is invoiced by INMARSAT to OTE SAT - MARITEL. h. OTE PLUS OTE PLUS provides consulting services to OTE. i. COSMOTE i. OTE invoices COSMOTE with commissions for mobile connections made through OTE. ii. ΟΤΕ invoices COSMOTE for leased lines. iii. OTE and COSMOTE have income and expenses for interconnection depending to which of the two entities network the codes terminate, including International Telephony traffic which passes through the two networks. j. OTE ACADEMY i. OTE ACADEMY subleases to OTE its Training Center facilities in Athens and Thessaloniki, which itself leases in the first place from OTE ESTATE. ii. OTE ACADEMY renders training services to OTE personnel and its subsidiaries. k. HELLASCOM Hellascom provides consulting services of technical nature to OTE and construction studies to its subsidiaries. l. COSMOFON ΟΤΕ has granted an interest bearing long-term loans to COSMOFON. m. HELLAS SAT i. HELLAS SAT invoices OTE for transmitter s rental and the provision of satellite capacities. ii. ΟΤΕ invoices HELLAS SAT with a commission on the rental of satellite capacities. n. OTE PLC ΟΤΕ PLC has granted interest bearing long-term loans to ΟΤΕ and subsidiaries. Fees paid to the members of the Board of Directors and key management personnel compensation charged in the Income Statements of the year ended 31 December 2007 amounted to EUR 3.5.

169 FINANCIAL STATEMENTS 171 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 26. STOCK OPTION PURCHASE OF OTE SHARES SCHEME Based on OTE s repeating General Assembly of 3 April 2007, the Board of Directors of 20 December 2007 approved the adoption of a management share option plan (the Option Plan ) based on performance conditions for OTE s management personnel and Directors of subsidiaries. More specifically, the beneficiaries are entitled to obtain a certain number of options of the Company for a predefined price (Exercise price), by the end of a certain period of time, based upon the satisfaction of certain criteria of performance, individual and of the Company, during the respective period. The Option Plan is expected to be implemented in The Option Plan, permits our Board of Directors to grant Option Rights to eligible employees on an annual basis. Upon their initial participation in the Option Plan, eligible employees become entitled to a number of initial options ( Basic Option Rights ), while, in subsequent years, the Board may also grant to eligible employees further option ( Additional Option Rights ) on an annual basis. Basic Option Rights vest in stages over a three-year period (40%, 30% and 30% upon the first, second and third anniversaries, respectively, of the commencement of the Plan), while Additional Option Rights vest 100%, upon the third anniversary of the commencement of the Plan. Each Option Right represents the right to one share. Beneficiaries may exercise vested Option Rights within the first four years from the vesting date of such rights for the first vested Option Rights under the Option Plan, the exercise price will be equal to the average closing price of our shares in the second half of the year immediately preceding the date on which the Board of Directors recommended the Option Plan to the General Assembly for approval. As for subsequent implementations, the exercise price will be equal to the average closing price of the shares during the month immediately preceding the date on which the Board of Directors granted such rights. The number of granted Rights for the first implementation of the Option Plan, is adjusted according to the beneficiary s seniority level, as follows: a. With respect to the Managing Director, the General Directors and Deputy General Directors, the maximum aggregate value of Option Rights that may be granted under the Option Plan, according to the exercise price can be up to five times the beneficiary s annual gross salary with respect to Basic Option Rights and up to the annual gross salary with respect to Additional Option Rights. b. With respect to other beneficiaries, the following table sets out the maximum numbers of Basic and Additional Option Rights that, according to the beneficiary s seniority level, may be granted under the Option Plan, in its first three years: Beneficiaries Maximum number of Basic Rights per beneficiary ( Basic Option Rights ) Maximum number of Additional Rights per beneficiary ( Additional Option Rights ) Managing Directors of Subsidiaries 35,000 7,000 Department Supervisors 18,000 4,500 Sub-department, Division - Units 9,500 3,100 The total number of the Basic Option rights is rights. The date when beneficiaries were officially informed and accepted the Scheme is after 31 December As a result, the fair valuation of these Option Rights will be preformed in 2008 and booked through profit and loss during the vesting period of the Option Rights by the employee.

170 FINANCIAL STATEMENTS 172 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) COSMOTE s SHARE BASED PLAN COSMOTE has established a Management Share Option Plan for the purchase of COSMOTE s shares at discounted price. The Plan was approved by the resolution of the General Assemblies held on 31 July 2000 and 6 September 2000 and amended by the resolutions of the General Assemblies held on 12 June 2001, 21 February 2002 and on 27 January The Plan, provides that the Board of Directors would grant options to participants every year, which gradually (40% upon the completion of a year of the grant, 30% upon the completion of the second year and 30% upon the completion of the third year) would be converted to final grant for the acquisition of ordinary shares with an aggregate value of, at maximum, 1-5 times annual gross salaries, depending on the position and the company, provided that the participants continue to work efficiently for the Company (Basic Options). Further options may be granted by the Board of Directors to participants at the end of each year, for the acquisition of ordinary shares with an aggregate value of, at maximum, one annual gross salary, depending on the position, for the executives of the Company in Greece and, at maximum, 0.75 annual gross salary for the subsidiaries executives abroad (Additional Options). The Basic Options granted to the Chairman of the Company vest in full after one year. Additional Options vest after 3 years. Basic Options, once vested, can be exercised in whole or in part until the fourth year from their grant, while the Additional Options, once vested, can be exercised in whole or in part during their maturity year or the following year. Share options expire if the beneficiary leaves the company or is fired before the options vest, irrespective of their exercise date, or the individual performance of the beneficiary is assessed in the year that the stock option was granted to be lower than a specified lead. The total number of the COSMOTE shares, which may be acquired under this Plan or under any other ongoing plan, cannot exceed 5% of its share capital on a five-year period on a rotation basis, and, in any case, the maximum number of shares, which may be issued if the participants exercise their options, cannot exceed 10% of the number of shares existing at the time of the approval of the Plan. Stock option plan issued shares are fair valued on the date of departure. Fair value is charged to Income especially on the duration of the stock option vesting period by the employee. Fair value per option has been calculated based on the Black Scholes model. The significant data input in this model is the share price, the exercise price, the dividend yield, the discount rate and the volatility of the stock. Volatility (standard variation of the share s price) is calculated based on statistical analysis of the daily stock s price for the last 12 months. The following table provides information regarding Share Option rights. Share option (number of shares) Weighted average exercise price Shares option (number of shares) Weighted average exercise price Outstanding shares at the beginning of the year 2,987, ,151, Granted shares during the year 2,011, ,079, Forfeited (662,450) (149,860) Exercised during the year (1,175,100) (1,094,090) Outstanding shares at the end of the year 3,161, ,987, Exercisable at the end of the year 3, , The following weighted average assumptions were used: Weighted average share price Weighted average exercise price Volatility 24.27% 24.79% Volatility of exercising the right 3 years 3 years Risk free interest rate 3.98% 3.97% Dividend yield 3.16% 3.37% Volatility has been calculated using the standard deviation of COSMOTE s shares during the relative year.

171 FINANCIAL STATEMENTS 173 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 27. LITIGATION AND CLAIMS The most significant legal cases on 31 December 2007 are the following: (i) Lease agreements (OTE Leasing): On 11 December 2001, OTE disposed of its wholly owned subsidiary, OTE Leasing, to Piraeus Financial Leasing S.A., a subsidiary of Piraeus Bank S.A. for a consideration of EUR From the sale proceeds, EUR 5.9 was collected in cash and the balance of EUR 15.1 in shares in Piraeus Bank S.A. based on their fair value at that date. The disposal of OTE Leasing had no material effect on the Group s financial position or results of operations. As prescribed in the agreements signed for the sale of OTE Leasing, OTE is committed to indemnify Piraeus Financial Leasing S.A. up to an amount of approximately EUR 28.0, for possible losses to be incurred from the non-performance of lessees for contracts signed through to the date of sale of OTE Leasing. The conditions under which a lessee s contract will be characterized as non-performing are described in detail in the sale agreements. Such OTE s obligation is in force for a period between years, depending on the nature of the lease contracts. (ii) Alpha Digital Synthesis S.A.: On 7 May 2003 Alpha Digital Synthesis S.A. submitted a request for arbitration according to the Greek Civil Procedure Code, claiming an amount of approximately EUR plus interest for alleged damages incurred as a result of an alleged breach by OTE of the terms of a memorandum of understanding to provide subscribers television services. The Athens Arbitration Court in 2006 ruled in favor of Alpha Digital Synthesis S.A., and ordered OTE to pay an amount of approximately EUR OTE appealed against this decision before the Athens Court of Appeals, was rejected and OTE paid the above amount plus interest. OTE appealed for conclusion of the decision before the Supreme Court which will be heard on 19 May (iii) Hellenic Radio and Television S.A. ( ERT ): During May 2002, ERT filed a law suit against OTE before the Athens Multi-Member Court, claiming an amount of EUR 42.9 plus interest for damages incurred by it as a result of an alleged infringement by OTE of the terms of a Memorandum of Understanding signed by the two parties. The Court judged in 2005 that the case should be referred to arbitration. Till now ERT has not gone to arbritration. (iv) Forthnet S.A.: In 2002, Forthnet S.A. filed a civil claim, claiming an amount of EUR 26.7 for damages incurred by it due to loss of customers as a result of OTE s allegedly discriminatory policy in favor of OTENET. The hearing which was scheduled for 19 April 2007, was suspended and rescheduled for 5 June Furthermore, Forthnet S.A. filed a lawsuit against OTE before the Athens Multi- Member of First Instance Court, claiming EUR 4.1 in damages, due to suspension of it s subscriber s number portability. The hearing scheduled for 3 May 2006 has been suspended. (v) Greek Telecom S.A.: In 2004, Greek Telecom S.A. filed a lawsuit against OTE before the Athens Multi Member of First Instance Court, claiming EUR 45.4 in damages, due to alleged breach of contractual obligations arising out of disconnection of telecommunication services. The hearing was held on 22 March 2006 and Court by its decision rejected Greek Telecom S.A. s claim. Greek Telecom S.A. appealed against this decision before the Athens Court of Appeals. The case was heard on 4 October 2007 and the decision is expected. (vi) Teledome S.A.: Teledome S.A. filed five lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 8.1 plus interest for alleged damages incurred by it as a result of OTE s delay in delivering to it leased lines and the application of non cost oriented interconnection charges by OTE. The hearings of the above lawsuits were scheduled for various dates in The first lawsuit (EUR 1.6) was heard before the Court on 6 June 2007 and the decision is expected, the second lawsuit (EUR 1.0) was rescheduled for 17 September 2008, regarding the third lawsuit (EUR 0.3) the Court postponed the hearing, the fourth lawsuit (EUR 1.6) was heard on 7 February 2007 and the Court rejected it and for the fifth lawsuit (EUR 3.6) the Court ordered factual investigation. Furthermore, Teledome S.A. filed six lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming approximately EUR 10.8 plus interest in damages, due to suspension of it s subscriber s number portability and due to alleged breach of contractual obligations arising out of disconnection of telecommunication services. For two lawsuits totaling EUR 4.7, the Court rejected Teledome s claims. Teledome appealed the decision before the Court of Appeals, which rejected them. A lawsuit of EUR 0.9 was rejected by the Courts on 25 January The lawsuit of EUR 4.4 was scheduled for 6 March For the lawsuit of EUR 0.2 the Courts ordered factual investigation and the lawsuit of EUR 0.6 was heard on 26 September 2007 and the decision is expected.

172 FINANCIAL STATEMENTS 174 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) (vii) Newsphone Hellas S.A.: Newsphone Hellas S.A. filed a lawsuit against OTE before the Athens Multi Member Court of First Instance, claiming an amount of EUR 7.2 plus interest for alleged damages incurred by it as a result of OTE s refusal to include in its recorded message that directories information services, except from OTE, are provided by Newsphone also. The hearing was held on 17 May 2006 and the Court rejected Newsphone s claims. (viii) TELLAS S.A.: TELLAS S.A. filed four lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 20.8 plus interest in damages due to suspension of its subscriber s number portability. TELLAS S.A. resigned from the lawsuit claiming EUR 4.2 while the hearings of the remaining lawsuits were heard on 2 May 2007 and rejected. (ix) LAN-NET S.A.: LAN-NET S.A. filed two lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of approximately EUR 2.2 plus interest in damages due to suspension of its subscriber s number portability. The Court rejected the first lawsuit for the amount of EUR 1.5 and LAN-NET appealed. The appeal was heard on 1 November 2007 by the Court of Appeals and its decision is expected. The second lawsuit of EUR 0.7 was heard on 21 March 2007 and was rejected by the Court. (x) ALGO-NET S.A.: ALGO-NET S.A. filed two lawsuits against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of approximately EUR 0.9 plus interest in damages due to suspension of its subscriber s number portability. The hearing of the first lawsuit for the amount of EUR 0.4 was held and the Court rejected the claim, while the hearing of the second lawsuit initially scheduled for 8 February 2006, has been suspended. (xi) FASMA ADVERTISING TECHNICAL AND COMMERCIAL S.A.: FASMA ADVERTISING TECHNICAL AND COMMERCIAL S.A. filed a lawsuit against OTE before the Athens Multi Member Court of First Instance, claiming an aggregate amount of EUR 9.1 plus interest for breach of contract. The effort to settle the dispute outside the Court scheduled on 24 May 2007 failed and the hearing was scheduled for 8 November Subsequently, the company filed with the First Instance Multi Member Courts a new lawsuit against OTE for EUR 8.7 withdrawing from the previous lawsuit. The new effort of out-of-court settlement,which was scheduled on 21 September 2007, failed again and the hearing by the Court was initially scheduled on 8 November 2007 and rescheduled for 23 October (xii) Franchisers Suits: HELIAS KOUTSOKOSTAS & COMPANY filed a lawsuit against OTE claiming alleged damages for an amount of EUR 7.9. OTE filed a lawsuit against this company before the Multi-Member First Instance Court for an amount for EUR 0.7. The hearing, initially scheduled for 13 October 2005 has been suspended and a new hearing was scheduled for 21 February K. PRINIANAKIS S.A. filed a lawsuit against OTE claiming EUR 10.9 in damages. The hearing, of 15 November 2007 heard the Company s claim and the decision is awaited. DEP INFO EPE filed a lawsuit against OTE claiming EUR 6.8 for damages. OTE has filed its own lawsuit against this company claiming EUR 1.7 in damages. Both hearings were held on 9 March 2006 and the court rejected DEP INFO EPE s lawsuit, while it accepted OTE s lawsuit. DEP INFO EPE filed an appeal against this decision which was heard on 24 January INFOSHOP S.A. filed a lawsuit against OTE claiming alleged damages for the amount of EUR 7.0. A hearing scheduled for 15 November 2007 has been suspended, and a new hearing has been scheduled for 13 November (xiii) Employees Claims: ΟΤΕ s current employees and pensioners have filed a number of lawsuits against OTE with a vast diversification. (xiv) PERIVALLON AEBE: PERIVALLON AEBE filed against OTE a lawsuit before the Multi-Member First Instances Court requesting EUR 1.2 plus interest. The hearing was scheduled for 28 March 2007 and was suspended. (xv) EFG EUROBANK ERGASIAS S.A.: EFG EUROBANK ERGASIAS S.A. filed against OTE before the Multi-Member First Instance Court a lawsuit for EUR 5.9 plus interest for pledged receivables of PERIVALLON AEBE which derive from the agreement with the Bank. The effort for out-of-court settlement which was scheduled on 11 October 2007 failed and the hearing before the Court was scheduled for 11 December (xvi) Payphones Duties: From 1999 to 2005, the Municipality of Thessaloniki charged OTE with duties and penalties of a total amount of EUR 15.0 for the installation and operation of payphones within the area of its responsibility. OTE strongly disputed the above assessments and had filed appeals before the Thessaloniki Administrative Court of First Instance and prepaid 40% of the above duties and penalties, amount that will be refunded to OTE if the outcome of that case will be favorable to the Company. With its first two decisions, the Thessaloniki Administrative Court of First Instance has accepted OTE s appeals and the Municipality of Thessaloniki has filed appeals to the Supreme Court

173 FINANCIAL STATEMENTS 175 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) (xvii) Hellenic Telecommunications and Post Commision (HTPC): On 26 July 2007 the Hellenic Telecommunications & Post Commision (HTPC) imposed a series of fines on OTE, for a total amount of EUR OTE has filed lawsuits before the Athens Court of Appeals against this decision demanding its annulment and the hearing of the lawsuits is scheduled for various dates in OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting in the suspension of the decisions till the authorized courts decide. On 29 November 2006 HTPC imposed a fine on OTE of total amount of EUR 3.0. OTE has filed an appeal before the Athens Court of Appeals against this decision which was scheduled for 12 February 2008 while OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting to the suspension of the decisions till the authorized courts decide. Finally, on 5 October 2007 HTPC imposed a fine for a total of EUR 3.0. Against this decision OTE has filed an appeal demanding its annulment which was scheduled to be heard before the Athens Court of Appeals on 11 March OTE has requested abeyance, which was approved by the Athens Court of Appeals resulting in the suspension of the decisions till the authorized courts decide. OTE has established appropriate provisions in relation to litigations and claims, the outcomes of which are probable and can be reasonably estimated. 28. FINANCIAL RISK MANAGEMENT IFRS 7 Financial Instruments: Disclosures introduces additional disclosures in order to improve the quality of information provided and value the importance of the financial instruments on the financial position of the Company and the Group. The Group is exposed to the following risks from the use of its financial instruments: 1. Credit risk 2. Liquidity risk 3. Market risk This note presents information about the Group s exposure to each of the above risks and management policies and procedures for the measuring and managing of these risks. 1. Credit risk Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations. Trade receivables could potentially influence negatively the liquidity of the Group. Due to the large number and the diversification of the customer base however there is no concentration of credit risk with respect to these receivables. Concentration of credit risk is identified in the receivables from telecommunication operators due to the small number and their high revenues. The Company and the Group have established specific credit policies under which each customer is analyzed for creditworthiness and an effective management of receivables before they become overdue but much more after they become overdue and doubtful. In monitoring credit risk, customers are grouped according to the category they belong to, their credit characteristics, aging profile and existence of previous financial difficulties. Customers that are characterized as doubtful are reassessed at each balance sheet date for the estimated loss that is expected and impairment allowance is established.

174 FINANCIAL STATEMENTS 176 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Maximum credit risk to which the Company and the Group are exposed derives from the following: COMPANY GROUP COMPANY GROUP Financial instruments available for sale 47,8 49,7 38,7 39,5 Financial instruments at fair value through income statement - 31, Trade receivable 758,6 1,172,0 710, ,5 Loans 226,8 175,7 136,0 80,1 Cash and cash equivalents 453, ,3 814, ,5 Total 1.486, , , ,8 From the categories above, cash and cash equivalents are considered of the lowest credit risk. Financial instruments available for sale at fair value include listed shares, while financial instruments at fair value through income statement include bonds and other securities. These two categories are not considered to expose the Company and the Group to a significant credit risk. Loans include loans to employees which are collected either through the payroll or are netted-off with their retirement leave (See Note 16), loans and advances to Auxiliary Pension Fund mainly due to the Voluntary Leave Scheme (See Note 16) and at company level loan to COSMOFON (See Note 8). The above mentioned loans are not considered to expose the Company and the Group to a significant credit risk. Trade receivables, which include receivables from telecommunication operators, is the category with the higher credit risk. For this category the Company and the Group assesses the credit risk following the established policies and procedures and has set required provision for impairment (See Note 9). 2. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Liquidity risk is kept at low levels by ensuring that there is sufficient cash on demand and credit facilities to meet the financial obligations when due. The Group s available cash as at 31 December 2007 amounts to EUR 1,316.3, its loans amounts to EUR 5.527,8 while the Group has a long-term credit (committed) line of EUR For the monitoring of liquidity risk, the Group prepares annual cash flows when drafting the annual budget and monthly rolling forecasts for three months cash flows, in order to ensure that it has sufficient cash reserves to service its financial obligations.

175 FINANCIAL STATEMENTS 177 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) Below is an analysis of the maturity of the financial liabilities at Company and Group level: COMPANY 31 December 2007 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 36,4 17,5 18,9 - - Consortium Loan through OTE PLC 1.266, ,3 Short-term Bridge Loan through OTE PLC 1.494, , Suppliers 608,9 608, Total 3.405, ,6 18, ,3 31 December 2006 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 52,5 16,1 17,5 18,9 - Consortium Loan through OTE PLC 1.265, ,5 Short-term Bridge Loan through OTE PLC 562,2 562, Total 1.880,2 578,3 17,5 18, ,5 GROUP 31 December 2007 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 36,4 17,5 18,9 - - Consortium loan OTE PLC 500, ,0 - Medium Term Bond OTE PLC 3.360,4-598,7 629, ,3 Short-term Bridge Loan through ΟΤΕ PLC 1.494, , Other loan commitments 136,8 69,0 19,1 25,5 23,2 Suppliers 931,5 931, Total 6.459, ,2 636, , ,5 31 December 2006 Amounts Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Loan from the European Investment Bank 52,5 16,1 17,5 18,9 - Consortium Loan OTE PLC 500, ,0 - Bond EUR 1,100, 6,125% OTE PLC 491,2 491, Medium Term Bond OTE PLC 3.353, , ,1 Other loan commitments 193,7 45,8 77,5 33,5 36,9 Suppliers 938,0 938, Total 5.528, ,1 95, The increased loan commitments for 2008 as at 31 December 2007 are attributed to the short-term loan of EUR 1,494.2, which in February 2008 was refinanced with long-term borrowings (for further details see Note 29). ΟΤΕ has guaranteed in favor of OTE PLC for total borrowings of: As at 31 December 2007: EUR 5,4 billion. As at 31 December 2006: EUR 4,4 billion.

176 FINANCIAL STATEMENTS 178 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) 3. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group s results or the value of its holdings of financial instruments. The objective of market risk management is to manage and control exposure within acceptable levels while optimizing the return on risk. Below are described in further detail the individual risks that constitute market risk and the Group s policies for administering them: 3.1 Interest rate fluctuation risk Interest rate fluctuation risk is the risk that payments for interest on loans fluctuate due to changes in interest rates. Interest rate fluctuation risk mainly applies to long-term loans with fluctuating interest rates. The hedging of interest rate fluctuation risk is managed through interest rate swap agreements in order to minimize the cost of borrowing at fixed interest rates and the hedging of favorable interest rates for the remaining duration of the loans commitments depending on the market conditions at each time. As at 31 December 2007, the Group s exposure to loan commitments at floating rates was approximately at 52%/48%. With the issuance of the fixed rates bonds on February 2008 and the refinancing of the short-term loan (for further details see Note 29), the Group s relation of fixed to floating rate was approximately 80%/20%. The analysis of borrowings depending on the type of the interest rate is as follows: COMPANY GROUP COMPANY GROUP Floating rate loans 1.494, , ,2 Fixed interest loans 1.302, , , ,3 Total 2.796, , , ,5 The average remaining duration of floating interest rate borrowing as at 31 December 2007 is 1,4 years. The average remaining duration of floating interest rate borrowing at 31 December 2007 excluding the short-term loan balance is 3 years. The average remaining duration of floating interest rate borrowing at 31 December 2006 was 4 years. To assess the interest rate risk below is a sensitivity analysis to changes in the interest rate (based on Euribor) for the Group. Had the interest rates increased by 100 base units the effect would be: 3.2 Currency risk GROUP Income for the year Equity (10,0) (4,6) (10,0) (4,6) Currency risk is the risk that the fair values or the cash flows of a financial instrument fluctuate due to foreign currency changes. The Group operates in many Southeastern European countries and as a result is exposed to currency risk due to changes in currencies other than Euro. In the Group s major foreign investment in ROMTELECOM, the currency risk is compensated mainly through charging telecommunication fees in Euro, managing a natural hedge. With respect to cash reserves and loan commitments of the Group, the currency risk is not material since the majority of them are denominated in Euro.

177 FINANCIAL STATEMENTS 179 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) The main functional currencies within the Group is the Euro, Ron (Romania) and the Lek (Albania). The current risk for the Group is not significant as presented in the table below: GROUP 31 December 2007 EUR RON LEK WON TOTAL Trade receivables 1, ,172.0 Borrowings (5,449.4) (36.0) - (42.4) (5,527.8) Suppliers (883.0) (37.6) (10.9) - (931.5) Cash and Cash Equivalents 1, ,316.3 Total exposure (4,048.1) (5.3) (42.4) (3,971.0) 31 December 2006 EUR RON LEK WON TOTAL Trade receivables 1, ,160.5 Borrowings (4,484.9) (48.0) - (57.6) (4,590.5) Suppliers (863.8) (57.7) (16.5) - (938.0) Cash and Cash Equivalents 1, ,042.5 Total exposure (2,295.7) (50.9) 78.7 (57.6) (2,325.5) 29. SUBSEQUENT EVENTS The most important events that have occurred after 31 December 2007 are the following: 1. Public Offer for the acquisition of COSMOTE (squeeze out) On 29 January 2008 the tender offer s acceptance period for the acquisition of COSMOTE s shares ended which commenced on 4 December The Public Offer was for 107,695,259 shares, which represent approximately 32.17% of the total paid-up share capital of COSMOTE, and 1,165,070 shares, the New Shares, which represent the maximum number of shares that could be issued and traded on the Athens Stock Exchange until the termination of the acceptance period of the Public Offer, following the exercise by the beneficiaries of their stock option rights. The number of shares increased to 1,175,100 shares as a result of the changes of the maximum number of these New Shares as mentioned in the Base Prospectus Supplement as approved by the Board of Directors of the Stock Exchange Committee. As a result, the total number of the shares of the Public Offer became 108,870,359. During January 2008 and with the completion of the deposit of the acceptance applications by 5,044 shareholders OTE received 27,503,293 shares of COSMOTE representing 8.187% of the total paid-up Share Capital. As a result on 29 January 2008, OTE held 331,228,491 shares of the company representing % of the total paid-up Share Capital with the corresponding voting rights of COSMOTE. 2. Squeeze out of COSMOTE According to Article 27 of L.3461/2006. on 27 February 2008, OTE submitted to the Stock Exchange Committee a request for the squeeze out of the remaining shares ( ) of COSMOTE at a price equal to that of the Public Offer, i.e. EUR per share (in absolute figures) while OTE intends to cover the rights of E.X.A.E. which correspond to 0.08% of the value of the out-of the market transfer which in accordance with current legislation would burden COSMOTE s shareholders. It is noted that according to Article 28 of the same Law, the remaining shareholders have the right to sell through the Stock Exchange market to the Proposing Party their shares within three months from the publication of the Right to Entry to which OTE proceeded on 31 January After the end of the exercise right period and the Right to Entry, OTE intends to begin the procedure of the delisting of the COSMOTE s shares from the Athens Stock Exchange and of the GDRs from the London Stock Exchange (L.S.E.). 3. Repayment of short-term loans and replacement with long-term loans On 12 February 2008 OTE PLC completed the issuance of two bonds amounting to EUR 1,500 and EUR 600 under the Global Medium Term Note Programme, for the refinancing of the balance of the short-term loan of EUR 2,100 which was obtained in November 2007

178 FINANCIAL STATEMENTS 180 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 (Amounts in millions of Euro, unless otherwise stated) for the acquisition of COSMOTE s shares by OTE. Specifically, OTE PLC issued: j) A fixed rate bond of EUR 1,500, maturing on 14 February 2011 with a coupon for 5.375% and k) Fixed rate bond of EUR 600, maturing on 12 February 2015, with a coupon of 6.0%. The bond terms include a step-up clause according to the credit rating of OTE. The bond coupon could increase by 1.25% in the case that: a) one or both of the two credit rating agencies (Moody s and S&P) downgrades the rating to BB+, Ba1 and under (sub-investment grade), or b) both rating agencies (Moody s and S&P) cease or are unable to perform the credit rating of OTE. The coupon could increase only one during the whole bond duration and for the period the credit rating of OTE remains at subinvestment grade. The bonds include a Change of Control clause applicable to OTE which is triggered if both of the following events occur: a) any person or persons acting in concert (other than the Hellenic Republic) at any time directly or indirectly come (s) to own or acquire (s) more than 50% of the issued ordinary share capital or of the voting rights of OTE, and b) as a consequence of (a), the rating previously assigned to the bonds by any international rating agency is withdrawn or down graded to BB+/Ba1 or their respective equivalents (non-investment grade), within a specific period and under specific terms and conditions. In accordance with the terms and conditions of the bonds, in the event that the Change of Control clause is triggered, OTE PLC shall promptly give written notice to the bond holders who in turn shall have the option within 45 days to require OTE PLC to redeem the bonds (put option), at their principal amounts together with accrued interest up to the date of redemption. 4. Voluntary Leave Scheme with 2008 motives On 28 February 2008, OTE s management and OME-OTE (the employee s union) signed a Collective Labor Agreement according to which employees who would complete the number of years of service required for retirement by 29 December 2008 will be entitled to benefits providing they leave by 30 December Eligible employees should submit irrevocable applications by 21 March Sale of Subsidiaries OTEnet Cyprus Ltd and OTEnet Telecommunications Ltd On 28 February 2008 OTE announced its intention to sell its total investment in OTEnet Cyprus Ltd and OTEnet Telecommunications Ltd which operate in the Telecommunication and Internet Services Section. OTE signed an agreement with Cyprus Trading Corporation PLC (CTC) for an amount of approximately EUR 3.9. The agreement is subject to the approval of the Cyprus Competition Committee. 6. Developments in the social security draft law According to the new social security draft of law and with the provisions of Law 3029/2002, TAP-OTE s Pension Fund is expected to be merged with IKA-ETEAM soon with the gradual adjustment (reduction) of TAP-OTE s contributions to those of IKA. This adjustment is expected to commence in 2013 and is expected to be completed in 2023 in three equal installments. It is provided that shares of TAP-OTE in the share capital of EDEKT OTE will automatically be transferred to IKA-ETEAM as whole successor from the inception date of the pension sector of TAP-OTE. 7. Participation of MARFIN Investment Group to OTE s Share Capital On 17 March 2008, MARFIN Investment Group announced that it signed with Deutsche Telekom A.G. for the sale of 98,026,324 shares for EUR 26 (in absolute figure) each. According to the announcement, the transaction is expected to be completed by 7 May 2008 the latest and is subject to the approval of the relevant request of DEUTSCHE TELEKOM A.G. by the Interministerial Privatization Committee of Greece. The agreement has been approved by the Board of Directors of MARFIN Investment Group and the Executory Board of DEUTSCHE TELEKOM A.G. and is subject to the approval of the Supervisory Board of DEUTSCHE TELEKOM A.G.

179 FINANCIAL STATEMENTS 181 REPORT OF THE BOARD OF DIRECTORS OF HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. ON THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2007 The Report of the Board of Directors of HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. (hereinafter referred to as OTE or the Company ) was prepared in accordance with article 136 of the C.L. 2190/1920 and refers to the Annual Separate and Consolidated Financial Statements as of 31 December 2007 and for the year then ended. The OTE Group (the Group ) apart form the Company also includes subsidiaries over which OTE has direct or indirect controls. The Separate and Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (I.F.R.S.). Α. SIGNIFICANT EVENTS OF THE YEAR With respect to the Group activities, the following events that occurred during the year 2007 are of significance: Increase in the stake of OTE in COSMOTE to 90.72% as at Increase in the stake of OTE in OTENET to % as at On 9 November 2007, OTE PLC signed a short-term credit facility agreement for an amount of EUR 2.7 billion with a consortium of banks, under the guarantee of OTE, for the financing of the acquisition of the minority shares in COSMOTE by OTE. The loan was fully repaid in February 2008 through the issuance of two bonds of EUR 1.5 billion and EUR 600 million respectively under the Global Medium term Note Programme. Sale of 100% of the subsidiary company INFOTE A.E. (directory services) on 19 December 2007 to Rhone Capital LLC and Zarkona Trading Limited. Spin-off of the International Facilities and International Cables Infrastructure Segment of OTE and the licenses to use the INTEC- ITU system to OTE-GLOBE. Β. STRATEGY- OBJECTIVES With respect to the strategy and prospects in the coming years, as these are presented in the business plan of the Company, the main objective of management is the maximum utilization of the synergies in the Group and the improvement of the EBITDA margin in order to align it to that of other European companies within the industry. For the achievement of the above mentioned objective the Company s priorities are the sustainment of revenues against continuous competition and the reduction of operating expenses. To support the above efforts are continuing with main emphasis on: Exploitation of technological convergence with the creation of commercial proposals adjusted to each customer category and based on the continuous development of broadband. Sustainability of retail market share and generation of new revenue streams and sources. Optimization of the Sales Network and development of alternative sales channels. Exploitation of OTE s infrastructure and development of new business opportunities. Sustainability of wholesale market share. Improvement of the quality of retail and wholesale customers service. Gradual transformation of the network to new generation network development of new technology of broadband infrastructure and generation of an advanced basis of Management Information Technology, for the maximum possible automation of the Company s operations as well as the introduction and support of competitive Services. Securing the fair treatment of OTE in determining and supporting the regulating framework. Establishment of a competitive employment environment. Maintenance of the personnel cost / revenues factor at stabilized levels for the three year through the development of a competitive employment environment. C. DIVIDEND POLICY The Company s Board of Directors will propose to the Annual General Assembly of the shareholders the distribution of an from the 2007 profits of a total amount of EUR million corresponding to EUR 0.75 per share.

180 FINANCIAL STATEMENTS 182 D. FINANCIAL INSTRUMENTS The targets and policies of the Company and the Group as far as managing financial risks is concerned and the exposure of the Company and the Group to these risks are analyzed in Note 28 to the Financial Statements. E. FINANCIAL HIGHLIGHTS OF INCOME STATEMENT: OTE Group Turnover increased by 7.3%, compared to 2006 and reached EUR 6,319.8 million. This increase in turnover is mainly due to the following: Increased revenues from mobile telephony, by 11.9% compared to the prior year, which is mainly due to the increase in the subscriber base of all mobile telephone entities of the Group (COSMOTE, AMC, GLOBUL & COSMOFON) as well as the mobile traffic volume enhancement in Greece. The increase in telecommunication equipment sales by 99.0% as a result of the inclusion in the consolidated results of those of GERMANOS S.A. following its acquisition by COSMOTE in the fourth quarter of This contribution offsets the loss of revenues from the sale of the subsidiary of ARMENTEL on 16 November 2006 and as a result the non consolidation of its results for The increase in revenues from ADSL and INTERNET by 71.2% in relation to the corresponding prior period, mainly due to the significant increase in broadband connections, the number of which doubled compared to 2006 exceeding one million connections. Increased revenues from leased lines by 11.7% compared to prior year. Increased revenues from international mobile carriers by 18.4% compared to the prior year. The above increases offset the decrease of revenues from domestic telephony by 10.5% and the decrease in revenues from international telephony by 12.2% compared to the corresponding prior period. OTE s Turnover, which reached to EUR 2,656.9 million showed a decrease by 2.1% compared to prior year. This is a result of the decrease in revenues from domestic telephony by 6.4% and the decrease in telecommunication equipment sales and prepaid cards. These reductions were partially offset by the significant increase in revenues from international telephony by 9.2%, the significant increase of revenues from ADSL and Internet by 96.9% and the revenue in increase in income from interconnection services by 15.6% and income from services rendered by 11.7%. The Group Operating Expenses reached EUR 5,272.9 and show an increase by 9.8% compared to This increase is mainly due to the increased cost of telecommunication equipment by 85.1% due to the consolidation of GERMANOS S.A. for a whole year in 2007 for contrast to the 2006 year when the consolidated results included only those of the 4rth quarter of GERMANOS S.A.. Furthermore, the variance is due to the issue in other operating expenses by 8.7% as a result of : Increase in commissions to commercial agents by 20.2%. Increase in advertising and promotion expenses by 27.0%. Increase in various taxes, other than income taxes by 19.5%. Increase third party fees by 5.6%. Reduction of doubtful debts provisions by 10.1%. Reduction of third party services by 4.5%. Finally, the operating expenses of 2007 were burdened with EUR 22.1 million relating to the staff leaving with bonus costs of OTE personnel while in 2006 operating expense were reduced by EUR 49.8 million as a result of the adjustment for the provision for the voluntary leave scheme costs for The Company s Operating Expenses reached EUR 2,346.2 million and have decreased by 2.3% compared to The fluctuations in the significant categories of Operating Expenses are the following: 5.4% decrease in staff payroll. 11.7% decrease in charges to domestic interconnection operators. 4.9% decrease in depreciation.

181 FINANCIAL STATEMENTS % decrease in the cost of telecommunication equipment, due to the absence in the current year of cost of the SYZEYXIS project which in 2006 of EUR 25.9 million. As a result of all the above, Operating Profit before Financial Results of the Group reached EUR 1,046.9 million compared to EUR 1,088.3 million in the previous year showing a reduction by 3.8%. The Operating Profits before Financial Results of the Company reached EUR million in 2007 remaining at the same levels as those of In the Group Financial Results, interest expenses reached EUR million, showing a decrease of 14.4 % compared to 2006, reflecting the 2006 increased discounting cost of the loan that the Company granted to the Auxiliary Pension Fund because it was given at a below the market interest rate. Interest income increased by 9.9% compared to Income from dividends decreased by 27.0% mainly due to the lower dividend from TELECOM SRBJIA while investment income increased by 45.7%, reflecting mainly the profit of the Group of EUR million from the sale of the subsidiary INFOTE S.A. in Income Tax (expense) of the Group increased by 8.2% as compared to 2006 mainly because of the increased income tax of the Company by 70.0% compared to the prior year due to additional taxes imposed following the completion of the tax examination of years 2002 to As a result of all the above, Group Net Profit after minority interest for the year 2007 amount to EUR million compared to EUR 574,6 million in the previous year, showing an increase by 15.3%. The Group s Investment Plan which reached EUR 1,101.3 million shows an increase of 14.4%., compared to the prior year when it amounted to EUR million The increase is due mainly to the increased investments plan of COSMOTE and its foreign investment but also to the investments by the Company and OTE-GLOBE. The Group s Debt increased by approximately 20.4% compared to the prior year and reached EUR 5,527.8 million, due to the shortterm loan obtained by OTE PLC for financing COSMOTE s acquisition by OTE, whereas the Group s Net Debt increased by 65.3% and reached to EUR 4,211.5 million. With respect to the results of the main subsidiaries of OTE which are included in the Consolidated Financial Statements the following should be noted: COSMOTE GROUP: Maintenance of the leading position in the mobile market, with an increase in turnover by 28.5% and in EBITDA by 12.5%, compared to The subscriber base increased significantly compared to 2006 exceeding 15 million subscribers achieving much earlier the set for 2009 target, mainly due to the contribution of GERMANOS both in Greece and abroad. During 2007, the total investments of the COSMOTE Group reached approximately EUR 547 million mainly due to the investment of the subsidiaries in Romania and Bulgaria. The Board of Directors of COSMOTE will propose to the General Assembly of the Shareholders the distribution of a dividend from 2007 profits of a total amount of EUR million (EUR 0.73 per share). ROMTELECOM: There was a decrease in turnover by approximately 2.6% and the result after taxes turned into a loss of EUR 21.2 million. The result is attributed to the reduced revenues reflecting the intense competition and to increased operating expenses mainly depreciation, advertising and promotion expenses, telecommunication equipment costs and finally income taxes as a result of the provision for additional taxes for the tax examination which is in the final stages. ΟΤΕΝΕΤ GROUP: Increase in turnover by 15.0% compared to 2006, mainly due to the increase in its subscriber base especially the broadband ADSL connections. F. IMPORTANT EVENTS AFTER THE YEAR END The most important events after the balance sheet date (31 December 2007) to the date that the Financial Statements are approved by the Board of Directors are analyzed in Note 29 to the Financial Statements. G. INFORMATION ACCORDING TO ARTICLE 11a, L. 3371/2005 (a) Share capital structure The Company s share capital amounts to one billion, one hundred seventy one million, four hundred fifty-nine thousand, four hundred twenty-nine Euro and seventy one cents (1,171,459,429.71) and is divided into four hundred ninety million, one hundred fifty thousand three hundred eighty nine (490,150,389) registered shares of a nominal value two Euro and thirty nine cents (EUR 2.39) each.

182 FINANCIAL STATEMENTS 184 According to the Company s share registry on 31 December 2007 the Company s shareholding structure was as follows: Shareholder Number of Shares Percentage HELLENIC STATE 122,350, % DEKA S.A. 15,052, % MARFIN INVESTMENT GROUP (direct and indirect) 92,592, % FREE FLOAT 260,154, TOTAL 490,150, % All of the Company s shares are common, registered with voting rights and there are special. The Company s shares are listed on the Athens Stock Exchange under the High Capitalization category. Each share incorporates all rights and obligations as these derive from C.L. 2190/1920 and the Company s Articles of Incorporation the provisions of which are in line with the provisions of the Law. Any shareholder that has in his possession any number of shares has the right to participate in the General Assembly of the shareholders of the Company either in person or by proxy committing either the total of his shares or part thereof. The Hellenic State, as shareholder, is represented at the General Assembly by the Minister of Finance or by representative. Each share is entitled to one vote. The Company s shareholders are entitled to receive dividends. The minimum dividend provided to all the shareholders is set to be the greater of six percent (6%) of the paid-up share capital or thirty five percent (35%) of net to be profits (which is the highest). According to the Articles of Incorporation of the Company the General Assembly may decide on the allocation of the remaining profits at its own discretion; for instance, the Assembly may decide on the distribution of shares to Company employees and its affiliated companies, which shares come from share capital increases through capitalization of profits or is covered by the shareholders themselves. The General Assembly of shareholders maintains all its rights during liquidation. Shareholder s liability is limited to the nominal value of shares that they have at their possession. Shareholders rights are the ones determined by the provisions of C.L. 2190/1920. (a) Restrictions in the transfer of the Company s shares The Company s shares are freely traded on the Athens Stock Exchange market and are transferred according to the Law. Exceptionally, according to article 11, L. 3631/2008 the acquisition of state related entities as described in article 42C of C.L. 2190/1920 or by shareholders acting together in a harmonized way of voting rights of 20% and above of the share capital is subject to the approval of the Interministerial Privatization Committee of L. 3049/2002 which is granted under the requirements of this Law. According to article 4 of L. 3016/2002, the independent non-executive members of the Board of Directors of the Company cannot possess any other shares representing a percentage above 0,5% of the paid-in share capital. According to art. 13 of L. 3340/2005, the management personnel and their close relatives, without having restrictions on the acquisition or transfer of the Company s shares, are obliged to disclose their direct and indirect transactions in the Company s shares, exceeding the amount of EUR 5,0 on an annual basis. The obligation of such disclosures is dictated by Law and the decisions of Capital Market Committee. According to article 26 of L. 3431/2006 Electronic Telecommunications, any change in control of the Company is approved by the Hellenic Committee of Post and Telecommunications ( EETT ). The approval of E.E.T.T. with respect to the change of control is also required by L. 703/1977 on Monopoly and Oligopoly Control and Protection of Free Competition (article 12, par. e of L. 3431/2006 on Electronic Communications) (b) Significant direct or indirect investments Significant direct ownership in the share capital of the Company as of 31 December 2007, according to L. 3556/2007: a) The Hellenic State which as shareholder holds directly 24,96% of the paid-up share capital of the Company and indirectly 3,07% of the paid-up share capital through DEKA S.A. making the total participation to 28,03% of the paid-up share capital of the Company.

183 FINANCIAL STATEMENTS 185 b) MARFIN Investment Group S.A. holds 18,89% of the total share capital as follows: i) A percentage of 6,29 of the total share capital, corresponding to 30,819,186 shares with respective voting rights exercised directly by Investment Group Holding S.A.. ii) A percentage of 8,52 of the total share capital, corresponding to 41,772,970 shares which embody respective voting rights which Investment Group Holding S.A. held indirectly through COMMERZBANK AG and has the right to acquire according to financial instruments terms on which the respective voting rights are exercised following its guidelines. iii) A percentage of 4,08% of the total share capital, corresponding to 20,000,000 shares which embody the respective voting rights which Investment Group Holding S.A. holds indirectly through the ROYAL BANK OF SCOTLAND PLC and has the right to acquire according to financial instruments terms on which the respective voting rights are exercised following its guidelines. The Company is not aware of any other shareholder who holds, has acquired or has transferred to a third person or corporate body the ownership of 5% or more of its paid-up share capital as of 31 December (c) Owners of shares that offer special control rights There are no issued shares of the Company that offer special control rights. (d) Restrictions on voting rights-deadliness in exercising relating rights There are no restrictions on voting rights according to the Company s Articles of Association. These restrictions derive directly from the provision of the above article 11 of L. 2631/2008, as mentioned above. (e) Shareholder agreements for restrictions in the transfer of shares or in exercising of voting rights There are no shareholder agreements regarding restrictions in the transfer of shares or in the exercising of voting rights that are known to the Company. (f) Rules of appointment and replacement of members of the Board of Directors and amendment of the Company s Articles of Incorporation if they differ from the provisions of C.L. 2190/1920. The members of the Board of Directors are appointed and replaced according to the provisions of C.L. 2190/1920. The provisions according to the Company s Articles of Incorporation are amended are provided by C.L. 2190/1920. The provisions of the Company s Articles of Incorporation in relation to the appointment and replacement of the BOD members and the amendment of its Articles of Incorporation are not amended by the provisions of C.L. 2190/1920. In particular according to the provision in the Articles of Incorporation the Board of Directors consists of nine (9) or eleven (11) members, elected by the General Assembly, for a three-years term and renewed by one third (1/3) of every year. When eleven (11) Directors serve on the Board and in order to determine the number corresponding to one third (1/3) of renewable members for the year, the fraction that results is omitted for the first two years. In this case, for the third year of serve the remaining number of Directors is renewed up until the number of eleven (11) members. The service term of each Director commences on the day of his election by the General Assembly and terminates on the Annual General Assembly when the three years from election are completed. By resolution of the General Assembly the Board of Directors are eleven (11). The members of the Board of Directors may always be re-elected and can be revoked anytime by the General Shareholders Assembly. (g) Jurisdiction of the Board of Directors for the issuance of new shares/share buy backs according to article 16 of C.L. 2190/1920 In accordance with article 6 of the Company s Articles of Incorporation, the General Shareholders Assembly, following its decision (subject to the disclosure procedures specified by article 7b of C.L. 2190/1920) can transfer to the Board of Directors the authority to decide with a majority of two thirds (2/3) of its members and within five (5) years from the date of the relevant decision for: I. The increase of the share capital with the issuance of new shares. The amount of the increases cannot exceed the total amount of the paid-up share capital as at the date of the transfer of the relevant authority by the General Assembly to the Board of Directors. II. The issue of bonds up to an amount not exceeding the paid-up share capital, by issuing convertible bonds. The above authorities of the Board of Directors may be renewed by the General Assembly for a period not exceeding five (5) years for each renewal. The General Assembly s decision comes into force after the end of the five-year period.

184 FINANCIAL STATEMENTS 186 Exceptionally, in the event the reserves of the Company exceed one fourth (1/4) of the paid-up share capital, a resolution of the General Assembly for the increase of the share capital through issuance of a new shares bond convertible into shares, will always be required. There are no resolutions of the General Shareholders Assembly in force for the concession of the above authorities to the Board of Directors. Following a General Shareholders Assembly resolution and pursuant to the regulations that are in force, the Company may acquire own shares corresponding to a maximum of 10% of each its paid-up share capital. Such resolutions of the General Assembly are reflected by Board of Directors decisions. The General Shareholders Assembly decided on 8 November 2007 to approve the purchase of the Company shares, according to article 16 of C.L. 2190/1920, up to one tenth (1/10) of its total paid-in share capital for a period of 24 months. To date no Board of Directors decision has been taken to effect the resolution. (h) Significant Company agreements that are in force/ amended/ terminated upon a change in control of the Company following a public offer The Company has entered into various loan agreements and bond issue agreements in which a change of control clause of OTE is included. If the clause is achieved OTE must proceed with prepayment of the loan in line with contractually stipulated cases. The wording of the specific clause varies in each contract test and the following are provided in more detail: 1) Consortium loan EUR 850 million, maturing in September 2012 and short-term loan EUR million maturing in November 2008 In the above loan contracts, clause is activated if there is a change in control of OTE as a consequence of which the credit rating of OTE, or the reality new legal entity is downgraded below BBB/Baa2.. Control is defined as the ability of the new shareholder to control management and the procedures set by OTE either through voting rights, through contractual agreement or through other procedures. In the event the clause is activated, OTE PLC must notify the banks, which have the right to demand the prepayment of the loan. It is clarified that the short term loan of EUR 2,700 million was fully repaid in February ) Bonds of OTE PLC guaranteed by OTE: EUR 900 million, maturing in May 2016 and EUR 600 million maturing in November 2009, and EUR 1,500 million, maturing in February 2011 and EUR 600 million maturing in February According to the terms of these bonds, the clause is activated if both of the following events occur together: a) Any person or group of persons (other than the Hellenic State) acquires directly or indirectly more than 50 % of the share capital or of the voting rights of OTE and b) as a consequence of (a), the rating previously of the bonds by international agencies is withdrawn or downgraded to BB+/Ba1 or their equivalent (non Sub-investment grade), within a specific period and with specific terms. In the terms of other bonds of the Group, no such clause is included. According to the term of the bond, in case the change of control of OTE clause is activated OTE PLC must immediately notify in writing the bond owners who in turn have the right, within 45 days to demand from OTE PLC the prepayment i.e. the capital and the interest applicable to the date of prepayment. (j) Company agreements with Board of Directors Members or personnel in case of resignation/unfair dismissal or service/ employment termination de to a public offer The Company has not entered into any agreements with the members of the Board of Directors or its personnel corporate the persons, in case that because of the Public Offer for the acquisition or conversion or concession of shares are forced to resign or are dismissed unfairly or the services or employment are terminated. Athens, 19 March 2008 Panagis Vourloumis Chairman and Managing Director

185 FINANCIAL STATEMENTS 187 Independent Auditor s Report (Translated from the original in Greek) To the Shareholders of HELLENIC TELECOMMUNICATIONS ORGANISATION S.A. Report on the Financial Statements We have audited the accompanying Separate and Consolidated Financial Statements (the Financial Statements ) of HELLENIC TELECOMMUNICATIONS ORGANISATION S.A. (the Company ) which comprise the separate and consolidated balance sheet as at 31 December 2007, and the separate and consolidated income statements, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these Financial Statements in accordance with International Financial Reporting Standards, as adopted by the European Union. This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with the Greek Auditing Standards, which are harmonized with International Standards on Auditing. These Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the Financial Statements give a true and fair view, of the separate and consolidated financial position of the Company as of 31 December 2007 and of its separate and consolidated financial performance and its separate and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union. Report on Other Legal and Regulatory Requirements The Board of Directors report is consistent with the accompanying Financial Statements. Athens, 19 March 2008 KPMG Certified Auditors ΑΕ Marios T. Kyriacou Michael Kokkinos Certified Auditor Certified Auditor ΑΜ SOEL AΜ SOEL 12701

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187 The sketches included in the Annual Report 2007 were drawn by OTE Group employees, customers and associates. These gave meaning to our work and this was the message of this Report. You Thank You

188 ΟΤΕ SA Project Manager Dimitris Tzelepis Head of Investor Relations Editor-in-Chief Daria Kozanoglou Editorial Preparation Eftychia Tourna Nektarios Papagiannakopoulos Christina Chatzigeorgiou Eleni Agoglossaki Sofia Ziavra Dimitris Tsatsanis Support of Publication Yiannis Kantzaris Creative Concept Design mnp Production Baxas SA, Graphic Arts Printing May 2008 Copies of the Annual Report 2007 are available at OTE s Registry, Stadiou str. 15, , Athens, Greece The Annual Report 2007 is also available electronically at:

189 99, KIFISSIAS AVE MAROUSI GREECE